The latest amendments to the Law on Public-Private Partnership* (the “Law”) came into force on 1 January 2017. These together with other amendments adopted in 2016 which became effective earlier (the “Amendments”) are aimed at attracting investment not only in the Russian infrastructure sector, but also in the country’s industrial sector.
Eliminating the retroactivity risk
A controversial provision of the Law required the harmonisation of the regional PPP laws adopted by most Russian regions with the Law by 1 July 2016. The required process was not completed by the due date and, as a result, the harmonisation deadline was significantly extended to 1 January 2025.
The Amendments have eliminated the risk of the Law being interpreted as having retroactive effect (as we noted in our previous Alert), thus ensuring that the previously concluded agreements would not be affected. Now, Article 47 of the Law, as amended, expressly provides that the PPP agreements signed before the Law took effect will continue to be subject to the then-applicable regional laws, and will remain in effect ‘as is’. The new Law will apply only to those agreements concluded on or after 1 January 2016.
The elimination of the above risk has already been welcomed by foreign and Russian investors. On 29 September 2016, the acquisition of up to 50% (worth approx. EUR 500m) in the Pulkovo airport project implemented in Saint-Petersburg under a PPP agreement entered into in accordance with the regional law of Saint-Petersburg long before the adoption of the Law, was announced*.
Amendments aimed at improving the regulation of PPPs
Loosening requirements for private partners
The initial requirement that a private partner must have licences, certificates and approvals necessary for the performance of a PPP agreement at the time of its signing, no longer applies if such licences, certificates and approvals may only be obtained after the signing of the PPP agreement.
In addition, the Law initially required a private partner to confirm its compliance with the qualification criteria. Now, according to the Amendments, such confirmation may be provided not only by the bidding private partner itself, but also by entities acting on behalf of the bidder, such as:
- shareholders of the bidder holding at least 10% of the shares in the bidder (the “Shareholders”);
- companies in which the Shareholders hold, directly or indirectly, at least 10% of shares; and
- counterparties of the bidder who have concluded a memorandum of understanding providing for the performance of certain obligations of the private partner under the PPP agreement.
A simplified procedure for initiating a PPP project
As we previously reported, the Law initially set out a procedure for assessing the comparative advantage of a project, which was required for the implementation of a PPP project, but not provided for by the Concession Law. Market players heavily criticised the timeframe for the assessment as being too lengthy. Taking this criticism into account, the Amendments decreased the initial term of 180 days to 90 days.
In addition, taking into account that the private initiative mechanism under the Concession Law (please see our previous Alert) does not require the comparative advantage assessment and allows entering into a concession agreement with the initiator without a tender, the Amendments remove the compulsory nature of the project efficiency and comparative advantage values, based on which the project was assessed, if the project is to be implemented on a private initiative basis.
New PPP objects
The Amendments – which provide industrial investors with additional opportunities to structure their relations with the Russian state (besides the increasingly popular special investment contracts on which we previously reported) – have expanded the list of PPP objects by including industrial and/or other production assets. As a result, the PPP model can also be used to attract investments in the industrial sector.
By introducing the Amendments to the Law, the legislator has eliminated the risk of retroactive application of the Law and improved the regulatory environment of PPPs. This should make the Russian infrastructure and industrial sectors more attractive to investors.
* in Russian