Romania: Significant amendments to the Public-Private Partnerships law

30.01.2018

One year after the entry into force of Law no. 233/2016 regarding public-private partnerships (“PPP Law”), the Government approved Government Emergency Ordinance no. 104/2017 (“GEO 104”) to amend the PPP Law.

Although the PPP Law entered into force on December 25, 2016, it has not been possible to put its provisions into practice because the application norms have not been approved by the Government in spite of the fact that, according to the PPP Law’s provisions, the Ministry of Finances should have drawn up the application legislation and should have submitted it for Government approval by 90 days after the PPP Law entered into force.

Without attempting to exhaustively present all amendments addressed by GEO 104, we have summarised the most relevant aspects below:
 

The principles of the mechanism of a public-private partnership (“PPP”)

The GEO 104 stipulates that the following principles have to characterize the mechanism of a PPP:

    • cooperation between a public partner and a private Partner
    • the long duration of the contractual relationship, which has to allow the private partner to recover the investment and operational costs and to obtain a reasonable Profit
    • 50% of the financing of the investment has to be from private funds
    • the risk distribution between the public partner and the private partner depends on the capacity of the public partner to manage and control a certain risk

The elements of a PPP will be further detailed by the application norms. 

The organisation of the project company (“SPV”)

GEO 104 stipulates that the project company has to be organised as a joint-stock company.

In derogation from the provisions of Company Law no. 31/1990, the GEO stipulates that the joint-stock company may be set up by one shareholder (the Company Law requires at least two shareholders). 

The necessity for the SPV to be organized as a joint-stock company has not been explained by the representatives of the Ministry of Finances, especially taking into consideration that the PPP Law stated that the SPV may be set up in any form stipulated by the Companies Law.

 

Clarification of the contribution of the public partner

The GEO stipulates that the public partner can contribute to the achievement of the public-private partnership in one or more of the following manners, under the conditions specified in the awarding documentation and the public-private partnership agreement: 

    • creating certain rights in favour of the project Company
    • cash contributions to the social capital of the project company, if it is an institutional public-private partnership
    • assuming certain obligations regarding the stages prior to the investment, such as: costs for the expropriations necessary for the project implementation, costs for preparing the feasibility studies, costs of other studies corresponding to the investment object, including the costs necessary for obtaining the endorsements, permits and approvals required by law, costs for technical surveys, projects, assistance
    • assuming certain payment obligations towards the project company, different from those under the point above

The contribution of the public partner is considered an advance payment until the acceptance upon completion of the investment. In order to guarantee the advance payment, the private partner has the obligation to submit to the public partner a guarantee instrument issued by a bank or an insurance Company. 

The guarantees offered to the financers

The private partner and/or the SPV may grant guarantees in favour of the financers which will be in force for the duration of the public-private agreement (as previously stipulated), but their termination in case of early termination of the agreement is expressly provided for, and no obligation of the new private partner to take them over is stipulated.

The private partner and/or the SPV may grant guarantees in favour of the financers which will be in force for the duration of the public-private agreement (as previously stipulated), but their termination in case of early termination of the agreement is expressly provided for, and no obligation of the new private partner to take them over is stipulated.

Likewise, the private partner’s option to guarantee with the shares it holds in the SPV is no longer provided for in the GEO.

 

The necessary phases for the conclusion of a PPP agreement

The necessary phases for the conclusion of a PPP agreement are set out in detail and consist of:

    • preparing the feasibility study
    • obtaining approval for the feasibility study from local and central authorities
    • transmitting the PPP agreement to the National Institute of Statistics for analysis as to whether it complies with European methodologies
    • organizing the procedure for the selection of the private Partner
    • financial completion of the project 

The content and procedure for performing the feasibility study will be provided in detail in the application norms.

The approval process of the PPP projects comprise more formalities which have to be fulfilled.

Thus, the projects developed by the central authorities have to be approved:

    • by the main credit release authority, for the projects which, according to EU methodology, do not fall under the public administration sector
    • by the Government, by virtue of a memorandum, for the projects which fall under the public administration sector, according to EU methodology, based on the opinion issued by the Ministry of Finances

The projects of the local authorities have to be approved by:

    • deliberative authorities of the local public administration, for the projects which, according to EU methodology, do not fall under the public administration sector
    • the Commission for the authorization of the PPP agreements for the projects which fall under the public administration sector, according to EU methodology 

The attributions and the functioning of the Commission will be approved by government decision and the approval process will be detailed by the application norms.

The transfer of rights to the public and private assets owned by the public Partner

The GEO stipulates that the public partner may transfer a concession right to the public and private assets owned by the public partner, rights of superficies, rights of easement or rights of use, without being obligated to go through a different awarding procedure apart from the procedure regulated by the PPP Law.

The GEO stipulates that the public partner may transfer a concession right to the public and private assets owned by the public partner, rights of superficies, rights of easement or rights of use, without being obligated to go through a different awarding procedure apart from the procedure regulated by the PPP Law.

The private partner or the SPV are not allowed to grant a sub-concession on all or part of the conceded assets, services or works and are not allowed to transfer the fulfilment of the PPP agreement to other persons, excepting some specific cases regulated by law.

The above-mentioned clarification included in the PPP Law is necessary taking into consideration that, according to the provisions of Government Emergency Ordinance no. 54/2006 on the regime of concession contracts for public assets, the public authority has the obligation to award the concession contract, as a rule, by applying the tender procedure.

 

Conclusions

The PPP Law is the first step for the development of PPP projects. It should not, however, be forgotten that consistent application of this Law also depends to a great extent on the legislation governing its application.

The legislation for its application is very important since the PPP Law stipulates that the mechanism of the public-private partnership and the conditions for the public partner to assume liability for the project will be detailed by this legislation.

The law approving GEO 104 has been sent to Parliament, whereas it will be discussed by the Parliament Commissions. It is not excluded that the approving law, in its turn, will bring amendments and supplementations to the PPP Law.