On June 29, 2010, the Romanian Chamber of Deputies adopted the law on Public Private Partnership (PPP). The law draft stipulates that the public-private partnership can represent in specific critical economic moments, such as the current economic crisis in Romania, one of the main sources of economic development or maintenance of a constant level of development and generation of jobs or maintenance of a low unemployment rate, constant and sure budget resources to both local and central budget. The law initiative is aimed at simplifying the PPP implementation procedures. The law inspires from the Irish legislation in the area and eliminates some difficulties which have caused the failure of the timid attempts of PPPs in Romania.The main law amendment is the elimination of the compulsory character of tender organisation for contract attribution.
The new law draft contains several important amendments aimed to facilitate the development of a public private partnership, since these type of projects are hardly implemented in Romania. The first PPP project concerning the construction of transport infrastructure failed this year. The project consisted in the development of Brasov-Comarnic highway section and implied the state’s collaboration with foreign investors. The most important amendment compared to the former law is the elimination of the compulsory character of tender organisation from the contract development process with private investors. The law stipulates that the public partner establishes a grid for the selection of the private partner which includes the evaluation criteria and the score scheme which helps him select the winner of the project. Then, the investors who rank first would benefit from direct negotiation for signing the contract. The procedure is also valid in the case when there is only one offerer. In case that negotiations with the partner who ranked first fail, the public partner will start negotiations with the second ranked. In case no feasible offer is passed, the public partner can start the selection procedure again and amend the contract attribution criteria.
Ordinance 34/2006 stipulates the compulsory character of tender organisation. According to economic analysts, the new law will actually balance the participation of each partner involved in the project, public authorities and private investors becoming associates within a newly established entity which ensures the partnership implementation (called “project company”). Thus, the two parties share responsibilities and risks in investment management from the project organisation stage.
Economic analysts believe that by creating a balance between public and private partners, the new law draft can, however, lead to abuses by increasing the decision capacity of public authorities and attract the scepticism of private investors who preferred the tender system. Maybe this is also why the Government decided that the new law and the Government Ordinance 34/2006 should operate simultaneously. Therefore, the concessions where the private investor pays a specific royalty within a time framework previously established by the public authority could be developed through the Government Ordinance, the contract being awarded through classic tender. For how long and how the two laws will operate simultaneously is still a question that needs answer.
New pre-financing source, “the PPP project financing entity”
Another measure aimed to accelerate the procedures for the implementation of the PPPs is reducing the period before signing the final agreement, established for maximum 50 days. These measures are aimed at accelerating the contract attribution procedures. Potential problems include reducing decision transparency and a lower number of investors in the PPPs attribution, as the new law stipulates that all financial guarantees must be deposited during these 50 days, a condition which cannot be observed by small investors. To prevent this from happening, the new law introduces the concept of “public-private partnership financing entity” which represents all entities that provide private investors and/or public partner with the financing means necessary to their participation in the PPP, thus introducing a new pre-financing source.
Betuweroute, typical example of a PPP’s success and risks
The biggest problems of the PPPs implemented around the world are related to the fact that, statistically, dumping investments is always occurring faster for private investors who also obtain higher profits than their public partner, all international PPP laws trying to grant equal profit opportunities to the two parties and to make sure that the final beneficiary is the taxpayer who wins new public services. The first PPP regulatory laws were introduced in Great Britain, a constant target of all administrations in the country. The model adopted by other countries in their public-private partnership projects was to limit the risks assumed by the public sector and avoid as much as possible guaranteeing state investments within the PPPs from budget reserves, which usually generates public debts in case of project failure. A relevant example of the success, as well as the risks involved by the PPP is the Dutch freight-dedicated corridor, Betuweroute, which despite its initial success in infrastructure construction, is now facing difficulties because of the charges introduced by the project company and which determined some operators to boycott the use of the corridor and accuse both public and private partners of trying to dump investments on the back of operators in the shortest time possible.
by Alin Lupulescu
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