Vol. 2 No.6  

“Public-private partnerships” & Concessions: under new public procurement legislation

     Public-private-partnerships (“PPP”) and concessions have a long history in most European Union states but a fairly short one in Romania, the first Romanian PPP having been signed in March 2003. During the last decade, the PPP and concessions rate of occurrence increased in many fields, falling within the scope of the public sector.

PPP: An outdated concept in Romania?

     Despite the growth and demand for PPPs, few efforts have been made towards harmonization at the European Union level. The term public-private partnership is not even defined at an EU level. In a tentative attempt to introduce concerted action for partnerships, the European Commission proposed in its Green Paper in 2004 a mechanism of regulation whereby PPPs would fall under European procurement law. The lack of clear rules applicable to the PPP existent at the European level was recently transposed in the Romanian law. Emergency Ordinance no. 34/2006  (“New Public Procurement Law”) abrogated starting 30 June 2006 the rather new PPP legislation promulgated in 2002. Thus, starting next month, even in Romania, the concept and implementation of the PPP will no longer be part of national law, similar to the EU law.
     The New Public Procurement Law, which partly implements the European Union Public Contracts Directive of 2004, refers to “concession contract for public works”, a concept previously used by the former legislation when defining the notion of PPP; therefore some may say that, in fact, even though the term of PPP will not be specifically defined under the law, some of its mechanisms are met in the form of the “concession contract for public works”. However, the main differences between the PPP and the concessions (i.e. risk distribution) is not mentioned by the new law; therefore, it cannot be argued that the concept of PPP was replaced by the notion of concession contract for public works contract.

Concessions: How will they be implemented?

     Concession Law no. 219 published in 1998 (“Former Concession Law”) will also be abrogated starting 30 June 2006. In its attempt to harmonize quickly existing legislation with European law, the Parliament, as with the idea from a famous Goya painting (i.e. “Sleep of reason produces monsters”), missed to provide for the minimum terms and conditions for concession (e.g., duration, type of assets resulting from the concession and the relevant ownership, etc.), that were previously regulated by the Concession Law published in 1998.
      Thus, the new legislation essentially contains provisions related to tender procedure applicable to public works and service concessions. One of the old provisions applicable to concessions that remain in force is one mentioned under Law 50/1991 on the authorization of constructions in respect of the possibility to assign the concession right in case of sale of the buildings.
     The New Public Procurement Law also fails to consider a series of fundamental questions, not containing provisions, which are used in international practice and usually required by creditors.
     Nevertheless, based on the principle of contractual freedom, it may be argued that future concession agreements may contain other provisions not regulated by law that do not conflict with New Public Procurement Law. We recommend taking a firm position in negotiations and insisting on the inclusion in concession agreements of at least provisions related to: force majeur and fortuitous cases; specific representations and warranties of the concession authority; notice of default and right to cure related provisions; clear rights of the concessionaire in the event of premature termination for any reason whatsoever; receipt of immediate payment from the concession authority of the full, fair market value of any and all assets constructed (or improvements to existing assets) by the concessionaire (and,  that payment of such market value should not be to the exclusion of the concessionaire’s right to receive payment of damages (including lost profit)); a tax “gross-up” clause;  assignment/pledge of the concession agreement as security for lenders; possibility to mortgage the land; and arbitration clause.
     An 8-year period revealed the pitfalls of the Old Concession Law; however, the New Public Procurement Law will most likely bring more confusion initially, in respect to the implementation of the concessions schemes as well as in respect of using the “PPP” concept.
     According to New Public Procurement Law, the existent PPP and concession agreements and pending tender procedures will be further governed by the old legislation. Only future concessions agreements will face the pitfalls of the new law.
     We look forward to the New Public Procurement Law – which is yet to be drafted and published – and hope it will contain provisions related to all issues outlined above, as well as other relevant provisions from the EU law (e.g., provisions related to abnormally low tenders), in order to avoid inconsistent practice or unnecessary delays in implementation. 

Laura Purtan
Associate Attorney, MBA, Salans