Public-Private Partnership


Public Private Partnership
Public Private Partnership


Bulgarian National Assembly has adopted the Public-Private Partnership Act (promulgated in State Gazette issue 45, dated 15th June 2012), which will be effective as of 1st January 2013. The law regulates the scope, the conditions and the procedures, related to the execution of a public-private partnership contract and envisages amendments in a number of other pieces of legislation such as the State Property Act, the Municipal Property Act, the Concession Act, the Physical Education and Sports Act.

1. Scope

Public-Private Partnership (PPP) is determined under the law as a long-term contractual collaboration between one or several public partners, on one side, and one or several private partners on the other side, to carry out activity of public interest for achieving better value for the invested public funds and allocation of risks between the partners. PPP is created for accomplishment of infrastructure projects, where the assignment of public procurement or concession is not possible due to legal restrictions, related to the impossibility of the public sector to provide financing of the activity or due to lack of income from the consumers of the services of public interest.
The area where the PPP is applicable covers services in public interest, which are usually carried out by the public partner. The undertaking of the private partner might consist of financing, construction, management and/or maintenance of state, municipal or private units, included in one of the following groups: (i) units of the technical infrastructure or the green system within or out of urbanised territories such as parking areas, garages, public transport units, surveillance systems, green areas; (ii) units within the social sphere activity such as healthcare, education, culture, sport, tourism, administrative activity of the public partner.
The units specified hereinabove may include land, buildings, installations, movable property or intellectual/industrial property rights and may be state, municipal, a public organisation’s or private partner’s property.
The law provides for restrictions for any of the partners to transfer the unit, subject of the public interest activity. Obligatory insurance for the unit is required.
Public procurements assigned under the Public Procurement Act, and the concessions assigned under the Concessions Act and the Subsurface Resources Act, are excluded from the scope of the Public-Private Partnership Act. As regards the concessions there is a possibility, if such determined as a condition with the resolution for the opening of the tender, the concession agreement to be executed with a newly established equity company which is a public-private company, in which the shareholders are the tenderer appointed as a concessioner and the state, a municipality, a public-private organisation and/or a public company.
The aim of PPP is to achieve balance between the advantages of the parties and the allocation of risks. The private partner carries out a certain activity of public interest and provides for its financing at an agreed rate of return of the capital. Public partner provides for financial support in the form of payments made to the private partner under the conditions set out in the State Aids Act or through provision of right allowing execution of additional commercial activity out of the scope of the particular project.
If the provision of rights by the public partner is made by establishment of limited rights in rem over properties or by renting of properties or parts thereof, the limitations regarding deadlines as set in the State Property Act and Municipal Property Act shall not apply.
Where the rights are granted for carrying out additional activity out of the scope of the particular project, such rights may not be granted over facilities and properties of public state or public municipal property.
The distribution of risk is negotiated between the parties; however the construction risk and the risk for services seeking should be always borne by the private partner.

2. Contract for PPP

For accomplishment of a project for PPP, it must be included in a prepared by the Council of Ministers Operation Plan for the respective year or in the municipal plan for carrying out PPP. Private partner under the project is to be chosen by a commission on the basis of economic criteria and under the terms and conditions set out in the Public Procurement Act. Procedure must be opened by a resolution of the Council of Ministers or a municipal council, where the minimum conditions of the PPP contract, the main rights and obligations of the parties and the maximum rate of return of each project should be determined. The resolution for opening the procedure for election of a private partner is published with the Register of the Public Procurements and with the Official Gazette of the European Union. The contract with the private partner, appointed in compliance with procedure described hereinabove, is executed for a period of 5 to 35 years.
A public partner – party to the PPP contract could be a minister of the competent ministry, a director of an administration, mayor of a municipality or a state or municipal public-private organisation. Respectively a private partner could only be an equity company (already existing or a newly established), which complies with the requirements under the law.
Where the tenderer selected as a private partner is not an equity company, and in case other conditions provided in the law are met, the PPP contract shall be concluded with a newly-established equity company (project company) in which the tenderer selected as a private partner, is the sole shareholder, or the participants in the union which is not a merchant are shareholders and own the entire capital in the proportion under their articles of association.
In case such is envisaged by the notice for the tender, the PPP contract should be executed with a public-private company, in which shareholders are the tenderer, appointed as a private partner, and the state, a municipality, a public-private organisation and/or a public enterprise.
The execution of the PPP contract with a public private company is based on the special features of the activity of public interest, which necessitate execution of a permanent control over the provision of the services of public interest, or on other circumstances, which lead to creation of PPP.
A public private company is managed by the private partner, however the public partner, irrespective of its share in the capital, has a blocking quota in making decisions regarding: amendments to the articles of association; increase or decrease of capital; transactions to dispose of property which constituted the non-cash contribution of the public partner; disposal of property over a certain value, etc.
The law provides for a possibility for the private partner to carry out one or more of the activities – subject of the PPP contract as a subcontractor.
The parties must stipulate the amount and sources of financing which will be made by the private partner, the rate of return, the conditions to determine the economic balance and the receiving by the public partner of the profit from the private partner, if it exceeds the negotiated rate, as well as other conditions according to the law.

3. Amendments to Other Pieces of Legislation

Along with the substantial amendments, which the Public Private Partnership Act has made in the State Property Act, Municipal Property Act and the Concessions Act, and which are directly related to the new possibilities, provided for in the new law, the Public Private Partnership Act has made amendments of other pieces of legislation as well, and such amendments might be of significant importance.
One of the substantial amendments according to the Transitional and Final Provisions of the Public Private Partnership Act are the amendments of the Physical Education and Sports Act, resulting in abolishment of the prohibition for granting concession over enumerated sports units of national importance, such as: “Vassil Lenski” National Stadium, “Diana” National Sports Complex, “Serdica” Cycle Racing Track, “Festivalna” Hall (all in Sofia), Palace of Culture and Sports in Varna, Canoe-Kayaking National Sports Base in Kurdjali, “Belmeken” Sports Complex, “Pioneer” Hut and “Seven Rila Lakes” Hut in Rila Mountain as well as many others.
Other amendments in the Physical Education and Sports Act provide for possibility for financing, construction, management and maintenance of sports units and objects of social tourism, which are state, municipal or public organisations’ property, to be accomplished through a public-private partnership under the new law.
An amendment in the Investment Promotion Act made by the Public Private Partnership Act regulates that the restriction for promotion of investments for fulfilment of concession contracts will remain effective only regarding the concession contracts for gaining of natural resources under the Concessions Act and the Subsurface Resources Act.
The legal regulation of the public private partnership is still not complete. A National Programme for Public Private Partnership and an Operational Plan for programme periods are to be adopted (until 30th June 2013), as well as an Ordinance must be issued by the Minister of Councils (until 1st January 2013), which should regulate the conditions and procedures for PPP planning, and the criteria for inclusion of PPP projects in the Operation plan/municipal plan. A Public Register to the Ministry of Finance, consisting of documents and information related to the PPP, should also be developed (until 30th June 2013).

Public-Private Partnership