Print This Post
The end of 2010 saw the introduction of a new law to regulate public-private partnerships (PPP) in Romania. PPP has been seen as an alternative means of financing public projects, especially in areas such as transport and public utilities, at a time when the authorities were facing a shortfall in public funding, and the lack of necessary skills and commitment formed serious obstacles to accessing EU money.
A PPP model should offer a suitable alternative not only to the traditional framework of public financing, but also to the public management of projects and, in particular, of project-related risks.
PPP has emerged as a successful strategy to finance public projects in Europe since the late 1980s and more recently in the US. PPP models have been developed to satisfy various project needs – DBO, BOT and DBOT, to name just a few.
Romania used to have a specific PPP law. In 2002 there were great expectations from the Government Ordinance No. 16, but its implementation failed, due to a lack of transparency, clarity and consistency with other legislation. Following criticism from the EU Commission, the ordinance was repealed in 2006 by Government Emergency Ordinance No. 34, which set out the general framework applicable to procurement and concessions.
Was a New PPP Law Necessary?
Historical and recent failures in the development of public projects, especially in road transport, made the calls for suitable PPP legislation more urgent. Such concerns have been heightened by the economic downturn and financial crisis, especially since the Romanian economy and availability of public finance show no signs of getting back on track anytime soon. Legislation is definitely important in all areas, including PPP. Lawmakers can set in place the ground rules that involve the private sector to the advantage of PPP and satisfy the public interest. But the actual implementation of PPP and successful project development based on PPP models depend more on political will and the administrative capabilities of the public authorities.
Unfortunately, experience over the past decade has shown that PPP failure in Romania was not primarily caused by the lack of proper legislation, but rather by the authorities not having the necessary experience, expertise and, sometimes, willingness to assume responsibility for handling complex arrangements such as those of a PPP project. While many have voiced their desire for PPP projects and various initiatives have been put in place each year, officials have not used the available legislation for the implementation of PPP projects to its best effect – and sometimes not at all.
The fact that Government Emergency Ordinance No. 34/2006 neither developed nor even defined PPP as a concept did not preclude the implementation of PPP projects.This legislation regulated concessions of public works and services, under the general procurement framework, and it could have accommodated PPP contracts relatively easily.
The DBOT contract signed for the Comarnic-Braşov highway is illustrative of a PPP type project developed under the concession models set forth by Government Emergency Ordinance No. 34/2006. The project failed, unfortunately, but due to the lack of finance and not because the legal support was not available.
Flaws in the New PPP Law
Although Law No. 178/2010 was drawn up with the specific aim of boosting private sector involvement in financing public projects and offering the public authorities funding alternatives, investors were initially cautious while legal practitioners voiced numerous objections.
To start with, it is not clear to which contracts the new law is supposed to apply. The envisaged model of relationship between public and private partners is similar to the one regulated as a concession in Government Emergency Ordinance No. 34/2010 (which is still in force). And yet at the same time Law No. 178/2010 expressly states that it shall not apply to contracts governed by Government Emergency Ordinance No. 34/2006.
Which invites the question, to which contracts does it apply?
The only substantial difference in the two pieces of legislation is the setting up of so called project companies, to be held jointly by the public and private partners. The project company is expressly regulated by Law No. 178/2010, but the establishment of such a project vehicle is not forbidden and so should be possible under Government Emergency Ordinance No. 34/2006 too.
Another key issue is the procedure by which the private investor is selected and the PPP contract awarded. Under Law No. 178/2010, the selection procedure is largely left to the contracting authorities, as the minimum procedural terms set down are very brief. This would leave scope for the very principles of the law to be neglected, as the authorities’ commitment to transparency and fair competition when awarding public projects is usually questionable.
Consequently, the projects awarded under the new law are likely to often generate controversy.
Consequences
Law No. 178/2010 was approved in spite of criticism from the EU Commission and its first draft being rejected by the Presidency and sent back to Parliament. Furthermore, it appears that Romania will face an infringement procedure brought by the EU Commission as a result of the flaws in this law.
Under these circumstances, is it likely that the new law will achieve its goals? Once again, the authorities will probably blame the failure of public projects on the lack of, or bad, legislation, when they should instead look at their own commitments and capabilities.
