General frameworki Types of public-private partnership
There are two ways in which a PPP may originate. On the one hand, there are public initiative projects, in which the government proposes the project and then wholly or partially delegates its execution to a private participant. And on the other hand, there are private initiative projects, in which the private participants propose a project to the government and then they carry it out.Public-initiative projects
Public-initiative projects are those in which the relevant public institution prepares and follows up a project of its interest and submits it to the PPP Unit.
The public initiative must include a pre-feasibility report, with a project of contents of the feasibility report. The pre-feasibility report will be evaluated by the PPP Unit and Ministry of Finance. Once a favourable opinion is rendered by those authorities, the feasibility report must be presented. The PPP Unit must then issue a new opinion, as must the Ministry of Finance. Once the favourable opinions are issued, the executive power must then grant its approval through a decree. After the decree is issued, the public bidding process begins for all interested parties. The minimum term to submit the offers is 60 days.
The terms and conditions of the bidding documents shall include the pro forma agreement approved by the PPP Unit as well as by the contracting administration. The offers will include a 'technical offer' and an 'economic offer'.The government will also demand a warranty for the fulfilment of the offer, otherwise referred to as a 'bid security'. After the opening of envelopes, the evaluation and comparison of the offers is carried out, the selection of the bidder is made and finally the bidder is awarded the contract.
To carry out the awarded PPP project, the bidder must incorporate a company with the sole corporate object of the accomplishment and development oft he PPP project. The initial paid-in capital of the corporation must be at least 20 per cent of the project's official budget, as estimated by the contracting administration.Private-initiative projects
The PPP Unit of the Technical Planning Bureau is the institution in charge of receiving all the private initiatives as long as: the proposed project's goal is not similar to another that has already been submitted; and either the contracting administration is performing studies for the project's presentation through the public initiative process, or the contracting administration has expressly identified the project and incorporated it in its future planning as a project that will be carried out ex officio or by a public initiative regime.
Projects that are rejected may not be resubmitted for three years after their rejection. A private-initiative process comprises the following stages:
- Presentation: the proponent must demonstrate the technical, economical-financial and legal capacity for the development of the project. Besides, it must demonstrate the viability of the project at a pre-feasibility level. The PPP Unit will analyse the presentation within 10 days and forward it to the contracting administration for further analysis. The costs of the pre-feasibility study and preparation and presentation of the project are borne by the proponent.
- Evaluation: the PPP Unit and the contracting administration analyse the project for 60 days (which may be extended).Within this period, the Ministry of Finance will have to determine the viability of the project through the PPP regime. Acceptance at this stage implies a favourable opinion and a declaration of public interest.
- Feasibility report: once a declaration of public interest is issued, the feasibility report must be submitted. The deadline for its submission will be established by the contracting administration.
- Approval or modification: the PPP Unit has 120 days to approve or request modifications to the project. In the case of an approval, the Unit will pass the bid onto the executive branch for its approval and the preparation of the bidding documents and the terms and conditions. After this stage, the same provisions that apply to public bidding in a public-initiative project will be followed.
Unsuccessful bidders may be reimbursed for the costs of their feasibility studies.
Further, at the stage of evaluating the various bids, a 3–10 per cent bonus will be added on to the score of the original proponent's bid (see Section IV.ii).ii The authorities
There are three main authorities involved in the PPP process: the contracting administration, the PPP Unit and the Ministry of Finance.
The contracting administrations are the government entities and government-owned corporations that are empowered to award PPP contracts. Because Paraguay's greatest deficit is infrastructure, the leading contracting administration is the Ministry of Public Works, which is by law in charge of the development and execution of all PPPs relating to transportation, roads and highways, dredging river services, riverine communications and airport infrastructure.
The contracting administration, with the coordination of the PPP Unit, is responsible for structuring, awarding and executing the PPP contract as well as exercising control in the correct execution of the contracts and monitoring parties' compliance with their obligations. The PPP Unit (www.stp.gov.py) has been created as a special unit in charge of promoting and coordinating all authorities, contracting administrations, agencies and other parties regarding the implementation of PPP projects.
The Ministry of Finance has the key role not only in evaluating proposals and risk assessments for PPPs, but also in provisioning future payments to be included in the national budget. Further, in a PPP project, a trust fund is created for the sole purpose of guaranteeing payment and liquidity in relation to the PPP contract, and the Ministry of Finance acts as trustor in that trust fund.
This fund is created to collect, safeguard, invest and manage the financial resources that are part of it, and to fulfil the obligations undertaken by the government and the costs involved in the dispute-resolution process in the PPP contracts. The trustee will be the Financial Agency for Development, the government will act as the trustor or settler of the trust through the Ministry of Finance.iii General requirements for PPP contracts
PPP contracts may involve a wide range of infrastructure and related service-provision projects, including but not limited to: road projects, railways, ports, airports, waterways and dredging and the maintenance of river navigability, social infrastructure, electric infrastructure, improvement supplying and urban development; drinking water supply and sanitary services; among other investment projects in infrastructure and services of public interest. PPP contracts may also relate to the production of goods and rendering of services that are intrinsic to government agencies and public companies in which the government holds an interest.
PPP contracts as defined by Law No. 5102 shall only be applicable to projects in which the estimated investment is equivalent or above 12,500 minimum monthly wages.
All contracts must contain specific provisions regarding the following:
- distribution of obligations and costs of the project to be borne by the parties, with risk to be assigned to the parties in a better position to assume each risk;
- the exact distribution of profit sharing;
- the distribution of the legal and financial risks and consequences for contingencies that may occur during the execution of the contract;
- the identification of the one-off payments, benefits and costs that third parties should assume;
- the determination or indication of the procedure and steps to take in the case of any adverse events;
- determination of the risks relating to each contract, which will depend on the type of contract. To name a few: construction and engineering risks, operational risks, market risks, social conflicts and environmental risks, financial risks, and political risks; and
- the identification of all necessary authorisations, permits, licences and approvals to carry out the PPP contract, together with its costs and responsible party.
The PPP contract will be executed by the contracting administration and the private party, who will operate by means of a local company incorporated with the sole corporate purpose of executing the PPP contract. The assignment of the contractor of the shares of the company requires the authorisation of the contracting administration, while the subcontracting of any type of activity will be allowed under the private law regime, except where expressly forbidden. During the execution of the contract the contracting administration will request the establishment of performance securities in each of the construction stages and operation, as well as insurances policies covering all types of risks including: third-party insurance, construction risks, insurance for work-related accidents and other types of insurance policies to be established in the bidding documents.
As for control, the contracting administration will have a wide range of powers to perform controls through, inter alia, external audits, performance and quality evaluations, inspections and expert testimonies in the technical, legal, economic, financial, accounting and environmental fields.Dispute resolution
There are three levels of dispute resolution:
- at the first level, direct negotiations between the parties;
- an the second level, technical and economic issues will be discussed before a technical panel appointed by the parties upon signing the contract; and
- at the third level, the differences will be resolved by an arbitration procedure in accordance with Law No. 1879/2002 on Arbitration and Mediation.
The Regulatory Decree allows the appointment of foreign arbitrators. Parties may also agree on the venue of the arbitration proceedings. Legal issues may only be dealt with by direct negotiations or an arbitration procedure.
Bidding and award procedurei Expressions of interest
As stated above, there two procedures by which the PPP process may begin: a public initiative or an unsolicited bid (private-initiative proposal). In the first case, the government has already identified its scope of interests and has already prepared a project for which it requests proposals. In the second instance, the PPP Unit receives a private initiative (up to the pre-feasibility level) that complies with the threshold for the invested amount, the corresponding authorities then analyse and evaluate the entire project proposal and eventually, if they approve, the government declares the project as being of public interest.ii Requests for proposals and unsolicited proposalsContent of a private-initiative proposal (unsolicited bid)
The private-initiative proposal must be filed in compliance with the terms indicated in the application form for private initiative projects available on the PPP Unit's website (www.stp.gov.py).
Further, the project to be filed must contain comprehensive information up to a pre-feasibility level, including at least the following information:
- documents proving the legal, technical and financial capacity of the private party;
- designation of the relevant contracting administration for the project;
- a proposal identifying the need, the problem and the potential benefit that the project pretends to bring, including the benefits and costs, performance and quality indicators, and socio-economic indicators;
- a market analysis, technical, legal, competition, economic and financial risk assessment;
- an estimation of government support during the applicable fiscal years and the commitment to be assumed by the government; and
- social impact, environmental studies of the project identifying the affected population and setting forth the mitigation plan for possible damages during or as a result of the deployment and development of the project.
Private proponents of PPP projects shall benefit from the following preferences:
- reimbursement of the costs of feasibility studies if the project is deemed of interest but the proponent is not awarded the contract;
- an advantage of 3–10 per cent in the evaluation score assigned during the evaluation of the offer, depending on the size and complexity of the project; and
- a waiver of the costs of submitting bidding documents.
Once the private party has filed the proposed project with the PPP Unit, the project will be evaluated by the Unit, the contracting administration and the Ministry of Finance within 60 days, which may be extended. If the proposal is accepted, a declaration of public interest is issued by the government and the private party must file the studies at a feasibility level in accordance with the recommendations issued by the PPP Unit and the contracting administration.
The feasibility studies shall be analysed within 120 days, which may be extended. If the analysis is positive the government shall approve the project and the bidding documents, terms and conditions shall be prepared for the public tender.Public initiative
The public initiative initiates with the contracting administration stating the intention to promote a PPP by public initiative and this must be informed to the PPP Unit together with a brief summary of the project.
The contracting administration then files the pre-feasibility studies for the first evaluation; at this stage the information contained must be similar to that private-initiative proposal set out in Section IV.ii, including: a value-for-money evaluation, a fiscal and financial budgetary impact analysis, economic and social indicators of profitability and a proposal for the scope of the feasibility study.
The project will be studied by the PPP Unit and the Ministry of Finance within the terms set forth in the Regulatory Decree. If favourable opinions are issued, the contracting administration must file a feasibility study, which must contain additional, more comprehensive and updated studies, all of them provided for in the Regulatory Decree.The bidding process
In both cases, the bidding process may consist of a standard international tender procedure with or without a pre-qualification of bidders.
In certain types of multifunctional projects that entail a high level of complexity and in projects in which the proponents need to file costly and complex studies, a pre-qualification stage will be implemented.