Public-private partnerships in the construction sector

The legal grounds for the development of certain forms of public-private partnerships (PPP) have been forming in Ukraine for quite some time.

To put it simply, PPPs are contract-based, long-term arrangements between public authorities or local self-governments and privately-owned legal entities with the purpose of attracting investment, development, introduction and management of public facilities and services traditionally provided by the public sector.

Pursuant to Article five of the Law of Ukraine on PPPs, the following forms of PPPs are envisaged: concession agreements; property management agreements (provided that the private partner also has investment obligations); agreements on joint activities; other agreements (mixed agreements).

Concession agreements

On Oct. 3, 2019, the Law of Ukraine on Concession was adopted to improve legal regulation of concession activity and harmonize legislation in the sphere of PPPs.

Under a concession agreement, a private partner (concession holder) receives exclusive rights from the state for operation, servicing, investment and obtaining profits from a state-owned asset. For this, he pays either a fixed amount or a percentage of profit or asset value to the state (concessor).

The key advantages of Ukraine’s new law on concessions are provisions for determination and establishment of procedures for initiating partnerships, tenders on selection of the private partner and settlement of other organizational issues and the establishment of clear procedures for this form of PPPs.

In addition, the new law envisages a number of guarantees for the protection of participants of PPPs, in particular guarantees for concession holders and creditors (the right to replace a concession holder with a different one, availability of special or exclusive rights of the concession holder, etc.); simplification of the procedure of allocation of land plots for the PPP projects; procedures for transforming leases into concessions upon the request of leaseholder; the possibility of free choice in dispute settlement mechanisms and the exclusion of the effect of the law on public procurement of concessions.

Property management agreement

Considering the possibility of a property management agreement for the implementation of a PPP project, one should take into account the typical features of such mechanisms.

In particular:

– The legislation does not contain special norms that would determine peculiarities of legal relations in terms of property management as one of the forms of a public-private partnership;

– The absence of successful and widely used practices for implementing property management projects in Ukraine, in particular in the sphere of public utility property;

– The necessity of making a payment to a manager and the absence of grounds for carrying out improvements to property, which is managed by a private partner.

Agreement on joint activities

A typical example of a joint activity project that uses the PPP mechanism on regional and local levels include residential construction projects under which a private partner undertakes to plan, build and finance all design and development works while a local government grants the right to use the land plot and ensures the necessary documents are issued according to local regulations.

After the completion of construction, the territorial community then gains municipal ownership rights for certain parts of the residential building (for example, a specific number of apartments provided for the specific needs of residents) or gains the right to use such facilities on privileged conditions/free of charge.

Mixed agreements in PPPs

Ukrainian law does not provide a clear definition of a mixed agreement, only envisaging the possibility of a conclusion to an agreement by the parties that contains elements of different agreements (a mixed agreement).

An investment agreement is one of the most popular forms of a mixed agreement, though these too are not sufficiently regulated by current laws, which creates certain problems for using this mechanism to structure investment projects.

Taking into account the above as well as the successful international practice of using public-private partnership arrangements, it follows that PPPs are an effective method of combining state resources with private sector investment to develop the infrastructure, construction and implementation of ambitious projects.

 

Source: Kyivpost