On 31 October 2015 a new RK Law on Public Private Partnership (‘PPP Law’) was signed. We summarize below the key aspects and developments of the PPP Law.
1. PPP Law vs. Concession Law
Historically, the Concession Law was applicable exclusively to BTO (build-transfer-operate) projects. Amendments were introduced in July 2013 which attempted to broaden the scope of application of the Concessions Law. The PPP Law further enhances the attempt to introduce and institutionalize PPPs with a view to creating a more extensive legal framework. Notably, the PPP Law reinvigorates the classification of PPPs into contractual and institutional which has been initially declared in the aforementioned 2013 amendments in the Concessions Law.
A question arises as regards the interaction of the PPP Law and the Concessions Law and their respective scopes of application. While as drafted the PPP Law purports to take precedence as far as concession projects are concerned, it remains to be seen how the laws will apply particularly with respect to ongoing projects.
2. Government Owned Companies as Public Partners
The PPP Law introduces the concept of government owned companies acting as public partners in PPP projects. Previously (i.e. under the Concessions Law), only governmental institutions could act as grantors. At the same time, the PPP Law contains very few specific rules defining the process in which government owned companies shall act in PPPs. Presumably each respective company will be guided by the general statutory, corporate and other policies and rules. We therefore expect that a further harmonization effort will be undertaken to ensure that the rules applicable to government owned companies are made consistent with the provisions of the PPP Law.
For example, the PPP Law states that the Law on State Procurement shall not apply to the matters covered by the PPP Law, including off-take by the state of goods, services, and works. However, this provision does seem to be mirrored in the Law of the Republic of Kazakhstan On State Procurement. Also, the PPP Law does not provide for exemption from the application of other procurement regimes. Specifically, we refer to the procurement rules applicable to various national holdings and companies which can act as public partner or operator under the PPP Law. It appears that the National Welfare Fund Law, which governs the operations of Samruk-Kazyna, makes no exception with respect to PPP projects in terms of procurement by Samruk-Kazyna companies.
3. Institutional PPP
Institutional PPP is implemented through/by a PPP company which shall be established by the public and private partners in the form of either joint stock company or limited liability partnership (‘PPP Company’).
While the PPP Law introduces a few rules on the general aspects of institutional PPP Companies (e.g. foundation documents), it still remains to be seen whether these suffice to adequately cover all the specifics.
For example, questions may arise as to whether the potential losses associated with the PPP Company’s operations shall be attributable to the actions of the PPP Company itself or its participants (specifically, the private partner). In this context, it is important to agree on who nominates the executive body of the PPP Company, the size of the public partner’s interest in the company and other factors determining the public partner’s ability to exercise control over the affairs of the company.
4. Further Implementing Regulations
Pursuant to the PPP Law, certain specific aspects of the PPP process will be further specified in the secondary legislation which will be adopted by the respective authorised bodies, mainly by the Ministry of National Economy (e.g. detailed tender rules, risk allocation regulations, etc.). Importantly, a number of key budget driven issues (reimbursement of private partner’s expenses, allocation of state funds for institutional PPPs, etc.) will also be clarified in such secondary legislation going forward.
Our preliminary review of the draft regulations to be introduced to implement the PPP Law (e.g. Order on Planning of PPP projects, draft Model Tender Documentation, draft Template PPP Agreement) shows that some of these documents reiterate the approaches that were previously developed for BTO type concession projects. It remains to be seen whether these will be able to adequately cover the specifics of all types of PPPs.
5. Other Developments
As was mentioned, the PPP Law was developed with an aim to broaden the scope of application of PPPs through newly introduced mechanisms and criteria for a project to be deemed as a ‘PPP project’.
Specifically, PPP Law introduces the following developments:
- Includes “any property, works, services and innovations” as PPP objects in addition to the objects under the Concessions Law;
- Provides a possibility for multiple parties on both the private partner’s and public partner’s sides;
- Permits a creditor to be a party to the PPP contract and with a right to seek the substitution of the private partner in certain PPP projects (step-in rights);
- Introduces the following new methods for selection of a private partner in addition to open tender: (i) closed tender; (ii) direct negotiations; (iii) simplified procedure;
- Introduces higher qualification criteria applicable to potential private partners in comparison with the requirements of the Concession Law.