The Cabinet of Ministers of the Republic of Uzbekistan adopted Decree approving the Regulation on the Procedure for Implementing Public-Private Partnership Projects (the Regulation)1. The document is developed and adopted in line with the Article 1 1 of the PPP Law2, which requires the Cabinet to create a single legal-procedural framework for the PPP projects in the country.
Definition to PPP: Public-private partnership is defined as "the legal cooperation of a public partner and a private partner based on the pooling of their resources for the implementation of a public-private partnership project". Distinctive element of PPP is its primary focus on solving economic, social and infrastructural problems.
The Regulation establishes the procedure for initiating, developing, reviewing all public-private partnership projects (hereinafter - PPPs); selecting a private partner; maintaining a registry of PPP projects; and reporting on their implementation. The Resolution defines the PPP object as "property and property complexes, and social infrastructure which are subject to designing, construction, creation, transfer, financing, reconstruction, modernization, operation and maintenance in the course of implementing PPP project, as well as the generating necessary works (services) and innovations". Such wide definition allows implementation of various forms of PPP structures. Notably, the Decree brings further clarity to some of the most important issues related to PPPs, introduces new requirements and time stringencies for potential implementers. Some of these examples are discussed below:
Project Cost
PPP Law separates the projects into three groups in terms of their monetary cost but it does not provide what is stipulated under the cost. The Decree sheds some light on this question by excluding price value of the land and other properties provided by the public partner from the cost of the project3. This definition shall not be applicable to those projects for which tender processes have already started prior to the adoption of the Regulation4.
Winning bidder
Under Article 26 of the PPP Law, it is the winning bidder who concludes PPP Agreement with the public partner. Interestingly, Article 3 of the Regulation defines the winning bidder as "a contracting authority who is selected as a result of a tender process". It is worth noting that a contracting authority is not the same as contracting party. Article 52 of the Regulation seems to support such definition by stating that "within 10 days from the date the winning bidder is officially announced, the PPP agreement must be signed between the parties"5. Similarly, a progressive interpretation of sides can be wide enough to include entities established by winning bidders, without necessarily obliging the bidder personally to conclude the PPP Agreement.
The current version of the PPP Law does not allow to conclude a PPP agreement with an SPV, established by the winning bidder. Therefore, if a private investor wants to participate in a PPP project, he must establish a project company prior to submitting his bid and, if the bid is unsuccessful, liquidate the company bearing all the associated costs. Such requirements are widely debated not to be compatible with international best practices and may influence investor decision to enter the market.
However, Article 53 provides that if the winning bidder does not conclude the PPP agreement within this period, tender commission shall extend an offer to a reserve winner. The wording in the latter may suggest that the intention of the drafters was in fact the winner (but not the entity established by the winner) shall become a party to the PPP agreement. It has to be noted that these debates are poorly an intellectual one rather than conceptual, as anything contrary to the PPP Law would be in violation of the Law and not acceptable.
Timing
As stated above, Article 52 of the Regulation sets a 10-day limit to conclude the PPP agreement. If the winner is not able to conclude the Agreement with the public partner within this 10-day period, the tender commission adopts the decision announcing the reserve winner as the winner and will send an offer to it to conclude PPP agreement with the public partner. Interestingly, the reserve partner has 30 days in its disposal to conclude the agreement from the date the offer is sent to him. From practical point of view, the 10-day period is yet to prove itself as a sufficient time-frame to conclude such complex document as PPP agreement.
Project Assessment Document
In addition to the requirements set by the PPP Law for initiating PPP project, the Regulation stipulates development and submission for approval of a so called Project Assessment Document (PAD) alongside with the Project Concept. The document must be prepared in accordance with the template provided in Annex 2 of the Regulation. The documents shall incorporate data on:
- economic
- financial
- social
- market research
- technical and technological
- environmental
- institutional
- design and construction
- legal structure of the transaction and
- types of government support.
In terms of the content and quality of the information, PAD resembles full-fledged feasibility study. Accordingly, if the feasibility study for the prosed project has already been conducted and approved, initiator does not have to submit PAD6. To produce a study of this scale during the concept development/approval stage requires commitment of substantial amount of investment from project initiators. The question to what extent such burden is readily acceptable by the project initiators at the earliest stage of project development remains open.
Price (tariffs) formulation
The Regulation sets unified methods of determining prices for goods and services produced/delivered under PPP projects7. Such goods and services are divided into two groups: 1) goods and services classified as monopoly and natural monopoly; and 2) other (non-monopoly) goods and services.
Prices (tariffs) for the first group are determined either with the approval of the Ministry of Finance or its territorial branches upon a written request by the potential public partner; or by the decisions of the President of the Republic of Uzbekistan.
Prices (tariffs) for the second group are determined mutually between a potential public and a private partner, while taking into account the requirements of the Regulation on Composition of Costs for Production and Sales of Products (Works and Services) and on the Procedure for Forming Financial Results approved by the Decree No.54 of the Cabinet of Ministers from 05.02.19998 and other legal-normative acts.
If, during the lifespan of the project, conditions become substantially different from those which existed in times of determining a particular price (tariff), the private partner will have the right to initiate the process of reconsidering the price (tariffs). Such provision becomes an implied term of any future PPP agreement, even if it is not incorporated in the agreement. However, what will be the circumstance if the parties do not achieve agreement on a new price (tariff) is not clarified in the Regulation. Preferably, such provisions are best if dealt by the parties prior to conclusion of the Agreement and duly incorporated in the Agreement.
Concluding remarks
Despite the above mentioned concerns the Decree, by approving Regulation on the implementation of public-private projects, will certainly improve the legal framework for initiating, developing and approving the public-private partnership projects in the country. The Regulation provides a template for the project concept and, by doing so, brings clarity how such an important document should look like. Furthermore, although some ambiguous moments exist, the Regulation defines the role and responsibility to act within defined time-frames for each Governmental body who is involved in the process of project development.
Footnotes
1. Decree of the Cabinet of Ministers of the Republic of Uzbekistan "On Improving the Procedure for Implementing Public-Private Projects", dated on 26/10/2020 No.-259.
.2 Law of the Republic of Uzbekistan "On Public-Private Partnership", dated 05/10/2019. No.-537 https://lex.uz/docs/4329272
3. Article 2, para. 2
4. Article 2, para. 3
6. Article 12, para. 2, Regulation
7. Article 71-74, Regulation
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