Infrastructure: in Search of Synergy
After months of discussion, the Argentine Congress finally passed the bill that will put in place a new scheme of Public-Private Partnership (PPP) contracts. This new regime, submitted by the National Executive Branch, seeks to allow a balanced and predictable cooperation between the public and private sectors.
In Argentina, the lack of investment in infrastructure is undeniable. The need for capital, technology, management and resources to address this deficit is so massive that neither the public nor the private sector alone can provide an adequate response to this challenging issue. And there is a great need for an attractive legal framework that is conductive to the long-awaited investment for both sectors.
Private Public Partnerships (PPPs) emerged in the United Kingdom in the early 70s, and rapidly expanded across the rest of Europe, North America and some Latin American countries (including Brazil, Mexico, Chile, Colombia, Peru and Uruguay,). Under this model, the private sector is allowed to engage in the supply of infrastructure assets and services that have traditionally been provided by the public sector.
Has the traditional system come to an end?
Not quite. The PPP regime constitutes an alternative to the classic public works contracting systems that excludes or limits the public law prerogatives of the administration: the power to unilaterally modify a contract, to terminate it for reasons of public interest, and to limit State liability, to name a few.
The recently approved bill broadly defines the potential scope of PPPs: infrastructure projects, housing, activities and services, productive investment, applied research and/or technological innovation, and related services.
The main provisions of the law (that has not been promulgated yet) are as follows:
- Alternative regime: PPPs constitute an alternative regime for public works that does not preclude the use of traditional systems, even though it is governed by its own terms and conditions.
- Flexibility in terms of legal structure: Allows for the assignment of receivables, granting of sureties, bails and other guarantees by solvent entities, and the creation of trusts, among others.
- Flexibility in terms of payment structure: Allows for mechanisms that the Argentine legal framework excludes for ordinary contracts, such as monetary updating and price indexation.
- Step-in rights: Loan agreements entered by the contractor may include step-in rights, i.e., in the event of default by the borrower, the PPP contract is assigned to the creditor or to eligible third parties.
- External audit: The parties to the contract may appoint independent auditors who will control and monitor the execution of projects.
- Consultation procedure: If the complexity or the amount of the project renders it necessary, the administration and pre-qualified companies may initiate competitive dialogues and exchange of views concerning the most appropriate solution to meet public needs in each particular case.
- Quantification of damages and compensation for early termination: In cases of early termination by the State, prior to the takeover of assets, compensation must be paid to the contractor and may never be less than the unamortized investment, guaranteeing the repayment of financing. The calculation of damages may include the possibility of claiming lost profits under the terms provided by the contract.
Ultimately, the challenge is to provide what is necessary for the PPP framework to become a suitable tool to channel private investment in public infrastructure.
At Marval, O’Farrell & Mairal we are uniquely positioned to advise and support investors and potential parties eager to seize the opportunities in PPP.
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