The New PPP Law applies to the projects where the preparation study demonstrates that, among others, the revenues obtained by the project company under the project are generated totally or mostly, by payments made by the public partner or other public entities.
Being more financier friendly, it contains new concepts as (i) bankability test, (ii) direct agreements and (iii) step-in rights.
The public partner may also participate with funds in the financing of the project, subject to legal limitations.
The New PPP Law permits the change of the private partner provided that such possibility was included in the awarding documentation and certain legal requirements are observed. The public partner can modify or unilaterally terminate the PPP contract in case of exceptional national or local interest provided that certain specific conditions are met.
Entering into force
The Romanian Parliament has adopted a new law which shall replace the Law No. 178/2010 on Public – Private Partnership upon its entry into force on 25 December 2016 – ie Law No. 233 dated 24 November 2016 on public-private partnership published with the Official Gazette No. 954/25 November 2016 (New PPP Law). The implementation norms will be prepared within 90 days from the publication of the New PPP Law with the Official Gazette.
Although the New PPP Law has a more financier friendly spirit, its provisions are sometimes too wide and poorly drafted.
Generalities
Two types of private-public partnerships (“PPP”) are contemplated under the new legislation: institutional and contractual. Under the institutional PPP the project company is created by the public and private partners and such new company becomes the counterparty under the PPP contract. Under the contractual PPP the public partner, the private partner and a project company (entirely held by the private partner) are parties to the PPP contract.
The project company under both scenarios can be either a limited liability or a joint stock company established according to relevant Romanian legislation.
Financing rules, rights & security
One of the main novelties brought by the New PPP law is the application of the PPP only to projects where the preparation study shows, among others, that all or most of the revenues of the the project company are generated by payments made by the public partner or other public entities on behalf of the public partner.
The financing of the project can be made by private funds or public and private funds. As a novelty, the public partner can contribute with cash, however subject to state aid rules, the rules of public funds use and public debt limits. Public cash contribution can be made only from post EU non-refundable accession funds and the correspondent national contribution, subject to EU applicable rules.
The public partner can also support a PPP project by assuming a guarantee or payment obligations for the benefit of the private partner or the project company.
The New PPP Law allows the private partner or the project company to create security interest over the receivables and the rights under the PPP contract or the shares of the project company in favour of the financiers of the project, but only during the term of the PPP project.
The PPP contract should also contain provisions related to take over or termination of the above mentioned guarantees in case of early termination for the purpose of protecting the public interest and the financiers.
Key aspects in preparation, award and challenging of a PPP
One of the most important steps during the preparation of a PPP is the assessment of bankability and economic efficiency of the project. The New PPP Law provides specific rules for the assessment of these factors.
Also, the preparation study shall identify the related risks, their quantification and possible alternatives of distribution of risks based on each party’s capability to manage such risk. No risks matrix is available yet, but we expect it to be available under the application norms.
The awarding of the PPP projects and the challenging thereof is made with the observance of the rules applicable to public procurement and concessions (ie Law No. 98/2016 on public procurement, Law No. 99/2016 on sectorial procurement, Law No. 100/2016 on works and services concessions and Law No. 101/2016 on remedies and appeals concerning the award of public procurement contracts, sectorial contracts and of works concession and service concession contracts, and for the organization and functioning of the National Council for Solving Complaints).
For the preparation of the medium and significant public investment projects certain specific steps provided by the law1 should be followed.
Other novelties
The PPP contract is expressly classified as an administrative contract.
Mandatory clauses must be covered in the PPP contract, including (i) the risk allocation, (ii) the takeover procedure of the rights and obligations of the private partner by the financing parties or another private partner, (iii) the conditional unilateral right of the public partner to amend or terminate the PPP contract and payment of compensations, (iv) adjustment of payments mechanism and (iv) if the case, the right of the project company to collect and use the revenues and tariffs from users which can be supplemented by payments from public partner.
Sub-concession and sub-contracting is not allowed in PPP contract in respect of the assets, services or works awarded thereunder or the execution of the object of the contract, except when specifically permitted by the law.
Unilateral amendment and/or termination by the public partner are allowed in exceptional and very clearly documented situations and with the observance of the conditions provided by the law. The private partner is entitled to ask for damages in case of such unilateral amendment and/or termination.
The default by the private partner or the project company may trigger its replacement with another private partner. The replacement can also be made at the request of the finance parties in case of default in their respect.
As the New PPP law expressly allows direct agreements, in case of replacement of the private partner, the new private partner will be selected by the public partner upon consultations with the financiers.
Upon expiration of the PPP contract the project company’s shares will be taken over by the public partner free of charge. Upon termination for any other reason, the public partner must pay to the private partner a price established under the PPP contract for the project company’s shares.
Romanian law and jurisdiction are mandatory in all PPP projects and arbitration is allowed for the interpretation, entering into, execution, amendment and termination of the PPP contracts. Awarding of the contract and any matters related thereto remain in the competence of National Council for Solving Complaints or the courts.
1 Government Emergency Ordinance No.88/2013 on fiscal-budgetary measures in order to fulfill the commitments agreed by international institutions and the amendment and supply of certain laws.
