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November 4 2010

The Public-Private Partnership Law has entered into force today

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Law no. 178/2010 on the public-private partnership was published in the Official Journal no. 676 issued on October 5th, 2010.

The law shall become effective on November 4th, 2010, and the Rules for the Implementation are to be approved by the Government 30 days after this date.

The law regulates the following aspects of a public-private partnership project (hereinafter referred to as “PPP”)

  • purpose of the Law and principles of PPP;
  • PPP project;
  • scope of application;
  • the parties to the PPP contract;
  • general rules for entering into the contract;
  • stages of contract awarding;
  • appeals;
  • PPP contract;
  • project company;
  • termination of project;
  • coordination of PPP projects;
  • sanctions.

Purpose of the Law and Principles of PPP

The purpose of the law is to regulate the initiation and implementation of public-private partnership projects for public works in various areas of activity, with private finance.

The fundamental principles of public-private partnership are:

  • non-discrimination;
  • equal treatment;
  • transparency;
  • proportionality;
  • efficient use of funds;
  • accountability.

PPP Project

By public-private partnership projects public works are carried out in various sectors of activity in order to generate:

  • public assets – assets that belong to the public or private domain of the State or of the administrative-territorial units, as defined in art. 3 of the Law no. 213/1998 on public property and its legal regime, as further amended and supplemented;
  • public services –actions and activities performed in order to satisfy communities needs in general or local public interest and utility.

According to the Law, public-private partnership projects rely on private funding sources, the projects being entirely or partially implemented using the investor’s own financial resources or funds which the investor raised from financiers individuals or legal entities which provide to the project company the necessary funding.

The activities that can be transferred to the private investor through public-private partnership contracts are among others:

  • design, starting with the technical design phase;
  • construction;
  • development;
  • rehabilitation/modernization;
  • operation;
  • maintenance;
  • funding.

The partners may agree by the public-private partnership contract upon other activities that can be performed by the project company, according to the Law provisions.

Scope of Application

The Law applies to:

  • the implementation of a public-private partnership project by a public partner and a private investor further to one of the procedures for the private partner designation stipulated by the Law;
  • the conclusion of the project agreement;
  • setting-up the project company and regulating its operation.

Furthermore, the Law provides for the situations where it does not apply to a public-private partnership contract, giving examples:

  • public works concessions and services concession contracts covered by GEO no. 34/2006 and related legislation;
  • concession contracts for public assets covered by GEO no. 54/2006 and related legislation;
  • joint venture contracts governed by law.

Last, but not least, the Law provides that if the requirements of a public-private partnership are met and no public interest is infringed upon, then the Law also applies to the relevant activities defined by GEO no. 34/2006 – head. VIII “Sectoral contracts” section 1 “Relevant activities”.

Parties to the PPP Contract

The parties to the PPP contract are the private investor and the public partner.

The private investor is any Romanian or foreign legal entity or association that is willing to provide funding for one or more of the stages of a public-private partnership project.

According to the Law, the public partner in the public-private partnership contract is:

a)      any state body, public authority or public institution that acts at central, regional or local level;

b)      any other body than the ones mentioned under point a), having legal personality and established for meeting needs in the general interest, not having an industrial or commercial character and which is:

  • financed mostly by the public partner as defined at point a) or by a public body;
  • subordinated to or controlled by a public partner as defined at point a), or other public body;
  • having more than a half of the members of the administrative/ managerial or supervisory board appointed by the public partner as defined at point a) or by other public body;

c)      any association formed of one or more public partners aforementioned.

General rules for entering into the contract

A public-private partnership contract concerns the implementation of only one public-private partnership project including all elements.

The basic elements of a public-private partnership project are:

  • initiation;
  • financing;
  • design;
  • construction/implementation;
  • rehabilitation/ modernization;
  • maintenance, management/operation;
  • carrying out commercial activities;
  • transfer of the project to the public partner upon completion.

The mandatory general rules imposed throughout the initiation, negotiation and completion stages of a public-private partnership contract are:

  • The cooperation between the partners to a public-private partnership project is based on contractual relationships;
  • The division of responsibilities, funding and risks is contractually agreed;
  • The partners’ correlative rights and obligations may not be assigned during the performance of a public-private partnership contract;
  • The assets subject to contract may be considered as non-assets, according to the national and European  accounting legislation, depending on the allocation of project risks; the same rule accordingly applies to the cash flows under the public-private partnership contract;
  • Throughout the public-private partnership contract the assets involved in the project are classified as non-assets and are not recorded in the quarterly and annual financial statement of the public partner concerned; throughout the public-private partnership contract these assets are to be recorded in the trial balance and the annual accounts of the project company, in compliance with the Law.

Stages of Contract Awarding

The public partner is the one to initiate the public-private partnership.

The stages for entering into a public-private partnership contract are:

  • initiation of the public-private partnership project by the publication of the prior information notice by the public partner;
  • the analysis and preliminary selection of some private investors, prior to the conclusion of the project agreement, which are the responsibility of the public partner;
  • the negotiation, that is the stage when the public authority consults with the selected private investors and they negotiate the contract terms, including the investment value and the duration of the public-private partnership contract;
  • conclusion of the public-private partnership contract;
  • formation of the project company as a Romanian resident company in order to achieve the objectives of the public-private partnership contract.

The process of awarding the public-private project, the preliminary analysis and selection of private investors, the conclusion of the project agreement, the negotiation and conclusion of the public-private partnership contract is conducted as follows:

  • the public partner’s defining and approving of the opportunity to commence the public-private partnership project;
  • the public partner’s preparation and approval of the pre-feasibility or substantiation study;
  • the public partner’s preparation of the document attached to the prior information notice, which includes the description of the considered project, the description of the necessary services, the project implementation schedule, capacity requirements and selection criteria for investors and the manner of selecting interested investors;
  • the public partner’s setting-up and appointing the letters of intent evaluation committee by order, decision or disposition, as appropriate;
  • the public partner establishes and approves the evaluation criteria, scoring grids and the treatment of delayed or unsealed letters of intent, by issuing an order, decision or disposition;
  • establishing and approving of the negotiation criteria with the selected private investors that have signed the project agreement in order to select the private partner with whom the public partner will sign the public-private partnership contract;
  • publication of the prior information notice in the Electronic Procurement System (in Romanian SEAP) or, if the project value exceeds EURO 5 million, in the Official Journal of the European Union;
  • free distribution of the document attached to the prior information notice within maximum 4 working days from the day of the publication of the prior information notice;
  • receipt  and registration of the envelopes containing letters of intent issued by interested private investors within minimum 22 working days from the day of the publication of the prior information notice;
  • convening of the evaluation committee and opening of the envelopes containing the letters of intent in the presence of all committee members and the evaluation of the letters of intent and the attached documents, within minimum 5 working days from the day of receipt and registration of the tender documents drafted by interested private investors;
  • drawing up of the evaluation report by the evaluation committee and submission thereof to the public partner for approval, within minimum 5 working days from the day of letter of intent and attached documents evaluation;
  • inviting the selected private investors to negotiate and sign the project agreement, within minimum 2 working days from the day when the approved evaluation report is drafted;
  • the public partner establishes and appoints the committee for the negotiation with the selected private investors having signed the project agreement, by order, decision or disposition, as appropriate;
  • implementation of the negotiation criteria with the selected private investors that have signed the project agreement in order to select the private partner to enter into the public-private partnership contract;
  • conducting negotiations for at least 5 working days with the private investors signatories of the project agreement in order to select the private partner to enter into the public-private partnership contract; if negotiations with the investor ranking first class cannot lead to the conclusion of a public-private partnership project contract, the public partner begins negotiations with the following selected investors, one at a time, in the rank order of selection, until a favourable outcome is reached;
  • the selected private partner submits the final tender, the result of negotiations, within at least 8 working days from the conclusion of the negotiations;
  • submission of the negotiated public-private partnership project contract to the approval of the Government or public authority, as the case may be, in their capacity of holders of the management right upon the asset which is subject to the public-private partnership; this final approved form may be amended by the parties’ agreement  only by a deed of at least the same level as the approval document;
  • conclusion of the public-private partnership contract with the selected private partner, which also includes the requirements for setting up the project company, and publication thereof.

The public partner drafts and approves its own rules for setting up the committees, establishing criteria, conducting the stages for public-private project definition and for selecting private investors. Those rules are based on the Law and relevant enactments issued by the competent institutions.

If the public-private partnership contract is not entered into with any of the selected investors, then the public investor is entitled to resume the entire procedure. When appropriate, the public partner may re-draft or complete the substantiation/ pre- feasibility study and/or may change some data in the attached document.

Appeals

Any interested investor may appeal the decision regarding the selection of the appointed private partner or any other decisions made by the public partner throughout the procedure, with the public partner or in court, provided that the investor creates a guarantee of 2% of the estimated value.

The public partner is required to respond the appeal within maximum 5 working days from the day of the appeal’s filing and then the next steps of the procedure will be followed. The court decision is binding from the date when the final and enforceable decision is rendered.

PPP Contract

The public-private partnership contract or the project agreement is defined as the legal document that stipulates the rights and obligations of the public partner and private investor for the entire period of the public-private partnership, covering one or more phases of the public-private partnership project, for a specific period.

The contract is signed by the public partner and by the selected private investor considering:

  • The type of agreed activities;
  • The parties’ obligations established explicitly in view of the type of activities within the public-private partnership project;
  • The negotiated value of the investment subject to the public-private partnership contract;
  • The duration and the end of the PPP contract;
  • Establishing the PPP contract schedule which sets the time limits for: drafting the feasibility study, the project execution, financing, achieving the public objective, maintenance/ management/ operation of the objective until the end of the contract, delivery of the objective to the public partner;
  • The participation shares in the public-private partnership determining the equity interests in the project company and the list of the public or private assets brought by the partners;
  • risk allocation between the public and private partners throughout the public-private partnership contract;
  • performance criteria relating to the objectives of the public private partnership contract;
  • terms for withdrawal from the project;
  • penalties to be applied if the objectives set out in the contract are not achieved; the contract concluded between the public and private partners expressly specifies the penalties due in case of premature withdrawal or failure to perform contractual obligations.

Project Company

The project company is defined as the Romanian resident company, having as partners or shareholders both the public and private partners, which are proportionally represented according to their participation in the public-private partnership project, the public partner bringing contribution in kind.

The project company is organized and operates according to the relevant legislation as a company whose share capital is owned by both the public partner and the private investor. The company operates throughout the performance of the public-private partnership contract and it is liquidated according to the law upon the end of the contract.

The project company and the two partners enter into a management contract for the assets entrusted for management and a service contract.

The project company’s main object is the operation and management on economic principles, according to the Law and its own by-laws, of all development stages of the public-private partnership project by taking over the duties from the contracting parties and the transfer of the asset and services which are the subject of the contract, to the public benefit through the public partner. Throughout its existence, the company may not change its objector perform other economic activities beyond the express purpose of the public-private partnership project for which it was set-up or the development of this purpose for the benefit of the community.

The project company is to be managed by a board of directors the members of which represent the two partners proportionally with their participation in the public-private partnership project.

The project company is not entitled to decide the change of the ownership or management of the public or private property brought by the public partner in the PPP project throughout the duration of the PPP contract, or the assignment of some rights under the contract.

Termination of Project

Public-private partnership is terminated:

  • on the expiry of the contract concluded by the public partner and private partner;
  • upon the agreement between the public partner and the private partner;
  • in other cases provided by law or contract.

In case of termination of the public-private partnership contract, the private investor has to ensure the continuity of activity or services under the contract conditions, until being taken-over by the public partner or the new private investor.

Also, upon termination of the public-private partnership contract, both parties are bound to perform their obligations provided by the Law and/or contract until the decision regarding the dissolution of the project company becomes final and irrevocable.

If the private partner withdraws unilaterally from the public-private partnership contract, the investment already made remains as participation in that project, the project company and the public partner not having the obligation to return to the private investor the value of the investment.

At the end of the public-private partnership contract, the project company transfers to the public partner the asset resulted from the public-private partnership contract at no cost and in good condition, exploitable, free of any liens and encumbrances.

The intellectual property acquired in the implementation of the public-private partnership project belongs to the private partner, unless otherwise provided in the contract.

Coordination of PPP Projects

According to the Law, the centralised coordination and monitoring of the performance of the PPP projects is conducted by the Central Unit for Public-Private Partnership Coordination (CUCPPP) from the Ministry of Public Finance. CUCPPP is reorganized pursuant to Government Decision as a General Directorate subordinated to the General Secretariat of the Government and it will act as the central institution for the PPP projects. Its main duty is to guide and monitor the public and private partners interested in the organisation and development of a PPP project.

Furthermore, within 60 days from the entry into force of the Law, CUCPPP is to organize a public, integrated, unique and updated database, including all PPP projects announced and the archives of the projects in progress and/ or completed.

Last, but not least, the public authorities which develop at least two PPP projects may develop internal units for the coordination of PPP projects.

Sanctions

The National Authority for Regulating and Monitoring Public Procurement may request the court to acknowledge the absolute nullity of the public-private partnership contracts concluded in violation of the Law, according to the conditions established by the Rules for the Implementation of the Law.

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