“PPP Law Required Correction”

Denis Kachkin, the Managing Partner at Kachkin & Partners, notices that due to the successful PPP development in St. Petersburg that other regions attempted to copy it, which made the process of implementation of such a form of cooperation between the authorities and business practically irreversible.

The current Petersburg law on public and private partnership will be readjusted in accordance with the federal one that came into force at the beginning of the year. However, according to a number of experts, the all-Russian legal document still has flaws and needs finalization.

This January, Federal law No. 224 On Public and Private Partnership came into force. The document determines the main mechanisms of interaction between government authorities and non-governmental organizations on the implementation of large infrastructure projects. It took about five years to prepare it, including two years of refining by the State Duma deputies.

Final Variant

According to specialists, the adoption of the law is a positive factor for business development and attraction of private investments into regions. The legal document determines a full list of public infrastructure facilities that may be subjects of an agreement on PPP.

Lawyers point out that this law virtually generalizes the accumulated experience of the law enforcement practice at the federal level and finally creates a unified basis for uniform regulation of relations, which undoubtedly refers to the advantages of the law.

Meanwhile, for the effective regional laws on PPP the entry into force of the federal law means that any agreement concluded after January 1, 2016 at the regional and municipal levels must correspond to the all-Russian legal document. Besides, till July 1 of this year, all subjects of the RF will be obliged to bring regional legislation into compliance with the norms of the federal law.

According to Denis Kachkin, managing partner and head of infrastructure and PPP at Kachkin & Partners, in general one may state that the Petersburg law on PPP, having existed for almost 10 years, has fully fulfilled its function. It is precisely due to the successful PPP development in St. Petersburg that other regions attempted to copy it, which made the process of implementation of such a form of cooperation between the authorities and business practically irreversible.

«Initially the concept of the federal law was a framework one. Or how they also like to call it, an umbrella one, that is the one that provides the subjects of the RF with rather wide powers in the part of regulating the public private partnership relations at a regional level. Although as a Russian nursery rhyme says «while on route a dog managed to grow up», and now we have a full-fledged directly effective law. In essence it removes the necessity in regional legislation. Consulting different regions of the RF and analyzing local normative documents, we practically everywhere come to a conclusion that it is rational to abolish regional laws and adopt a number of by-laws capable of fully satisfying regional needs in regulation, instead,» concludes Denis Kachkin.

Petersburg Format

Many experts note that the Petersburg law on PPP was good, and point out the shortcomings of the federal one. Thus, Vladimir Avdeyev, the executive director of ANCO (Autonomous Non-Commercial Organization) Strategic Partnership North-West, reminds that under the regional legislation there were successfully developed such large-scale projects as the reconstruction of Pulkovo Airport and the construction of the Western High-Speed Diameter. However, despite the fact that the Petersburg law on PPP is more flexible in many ways, it should comply with the federal one which is challengeable. The document contains a lot of unsolved issues on the implementation technique.

«The expert council working group of ANCO Strategic Partnership North-West prepared remarks and proposals on 224-FZ and sent them to the State Duma and the Ministry of Economic Development of the Russian Federation. I’d like to note that the federal law, unlike the Petersburg one, forbids to conclude contracts with foreign partners, state companies, natural persons and individual entrepreneurs. Meanwhile, the biggest investors of the city PPP projects are banks with public ownership,» reminded Vladimir Avdeyev.

Tatyana Tereschenko, an attorney, head of analytical line at the Prime Advice. Saint Petersburg law office, notes that there are differences in Petersburg and federal legislation regarding the time frame. «According to the all-Russian document, a PPP agreement is a civil and legal contract between a public partner and a private partner concluded for a period of three years at least. Consequently, from January 1, 2016, the PPP agreements in principle cannot be concluded for a period of less than three years, which, as may be supposed, is conditioned by considerations of providing the efficiency of projects implementation in the long run. However the Petersburg PPP law does not contain such a restriction as to the minimum acceptable term, although it recognizes it as a fundamental term of the agreement. This proves that certain amendments and changes are necessary.

«In whole, effectiveness of the rules formalized in the federal law on PPP will be demonstrated by their use. Most probably, in this or that way they will be adjusted, taking into consideration the so-called regional legislation at the level of the RF subjects, which has been formed in the last 10 years and is oriented at the needs and requirements of a certain region. That is both an actual advantage of regional legislation and at the same time its shortcoming, as the absence of a unified federal legal base of regulation is objectively a source of internal contradictions,» stresses Tatyana Tereschenko.

Risk Factors

However, according to specialists, participation in PPP is inevitably associated both with common risks characteristic of any investment projects, e.i. managerial, construction ones, and, in view of a public subject participation, with political and macroeconomic ones. According to Tatyana Tereschenko, they may render null such advantages of participation in PPP projects as a guaranteed receipt of profit, reputation rating increase, etc. For example, referring to a change in political environment, a public partner may announce their inability to perform their obligations, and a private partner can in no manner influence the occurrence of such a situation. The expert thinks that one way to possible defense in the event of such risks is not only inclusion of special guarantees and compensations for a private investor into a PPP agreement, but as well normative consolidation of such guarantees enforceability with regard to the provisions of budget legislation.

Denis Kachkin adds that we have approached the stage of problems in PPP projects implementation quite recently – we have not so many set-up projects, all the more those that have passed investment phase and are being implemented. «Each case is unique and deserves separate detailed analysis – let’s take for example the recent situation with 12-ton trucks due to which general public got to learn for the first time what a concession is. At the same time, the overwhelming majority of problems in PPP projects are connected with the low quality of their preparation. We indeed take up popular tendencies quickly, and the trend for PPP is indisputable. And further on everything is as at the end of the well-known video about Louboutin shoes and fashionable trousers (the music video to “Exhibit” by the St. Petersburg band Leningrad – translator’s note). It is considered normal to copy documentation for kindergartens, for example, and to «adopt» it for gas supply. Surely I do not speak right now of St. Petersburg and Leningrad Region that really succeeded in structuring complicated infrastructure projects,» he points out.

In the expert’s opinion, today the project structuring takes place in complex external-economic conditions when long-term financing and attraction of investments become a real challenge. Nevertheless, the mechanisms of overcoming such risks as currency fluctuations and high inflation already exist and are used in the most successful practices.

By the way:

Currently local PPP laws are in force in 68 regions. In 4 more regions they are considered developed. However, only in 20 regions PPP programs are actively in used. St. Petersburg is deemed a flagship among such regions.

By Maxim Yelansky

The article was published in Construction Weekly N 5 (685) of 29.02.2016

Denis Kachkin

Managing Partner
Head of Infrastructure and PPP Practice
Head of Joint Department at HSE University in Saint Petersburg, attorney

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Denis Kachkin

Managing Partner
Head of Infrastructure and PPP Practice
Head of Joint Department at HSE University in Saint Petersburg, attorney

Download VCARD