The Government is preparing a new draft law proposal on public private partnerships (PPP). After being reviewed by university professors and financial specialists from EBRD, EIB, World Bank and industry, the draft was published in March 2013. It is open for public debate and amendments and/or suggestions may be submitted.
The draft law proposal seeks to reflect European good practice guidelines issued by the European Public Private Partnership Expertise Centre (EPEC) so that public authorities may develop public projects based on common standards, although no European directive on PPP is in place.
Public projects aim at either manufacturing, rehabilitating or extending public goods or operating public services when the public partner can neither afford to entirely finance the project nor is it able to determine the technical specifications of the project.
Some features of PPPs:
- cooperation between the public partner and the private partner to implement a public project;
- long-term contracts that enable the private partner to have a reasonable return on his investment;
- investments from both the private partner and the public partner;
- risk allocation depends on the ability of each party to evaluate and manage the risk.
There are two versions of PPP:
- A contract executed by three parties: the public partner, the private partner and a project company owned entirely by the private investor
- The public partner and the private partner incorporate a new project company whose only object of activity is to implement the project.
The PPP contract is executed at the public partner’s initiative. The public partner has to organize a two-phase competitive dialogue procedure. Firstly, to decide on the technical solution based on preliminary offers from qualifying private investors and then, to select the most economically advantageous offer out of the final offers.
The duration of the PPP contract shall be varied depending on the investment depreciation time and method of financing.
Contrary to the current legislation, the draft law proposal makes it clear that the public partner may finance the project by:
- Transferring rights to the project company;
- Bringing contributions in cash to the share capital of the project company;
- Undertaking to pay certain amounts to either the private partner or the project company;
- Granting mortgages or other guarantees to the project’s financing institutions.
Under the current law, PPP contracts do not represent sufficient appeal to investors. Since the draft law proposal is in line with good practices guidelines and makes it clearer and simpler for the private entity to foresee its risks, it might encourage the private sector to invest in public projects.