Romania: New Government Ordinance On PPPs: Is This The "Miracle" Legislative Solution Required To Finally Implement Large Scale PPPs In Romania?

Last Updated: 19 June 2018
Article by Bogdan Bibicu and Amalia De Ligenza

June 2018 – A new legal framework on public-private partnerships entered into force in Romania on 18 May 2018 after the publication in the Official Gazette of Government Emergency Ordinance No. 39/2018 on public-private partnership ("GEO No. 39/2018").

The government has presented GEO No. 39/2018 as the long awaited legislative solution that would allow the Romanian state to, inter alia, implement large-scale infrastructure projects, boost much-needed investments and ensure the absorption of EU funds after several failed attempts to provide a legal framework that would allow the implementation of PPP projects. In this context, only a few days after the entry into force of the new GEO No. 39/2018, the government was already announcing that major infrastructure projects that had long been on the agenda of Romanian authorities (including very high profile highways and hospitals), would be implemented under the new PPP legal framework.

But how is the new GEO No. 39/2018 different from the previous (now repealed) PPP legislation (i.e. Law No. 233/2016), under which no PPP project had been implemented?

In brief, the new GEO No. 39/2018 maintains the main principles set forth under the previous legislation, among which:

  • the PPP always involves the set-up of an SPV held either entirely by the private partner (in case of contractual PPPs) or by both public and private partners (in case of institutional PPPs);
  • the relatively long term of the contractual relationship between the public and private partner, in order to allow the private partner to recover its investment and obtain a reasonable profit, while not restraining competition over said period of time;
  • the relevant investment is to be financed completely or for the most part from private sources;
  • the possibility for the public partner to grant the SPV the right to collect tariffs from users;
  • the selection of the private partner is to be made further to an award procedure according to public procurement/services concession legislation;
  • more than 50% of the income of the future SPV is expected to come from payments made by the public partner or other public entities for the benefit thereof.

There are, however, some important differences to note:

  • The new GEO is "ready-to-go", as it does not require the issuance of implementation norms. This is a major advantage compared to the previous legislation, for which implementation norms have never been issued (this being one main reason for the lack of projects developed previously);
  • An extended scope. Under GEO No. 39/2018, the PPP is not limited to the development or extension of a public asset, but, alternatively, it could also concern the operation of a public service. Thus, the new PPP legal framework could also be used in the context where the provision of a public service does not require the development or the refurbishment/extension of a pre-existing public asset.
  • Risk allocation is to be made depending on the capacity of each party to the contract to evaluate, manage or control a given risk (not only by reference to such risk management capacity of the public partner).
  • The possibility for another public entity to undertake obligations/provide additional security towards the private partner/the SPV. This is a completely new provision (without equivalent in the previous legislation). Such additional support is nevertheless subject to certain requirements and, while it can be brought by the additional public entity after the selection of the private partner (or even after the conclusion of the PPP contract), it is allowed only if the payment or security obligation has been clearly, precisely and unequivocally regulated in the documentation of the award procedure. In all cases, the new public entity will become a party to the PPP contract;
  • The SPV may take any corporate form, not only that of a joint stock company as under the previous regulation;
  • Simplified approval process of PPP contracts compared to the previous regulation;
  • New provisions of interest for the financing entities:
  1. security over shares in the SPV and over receivables related to the PPP project may be created only in favour of financing entities that are credit or financial institutions;
  2. the possibility for the public partner to conclude direct agreements with the financing entities whereby creation of security and undertaking obligations towards the financing entities is expressly provided for the first time in Romanian PPP legislation;
  3. a different approach as regards the step-in right of the financing entities: in case of failure of the private partner or the SPV to comply with its contractual obligations, a new private partner is to be selected by the public partner according to the award procedures provided by relevant legislation and, at most, in case of the existence of a direct agreement, after prior consultation with the financing entities. Under the previous legislation, the financing entities had a right to choose the private partner themselves.

While GEO No. 39/2018 may not answer all the questions related to the best legislative solution for the implementation of PPPs, including, for example in terms of potential overlapping with other similar legal provisions (such as concession of services or delegation of services in the utilities sector), the changes brought by it hopefully have the potential to allow the government to implement PPP projects in Romania within the shortest possible timeframe, despite potential hurdles such as the fact that a dedicated fund for the financing of the public contribution to PPP projects should be set-up within one year.

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.

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