On September 25, 2015 the Peruvian government published Legislative Decree 1224 (the PPP Decree), a significant new law regulating private investment through public-private partnerships (PPPs). The PPP Decree offers potential private sector partners a consolidated legal framework for PPPs. This framework, which is subject to further implementing regulation (the Regulations), replaces various existing laws, including the existing PPP law enacted in 2008, subject to certain exceptions. The PPP Decree will enter into force one day after the Regulations are published, which must occur no later than November 26, 2015.
A strong foundation to promote private investment
Since the early 2000s Peru has enjoyed great success in using concessions and PPPs to develop its infrastructure. Between 2008 and August 2015, 64 contracts have been awarded for a total value of approximately $29bn. Despite the large deal volume, much remains to be done. The local infrastructure development association (AFIN) estimates the infrastructure gap for 2012-2021 to be approximately $88bn, with energy, transportation and telecommunications being the sectors in greatest need of investment. Peru’s economy has recently suffered with the decrease in international commodity prices and other global macroeconomic conditions. The government has therefore made attracting private investment in infrastructure a priority and the enactment of the PPP Decree is a key step in this objective.
The PPP Decree
National Private Investment System
The PPP Decree establishes the National Private Investment System. This comprises the Ministry of Economy and Finance (MEF), the ministries and agencies of the federal government (acting through investment committees to be established for this purpose), ProInversion (the key pre-existing agency with national responsibility for PPPs), and the country’s regional and local governments (also acting through investment committees). Previously, ProInversion was tasked with promoting private investment and designing and developing the pipeline of projects at all levels. Under the PPP Decree, ProInversion retains this role with respect to national projects, but will now share it with the other identified government stakeholders with respect to projects that are of interest to such stakeholders. MEF’s role has been expanded so that it holds ultimate authority with respect to private investment, and ensuring and supervising the implementation of the PPP Decree. As such, MEF’s approval is required for all PPP contracts and feasibility studies prior to the awarding of any PPP contract. MEF has also been granted policy and rule-making authority.
Co-financed vs. Self-financed PPPs
Under the PPP Decree, PPPs are divided into two categories – “Co-financed” and “Self-financed.” The decision as to how to categorize a project rests with the member of the National Private Investment System that is proposing or sponsoring it.
- Co-financed PPPs require co-financing in some form by the government (e.g. an availability payment structure) or the granting or procuring by the government of a financial guarantee or performance guarantee that has a high likelihood of being called.
- Self-financed PPPs have a sustainable revenue stream and must meet the following condition: minimal or no requirement for a financial guarantee or performance guarantee by the government.
While these two types of PPPs are distinguished based on the expected level of government support, it is important to note that Self-financed PPPs can have some level of government support, to be further detailed in the Regulations. Government support levels are subject to an aggregate cap. The net present value of all support outstanding at any time cannot exceed 12 percent of the gross domestic product, although this cap may be revised every three years or upon issuance of a decree approved by MEF.
Other noteworthy issues
Timelines for prior approvals
Timelines and procedures to obtain the various relevant approvals from MEF, ministries, agencies, regional and local governments will be further detailed in the Regulations. However, under the PPP Decree, failure by any of these entities to provide approval within the specified timeline will constitute deemed approval.
Priority in permitting processes
Government entities (other than those that are part of the Peruvian financial regulation system) are required to give priority treatment to PPP projects in processing permit applications. Government entities at all levels are forbidden to impose any type of bureaucratic requirement that may hinder the permitting process for a PPP project.
Fast-track procurement process
The PPP Decree provides for a fast-track procurement process applicable to PPPs involving services provided to state-owned infrastructure or relating to services provided by the government, applied research or technological innovation, and Self-financed PPPs. The phases, timelines and procedures of this fast-track procurement process will be set out in the Regulations.
Any private investor can propose a project to be developed as a PPP by submitting a proposal to either ProInversion or to the relevant ministry, or regional or local government, depending on the scope of the project. Submissions will be granted confidential treatment in their initial stages. Specific requirements, timelines and procedures for unsolicited proposals will be set out in the Regulations; however, budgetary capacity must be available to support any project implemented in this manner.
The road ahead
While the PPP Decree is broadly consistent with the legal framework currently in place, it represents a significant shift in approach, as evidenced by the establishment of the National Private Investment System, the decentralization of the development of PPP projects and increased focus on transparency and efficiency of procurement processes. PPP projects are by their nature complex and require a degree of experience and sophistication that may not be available at all levels of government. Therefore, it is expected that MEF and ProInversion will continue to play key roles in ensuring the predictability and efficiency that are required to attract private sector investment. The changes outlined in the PPP Decree are generally promising, particularly as they represent a recommitment to PPPs as an important tool for addressing Peru’s infrastructure demands. However, key details remain to be provided in the Regulations, such as mandatory contract provisions and specific timelines and procedures to govern procurement and approvals.