Romania: Preliminary Considerations On The On The New PPP Law

Last Updated: 26 January 2018
Article by Cleopatra Leahu

1. Romania's new PPP law – main benefits/challenges

The much-awaited Law no. 233/2016 on the public-private partnership came into force on 25 December 2016. While this law is not operational until the Romanian Government approves the methodological norms for its enforcement, it establishes the premises for implementation of PPP projects in Romania.

During the past six years, Romania had a PPP law (namely, Law no. 178/2010 on the public-private partnership) solely on paper, no project being promoted based on its provisions. Investors, lenders and public sector alike considered the mechanisms provided by Law no. 178/2010 nonbankable, ambiguous and risky. That situation was caused by several flaws of Law no. 178/2010, such as the disregard of the EU principles and practice on public contracts and available remedies, the massive overlapping with the public procurement and concession legislation – leading to an uncertain scope of Law no. 178/2010, the interdiction to bring public funds into a PPP project, the obligation of the public partner to contribute only private assets to the project company and the regulation of PPPs of an institutional nature only.

The new PPP Law manages to clarify and improve a variety of aspects which allow for the structuring of long-term PPP projects, by creating the framework for the public and private sectors to cooperate and pool together financial, human and infrastructure resources with the purpose to procure public assets and services.

First, the law comes with a more flexible approach, by distinguishing two types of PPP:

  • PPPs of a purely contractual nature. In this case, the partnership is based solely on contractual links and the PPP agreement is concluded between the public partner, the private partner and the project company, which is wholly owned by the private partner;
  • PPPs of an institutional nature. These PPPs involve cooperation of the private and public partner within the project company, which is held jointly by the public sector and the private sector, and becomes a party to the PPP agreement after its registration.

The new PPP law also clarifies the difference between PPPs and concessions, detailing that PPP projects are funded wholly or primarily through government payments, while in case of concessions the project is primarily funded through user payments.

Under the new law, investment costs of the project can be funded entirely by the private partner, or by both partners. In case of the public partner, the source of funding is however limited to the EU grants consisting in post-accession non-reimbursable funds and the related national contribution. The public partner may also choose to provide contingent mechanisms, for example by providing guarantees to the project lenders, or to grant various rights to the project company, such as the right to collect user payments, as well as concession, superficies or use rights over the assets used for project.

Under the Law no. 233/2016, the PPP process is composed of a number of phases: identifying the project and screening it as a PPP, appraising the project, structuring the procurement process and the PPP agreement, tender and award, and finally managing the PPP agreement. Based on the results of the appraisal phase, the procurement strategy to select the private sector partner is chosen.

The process that will be followed by the government to award the PPP agreement, as well as the remedies available for breaches of tender rules are the ones regulated by the general public procurement legislation (Law no. 98/2016 on public procurement, Law no. 99/2016 on utilities procurement, Law no. 100/2016 on concession of works and services and Law no. 101/2016 on remedies and challenges in procurement field).

The new legislation defines the PPP agreement as an administrative contract, always subject to Romanian law and to the jurisdiction of Romanian courts. The law further lists the minimum elements that need to be covered by the PPP agreement.

At a high level, Law no. 233/2016 on the public-private partnership seems to address the criticisms of the private investors and lenders to the former PPP legislation and to reflect the lessons learned and best PPP practices at the EU level. It will be for the secondary legislation to properly detail and regulate the actual mechanisms that can make this law a proper tool for Romania to extract the greatest possible value and fill the infrastructure gap, by accessing more private capital and expertise in an efficient manner.

On the other hand, PPPs are inherently more complicated than traditional procurement methods. Therefore, a major challenge for the public sector will be to build and improve institutional capacity – in other words, to train and retain high quality staff, capable of preparing and delivering successful PPP projects and of effectively interfacing with the private sector through the life of a project.

2. New PPP law in Transport infrastructure, Energy, Healthcare, Research & Development sectors

Significant infrastructure deficits, debatable quality public services and insufficient public funds available to address these problems have characterized Romania for too many years. We have the obvious needs across transport, energy, healthcare, R&D and other sectors in the development spectrum, and we also have a new law that offers the basic tools to implement PPPs. What we still need for PPPs to work is the government will and capacity to leverage private financing to drive investment in these sectors.

There are, however, a number of conditions which need to be satisfied and PPP mechanism is not suitable for all projects.

PPPs may be regarded as enterprises that require a careful combination of technical, commercial, financial and legal conditions. This is essentially different from prescribing the requirements for a constructed facility, which is typically what the authorities are used to do in conventional project deliveries. Instead, the public sector will be granting the private sector the right to operate an enterprise (be it a public service or infrastructure), within the bounds of a contract.

Accordingly, a cautious selection of the projects to be launched as PPPs must be performed by the procuring authorities, in the context of a well understood regulatory, financial, legal and technical environment. In addition, the right balance must be struck between the risks and rewards deriving from a project, so that the private partner can succeed while also satisfying the public sector's objectives.

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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