On December 30, 2022, amendments were made to the Law of the Republic of Kazakhstan1(hereinafter - RK) "On public-private partnership" (hereinafter - the PPP Law), which may affect the implementation of public-private partnership projects (hereinafter - PPP).
Most of the amendments to the PPP Law came into force on January 12, 2023.
The following most significant changes are as follows:
Possibility of direct negotiations
Previously, the determination of a private partner on the basis of direct negotiations was carried out exclusively on PPP projects, which were:
- initiated by a potential private partner in relation to an object that is owned by him/her or a long-term lease; or
- they are inextricably linked with the realisation of exclusive rights to the results of intellectual creative activity belonging to a potential private partner.
The new version of the PPP Law2significantly narrows the range of projects subject to direct negotiations. Due to the amendments, the definition of the private partner on the basis of direct negotiations can be carried out for the implementation of PPPs aimed at the creation and operation of unique facilities providing fortechnology transfer only by decision of the Government of the Republic of Kazakhstan.
A new way to identify a private partner
The specifics of choosing a private partner on the basis of a private initiative are now spelled out in the new article 40-1 of the PPP Law. According to this mechanism, a potential private partner, by developing a draft information sheet of tender (auction) documentation, initiates a PPP project to solve one or more socio-economic problems for the formation of proposals for the implementation of PPP projects. The tender (auction) documentation is endorsed after approval and examination in the manner determined by the Ministry of National Economy of the Republic of Kazakhstan.
A potential private partner who initiated the project has the right to participate in the competition. If another person wins the competition, the winner reimburses the potential private partner who initiated the project, his expenses for the development of the draft information sheet of the tender (auction) documentation and the draft PPP contract.
According to the changes, service contracts:
- provide for the provision of services using a PPP facility owned by a private partner on the right of ownership;
- do not provide for compensation of investment costs.
Content of the PPP agreement
According to Article 46 of the PPP Law, namely in the content of the PPP contract, in addition to other provisions, should be as well provided:
- provisions that define the goals, objectives, direct and final results of the PPP project;
- information about the property and requirements for the property used to provide services under the service contract;
- conditions and volumes of creation, including construction and, if necessary, design or reconstruction, or modernization, as well as operation of a PPP facility, with the exception of service contracts;
- calculation of defective points for violations of indicators of the quality of services provided and criteria of full operational readiness;
- mandatory indication of the payment of the forfeit in the amount of money or as a percentage of the amount that can be appealed both in court and (or) out of court;
- the procedure for monitoring and monitoring the execution of the PPP contract.
A new sign of PPP
A new exceptional feature of PPP is the mandatory presence of investment and operational periods in the PPP project.
The investment period includes:
- design (if necessary);
- construction and (or) reconstruction, and (or);
- modernization or creation of a PPP facility.
The operational period includes;
- operation of a PPP facility in accordance with its functional purpose, or
- maintenance service, or
- managing the infrastructure of a PPP facility.
This change is aimed at eliminating attempts to implement PPP projects involving only the construction or operation of a PPP facility, in fact, being public procurement.
The process of a tender to determine a private partner using simplified competitive procedures has been abolished
Article 43 of the PPP Law has been deleted, which previously had regulated the specifics of conducting a tender to determine a private partner using simplified competitive procedures. Thus, this mechanism is no longer applicable.
Methods of implementation of PPP
Previously, the basic parameters of PPP projects, including goals and objectives, expected payments from budget funds, state support measures were provided exclusively for the implementation of PPP in state and government programs. According to the changes, now such a mechanism is used in the concepts of the development of industries (spheres), national projects.
Sources of cost recovery of PPP entities
A private partner participating in a PPP project, in accordance with the structure of the contract, has the right to receive reimbursement of costs or measures of state support from the state on the basis of six sources prescribed in the PPP Law. One of the sources of cost recovery is the sale of goods, works and services, which, according to the changes, will be carried out within the framework of the execution of the contract, and not during the operation of the PPP facility.
PPP project planning
For the implementation of a PPP project, previously the legislation did not provide for planning. However, according to the amendments to Article 10 of the PPP Law, now a PPP project must be implemented on the basis of a state initiative or a private initiative through the following successive 4-stage process:
- conclusion of the contract and fulfillment by the parties of the terms of the contract.
Planning should include:
- data on the development of an investment proposal and tender (auction) documentation, if it is realised within the framework of a state initiative; or
- development of an information sheet of tender (auction) documentation on projects aimed at solving socio-economic problems determined by the needs included in the list formed and published by the central authorised state body of the relevant industry or local executive body in accordance with the procedure established by this Law;
- development of a business plan, if the planning is realised according to the framework of private initiative of conducting direct negotiations to determine a private partner.
The new order of information support in the field of PPP
The formation and publication of the list of socio-economic tasks for the formation of proposals for the implementation of PPP projects will be carried out annually by the central authorised state bodies of the relevant industries, local executive bodies of regions, cities of republican significance and the capital on the basis of documents of the State Planning System within the framework of the implementation of their competence.
Competence of the central authorised body for state planning in the field of PPP
The Ministry of National Economy of the Republic of Kazakhstan, as the central authorised body for state planning in the field of PPP, will:
- coordinate the procedure of determination of a private partner and concluding a PPP contract within the framework of industry (sphere) development concepts, national projects, including standard tender documents and standard PPP contracts,
- develop and approve the methodology for assessing the socio-economic effectiveness of projects,
- develop and approve the methodology for the allocation and assessment of risks of PPP projects,
- develop and approve the methodology for accounting for conditional state obligations on PPP projects.
Rights and obligations of other persons involved in the implementation of the PPP project
A new criterion has been added to the rights and obligations of other persons in paragraph 2 of Article 18 of the PPP Law, which obliges other persons to be not only participants in the implementation of a PPP project, but also to provide consulting services for the support of PPP projects.
Competence of the central authorised body for budget execution in the field of PPP
The Ministry of Finance of the Republic of Kazakhstan will provide information on the financial obligations of the state under PPP contracts to the central authorised body for state planning in the field of PPP.
Forms of participation of state bodies in PPP
The participation of state bodies through the transfer of exclusive rights to intellectual property objects (owned by the state) should be exclusively for the purposes and for the duration of the project.
Co-financing can now be provided for PPP projects in which the estimated amount of investments exceeds the size of the monthly calculation index established by the Law of the Republic of Kazakhstan dated December 2, 2021 No. 77–VII of the ZRK "On the republican budget for 2022-2024" by1.5 million. At the same time, the amount of co-financing cannot exceed 30% of the estimated investment amount.
New methods of the Ministry of National Economy of the Republic of Kazakhstan
The Ministry of National Economy of the Republic of Kazakhstan will develop and approve a number of methods that will have to be used in the examination of projects.
In particular, the Ministry of National Economy of the Republic of Kazakhstan will develop and approve:
- the methodology for assessing the socio-economic efficiency of PPP projects;
- the methodology of allocation and risk assessment of PPP projects;
- the methodology of accounting for conditional state obligations under public private partnership projects. All this may affect the timing of the examination of PPP projects.
Based on the above, it can be concluded that when implementing projects, there is a tightening in the content of the PPP contract, including service contracts. Namely, in terms of sources of cost recovery, there are changes that will affect the timing of the implementation of PPP projects through an increase in the timing of the examination. Accordingly, a number of changes may affect the realisation of the Law including the implementation of projects.
1 The Law of the Republic of Kazakhstan dated December 30, 2022 No. 177-VII "On Amendments and additions to some Legislative Acts of the Republic of Kazakhstan on the implementation of certain instructions of the Head of State".
2 Article 44 of the Law of the Republic of Kazakhstan dated October 31, 2015 No. 379-V "On public-private partnership
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