The new PPP law was published

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Law no. 178/2010 concerning the Public-Private Partnership (the “PPP Law”) has been published in the Official Gazette no. 676 of 5 October 2010 and will come into force in 30 days from publication (4 November 2010).
This note attempts to give the reader a brief overview of (i) the legislative process and key steps to follow and (ii) the key features of the new legislation of interest for investors in PPP projects. 

Legislative process and key steps to follow

1. The law was initiated on 7 April 2010 with the support of 20 members of Parliament (including the current ministers of transportation and economy) and in approximately 3 months it was approved by Parliament (5 July 2010) and sent to the presidency for final clearance and promulgation.
2. Upon notification by the business community representative associations, the President returned the law to the Parliament indicating a number of issues for re-consideration; the law was subject to limited re-examination and a swift re-approval process in Parliament and was sent back to the President for the final clearance; the PPP Law was then published on 5 October 2010.
3. Next steps include:
(a) the Government has to approve norms for application of the PPP Law (by 4 December 2010); and
(b) the PPP central unit (translated for operation under the direct subordination of the Government’s General Secretariat) has to launch a public database including finalized, ongoing and prospective PPP projects (by 3 January 2011).

Summary of essential features

Purpose and applicability
The adoption of this law was considered necessary by its initiators, by reference to already established legislation in Romania governing concessions1 (the “Existing Legislation”), which was deemed as “not having produced the expected results in terms of development of major projects based on PPP”; the intention for this new PPP Law was to set a separate regime for PPP in Romania and also to clarify and simplify the process for PPP in Romania. The PPP Law expressly provides that it does not apply in a number of cases, including (i) concession agreements governed by Existing Legislation and (ii) classical joint venture agreements. However, provided that the conditions for a PPP are met and there is no public order infringement, the law can be applied to “relevant activities” defined by the Existing Legislation (including water, energy, transportation sectors).
Project features
According to the new legislation conditions for a PPP arrangement are met if:
(a) projects are financed integrally or partially by a private investor;
(b) projects are developed at the level of a project company owned by the public and the private partners (proportionally with their participation), with the public partner participating with an in kind contribution, and managed by both partners (the “Project Company”);
(c) risk allocation and responsibilities for the public and private partners are negotiated and agreed in the PPP contract;
(d) assets belonging to the public partner which are used for the purpose of the project (non government assets) are to be registered on the balance sheet of the Project Company (and off balance sheet for the public partner, for the duration of the project) 2; and
(e) at the end of the project, public assets resulting from the project will be transferred to the public partner in good condition, and free and clear from any encumbrances.
Procedure and means of challenge
The development of a PPP project is a two-phase process, which can be briefly described as follows:
Phase I
(a) publication of a notice of intent 3(based on a pre-feasibility study) by the public partner;
(b) preliminary analysis and selection of private investors on the basis of certain evaluation criteria; and
(c) conclusion of project agreement with selected private investors (the content of this agreement is not detailed);
Phase II
(a) negotiation (based on pre-established criteria) with each of the selected investors;
(b) presentation of the final offer by the selected private investor; and
(c) conclusion of the PPP agreement.
Continuing the procedure
The PPP Law mentions that if a PPP agreement cannot be concluded with the selected investor, the public partner can start negotiations with the next qualified investor down to the last one in the hierarchical valuation line. If no PPP agreement is eventually concluded, the public partner may decide to restart the project development and award procedure.
Challenging PPP agreements
The National Authority for the Regulation and Monitoring of Public Acquisitions is entitled to challenge in court PPP agreements and request they are reeled null and void, if concluded with the infringement of the PPP Law.
The final award decision (and any decision made by the public partner in the process) can be challenged by other investors with the public partner or before the court 4, provided that a guarantee amounting to 2% of the estimated value of the project is deposited by the claimant.
Withdrawal from projects
The PPP Law requires that sanctions are expressly provided in PPP agreements for unilateral termination by investor and for failure to comply with obligations under the PPP agreement. Notably, the PPP Law expressly provides that a private partner withdrawing from the PPP agreement shall not be entitled to recover any part of the investment made into the project prior to the termination of the contract.
 Coordination process
(a) PPP projects remain under the overall guidance of the Central Unit for PPP Coordination, a public institution currently functioning within the Ministry of Public Finance, and which will be restructured and placed under the coordination of the General Secretariat of the Government;
(b) if a public authority runs two or more PPP projects, coordination may be passed to that authority, by decision of the Central Unit.

Discussion points/selected issues of concern

Prior to the publication of the PPP Law, the President has resent the law to the Parliament in order to be revised in relation to the following issues:
(a) the applicability of the PPP Law is not clearly differentiated from that of Existing Legislation (on concessions), and this overlap could be regarded as an infringement of European directives in the field; also, confusion and difficulties could be generated in determining the legislative framework – the Existing Legislation or the PPP Law – governing a specific project;
(b) using for transparency purposes the SEAP (the electronic system for public acquisitions) for the publication of the notice of intent is not appropriate and may be regarded as an infringement of European laws;
(c) imposing a 2% guarantee for investors wishing to oppose the PPP award process may be seen as deterring free access to justice; and
(d) transparency is questionable as the procedure for the development of PPP projects replaces public tender with a selection and negotiation process which confers large discretionary prerogatives to the public partner.
The points above may be subject to legal controversy; however, it is important to note that the Parliament only slightly amended the PPP Law before releasing it once again; as such, the issues above remain open matters of concern. Further, it remains to be seen whether an EU infringement procedure will be initiated against Romania in this respect (and, in such an event, what will be the main points raised).

Financing issues

The PPP Law states that, except for public property, financiers can take security over any other assets of the Project Company, for the entire duration of the PPP agreement.
Further, the following issues may be worth exploring, as application norms will unfold and further details will become available:
(a) it is not clear whether direct agreements and step-in rights will be available to lenders financing PPP projects; albeit this is not specifically excluded by the PPP Law, the law does provide that neither public or private partner may assign their rights under the PPP agreement (and implications need to be explored);
(b) project risk allocation needs to be assessed, given the intended treatment of public assets destined for a project as “non government assets”, which implies that the private partner needs to bear construction and availability or demand risk;
(c) recourse/non-recourse principle is not addressed by the PPP Law.
We hope the above was useful to you. For further details, please feel free to contact us.

Government Emergency Ordinance no. 34/2006 regarding the award of public procurement contracts, public works concession contracts and services concession contracts and Government Emergency Ordinance no. 54/2006 regarding the concession of public property assets (as further amended to date). 

2This may operate as an incentive for the public partner, to the extent it helps reduce public debt. However, there are a number of criteria to be met (as per EUROSTAT) as a condition for the registration off balance sheet of the relevant assets, including that the private partner bears (i) construction risk and either of (ii) availability or demand risk. 

3The public partner must publish the notice of intent in the Electronic System of Public Acquisition (SEAP) and, in case the value of the project exceeds €5m, in the Official Journal of the European Union. 

4The public partner is required to respond to complaints within a maximum of 5 working days as of the date a complaint is filed, after which the procedure continues.

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