PPP: planned changes to the law

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On May 10, 2019, the Republic of Uzbekistan adopted the Law “On Public-Private Partnership”.

 After the adoption of the Law on Public-Private Partnership of the Republic of Uzbekistan (Law No. 537 of May 10, 2019), amendments are planned to be done by the Law “On Amendments and Additions, as well as invalidation of some legislative acts of the Republic of Uzbekistan in connection with the improvement of the Law on public-private partnership”. At present, the Law “On amendments and additions, as well as invalidation of some legislative acts of the Republic of Uzbekistan in connection with the improvement of the legislation on public-private partnership” has been approved by the Senate of the Republic of Uzbekistan and is awaiting final approval by the President. The amendments provide a full and specific explanation related to the implementation of public-private partnership projects, contrary to previous version of law, that caused misunderstanding in the application of legal norms in practice. 

The Law “On Public-Private Partnership”defines the core conceptions and principles of public-private partnership (hereinafter “PPP”), determines procedures for the development and incorporation ofPPP projects, provides for financial support mechanisms for the major participants of PPP projects, including concessions.

Public-private partnership is…?

PPP is a “legally arranged cooperation of public partner and private partner for a definite period based on merging their resources for incorporation of a public-private partnership project”. A significant requirement for PPP projects is that they should be aimed at resolving economic, social and infrastructure issues. Another remarkable point is that the law does not specify spheres in which PPP projects may be implemented, which suggests the possibility of implementing PPP projects in any sphere, which is the subject to the requirement of being aimed at resolution of the aforementioned issues, namely: transport, tourism, agriculture, telecommunications, education, healthcare and others. The law defines that property, property complexes, public infrastructure, works (services) and innovationsmay be objects of PPP.

The Republic of Uzbekistan is defined as the public partner, represented by state bodies and other organizations, authorized by the Cabinet of Ministers, as well as their associations. Commercial entities registered in Uzbekistan or abroad and their associations may act as a private partner.

The current amendments implemented in the PPP legislation expressly envisage application of institutional PPP mechanisms, i.e. incorporation of special project companies by the public partner and private investor for the purposes of incorporation of a PPP project. Thus, the lawprovide the opportunity to use a special project company (SPV), i.e. the company incorporated by the bidder (or consortium), which will execute and perform the PPP agreement in case of winning the tender, registered in accordance with the legislation of the Republic of Uzbekistan.

Moreover, the current Law provides for the announcement of the tender a month before its start in the media, websites of state bodies, the process of determining the circle of stakeholders to participate in the tender. This very circumstance in most cases was the reason for the delay in the tender process for a month. Now, based on domestic and international practice, such concepts as “concession”, “project of public-private partnership”, “applicant” are introduced into the Law, and they are defined. In order to establish provisions corresponding to the mechanisms of market operation, other basic concepts used in the Law are also concretized.The norm of guaranteeing the rights of a private partner is also concretized. In particular, if the subsequent legislation of the Republic of Uzbekistan worsens the conditions for investing in a public-private partnership object, then the private partner has the right to demand a compensatory increase in the payment for the availability of the public-private partnership object and (or) payment for use, as well as to demand from the public partner of a one-time compensation payment and (or) making appropriate changes and (or) additions to the agreement on public-private partnership. Local executive authorities, within the framework of a public-private partnership agreement, are empowered to identify facilities at their disposal, identify factors and problems that impede the timely and effective implementation of public-private partnership projects, including projects with the participation of foreign investors, as well as taking measures to eliminate them. The implementation of this Law in practice will contribute to the harmonization of the legal framework of this area with international practice, ensuring the implementation of uniform rules and requirements in the development and implementation of public-private partnership projects. This will also lead to a reduction in expenditures allocated from the State budget for the development of the economic and social spheres, an increase of the investment environment and the country’s attractiveness, the attraction of direct investment in the industry and the creation of new jobs as a result.

  1. Process of formulation of a PPP project

The process of PPP project formulation consists of following stages:

  1. Project initiation of PPP

The public partner or private party (legal entity or sole entrepreneur) may initiate the PPP project. The concept of PPP project is the principal document at the initiation stage, regardless of whether the PPP project is initiated by the public or private party. The concept of PPP project is developed by the initiator and containsthe cost of the project, the source of financing and the profitability of the project, which includes a justification of the effectiveness and relevance of its implementation. 

In the case of the project being initiated by the private person, the concept should be submitted to the potential public partner, which shall within 30 days decide on the implementation of the project based on such a concept. Furthermore, the law provides a limited list of grounds for refusal to incorporate the PPP project proposed by the private party.

The concept of PPP project can be approved, amended or supplemented by various bodies depending on the total value of the potential PPP project:

  • a relevant government authority — if the project total value is up to US$1 million;
  • a relevant government authority by agreement with the PPP Agency — if the project total value is from US$1 million to US$10 million inclusive;
  • the Cabinet of Ministers of the Republic of Uzbekistan— if the project total value exceeds US$10 million.  

Following the approval of the concept of the PPP project and its inclusion in the register, a public partner should adopt a decision on the development of the PPP project and proceed with the private partner selection procedure.

  1. Private partner selection

The tender is the principal mechanism for the selection of a private partner.

The tender may be:

  • a single-stage process – if the PPP project value less than US$1 million

ü two-stage process – if the PPP project value exceeds US$1 millionexcept for the cases specified in article 17 of the law.

The public partner is responsible for the development of the tender documentation, including the draft PPP agreement and establishment of a tender commission, by agreement with the PPP Agency and the Cabinet of Ministers respectively.

In addition, the law allows for execution of the PPP agreement without tendering, based on direct negotiations, in cases:

  • of ensuring the defense capability and security of the state;
  • where a certain person has exclusive rights to the results of intellectual activity, other exclusive rights, land, another real estate object and other property, which is an indispensable condition for the implementation of the project;

ü of enactment of the relevant decree or resolution of the President, as well as by decrees of the Cabinet of Ministers.

  1. Execution of a PPP agreement

A PPP agreement between a public and private partner is concluded for a period of between three and 49 years. The law also lists the mandatory data and provisions to be contained in the PPP agreement:

  • the grounds and procedure for its termination or amendment;
  • the procedure for transferring property and land to a private partner, as well as the procedure for transferring ownership of the PPP object.

In particular, the requirement for mandatory inclusion of provisions concerning the transfer of ownership of a PPP object to the state or to a private partner allows the implementation of PPP projects within the framework prescribed by the law based on different schemes.

Notably, the law does not contain compulsory rules providing that PPP agreements should be governed exclusively by Uzbek law. At the same time, the law establishes that disputes in the field of PPP are subject to resolution in accordance with current legislation. Based on this provision, it can be concluded that parties to PPP agreements have access to both judicial and arbitral methods for resolving disputes.

III. Private Partners guarantees of rights

The law establishes guarantees for stability of the legislation for 10 years from the date of the PPP agreement’s execution. At the same time, the private partner has a discretionary right to apply regulatory provisions that improve PPP project investment conditions or not to apply them (i.e. it is not necessary to constantly update PPP agreements in line with the legislation in force).

  1. Transparency and monitoring

The law provides for the PPP Agency to establish a publicly available registry of PPP projects containing information on ongoing PPP projects. Moreover, the law establishes that the concepts of PPP projects, information on the criteria for selecting a private partner, the main provisions of the PPP agreements, as well as other information should be published on the websites of the PPP Agency and the public partner.

The PPP Agency monitors the implementation of the PPP agreement by both private and public partners. To this end, the private partner should provide the agency with access to the PPP facilities, and the public partner should provide a report to the agency on the implementation of the PPP project every six months.

Enactment of the law is a logical step in the context of the interest of the Republic of Uzbekistan in the development of public-private partnerships in order to stimulate economic growth and improve infrastructure.

  1. Financing of PPP projects

The law provides that organizations financing a PPP project may be parties to a PPP agreement. A PPP agreement may provide for lenders’ step-in rights, which can be exercised by removing or replacing a private partner or the management of a private partner. Additionally, the law expressly prescribes that a private partner is entitled to provide any kind of security to its creditors, including those related to the rights and assets of the PPP project.

Under a PPP agreement, financial support may be provided to a private partner, including in the form of subsidies, budget loans, loans, grants, government guarantees, tax benefits and other kinds of benefits. A PPP agreement may also provide for the implementation of various types of payments, including payments for use and payments for availability.

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