Argentina: New Public-Private Partnership Regime

After long-lasting debates, continuous modifications, the National Executive's bill on new legal framework for Public-Private Partnership was finally approved by the National Congress on the 16th of November.

The proposed bill was already approved by the Senate on the 21st of September, however, the bill has received strong resistance in the Lower House (Cámara of Diputados). On November 30, 2016, the bill was published in the Official Gazette.

In Argentina, the need for infrastructure repair and improvement is quite acute. It lacks capital, technology, management, and other resources. Neither the public nor private sector alone is able to overcome the deficits. Thus, the new legal framework aims to attract the interests of either banks or financial corporations.

The main idea is to build such cooperation between the public and private sectors which will benefit both sides, as well as the economy of the country and the people. Thus, the bill aims not only to attract investments in infrastructure, but also to create new workplaces. It is something that the new administration has been promoting from the beginning of its operation. Another important purpose of the law is to convince the rest of the world to trust the country by restoring investor confidence.

The bill constitutes only an alternative way of cooperation, which means that the tradition model may still be applied. The bill is relatively short, it sets out key guiding principles and mandatory terms of the regime. It clarifies that more detailed regulations will have a place in subsequent legal acts, bidding terms and conditions of the contract. Thus, to the projects governed by the PPP regime, none of these acts will apply: Public Works Law N 13,064, Concession of Public Works Law N 17,520, and the Public Procurement Decree N 1023/01.

What are the main provisions and benefits of the PPP regime?

  • Transparent, flexible and competitive procurement process.

The PPP bill requires a transparent, flexible and competitive procurement process and can be launched by means of a tender or private initiative. Moreover, the bill provides a new tool – Competitive Dialogue, which is widely used in the U.S. It applies when a government determines its final goal, but there are a variety of methods to reach that goal. So, the government may discuss all available methods with possible contractors and start a public bidding process with a formulated final request.

  • Flexibility in financing and guarantee structures.

Depending on the bidding terms and project-specific characteristics, the PPP regime enables the use of any kind of financing tools and instruments of guarantee. For example, for financing purposes, the State may allocate demand-based, shadow or availability payments, and third-party funds, among other alternatives. The regime also sets step-in rights, for example if the contractor entered into a loan and failed to carry out the loan's obligations, the PPP contract is assigned to the creditors.

  • Limitation of certain Government powers

The PPP bill eliminates some powers of public authorities, such as the power to unilaterally modify a contract, the power to force the contractor to carry out his obligations even if the State fails to comply with its own, and it cancels the limitation of the State liability, etc. According to the Art 9 (sub. I), the government has a right to unilaterally modify a contract only in regards to the scope of works and if it will constitute no more than 20% of the total contract value; additionally, the contractor must be adequately compensated.

  • The contractor's remuneration.

Here are two important aspects: firstly, under the PPP regime the prohibition of indexation is excluded, which plays an important role for long-term projects due to inflation; secondly, the possibility of the remuneration to be paid in foreign currency. In regards to the structure of the remuneration, there are ample choices of possibilities, such as funds, assets, taxes, loans, surface rights and others assigned by the State.

  • Legal structure

The bill provides the possibility to accomplish the project through an already existing company, a SPV (Special Purpose Vehicle), as well as through financial trusts or other types of vehicles. There is also a possibility for the State to participate in such corporation or trust.

  • Adequate compensation in case of breach.

The rules governing early termination of the contract have to be set out in the contract. However, the PPP bill affirms that compensations have to be paid prior to the takeover of assets. Moreover, when the State terminates the contract for reasons of public interest, the State is no longer able to enjoy the limitation of its liability. In such case, the State has to pay compensation to the contractor equal to the cost of unamortized investment in the project.

  • Dispute resolution.

Depending on the nature of the dispute, it may be resolved in technical panels or arbitral tribunals. The PPP Bill doesn't exclude international arbitration as a means to dispute resolution.

The PPP law is a step taken by the new administration to further the achievement of its officially declared plan to integrate Argentina to the world and to restore its image. The bill is fashioned on the combined expertise demonstrated in other countries (the US, the UK) and represents modern and market-friendly model of public-private cooperation. It allocates risks adequately on both sides, seeks to achieve economic equilibrium, and provides flexibility in structure, guarantee and financing schemes, contractor's remuneration. Hopefully, implementing regulations and terms of future tenders will go along with the provisions of the bill and will only benefit its provisions rather than using gaps for a favour of any party.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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