United States: The Public-Private Partnership As A New Tool For Infrastructure Development In Argentina

Last Updated: August 17 2016
Article by Andrew J. Markus

By Santiago Carregal, Lorena Schiariti & Enrique Veramendi

The Federal Executive Branch (known by the Spanish acronym, PEN) of the Argentine government recently submitted to the Argentine Congress a bill seeking approval of a new Public-Private Partnership (PPP) framework. This regime is seen as a new legal tool to help address the country's existing infrastructure deficit and make banks and multilateral lending agencies more interested in financing public works.

Congress is expected to discuss this initiative in the coming weeks and, if approved, the new legal framework for PPPs may be applied to several infrastructure projects throughout Argentina.

PPPs and their strategic importance

The lack of investment in Argentina's infrastructure is so deep and the need for capital, technology, management, and resources to overcome this deficit is so massive that neither the public nor private sector alone can provide a solution. The Argentine government is, accordingly, seeking ways to provide the infrastructure required for the country's needs.

In the United States, the need for infrastructure repair and improvement is also deep and massive. State governments have used the PPP model to encourage private investment in infrastructure as an alternative to the standard model of public procurement. It has been argued that models involving an enhanced role for the private sector, with a single private sector organization taking responsibility for most aspects of service provisions for a given project, could yield an improved allocation of risk and allow for accelerated project completion while maintaining public accountability for essential aspects of service provision.

Both the U.S. and Argentine governments were well aware of PPPs' use in the U.K. during the early seventies. Until then, the classic conception of public contracting, with the private sector providing a service directly to the public sector on a bid basis, prevailed. With the advent of PPPs, the model shifted to a sharing of responsibility and risk. The greatest advantage for the public sector is that the works are financed by the private sector. The works are paid for over time by the state through a periodical fee in consideration for the service provided by the private party as long as the service meets pre-established standards. This not only defers the budgetary impact of the project's cost, but also promotes intergenerational solidarity in its financing.

PPPs are an alternative to the classic public works contracting system in Argentina in which the state usually designs, finances, operates and pays, while the private party only builds. The framework submitted by the PEN also implies a shift in the traditional paradigm on public contracts, as it excludes or limits the public law prerogatives of the administration (including, the power to unilaterally modify the contract; to terminate it for reasons of public interest; to force the private contractor to continue with the performance of the contract despite the state's lack of compliance as to its own obligations; and the limitation of state liability).

In Argentina, two regulations were previously enacted to govern PPPs, neither of which was ultimately used: Decree No. 1299/2000 and Decree No. 967/2005. The first was an excellent framework but because of the vagaries of timing as to both the international economy and Argentine politics, it was never used. The second resulted in a deficient regulation despite having been issued in an excellent international context with an abundance of capital available for emerging markets and historically favorable trade terms for Argentina.

Main provisions of the Executive Branch's PPP bill

The bill submitted by the PEN represents a substantial improvement over the current PPP framework established by Decree No. 967/2005.

The new framework includes many elements that were included in Decree No. 1299/00. For instance, it allows contracts to be assigned, thereby permitting structured financing for projects.

The bill is relatively short and allows for its provisions to be implemented through its subsequent regulations. It also allows the project to be governed by the terms of the solicitation of bids and the ultimate concession agreement.

The bill also defines PPPs broadly. They can include contracts for construction, supply, maintenance, management and/or operation of projects and thus, are not limited to infrastructure projects.

The bill's main provisions follow:

Alternative regime. PPPs constitute an alternative regime for public works contracting depending on what the public authority deems the most efficient way to accomplish a public project. Traditional methods of accomplishing public projects are not precluded.

Regulatory framework. The legal framework will be completed through the implementing regulations as well as the bidding terms and the provisions of the contract. Neither the Public Works Law No. 13,064, nor the Concession of Public Works Law No. 17,520, nor the Public Procurement Decree No. 1023/01 will be applicable to projects governed by the PPP regime.

Flexibility in legal structure. The entity undertaking a project may be an existing company or a special purpose vehicle (SPV) formed solely for the purpose of undertaking the project. The PEN may have an ownership interest in the SPV. Corporations (including SPVs) created under the PPP framework can be publicly offered under the Capital Markets Law No. 26,831, a potentially important tool in seeking a wider financing net.

Flexibility in guarantee structures. The bill allows the assignment of receivables and contractual rights. It also allows insurance or other guarantees (whether from local or foreign entities) to be used. It provides for the ability to create trusts with a financial entity as trustee as a way to secure funding lent to the SPV and to assure the payment of loan funding from a segregated source. Trusts must have a specified minimum liquidity during the term of the PPP contract. Also, they must hold certain assets specified by law and may issue securities thus allowing an assured flow of funds for loan repayment.

One issue Congress must still address is that the Civil and Commercial Code requires that assignments of credits where the consideration is wholly or partially backed by fees or rates to be paid by users, must be formally notified to the users, in order for the assignment to be enforceable against third parties. This requirement should be eliminated in PPP contracts as it has previously represented an obstacle for financing projects such as toll roads or gas distribution networks where such notification was —and remains— unworkable because of the large number of users. We suggest replacing this mechanism with a publication of the assignment in the Official Gazette and, if necessary, in a newspaper in the project's jurisdiction.

Flexibility in the contractor's remuneration. Financing long-term projects in Argentine pesos, a currency exposed to inflation, is impossible unless the regime allows for price redetermination mechanisms. For this reason, the bill expressly excludes the prohibition of indexation set forth by Convertibility Law 23,928. Moreover, the parties may agree that the consideration be payable in foreign currency. The consideration structure provides the possibility of assigning funds resulting from credit operations or taxes; the creation of surface rights and/or use of any other contributions made by the state. Finally, the contractor has the right that the original economic balance of the contract be preserved. Hence, changes to the initial cost-benefit structure of the project imposed by the government within the limits permitted by law, must be compensated accordingly.

Step-in rights. Loan agreements entered by the contractor may include step-in rights, meaning that, should the borrowers default, the PPP contract will be assigned to the creditor or to eligible third parties, subject to the procedures to be established in the contract.

Possibility of appointing independent technical auditors. The parties to the contract may appoint independent technical auditors who will effectively control and monitor the execution of projects in order to determine whether the consideration paid to the party in charge of the project has accrued. The contract may specify that if the administration does not agree with the auditors' determination, this will not preclude the payment of the consideration, which will remain in a trust until the dispute is solved.

Competitive dialogue. This concept, often used in the United States, is novel in Argentina. It is a way to arrive at solutions for a contract's content when the PEN knows what it wants to achieve but is unsure what methods would be the most effective to reach its goals. By having a dialogue with the possible contracting parties, the PEN can determine which solutions are best, and formulate the final request for proposal accordingly.

Quantification of damages in case of breach by the parties. Under the new law, the parties' liability for breach of contract will be as set forth in the Argentine Civil and Commercial Code but also governed by the provisions of the bidding terms and the resulting concession contract. The damages calculation may include the possibility of lost profits damages if included in the concession contract.

Compensation for early termination. The contract will set the scope of compensation in cases of termination for reasons of public interest, as well as its determination and method of payment. All such compensation must be paid prior to the takeover of assets. Rules limiting the state's liability are inapplicable.

Dispute resolution. Arbitration. Technical or any other kinds of disputes arising out of PPP contracts may be submitted to technical panels or arbitral tribunals. This is becoming more commonly used in U.S. PPP contracts. Under the new law, review of the merits of the arbitral award by the local courts is prohibited. Arbitration may take place outside of Argentina.

Final Comments

This new regime seeks, essentially, to allow a balanced and predictable collaboration between the public and private sectors, allocating project risk in a reasonable and efficient way between the parties. Once approved by the Argentine Congress, it will represent a positive change by limiting the ability of government to override agreed contractual relations. Assuming regulations consistent with the intent of the new law, it will then be possible for Argentina to capitalize on the worldwide trend toward using public private partnerships and move forward with the construction of needed infrastructure to benefit its citizens.

Santiago Carregal, Lorena Schiariti & Enrique Veramendi are members of the Argentinian law firm Marval, O'Farrell & Mairal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions