Public-private partnerships (PPPs) are a widespread tool for collaboration between a government agency and a private sector company and are used to finance large-scale public projects such as transportation networks, renewable energy and/or other infrastructure related projects. The government agency and the private-sector company come together to sponsor and build the project with shared risks and costs. Typically, PPPs have long-term contract periods (25 to 30 years or longer) and the private sector company participates in the funding, design, construction and operation of the project in exchange for the concessions of tax or other operating revenue. The private-sector company may also be awarded facilitated access to permits, protection from liability and partial ownership rights over nominally public services and property.
While the use of these partnerships has enabled the completion of a large number of public infrastructure projects around the world, this tool is of particular importance for Latin American countries to foster economic development by expanding their local infrastructure.
The Dominican Republic’s recent Law and Regulation on PPPs
The Dominican Republic has one of the fastest growing economies in Latin America. From 2010 to 2019, the country boasted an average GDP growth rate of over 5.5%. Despite a pandemic-induced recession, the Dominican Republic is expected to again reach a GDP growth of 5.5% in 2021. Until recently the country lacked a specific regulatory framework for PPPs. In response to that need, and in line with the National Development Strategy 2030 and with the aim of doubling the country’s infrastructure investment, in February of last year Law No. 47-20 on PPPs was passed. In September, the law was supplemented by a regulation, enacted by Decree No. 434-20.
These two instruments provide the legal framework for the commencement, selection, award, procurement, execution, follow-up, and implementation of PPPs in the Dominican Republic. The law is modelled upon similar laws in other Latin American countries and was drafted with input from top international advisors such as the Inter-American Development Bank and the World Bank. The law distinguishes between PPPs of public initiative and those of private initiative, and in either case, sets forth the procedural steps to the final award of a PPP agreement. The law provides that this agreement, which establishes the terms and conditions applicable to the PPP, must include (at a minimum) the following content: a financial model, the remuneration regime, the profit distribution scheme, the transfer of public resources for the development of the project, intervention of the public agent in case of breach of the agreement and a risk matrix including risk distribution. Moreover, the law awards are attractive tax exemptions.
The law also created the General Directorate of Public-Private Partnerships (DGAPP), an administrative body charged with evaluating and qualifying the proposals presented by public and private agents and maintaining the publication record of all public-private alliance projects among other technical, administrative and promotional functions.
Earlier this year, the DGAPP revealed upcoming PPP plans which involves the economic development of the Pedernales region with an estimated investment of US$3 billion. Investments will be allocated to sustainable infrastructure development projects including roads, electric and water services, an airport and more than 10,000 rooms in hotel complexes. The DGAPP office and the Pro-Pedernales Trust aim to start infrastructure projects in the region before the end of July 2021.
Another PPP project that is currently under development is the estimated US$ 400 million construction of the Ámbar Highway which connects the Dominican Republic’s second-largest city, Santiago, and its third-largest city, Puerto Plata, with its airport and new cruise ship terminal.
PPPs and the COVID-19 pandemic
Latin America has been seriously affected by the COVID-19 pandemic, and the Dominican Republic’s economy which is heavily dependent on the tourism sector, has been particularly hard hit. In 2020, the country’s GDP was projected to grow by 5.1% and in fact contracted by 6.73%.
The President’s Decree No. 141-20, of April 2020, set up the Emergency and Sanitary Management Committee, which is tasked with advising the Government in their response to COVID-19. This includes developing PPPs to improve the capacity and preparedness of the local health system to tackle the pandemic. More generally, the macroeconomic and fiscal challenges posed by the COVID-19 crisis have intensified the government’s appetite and interest in fully implementing PPP legislation and making extensive use of this new legal framework.
Thus, it is expected that the promotion of PPPs will not only lead to an expansion and improvement of the domestic health system to help combat the effect of the pandemic, but also strengthen the country’s infrastructure and economy as a whole.
The PPP law indicates that the Dominican Republic is committed to remaining one of the fastest growing economies in Latin America despite the devastating impact of the COVID-19 pandemic. With the adoption of a more coherent regulation to support infrastructure development, the Caribbean country has increased opportunities to attract further foreign investment through innovative opportunities and appropriate protection. If implemented coherently, this may generate considerable progress in both the country and the region.