The PPP Law was adopted in July 2015 and entered into force on 1 January 2016.
Generally, the PPP Law is aimed at unifying the principles regulating PPPs, defining the powers of public authorities when entering into partnerships with the private sector and specifying the procedures for entering into PPP arrangements.
In particular, the PPP Law includes the following provisions that help define, characterise and regulate PPPs:
- While the PPP Law does not set out an exhaustive list of forms for implementing PPP projects, it nevertheless allows for private ownership over the infrastructure facilities (thus enabling BOO, BOOT and other standard PPP models based on private ownership). This is in contrast to the Concession Law which requires the state to retain ownership over the infrastructure facilities.
- PPP is defined as the cooperation of a public partner (the Russian Federation, a region or a municipal authority) and a private partner (a Russian legal entity) on the basis of a PPP agreement entered into pursuant to a tender procedure and aimed at increasing the quality and availability of public services by attracting private investment.
- A PPP project may be initiated either by the public or the private partner; thus providing investors with a right to enter into a PPP agreement through a non-tender private initiative procedure.
- Major Russian state-controlled PPP market players (such as state banks VEB.RF, Sberbank, VTB, Gazprombank and state investment funds such as the Russian Direct Investment Fund) are expressly prohibited from controlling more than 50% in a private partner. As a result, they will need to enter in consortia with private entities, including foreign investors, to finance PPP projects under the PPP Law. There have been calls to ease this rule since the PPP Law entered into effect.
- A PPP agreement is to be signed for a minimum of three years.
- PPP agreements regulated by the PPP Law are distinct from concession agreements, which are implemented on the basis of the Concession Law. And the PPP Law does not apply to concession agreements.
- The list of objects under PPP agreements (the “Objects”) is exhaustive and includes, in particular, private roads, bridges, roadside utilities, public transportation (excluding metros), railways, pipelines, sea and river ports, airports, electricity generation plants, public health facilities, social infrastructure and, since 2016, agricultural and industrial facilities – which is expected to promote investments in those two sectors. In 2018, the list of Objects was supplemented by IT facilities emphasising the overall trend in e-development. Any infrastructure that cannot be held in private ownership according to Russian law is excluded from the scope of regulation of the PPP Law and may only be subject to a concession agreement.
- Under a PPP agreement, the private partner must (re)construct the Object, fully or partially finance such (re)construction as well as operate and/or maintain the Object. The private partner may also be required to prepare the design documentation, and fully or partially finance the operation and/or maintenance of the Object.
- As a general rule, the private partner remains the owner of the Object after the PPP agreement expires provided, however, that the amount of financing contributed by the private partner exceeds the financing of the public partner.
- If, during the effective term of a PPP agreement, the applicable federal, regional and/or local laws and regulations are amended and this adversely affects the private partner, then the parties must review the provisions of the PPP agreement to restore the economic balance initially envisaged by the parties, as well as the property and financial interests of the private partner.
The PPP Law also generally defines such matters as the preparation of the PPP agreement, the content of the tender documentation, the tender procedures and control over the implementation of PPP projects. Under the PPP Law, some aspects of the implementation of PPP projects are to be regulated by subordinate legislation adopted by the Russian Government.
Despite the adoption of the PPP Law, some important issues still remain unresolved.
First of all, the PPP Law only applies to the types of Objects expressly listed in it. For example, public utilities (heat, water and gas supply facilities) are not mentioned in the PPP Law and, thus, the relevant PPP projects can only be implemented under the Concession Law. As a result, some proposals aimed at broadening the scope of the PPP Law are tabled regularly.
Secondly, the PPP Law does not expressly provide guarantees for the return on investment. Some limited income guarantees are mentioned only for those projects where the activity of the private partner is regulated and prices (tariffs) are fixed by public authorities, such as in waste infrastructure projects.
The Concession Law was adopted in 2005. Since then, it has been repeatedly amended in order to make it more practical to implement concession projects in various sectors.
The Concession Law applies to certain types of infrastructure such as roads and roadside utilities, pipelines, sea and river ports, airports, public utilities, railways, metros and other public transportation, and public health facilities.
The Concession Law sets out the general rules for entering into concession agreements, including the tendering rules and the material terms that these agreements must include.
In particular, under the Concession Law it is possible for an investor to initiate a concession project and enter into a concession agreement without a tender through a private finance initiative. The grounds on which the grantor may decline the offer of an investor to enter into a concession agreement are limited by law.
However, the Concession Law provides that a concession agreement can be concluded out of tender only if there are no applicants other than the investor.
Under the Concession Law, a change of concessionaire is permitted before the conceded object is commissioned, subject to the grantor’s consent.
Regional PPP legislation
Over the last decade, most Russian regions have adopted their own regional PPP laws in order to provide options for implementing PPP projects based on private ownership over the infrastructure objects. At the time, private ownership based schemes were either not provided for under federal law, or expressly prohibited by the Concession Law. The most notable example is the Saint Petersburg PPP law of 2006.
Significant regional projects implemented under the Saint Petersburg PPP law include the Western High-Speed Diameter and the Pulkovo Airport.
Whilst other Russian regions have followed Saint Petersburg’s example by adopting their own regional PPP laws, the adoption of the new federal PPP Law in July 2015 has significantly affected this practice.
Under the PPP Law (which is a federal law), the regional PPP laws may remain in force, but will have to be brought in line with provisions of the PPP Law by 2025.
In the meantime, all PPP projects implemented since 2016 are regulated by the PPP Law and not regional PPP laws. As a result, regional PPP laws remain applicable for the PPP projects that were initiated before 2016 and generally such projects are “grandfathered” by the PPP Law itself.
Alternative schemes or quasi-PPP
Alternative PPP schemes have been implemented in the past on the basis of other legislation, such as the investment contracts of the Budget Code, long-term leases with investment undertakings governed by the Civil Code, and public-private joint ventures based on the privatisation legislation as well as general civil and corporate law principles. These alternative schemes have always been questionable from a legal perspective. Consequently, some courts applied the Concession Law or the so-called “Public Procurement Law”1 with respect to such contracts, resulting in the cancellation of many projects. With the new PPP Law, the legality of some alternative schemes (i.e. those not provided for by the PPP Law or the Concession Law) is even more questionable, with the exception of those options expressly provided for by other federal legal acts or quasi-PPP projects that are managed not by the state authorities, but by state-controlled companies like FSUE Rosmorport or SC Russian Highways.
For example, the Public Procurement Law provides for the conclusion of life-cycle agreements for the (re)construction and operation of infrastructure. This option is available in Russia since Government Decree No. 1087 dated 28 November 2013 came into force. The Decree provides that life-cycle agreements may be used for the design and construction of roads, ports, communal utilities, waste management, rail objects as well as for the procurement of aircrafts, vessels and transport vehicles, including railway and metro cars. At the same time, in 2014, partially to avoid the application of the Public Procurement Law, the city of Moscow lawfully provided financing to its controlled enterprise, the Moscow Metro, which is not subject to the Public Procurement Law and may conduct more flexible tender procedures that still protect the best interests of the state, while making projects more attractive for investors and financing institutions. As a result of an open tender held by the Moscow Metro, several life-cycle contracts for the financing, manufacturing and maintenance for 30 years of more than 1,000 railcars were signed. Those agreements and tenders were based on best practices of the PPP market and general provisions of the Civil Code.
Another example of a PPP-like instrument that is now successfully in operation is the public-private joint venture established by the Russian Post and VTB Bank (AO NLT) aiming to construct cutting-edge logistics centres throughout Russia.
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