Romania: The new PPP law - A hope for implementing public projects in Romania

12.12.2016

After years of expectations and controversies, on 25 November 2016, a new Law no. 233/2016 regarding public-private partnerships (“PPP Law”) was published in the Romanian Official Gazette. It will enter into force on 25 December 2016.

It is well known that the old law regulating public-private partnerships (Law. no. 178/2010) has not generated the effects expected by public authorities, as well as by the business environment. No public project initiated under this law has actually been achieved, mainly due to the regulation’s deficiencies.

Once the new legislative package on public procurement entered into force on 26 May 2016, it was widely suggested that a specific PPP law was unnecessary because public projects can be implemented under concession law provisions.

Without attempting to exhaustively present all aspects addressed by the new PPP Law, please find the most relevant aspects below:

1. Regulating contractual public-private partnerships

One major criticism of the former PPP law was that it exclusively regulates institutional public-private partnerships as projects can only be implemented via a project company in which the state is a shareholder.

In practical terms, the former law excluded contractual public-private partnerships in which the project company was wholly owned by a private partner.

Pursuant to the new PPP Law, a contractual public-private partnership can be created based on an agreement between the public partner, the private partner and the project company, even if the project company is wholly owned by the private partner.

2. Financing public-private partnership projects

Another major criticism of the former law was the limitation stipulated by it on the public partner contributing financial resources to the development of the project.

One key problem with the old law was connected to the limited possibilities for financing the investments in this type of projects

The new PPP Law stipulates that financing can be provided fully either from financial resources secured by the private partner, or from financial resources secured by the private partner together with the public partner. The private partner can secure the financing from its own resources, as well as from the resources of other financers.

Furthermore, unlike the old regulation which stipulates that the public partner can only participate in the project with a “contribution in kind”, the new PPP Law stipulates the option for the public partner to contribute to the financing of the project with public financial resources resulting from post-accession, non-refundable external funds and the national contribution pertaining to them.

The contribution of the public partner to a public-private partnership project has to be made in accordance with the regulations regarding State aid, the use of public funds and in compliance with the limits provided for by law as regards public budget deficits and public debt.

The new PPP Law also stipulates the option for the public partner to assume payment obligations towards the private partner and the project company and to make cash contributions to the share capital of the project company.

3. Guarantees offered to financers

Besides increasing the options for the public partner to contribute to the financing of the project, the new PPP Law gives the public partner the possibility to offer guarantees in favour of the financers of the public-private partnership project which are credit institutions or other financial institutions.

The new legal provision also allows guarantees to be granted over the shares or stock held by the private partner in the project company, in favour of the financers of the project.

In addition, the new PPP Law also regulates the possibility for the project company to create guarantees over the receivables and rights held by virtue of the public-private partnership agreement, however exclusively in favour of the project financers.

The terms regarding the assumption or cancellation of guarantees, that have been provided in the event that the public-private partnership agreement is terminated before the period for which it has been concluded ends, can also be agreed in the public-private partnership agreement.

4. Preparing public-private partnership projects

The new PPP Law stipulates more flexible terms for determining the technical and economic indicators of the project.

The first step to be made for the initiation of a public-private partnership project is to prepare the feasibility study and, in this regard, the public partner has the possibility, according to the new PPP Law, to contract technical, economic and legal consultancy services.

The feasibility study has to highlight the following elements: the viability of the project, risk distribution structure, the categorisation of the project in relation to the public deficit and public debt, the financial viability and economic efficiency of the project.

The proposal for the risk distribution and financial viability of the project are the main elements which will be of interest for investors and financers, being the essential indicators for the decision on whether or not to participate in the project awarding procedure.

Consequently, the public partner not only has to substantiate the necessity of the PPP project, but also has to make it sufficiently attractive for investors and financers.

5. PPP agreements

The new PPP Law expressly stipulates that the PPP agreement is an administrative agreement.

Unilateral termination of the PPP agreement by the public partner was the subject of debate during the approval of the new Law, although the necessity of establishing certain conditions for such a decision has been asserted.

The new PPP Law stipulates that, due to exceptional reasons relating to public interests, the public partner may unilaterally amend or terminate the public-private partnership agreement, however, only if the following conditions are met: (i) this possibility, including the categories of exceptional reasons relating to public interests, have been included in the awarding documentation, as well as in the PPP agreement, in a clear, precise and unequivocal manner; (ii) the amendment of the agreement does not alter the generic nature of the initial agreement; (iii) the private partner and the project company are notified in advance with regard to this unilateral amendment or termination.

In light of this, the new PPP Law establishes the right of the private partner to receive an equitable compensation if the unilateral amendment or termination of the agreement causes damage for the private partner.

6. Conclusion

The new PPP Law has the very difficult task of meeting the expectations of all persons interested in this kind of project, since the old law not only caused reluctance both at the level of the business environment and the European Commission, but did not lead to the accomplishment of any PPP projects either.

Although the new PPP Law could be a start for the development of PPP projects, it should not, however, be forgotten that the coherent application of this Law depends, to a great extent, also on the norms for its application.

The norms for its application are very important since the law stipulates that the mechanism of the public-private partnership and the conditions for the public partnership assuming liability for the project will be detailed by these norms.

The Ministry of Finance will draft the application norms and submit them for government approval within 90 days of the new PPP Law entering into force.

Considering the huge interest awakened by this area, we expect the legislative bodies to adopt coherent and uniform laws which will enable the development of this kind of project, which is currently essential for the economic and social development of Romania.