A new law, no. 233/2016 on public private partnerships, has recently been published in the Official Gazette of Romania and will enter into force on 25 December 2016, The Government will have 90 additional days to prepare and issue the methodological norms required for the implementation of the new law, which is expected to be fully applicable towards the end of March, 2017.
The new public private partnership (PPP) law lays out the foundation for what Romanian legislators hope will become one of the key drivers for bridging the infrastructure gap between Romania and the EU. The law comes at an opportune time as studies show that private sector capital is on the rise worldwide, with insurance companies, pension funds and sovereign wealth funds managing more than USD 45 trillion. A 2012 study done by Russel Investments found that 12% of the 146 global institutional investors surveyed expected to increase their investment in public infrastructure—a trend that is likely to continue and grow.
The new law builds on a sound set of best practices for the public sector in terms of the selection and management of PPP projects. For example, the law allows public entities that aim to carry out projects through PPPs to set up internal units with dedicated employees that will be focused on these type of projects. Until such specialisation takes place (and afterwards), public entities can collaborate with experts in areas required for the analysis and implementation of each specific project.
PPP Initiative & planning
The initiative for a PPP project belongs exclusively to the public entity. The launch of any such project can only be made after a substantiation plan has been drawn up. This plan, which forms the core of each PPP project, must detail both the economics of the envisaged project as well as the allocation of risk between the public and private partners. The specifics of such plans will be detailed in the methodological norms that will be enacted by the Government in the coming months.
A public private partnership will be implemented only after the selection of the private partner, which is to be done through a competitive procedure. The type of competitive selection procedure will be chosen based on the object of the PPP project and on the conclusions of the substantiation plan. The available selection procedures are those currently regulated under the laws on public procurement, sector acquisitions and concessions of public works and services.
The partnership can be implemented either (i) through a contract concluded between the public entity, the private partner and a project company that will be wholly owned by the private partner, or (ii) through a contract concluded between the public partner, the private partner and a jointly owned project company. The public partner may contribute to the PPP project either in-kind or in cash, e.g. contributions in cash to the share capital of the project company. Under the new PPP law, the public partner can make cash contributions only from financial resources linked to EU non-reimbursable funds.
The PPP contract will regulate the relationship between the public and private partners in areas such as the establishment of the project company, the deadlines for carrying out the project, the parties’ contributions, the allocation of risk, the duration of the agreement, the payments to be made to the private partner, profit sharing and sub-contracting. The PPP contract may be unilaterally terminated by the public partner only exceptionally and only if such cases were specifically mentioned in the project’s tender documentation.
Not the end…
It expected that the methodological norms for the application of the law will bring additional clarity regarding how the law is likely to be implemented. In the interim, we hope that the Romanian Government and other public entities will shed additional light on their PPP project strategy.
We will prepare a follow up, with more details on the subject as soon as the implementing norms are approved and published in the Official Gazette.