Legal Briefing

Development of PPP legislation in CEE and SEE countries

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Eastern Europe | 01 February 2010

The current financial crisis has undoubtedly dampened the initial enthusiasm over public-private partnerships (PPP). However, ongoing developments in relevant legislative frameworks, particularly those in central and eastern European (CEE) and south-east European (SEE) countries, suggest that a belief in PPP projects as an alternative to traditional public contracts still exists.

PPP PROJECTS AND THE IMPACTOF THE FINANCIAL CRISIS

PPP projects are joint initiatives between the public and private sectors in which the state chooses a private partner for the implementation of certain projects (usually relating to infrastructure). In most cases, the private partner will have to finance, design, construct and operate the infrastructure for a certain period (usually 20-30 years). Whereas some countries have separate laws for the implementation of PPP projects, the rules for selecting private partners are mainly regulated by concessions or public procurement law. PPP projects have a significant advantage for the state over traditional public works contracts in that the main risks involved with building and operating major infrastructure projects are shifted to a private partner. Most importantly, by placing the onus for funding the project on a private partner, the state reduces financing costs. However, private companies are finding it more and more difficult to raise money during the current financial crisis. Due to an increase in interest margins, project financing costs have risen to an extent that public financing is in many cases the cheaper alternative. Additionally, banks are currently reluctant to provide financing for the formerly standard 20-30 year period and prefer to offer shorter-term loans.

RECENT AMENDMENTS TO PPP AND CONCESSIONS LEGISLATION

It appears that the difficulties caused by the financial crisis are widely regarded as being only temporary and PPP projects are still considered to be the concept of the future. CEE and SEE countries, outside the EU in particular, continue to develop their legal frameworks for the implementation of PPP projects. Aside from financing issues, many smaller non-EU countries lack the requisite expertise to realise major infrastructure projects and therefore require the experience of a private partner such as an international construction company.

Albania

Recent amendments to Albanian concessions law, which came into force on 21 November 2009, have established a new concessions agency in the country. The agency will be responsible for ensuring proper adherence to concessions procedures in Albania and is able to impose fines on non-compliant contracting authorities. The agency will also deal with bidders’ complaints against contracting authorities’ decisions in concessions procedures. In this context, the newly introduced requirement that bidders pay an upfront deposit of 10% of bid security, which is only returned if the complaint is successful, has been criticised as an obstacle to legal protection.

Bosnia and Herzegovina

The legal framework of Bosnia and Herzegovina is highly fragmented and different rules apply on federal and state levels. Republika Srpska approved a new PPP law in May 2009 that differentiates between concessions and contracts financed by public funds (which are effectively traditional public contracts rather than PPP). Detailed regulations on the selection of private partners will be outlined in secondary legislation.

Croatia

Croatia’s legal framework for PPP projects underwent a major revision in 2008/09 with the implementation of new public procurement, concessions and PPP laws. The process of selecting a private partner has been brought further in line with EC legislation and is more stringently regulated. Croatia’s PPP legislation requires that relevant projects are approved by a newly established PPP agency. This agency will assess the project proposal with a view to harmonising PPP goals with the development strategy of affected industries, and will analyse the project value, structure and risk balance. The PPP agency will also approve relevant tender documents and concessions contracts.

Montenegro

Montenegro’s new concessions law came into force on 12 February 2009 and allows for the selection of private partners for large infrastructure projects without conducting a public tender where the project is of strategic importance to the country. Like Montenegro, many non-EU countries in the region have created legislation that allows for concessions and PPP projects to be awarded without the prior conduct of a public tender. Such initiatives often take the form of ‘unsolicited proposals’ in which a bidder is awarded a contract on the basis of its own proposal. Such procedures directly contradict EC laws requiring an open, transparent and competitive process, and countries seeking accession to the EU will have to adjust their legal framework in this respect.