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Public-private partnership concept reintroduced

Ancuta LeachIoana Iordanescu

The former Romanian enactment regulating public-private partnership (PPP) was repealed in June 2006, only four years after its adoption. The enactment had been criticised largely on account of certain of its provisions deviating from the principles enshrined in the Romanian Constitution and overlapping with some of the then existing provisions applicable to concessions and public procurement.

At that time, the Romanian government had made only a few attempts to award contracts under the former PPP enactment (eventually aborted before execution) and some of them faced criticism from international financial institutions for lacking transparency and being insufficiently publicised (especially at international level).

Between 2006 and 2010 the PPP concept was replaced by those of concessions of public works and service concessions, but it was recently re-introduced by Law no 178/2010 (PPP Law) which will enter into force on November 4 2010.

The Romanian legislator justified the re-introduction of the PPP Law with the need to create an adequate legal framework for institutionalised PPP to facilitate the cooperation between public authorities and private investors. The scope of the PPP Law expressly excludes, among others, concession contracts for public works, service concession contracts, as well as concession contracts related to assets belonging to public domain.

PPP Law may be applied to the relevant activities in the fields of water, energy, transport and postal services (which are governed by the public procurement legislation) provided that the conditions for a PPP project are met and no general public interests are infringed.

Although the procedure for the award of PPP contracts will be detailed in the methodological norms for the application of the PPP Law (expected to be issued at the beginning of December 2010), its main steps are described in the PPP Law as follows:

(i) publication by the public partner of a notice of intent along with the descriptive documents related to the concerned PPP project;
(ii) submission of preliminary offers by the interested private investors;
(iii) selection of the eligible private investors and execution of project agreements with such investors;
(iv) negotiating the PPP contract with the eligible investors for establishing the ranking of such investors;
(v) submission of final offer by the selected investor; and
(vi) execution of the PPP contract with the private investor which has submitted the final offer.

The negotiated form of the PPP contract should be further approved by the Government or the relevant public partner, in their capacity of holders of the administration right over the public asset being the object of the PPP contract.

Publication of the notice of intent regarding the PPP project shall be made by the public partner in the electronic system for public procurement and in the Official Journal of the European Union if the value of the project exceeds €5 million ($7 million). Negotiation procedures could be held even if only one private investor has submitted a preliminary offer, provided that such offer meets the requirements imposed by the public partner.

PPP Law provides specific terms within which the awarding procedure should be performed by the public partner but fails to stipulate express sanctions for breaching such terms. As a general rule, the PPP Law recognises the right of the National Authority for Regulating and Monitoring of Public Procurement to request in court the cancellation of PPP contracts concluded in breach of the PPP Law.

Following the execution of the PPP contract, the public partner and the private investor will set up the project company which must have its registered office in Romania. The project company will enter into an administration contract with regard to the assets put forward in relation to the project, as well as a service contract with both the public partner and the private investor.

The financial sources for implementing the PPP project may be provided either by individuals or legal entities, irrespective whether Romanian or foreign. The PPP Law provides the possibility of creating securities over the assets related to the PPP project (except for those belonging to the public domain) in favour of the financing parties.

Upon the lapse of duration of the PPP contract, the private investor is required to return to the public partner the public assets and those resulting from the contract performance, free of charge and any encumbrances.

Should the private investors withdraw from the PPP contract, they are not entitled to recover their investment. Moreover, they would be required to pay the penalties to be specified in the PPP contract.

The Romanian legislator considers that the PPP Law removes some of the uncertainties identified by private investors in relation to the general concept of concessions and expects that the new PPP concept will enhance the bankability of Romanian PPP projects.

Ancuta Leach and Ioana Iordanescu

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