Infrastructure and PPP

Law no. 178/2010 concerning the Public-Private Partnership (the “PPP Law”) has been recently amended via the Emergency Governmental Ordinance no. 39/2011, published in the Official Gazette no. 284/21.04.2011 (“EGO 39/2011”).

This note attempts to give the reader a brief overview of the most significant changes brought by EGO 39/2011 to the PPP Law.
We also note that according to the public statements of the initiators, it is probable that these amendments shall be followed by further modifications, the necessity of which shall be evidenced once the law shall be tested in practice and that it is expected that the methodological norms implementing the PPP Law as amended shall be approved by mid-May 2011.

1. Legislative process

1.1 Shortly after its enactment in October 2010, the PPP Law has faced both international and domestic criticism mainly on grounds of violation of the EU rules on public procurement, breach of the Romanian Constitution principles and legislative parallelism.

1.2 According to the notes introducing the amendments, the Government of Romania issued EGO 39/2011 in order to achieve compliance of the PPP Law with the EU public procurement framework and reducing the risk that an infringement procedure would be initiated by the European Commission against Romania on such basis.

1.3 Consequently, the amendments brought by EGO 39/2011 tend to ensure the alignment of the PPP Law to the principles already transposed into Romanian law through the Emergency Governmental Ordinance no. 34/2006 on public procurement (“EGO 34/2006”), and they primarily regard (i) the recognition of the open tender (under a specific form called “open procedure”) as the main award procedure, prevailing over the direct negotiations with investors; (ii) the recognition of the right of the interested parties to challenge the award procedure, before the National Council for Dispute Resolution (in Romanian: Consiliul National de Solutionare a Contestatiilor, CNSC) and the courts of law, in line with the acquis in the field of jurisdictional review of the public procurement issues; (iii) the increase of the transparency of the award procedures.

2. Main New Rules for PPP Contracting

2.1. Transparency
The contracting authorities are obliged to publish the advertisement for PPP projects in the Electronic System for Public Acquisitions, or in the Official Journal of European Union, as the case may be.
The publication in the Official Journal of the European Union is mandatory in case of a RON denominated project value in excess of the thresholds mentioned under Section 2.2. below.

2.2 Financial thresholds
The following two monetary thresholds are relevant for PPP contracting respectively:
a) EUR 125,000 (net of VAT) for assets and services contracts and
b) EUR 4,845,000 (net of VAT) for works contracts.
Despite imprecise wording, most likely these thresholds have been set forth to customize the application of various provisions of the PPP Law under specific circumstances (e.g. the minimum period between the release of the announcement and the receipt of the offers vary depending on the thresholds mentioned above, the publication of the announcement in the Official Journal of the European Union is mandatory for projects exceeding the thresholds, etc.).
However, it is unclear what threshold is applicable to contracts of mixed nature (such as works and services contracts).

2.3 PPP award procedures
The PPP projects are to be awarded to potential investors using one of the procedures below:
a) open procedure;
b) competitive dialogue.

2.4 Open procedure
The open procedure seems a particular of the PPP Law, which requires that it unfolds throughout the following mains steps:
a) establishment and approval by the public partner of the opportunity of the PPP project;
b) preparation and approval of the pre-feasibility / substantiation study by the public partner;
c) preparation by the public partner of the selection announcement and of the attached document describing its requirements in respect of the PPP project and on the criteria to be fulfilled by the private partner;
d) formation of the evaluation commission and its appointment by the public partner;
e) preparation and approval of the evaluation criteria and of the scoring grid, as well as of the principles for treatment of late or unsealed offers;
f) release of the selection announcement and of the attached document;
g) receipt of the offers from interested investors;
h) assembly of the evaluation commission and opening of the offers in the presence of the commission members and of the interested private investors;
i) offers’ evaluation;
j) preparation of the offers valuation report, and determination of the winning offer;
k) notification to each offeror of the decision regarding the wining offer, accompanied by summary information as regards the reasons for the dismissal of each offer;
l) signing of the PPP contract with the winning private investor.

2.5 Competitive dialogue
The contracting authority‘s choice for the competitive dialogue procedure must be substantiated on the project’s particulars, which define a level of complexity preventing the public partner to determine or manage on its own the technical, financial or legal means or aspects required to develop the PPP project so as to respond to such authority’s needs.
The number of potential investors invited to participate in the competitive dialogue should be no less than three, however the validity of the procedure would not be affected should the failure to observe the rule be justified by insufficient number of interested investors meeting the selection criteria.

2.6 Ownership over the project assets
The PPP Law contemplates the possibility for several public authorities, local and/or central, to jointly develop and implement a PPP project, as a sole public partner; consequently, subject to the mandatory provisions of the law regarding the legal regime of public assets, they are granted the right to agree on the exercise of their ownership over the public assets contributed to the PPP project (including, if necessary, by way of transfer of such assets under the sole and exclusive ownership of one of such public entities).
In such case, the PPP announcement should also include the details the agreement of the public partners in respect of the ownership over the public assets.

2.7 Prohibitions 
Pursuant to an approach similar to that of the OUG 34/2006, the procedures for awarding of PPP projects are protected against potential contractors that fail to meet a reasonable level of financial and deontological trustworthiness. Pursuant to this principle, PPP Law prevents the access to PPP projects for legal entities which:
a) are bankrupt, or undergoing a similar procedure in their country of origin;
b) have outstanding debts toward the state budget, or the social insurances budgets (of Romania or of their country of origin);
c) having suffered a criminal conviction within the last 5 years; or
d) presents inaccurate information, or fails to present the requested information to support the fulfillment of the pre-qualification criteria.

2.8 Responsibility for public services
The parties to a PPP arrangement may decide which part of the public services the responsibility for which is incumbent on the contracting authority shall be transferred under the responsibility of the private partner. The parties may further agree that the private partner is entitled to receive the income derived from the relevant public services.

2.9 Challenging the PPP award procedure
The National Council for Dispute Resolution was recognized jurisdiction to rule on challenges regarding the award of PPP projects, following a procedure similar to the one applicable to general public procurement processes.
The prohibitive guarantee of 2% of the estimated project value, which was originally imposed by the PPP Law on investors challenging the validity of a PPP award procedure, has been abolished and replaced by a progressive yet capped stamp duty amounting to a maximum of RON 2,200 (roughly EUR 500).

3. Financing issues

The EGO 39/2011 did not bring improvements to the PPP Law in respect of the financing matters. Consequently, the following issues of concern continue to subsist:
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 legislation does provide that neither the public nor the private partner may assign their rights deriving from the PPP agreement;
b) given the intended treatment of public assets destined for a PPP project as “non government assets”, the private partner is required to bear construction and availability or demand risk;
c) recourse / non-recourse principle is still not addressed in the newly amended PPP Law.

4. Prospects

The Government has recently released to the media a list of potential projects, which are to be developed as PPPs.

For further details, please see our PPP newsletter of 28 April 2011 or:
http://www.guv.ro/premierul-a-prezentat-lista-proiectelor-care-vor-fi-dezvoltate-in-regim-de-parteneriat-public-privat__l1a113179.html