General frameworki Types of public-private partnership
Broadly speaking, there are different forms of public-private cooperation agreements and PPPs in Russia:
- CA under the year 2005 Concession Law;
- PPPA under the year 2015 PPP Law;
- life-cycle contract based on the state procurement law (Federal Law No. 44-FZ On the Contract System in State and Municipal Procurement of Goods, Works and Services dated 5 April 2013 (Law No. 44-FZ));
- offset contract for the period of up to 10 years with a minimum investment of 1 billion roubles under the Law No. 44-FZ (this type of contract was introduced in 2016);
- leasing agreement with investment conditions; and
- other forms of cooperation between public and private sides.
In a more narrow and practical sense, usually only CAs and PPPAs are referred as PPPs, and we side with this approach.ii The authorities
In Russian PPP projects, the public side (the grantor) is usually represented by central government, and governments and administrations at the regional and municipal levels.
The key authorities working in the Russian PPP market are the following:
- the central government – adopts regulations on PPPs and concessions (e.g., Regulation No. 1044, dated 11 October 2014, On the Support Programme of Projects Implemented on the Project Financing Basis, and Regulation No. 300, dated 15 March 2015, On the Approval of the Form of a Proposal to Conclude a Concession Agreement with a Person Initiating the Conclusion of a Concession Agreement). One other important function is that it appoints authorities to oversee private finance initiatives (unsolicited proposals) submitted by private interested parties;
- the Ministry of Economic Development – takes part in the legislative procedure (develops guidelines and best practices reviews for PPP projects);
- the Ministry of Finance – prepares draft budget laws, provides state support, and regulates subsidies and budget investments in accordance with the Budget Code of Russia;
- other line ministries (Ministry of Transport, Ministry of Healthcare, etc.) are responsible for PPPs in their areas;
- the Federal Antimonopoly Service (FAS) is the authorised government body controlling the compliance of market players and the public side with the competition legislation (and is entitled to challenge tenders and awards); and
- the Accounting Chamber – controls the expenditure of budget funds, conducts investigations and publishes reports.
The requirements of the CA and the PPPA have some common features, but there are also important differences. We briefly summarise some features of both schemes below.Parties
Under the CA, the private party (the concessionaire) may be, in particular, a foreign entity, a Russian entity, or two or more legal entities acting as a simple partnership (under an agreement on mutual activities). Exceptions are IT and military concessions and PPPAs, where a concessionaire must be a local company (also beneficially controlled by a Russian entity or individual). Under the PPPA, the private partner must be a Russian-incorporated legal entity only. However, there are no restrictions on indirect foreign companies' participation in a project company under the PPPA. In comparison to the Concession Law, the PPP Law does not allow the state-controlled organisations (including banks) to act as a private partner or on their side.Facilities
The list of the types of property that can be objects of a CA or PPPA (i.e., facilities or underlying assets) is quite broad and includes all key infrastructure objects (with some exceptions). The PPPA facility cannot be property that is exclusively owned by the state and that cannot be provided to a private owner. Thus, unlike CA facilities, the following property in particular may not be considered as PPPA facilities: highways (except where privately owned), subways, heat, gas, electricity or water supply, water treatment facilities, and seaport infrastructure facilities that can only be in federal ownership. Immovable property or immovable property and movable property, technologically related to each other and intended for carrying out activities stipulated in the contract can only be facilities under the CA and PPPA. However, one exception to this rule is if the IT infrastructure is an object under a CA or a PPPA (which could be represented depending on the project as just movable property).
Significant amendments have been introduced to the PPP and concessions legislation in 2018 with respect to IT infrastructure projects. The underlying law on amendments extends the lists of objects of CAs and PPPAs with IT facilities (in particular, software, databases, information systems, including with regard to states, and internet websites that include software and databases).
The law also sets forth a special regime for implementation of IT infrastructure projects and provides in both the Concession Law and PPP Law separate chapters with the rights and obligations of the parties to such facilities, and the specifics of drafting, executing and performing the relevant agreements.Main obligations
According to the Concession Law, the concessionaire undertakes at its own expense to create or reconstruct certain facilities and carry out activities using the facility (i.e., to operate it). The ownership right to the facility belongs (or will belong) to the public party (the grantor).
The grantor undertakes to grant to the concessionaire the rights of possession and use of the facility under the CA for the implementation of the respective activity during the term established by the agreement. As a general rule, the concessionaire is obliged to maintain the object of the CA in good order, to carry out (at its own expense) renovations and to bear the maintenance costs.
The concessionaire is obliged to provide security for ensuring the performance of its obligations under the CA. The concessionaire can choose any of the following types of security: irrevocable bank guarantee, pledge of the concessionaire's rights under a bank deposit contract in favour of the grantor, or insurance of the risk of the concessionaire's liability for a breach of the obligations under the CA.Term
The minimum term for the PPPA is three years; the Concession Law does not provide a minimum term but instead requires that it should correspond to the project payback period.Provision of land plots
The public side is obliged to provide the investor with the required land plots for the whole term of the contract without conducting any separate tender procedures. Usually land plots are provided based on the lease agreements, although it is possible to provide land on any other legal basis.Participation of third parties
The concessionaire or private partner is entitled to enlist third parties to perform its obligations (both at the construction and operation stages) provided that the concessionaire will be fully responsible to the public side for the third parties' actions. The PPP Law explicitly states that the investor can be responsible only for technical operation and maintenance (which may be relevant for investors in, for example, the healthcare sector if they do not plan to provide medical services or if the public side prefers to leave medical services within the state budget enterprises). The Concession Law assumes that the concessionaire will be fully responsible for both the technical and designated use of the facility (i.e., its full operation). That said, we expect this to be revisited in the draft bill currently undergoing public hearings that permits concessions for technical operation.Right of assignment
Rights under a CA may be assigned at any stage of the implementation of a project with the prior consent of the grantor. Rights under a PPPA may not be assigned, except in certain cases.Dispute resolution
Subjecting PPP disputes to the Russian state courts is common. Generally, dispute resolution under CAs via international arbitration is possible, although the venue of arbitration shall be in Russia. The PPP Law does not contain any special provisions in relation to dispute resolution but our reading of the arbitration law is such that disputes under the PPP Law are non-arbitrable.
Bidding and award procedurei Expressions of interest
There are two main ways of entering into the project: tender procedure and the unsolicited proposals, the latter available since 2015. The competitive dialogue procedure is not used in Russia.
The bidding procedure starts from the procurement notice and comprises two subsequent phases: the pre-qualification phase (submitting and evaluation of the tender applications); and the submission and evaluation of the proposals (bids).
Notably, the PPP Law obliges authorised bodies prior to entering into the PPPA to analyse the project in the context of value for money and comparing the effectiveness of agreeing the PPPA using traditional government procurement contracts. There is a detailed and quite complex regulation of the value-for-money testing. At present there is no such requirement under the Concession Law, which simplifies the procedure for launching the project (although applying the same approach to concessions has been discussed).ii Requests for proposals and unsolicited proposals
The legislation provides detailed requirements for submitting both tender applications and bids. Generally, the tender requirements are similar to tender requirements in other CIS-countries, although they have their own peculiarities. Tender documentation and other documents related to the tender must be published on a special official website (torgi.gov.ru) in order to ensure the transparency of the process.
The procedure for entering into a CA by way of private initiative (unsolicited proposal) may take up to 150 days (approximately) if there are no other applicants; under the PPP Law it is approximately 300 days (because of the value-for-money test procedure).
Tender procedures often take around one year from the announcement of the tender up to the signing of the CA or PPPA.iii Evaluation and grant
The following tender criteria, in particular, may be set for the evaluation of bids:
- time for construction and (or) reconstruction of the object of the CA;
- technical-economic characteristics of the object of the CA;
- volume of output of goods, execution of work, and provision of services in the course of planned activity under the CA;
- amount of the concessionaire's payment;
- maximum prices (tariffs) for goods to be produced, work to be executed and services to be rendered or long-term parameters of regulation of the concessionaire's activities; and
- amount of the capital grant and the grantor's payment (if these are provided).
Bids are assessed in accordance with the procedure stipulated in the tender documentation. After the preferred bidder is announced, there may be negotiations before entering into the CA or PPPA.
If a contract is awarded through an unsolicited proposal mechanism, the applicant initiating the conclusion of a CA only needs to show that it has or is capable of raising at least 5 per cent of the amount of investments provided in the draft CA (confirmation may take different forms). This approach differs from the PPP Law regulation providing an obligation of the initiator to submit the independent guarantee (or bank guarantee) in the amount of 5 per cent of the forecasted amount of financing under the PPP project. The phrase 'forecasted amount of financing' is not specified in the law but our vision is that this refer both to capex and opex of a project.