After more than two years in limbo, a law aimed at regulating the implementation of infrastructure projects based on private ownership of the facilities (the “PPP Law”), rather than through the operation of state property under a concession agreement, was finally adopted in Russia last July. Much of this new law builds upon the experience of legal regulation developed over the past ten years under the Law on Concession Agreements. The PPP Law also replicates some of the latest legal innovations in this field (as we previously reported – click here to view), such as the private initiative mechanism.
When the PPP Law comes into force on 1 January 2016, investors will have an additional legal option for structuring their infrastructure projects. A comparative reading of the private initiative provisions of the PPP Law and the Law on Concession Agreements will therefore be of interest to those investors who are already considering how to implement their new projects.
Comparison of the two statutory private initiative regimes
Overall, the private initiative mechanism provided in the PPP Law is similar to that of the Law on Concession Agreements, but has a number of significant differences.
When an investor submits its proposal to conclude a PPP agreement to the public partner, it must confirm it has 5% of the total investment required for the project by providing an independent guarantee issued by a bank or other lending institution. This financial threshold is the same under the two laws. The PPP Law, however, is stricter and more precise than the Law on Concession Agreements, which merely requires the investor to demonstrate it has or is capable of attracting at least that same amount, without requiring the submission of an independent guarantee.
The procedure for concluding both types of agreement follows a similar pattern with common stages and legal deadlines (see the summary table below). However, the PPP Law introduces an additional level of approval for projects. Each project must be assessed by an authorised governmental body. At the assessment stage, the competent body will review the financial and socio-economic effectiveness of the proposed PPP project. If the project is deemed effective, the authority will then also compare the cost for the public partner in terms of public expenditures and obligations under the PPP Law against the cost and obligations that would result if the project were implemented through public procurement pursuant to Federal Law No. 44-FZ of 5 April 2013.
Law on Concession Agreements
Review of the investor’s project proposal by the grantor / public partner and issuance of a decision as to whether to proceed
Publication of the investor’s project proposal on the internet (under the PPP Law, the minutes of negotiations between the investor and the public partner and the above decision are also published)
Submission of the proposal and the negotiations minutes to the competent assessment body
Assessment by the competent body of the project’s financial and socio-economic effectiveness, and issuance of an assessment report
Issuance of a decision to implement the project (if the assessment report is positive)
Publication on the internet of the decision to implement the project
Submission of applications by competing investors
Signing of the relevant agreement (when no applications are submitted by competing investors)
Tender procedure for the conclusion of the relevant agreement (when competing applications are received)
Term to be defined by the public partner
Minimum of 6 months
While the Law on Concession Agreements allows to go through the contract conclusion process in five months after the submission of the proposal in the absence of competing bids, under the PPP Law:
- an agreement may not be signed earlier than 12 months from the date of submission of the initial proposal; and
- the chances of being awarded the project will primarily depend on the findings of the authority assessing it in terms of total budget expenditures and obligations of the public partner.
These new rules obviously make the implementation of private initiative projects more attractive to investors under the concession model due to the more burdensome and time consuming procedures under the PPP Law, a conclusion that will no doubt be confirmed once the first private initiative projects that have already been launched successfully reach the contract conclusion stage.