Important Developments in the PPP Legislation in 2015

17.12.2014

Legal Update No. 486

Goltsblat BLP advises that 2015 will see enactment of Federal Laws No. 265-FZ of 21 July 2014 "On Amending the Federal Law "On Concession Agreements" and Certain Legislative Acts of the Russian Federation" and No. 171-FZ of 23 June 2014 "On Amending the Land Code and Certain Legislative Acts of the Russian Federation" (the key amendments will apply from 1 February and 1 March 2015, respectively).

The above laws contain important provisions designed to lift impediments to use of various forms of PPP, to extend application of concession agreements, to create a favourable environment for private equity investments and to remove administrative barriers. Moreover, the land legislation is to be materially changed thereunder. 


Law developments taking effect on 1 February 2015

Specification of facilities that may be covered by concession agreements.

Such facilities as transport stops (as road infrastructure elements), production and consumption waste treatment works and public service facilities have now been added to the earlier listed facilities for which concession agreements may be made.  As you might recall, the legislation gives an exhaustive list of potential concession facilities.

Assignment by the concessionaire

The parties to a concession agreement may be changed subject to the concessionaire's consent before the concession facility is commissioned.  Previously, this was only possible after commissioning.

Joint tender

Joint tenders may now be held if the concession agreement plan consists in having a facility built and/or reconstructed such that its parts will be owned by different public law entities (regions, municipalities). This provision bears, inter alia, on construction of major linear facilities on territory owned by a number of public-law entities.

Additional guarantees of the concessionaire's rights

New provisions are introduced regulating amendments to the material terms of the concession agreement if completion by the set deadlines is impossible owing to: (i) force majeure; (ii) substantial change of circumstances; (iii) decisions or acts (omissions) of federal, regional or local government authorities.

Under the above circumstances, the concession grantor must consider the concessionaire's requests to change the material terms of the agreement and adopt a relevant decision within 30 days.  If this decision is to affect budget revenues (expenditures), it should be made in consideration of the budget legislation. Failure to discharge this obligation entitles the concessionaire to suspend performance of the agreement.

If regulations are adopted resulting in an increase in the concessionaire's total tax burden or a deterioration in its position such that it is largely deprived of the benefits to which it was entitled, the concession grantor must take steps to ensure that the investments pay back and that the relevant gross income is received (not less than originally determined).

The concession grantor's obligation is secured to provide a short listed bidder with an exhaustive list of details of the potential concession facility and to grant it access thereto. 

Concession  payment

The general provision is taken out allowing concession agreements not to specify any concession payment unless they are concluded for heat supply facilities, central hot or cold water supply and/or waste water disposal systems or certain facilities included therein.   Even so, if concession payment is actually prescribed for the above facilities, its maximum must be determined on the basis of the concession grantor being compensated for the costs it incurs throughout the term of the concession agreement in making statutory payments pertaining to its possession right to the concession facility.

Performance Security

The concessionaire's rights may be used to secure obligations with respect to any facilities (not only road transport or utility infrastructure facilities).

Material breach of the concession agreement

Events recognised as material breaches by the concessionaire of the terms of the concession agreement are specified in the concessionaire's favour. For instance, (i) violations of the deadlines for building and/or reconstructing the facility will be recognised as material only if they have occurred at the fault of the concessionaire; (ii) failure to perform the activities prescribed by the concession agreement will be considered as material only if this causes significant losses; (iii) termination or suspension by the concessionaire of its activities as a result of the concession grantor defaulting on its obligations with respect to amending the material terms of the agreement will not be considered as a material breach. 

As you might recall, if the concessionaire breaches the terms of the concession agreement materially, this gives grounds for the agreement to be terminated by a relevant court decision at the concession grantor's demand. 

Payment by the concession grantor

The concession grantor may remit payments with respect to any facilities covered by the concession agreement (not only road transport infrastructure) if such a payment is prescribed by the tender criteria. Please note, however, that this criterion may only be used in the cases stipulated by the legislation. Moreover, the provisions previously prohibiting the concessionaire from claiming payments for building, reconstruction or operation of the facility covered by the concession agreement from third parties have been taken out.

The payment by the concession grantor must, for each year of the concession agreement, be calculated as the sum of the concession grantor funded costs for building and/or reconstructing the facility under the concession agreement, which are to be covered fully by the concession grantor's payment.  This rule applies if all the following conditions are met:  (i) the subject of the agreement covers utility infrastructure systems and public utility facilities; (ii) the decision is made that the concession grantor's payment be remitted; (iii) the concessionaire sells goods, works or services at regulated rates (tariffs) or inclusive of mark-ups.

Concession agreements concluded on a "no-tender" basis

The list of events when concession agreements may be made without tender is extended. For instance, if the conditions stipulated by the legislation are met, concession agreements may now be made, on a no tender basis, with respect to assets constituting part of the central heating or hot or cold water supply and/or waste water disposal system transferred to a person for possession and use under several leases duly concluded before 1 January 2010.

Concession agreement extension
The term of the concession agreement may now be extended for up to 5 years by a competent authority decision, such extension to be agreed with the antitrust authority if the concession grantor is a constituent entity of the Russian Federation or a municipality.

Other provisions

Other provisions are introduced, including ones relating to how the term of the concession agreement is to be determined, to the procedure for extending it and for posting information and protocols for tender purposes, to concession agreement forms to be approved, to material terms, etc. 

Law developments taking effect on 01 March 2015

Concession: land allocation without tender

It is expressly specified that concessionaires may take on lease, on a no tender basis, land plots needed for the activities specified by the concession agreement. Previously, clauses regulating allocation of land plots to concessionaires were only found in the concession agreement legislation with reference to the land legislation, which did not, however, expressly provide for allocation of land plots without tender. It is specified that the land plot is allocated for the term of the concession agreement.

PPP: land allocation without tender

Under the new developments, state or municipally owned land plots may be leased out without tender if they are intended for accommodating social and cultural or community and residential facilities or are needed for major investment projects in cases specified by law.

These provisions will allow PPP forms to be used beyond the scope of the concession agreement legislation, their application having previously been prevented by the need to comply with the land legislation regulating provision of land plots for construction purposes (including special tender rules).

At the same time, in order to use this opportunity, relevant regulations will need to be adopted by the Russian Government, government authorities of the constituent entities of the Russian Federation and municipalities.  For instance, land plots may be leased out without tender if:

  • they are leased out to companies as directed by the Government of the Russian Federation for accommodating social and cultural facilities or within the scope of major investment projects, subject to such facilities or projects meeting the criteria specified by the RF government.
  • they are leased out for accommodating social and cultural facilities or within the scope of major investment projects, subject to such facilities or projects meeting the criteria specified by laws of the constituent entities of the Russian Federation, as directed by the highest official thereof.
  • they are allocated as part of Russia's international obligations or to companies for the purpose of accommodating power-, heat-, gas - or water supply or waste water or communications facilities or oil pipelines of federal, regional or local significance.


Law developments taking effect on 01 May 2015

Privatising concession agreement facilities

If the facility covered by the concession agreement is entered in the forecast privatisation plan (programme) (privatisation planning document), the concessionaire will, throughout the term of the concession agreement, enjoy the pre-emptive right to buy out, provided the concession agreement is performed conscientiously. The relevant provisions have been also introduced into the privatization legislation and will take effect on 1 February 2015.

Federal, regional and local government authorities must approve annual lists of potential concession facilities by 1 February of the current year and post such lists on the Internet as per the established procedure. If a facility is not listed, this will not prevent a concession agreement from being concluded on an interested party's initiative.

Concession agreement conclusion on the initiative of an interested party

A concession agreement may be concluded on the initiative of an interested applicant subject to a proposal to conclude such an agreement being duly posted on the official web-site and no bids announcing readiness to make a tender proposal being received within 45 days of the posting date. If such bids are received within the above time frame, the concession agreement is concluded by tender as per the established procedure.

Prior to sending a proposal to sign a concession agreement, the initiator may engage in negotiations with a competent authority over the drafting of the concession agreement.

Concession agreements for several facilities

Concession agreements may be signed for a number of facilities if this does not prevent, restrict or cancel competition. Even so, this is not possible for heat supply facilities, central hot or cold water supply and/or waste water disposal systems or certain facilities forming part thereof if the relevant services are sold at regulated prices (tariffs) and/or inclusive of mark-ups. 

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