Russian Federation: Federal Law On The Public Private Partnership And Municipal Private Partnership In The Russian Federation

Last Updated: 29 July 2015
Article by Yana Dianova

The Federal Law No. 224-FZ 'On Public Private Partnership, Municipal Private Partnership in the Russian Federation and Amendments to Some Regulatory Acts of the Russian Federation' was enacted on 13 July 2015 (hereinafter - the Law ).

The Law is aimed at the unification at the federal level of legal conditions for investment into the long-term infrastructure projects in order to improve the availability and quality of public services under the terms of risk allocation and attracting private investment and skills.

The Law regulates in details the basis of legal relationships arising in connection with:

  • preparation of public private partnership and municipal private partnership (PPP and MPP, respectively) projects to be implemented by a public partner in conjunction with a private partner;
  • entering into, performance and termination of PPP and MPP agreements being the principal PPP and MPP instrument under the Law, the powers of state and local authorities in this connection.

The Law provides as well for guarantees of protection of rights and interests of private partners being parties to the PPP and MPP Agreements.

At the same time, the Law does not regulate the relationships in connection with preparation, execution, performance and termination of concession agreements since such relationships are governed by the Federal Law No. 115-FZ dated 21 July 2015 'On Concession Agreements'.

1. Proposal to Implement a PPP/MPP project

Under the Law, an initiator of the proposal for the implementation of PPP projects or MPP projects (hereinafter –a Project) may be either a public partner (the Government of the Russian Federation or the highest body of executive power of the Russian entity or a head of the municipal entity), in which case it prepares a proposal for the respective project and submits the proposal for consideration of the competent authority, or a potential private partner which then prepares the proposal and submits it to the public partner.

In the event a private partner is the proposal initiator the proposal should be submitted together with an independent guarantee issued by the bank or another credit institution (bank guarantee) in the amount of not less than 5% of projected funding for the Project.

The proposal should be prepared according to the form approved by the Government of the Russian Federation and should contain, inter alia: the Project description and justification of its relevance; a draft agreement for implementation of the Project with the essential terms; the Project implementation term or the procedure for determining thereof; projected funding for the Project; the description of risks (if any) related to the Project implementation; information on the efficiency of the Project and proofs of its comparative advantage.

A public partner should consider the proposal and negotiate it, if it is necessary, with the proposal initiator within a term not exceeding 90 days upon the receipt of the proposal. Upon consideration the public partner must take a decision to submit the proposal for consideration to the competent authority in order to assess the Project effectiveness and determine its comparative advantage, or a decision on the impossibility of implementing the Project on one of the grounds provided for by the Law.

The competent authority shall assess the effectiveness and comparative advantages of the Project according to the procedure established by the Government of the Russian Federation within a term not exceeding 180 days upon the receipt of the proposal.

The Project is first assessed in terms of its effectiveness under the following criteria:

  • financial viability of the Project;
  • social and economic impact of the Project estimated with the view of the goals and objectives set out in the relevant documents of strategic planning.

While considering the proposal the competent authority may request from the public partner and(or) the proposal initiator additional materials and documents and hold negotiations with the public partner and the proposal initiator according to the procedure established by the Government of the Russian Federation.

Upon consideration of the proposal the competent authority issues a positive or negative opinion on the Project and sends the respective opinion and original minutes of the negotiation (if any) to the public partner and proposal initiator, as well as publishes the same on its website.

The final decision on the Project implementation should be taken by the respective public partner within 60 days upon the receipt of a positive opinion on the Project of the competent authority.

The public partner within 180 days from the date of the decision on the project shall organise and hold a tender for the right to enter into the PPP or MPP agreement (hereinafter - the "Agreement").

The Agreement is entered into without a tender in the following cases:

  1. with the proposal initiator, provided that within 45 days after publishing the decision on the Project implementation on the official website of the Russian Federation for information on tenders no bids have been received from any other persons together with the bank guarantee, or such bids have been received from persons who do not meet the requirements to bidders;
  2. with the only participant of the tender;
  3. with the person who submitted the only bid for the tender by the deadline for bids submission provided that it meets the requirements to bidders;
  4. with the person who submitted the only tender proposal provided that it meets the requirements to the tender documentation.

2. Tender for the PPP/MPP Agreement

A close tender, where bids can be filed only by the bidders invited to take part in the tender in accordance with the decision on the Project, is held in the event the object of the Agreement constitutes a state secret.

In other cases an open tender is held where bids can be filed by any person.

The tender generally includes the following stages:

  1. placement of the tender announcement on the official website for information on tenders/auctions, and in the event of a close tender - sending a tender notice and invitations to the persons defined by the decision on the Project;
  2. submission of bids;
  3. opening of envelopes with bids;
  4. preliminary selection of bidders (a tender can be held without this stage in accordance with the decision on the Project);
  5. submission of offers;
  6. opening of envelopes with tender offers;
  7. review, evaluation of tender offers and determination of a winner;
  8. signing the protocol on the tender results, placement of the tender results on the official website for information on the tender/auctions and notification of bidders on the tender results.

Only the following tender criteria may be set:

  • technical;
  • financial and economic;
  • legal (term of the Agreement, risks assumed by the public partner and private partner, in particular, in cases of deficiency in planned revenues from the operation of and(or) maintenance of the object of the Agreement or additional cost).

The amount of private financing to be attracted in performance of the Agreement and the maximum projected level of financial support by the public partner (if the Agreement provides for such support) are the essential criteria of a tender.

The Law provides for an option of holding a joint tender for the right to enter into the Agreement by two or more public partners. An organizer of the joint tender shall be one of the public partners to whom the other public partners transfer their authority to organise and hold the tender under the joint tender agreement. In this case each public partner enters into a separate Agreement with the winner of the joint tender.

The Law establishes detailed requirements for the content of the tender documentation and prohibits to include into the tender documentation the requirements to the bidders that unreasonably limit access to the tender and(or) create preferential conditions for any bidders.

To hold a tender, the public partner creates a tender committee which comprises at least 5 members.

The Law governs the procedure for preliminary selection (if any) of bidders, for submission of tender offers, for opening envelopes with the offers, for evaluation of the offers, and for determination of the winner.

The tender winner shall be a bidder who has offered the best conditions in comparison with other bidders. If two or more offers provide for the best conditions, the winner is the bidder, who submitted the offer earlier than other bidders.

The decision on determination of the tender winner shall be documented by the protocol and can be appealed according to the procedure prescribed by the laws of the Russian Federation.

Within 5 days upon execution of the protocol of review and evaluation of tender offers the tender committee shall sign a protocol on the tender results.

Under the Law, on one hand, the public partner within 5 days upon execution of the protocol on the tender results shall send to the winner a copy of the protocol and a draft Agreement including the terms defined by the decision on the Project, tender documentation and the offer, as well as the applicable federal laws.

On the other hand, the Law also stipulates that after execution of the protocol on tender results the public partner, in accordance with the decision on the Project, shall negotiate with the tender winner or any other person who has been selected as a party to the Agreement the terms of the Agreement and possible amendments thereto. The term and procedure for such negotiations should be determined by the tender documentation. Upon completion of the negotiations the public partner shall submit the Agreement and the protocol of negotiations for approval of the competent authority.

The Agreement shall be signed within the period established by the tender documentation, but not earlier than 10 days after publication of the final protocol on the tender results on the official website for information on tenders/auctions in the event of an open tender.

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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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Yana Dianova
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