New Developments in Public Private Partnership ("PPP") Legislation


Legal update No 525

Goltsblat BLP advises that Federal Law No. 224-FZ of 13 July 2015 “On Public Private Partnership in the Russian Federation and on Amendments to Certain Legislative Acts of the Russian Federation” (the “Law”) has been adopted.

The Law:

i. covers an exhaustive list of facilities, such as: highways, transport, healthcare facilities, etc.;

ii. regulates only PPP projects under which the title to a facility passes to the private partner;

iii. regulates only PPP new construction and reconstruction projects.

Russian legal entities controlled by the government may not act as a private partner. The private partner is chosen by a tender, which is regulated in detail. Projects may be implemented on the private party’s initiative. The Law sets out mandatory and supplementary elements of a PPP agreement that may be used as a basis for structuring a project and declares guarantees covering tariffs (mark-ups thereto), provision of budgetary funds, amendments to legal provisions, assistance in obtaining permits, the right of the private partner to suspend a project in the event of omissions by the public partner in certain cases, etc.

If funding by the public partner and the market value of the assets (rights) transferred thereby exceed the volume of private funding, the facility must be transferred into public ownership. A land plot (forested site, subsoil sector, water body) is transferred to the private partner on lease without a tender. A plot may not be bought out until the agreement expires.

A PPP agreement may be concluded only if a private partner finances creation of a facility fully or partially and ensures availability and better quality of goods, work and services. Compliance with this criterion is verified by assessing the efficiency of the project and identifying a “comparative advantage” (prior to using budget funds to perform public or municipal contract). A PPP agreement is to be concluded for at least three years.

Obligations to the public partner may be secured by a bank guarantee, pledge of rights under a bank account agreement or liability insurance. Should a private partner fail to fulfil its obligations, it may be changed by holding a tender or, in cases stipulated by law, without a tender. If the private partner is not changed within 360 days, the agreement is subject to early termination. A facility may be pledged only: (i) for the purpose of securing performance of obligations to the financing party; and (ii) with a foreclosure condition, but only if, within 180 days, the private partner has not been changed and the agreement has not been terminated by a court.

Relations arising out of preparation, conclusion, performance and termination of concession agreements establishing guarantees of rights and legitimate interests of parties to the concession agreement are still regulated by Federal Law No. 115-FZ of 21 July 2005 “On Concession Agreements”.

The Law comes into effect on 1 January 2016.

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