A draft law has been submitted to the State Duma of the Russian Federation titled “On Public Private Partnership” (hereinafter – the “Draft Law”), prepared by the Russian Ministry of Economic Development. The Draft Law is published at the website of the State Duma.

At the moment there is no sufficient legal framework which would ensure the interaction between the state with the private capital in various areas regarding the development of public services sector. Nowadays there are several dozens of laws on the level of subjects of Russia dealing with public private partnerships (hereinafter – “PPP”). However, there is no unified framework law on the federal level. In connection with this, adoption of such a law in the nearest future would constitute a timely measure contributing to PPP development in this country.

Parties of public private partnerships

According to the Draft Law the role of a private partner can be taken by an individual entrepreneur as a Russian or a foreign entity. “State-owned companies”, companies wholly owned by a public-law entity, state corporations, state and municipal unitary enterprises and institutions cannot act as private partners.

A public-law entity is the other party of a PPP. Such entity can transfer the relevant authorities to “state-owned” entities. A PPP agreement can comprise several public- law entities.

Forms of PPP projects

The Draft Law does not provide definite forms of PPP, since it is not implied that this law will constitute a framework law in relation to acts adopted on the level of subjects of Russia. The adoption of this law should provide an opportunity to set possible forms of PPP legally on the regional level.

The following PPP forms which the legislation accepts at the moment can serve as an example: (1) a private partner constructs or reconstructs an object an ownership title to which arises for a public partner, and the private partner receives a right to further operation of the object and to the income from such operation; (2) a private partner finances the development, construction and reconstruction of an object and receives a right to its further operation, and a public partner pays a fee to the private partner1.

Obligations of PPP parties

Under the Draft Law on a PPP agreement, a public partner can assume the following obligations (the list is of an open type):

  • to provide property designated to the activity envisaged in a PPP agreement to a private partner, with ownership and (or) possession rights;
  • to provide a right to use intellectual activity results or identification means (exclusive and (or) non-exclusive rights), necessary for the performance of a PPP agreement.

A PPP agreement may provide a transfer of ownership rights to the object of the PPP agreement from one party to the other.

In comparison with previous versions of the Draft Law this version suggests that a private partner shall in any case not only finance but also operate the object of a PPP agreement according to its designation. In addition, private partner’s obligations can include:

  • drafting and negotiating project documentation;
  • creation of a PPP agreement object;
  • a PPP agreement object reconstruction.

In the meantime, a PPP agreement cannot be executed in relation to civil right objects the circulation of which is prohibited or restricted under federal laws.

If a private partner raises lenders funds to perform obligations under a PPP agreement, a tripartite agreement between private and (or) public partners and lenders. The Draft Law does not provide details on such agreement.

Private partners’ rights and legal interests guarantees

The Draft Law contains provisions according to which the terms of a PPP agreement can be changed if changes in legislation result in an investor losing what he was entitled to at the moment when the agreement was executed2. Also, the Draft Law provides a right to a partner to recover losses not only to an extent they relate to actual damages but to an extent they relate to lost profit as a result of illegal actions performed by a public-law entity.

PPP agreements can also provide other guarantees in relation to a private partner’s rights which do not contradict the legislation.

At the moment, similar provisions on investor rights guarantees are contained in a law on concession agreements, as well as in other acts3. However, market participants note that these guarantees are insufficient to fully protect private partners, especially in relation to PPP termination.

Under the Draft Law, PPP agreements will not fall within the scope of the Law “On the Placement of Orders for the Supply of Goods, Performance of Works, Provision of Services for State and Municipal Purposes”. Furthermore, PPP agreements will be outside of scope of provisions of the law “On the Protection of Competition” on tenders or auctions for a right to execute agreements for the transfer of ownership and (or) possession rights to the state or municipal property in relation to which beneficial property or operational managements rights are not attributed.

Unfortunately, the Draft Law does not regulate the matter of using budgetary funds for the purposes of a public partner participation in PPP agreements and does not provide definite forms of financial guarantees to a private partner.

It should be noted that the main reason why investors do not wish to participate in PPP projects is the fact that there is no legislative acts regulating the process of PPP projects implementation on the federal level, and the fact that it is difficult to provide definite financial guarantees in such agreements. Hopefully, the adoption of a federal law which would bring some certainty to this field will make the situation change for the better.