As you may recall, on January 16, 2012, the Mexican Federal Government, through the Ministry of Finance, published in the Official Federal Gazette the Public-Private Partnership Law (the “PPP Law”). The Ministry of Finance also published on the same date, amendments, additions and deletions to different provisions1 all of which entered into force on January 17th 2012.
On November 5 and 22, 2012 respectively, the Ministry of Finance published in the Official Federal Gazette: (i) the Regulations to the PPP Law (the “Regulations”), and (ii) the guidelines establishing the requirements to determine the social benefit, as well as the suitability for developing a project through a PPP scheme (the “Guidelines”).
What are some of the key provisions of the Regulations?
- Their purpose is to regulate the PPPs between the Government and private entities.
- A long-term relationship will be deemed to exist for PPP purposes when such relationship involves a contract having a term exceeding 3 years (for the construction of infrastructure / rendering of services).
- Governmental participation in PPP projects may take place through: (i) federal budgetary funds, (ii) funds stemming from the National Infrastructure Fund or other non-budgetary federal public funds, or (iii) contributions other than funds, including the granting of authorizations such as those required to carry out construction works, as well as those required to render services such as permits and concessions.
- A PPP project can be: (i) pure when the funds to be used to pay the services rendered to the Government or to the end user, and the investment, operation, maintenance and conservation costs come in their entirety (100%) from federal budgetary funds, (ii) combined when the above referred payment funds and costs come from the public sector, either as federal budgetary resources and/or funds stemming from the National Infrastructure Fund or other non-budgetary federal public funds, and from a different payment source, and (iii) self-financed when the resources for its development come in their entirety from contributions other than funds, from private parties or income generated by such project.
- The electronic information system called CompraNet will show information regarding PPP projects in which the federal agencies or entities participate, non-solicited proposals, and the developers’ registry indicating, among other information, the identity of the shareholders/partners controlling the SPV.
- They also regulate the contents of the various analysis such as technical feasibility, real property, authorizations (at the federal, estate and municipal levels), legal feasibility, environmental, social benefit and suitability of a PPP scheme (these last two analysis in accordance with the provisions of the Guidelines), and economic and financial feasibility.
- When the PPP projects are developed with budgetary federal funds, payments shall have priority within the budgetary and expenditure process, provided said projects have been registered in the Programs and Project log managed by the Ministry of Finance.
- Federal authorizations required for the PPP project shall be granted preferably within the contracting process and shall be formalized concurrently with the signing of the PPP contract.
- Prior to submitting a non-solicited proposal (and conducting a preliminary feasibility study), the sponsors may request an interest statement from the competent federal agency or entity. The agency or entity receiving a request for issuing an interest statement shall respond within 30 business days as of the receipt of such request from the sponsors.
- During a contracting process, the economic proposal will be opened and analyzed only if the technical proposal complies with the requirements of the tender rules.
- The PPP contracts shall contain, among other provisions, those related to assignment of rights (i.e. collection rights), including, if applicable, the assignment of licenses and permits to develop the project, the reimbursement of the investments carried out by the developer in the event of early termination for causes not attributable to said developer, as well as subcontracting provisions. The authorization for the assignment of rights shall be granted on a preferential basis when it is related to guaranteeing obligations under project financing.
What do the Guidelines provide for and what is their effect?
In terms of the Regulations, the Guidelines will serve as basis for the federal entities or agencies for them to prepare the social benefit and PPP suitability analysis required under the PPP Law. Once the project has proved its social benefit, then the suitability analysis shall take place to determine the convenience of carrying out said project as a PPP.
The Guidelines regulate: (i) the content and drafting of the social benefit analysis whereby the federal agencies or entities will demonstrate that the projects are capable of generating a net social benefit under reasonable scenarios, (ii) the convenience of momentum, in which said entities or agencies indicate which is the best time to carry out the project, and (iii) the suitability analysis, by means of which said entities or agencies demonstrate that a PPP scheme is the best option to carry out the project, with respect to other scheme options or other financing mechanisms.
The PPP Law provides, in its article Three transitory, that the preparation and commencement of the projects referred to in said law shall be subject to the Ministry of Finance issuing the Guidelines. In other words, since the Regulations and the Guidelines have been issued, the PPP projects under the umbrella PPP Law are now a legal reality.