Member Article

In the Executive Decree N° 1040 was enacted on May 23rd 2016, and contain the Regulation for the PPP Incentives Law. This Executive Decree is still pending to publishing in the Official Gazette, however is in force.This regulation establishes the following provisions that will regulate a PPP contract:

• Creates a fast track process for PPP projects, based in the studies of the public entity. However a special resolution issued by the Committee is required in order to establish the mechanism and special considerations.

• Establishes the minimum requirements that must contain every PPP project:

o An adequate distribution of the risks;o A clearly identify private party;o A long term scheme of mutual obligations between the private and the public parties;o Indicators of performance, satisfaction and quality that can be clearly measure;o The retribution method for the private party, which could be through tariffs paid by the end customers, by the public entity, or a combination of both;o The specific incentive regime for each project;o The determination of regulatory matters that apply to each project, in accordance with the legal stability clause.

• Allows the possibility that a PPP project can be divided and awarded to different private parties, whenever this mechanism will be more effective than awarding to a single private company.

It also establishes the following provisions for unsolicited proposals:

• The possibility to grant a minimum reimbursement to the unsolicited proposal that was not awarded. The reimbursement amount shall not be inferior to the cost of the studies;
• Additional bonus for qualification of Economic Offers;

In general terms, the incentives cannot be higher to the amount of the investment of the private party, including the capital and debt. Also there is the prohibition to the awarded private party to transfer of shares equal or superior to the 20% of the capital, without the prior consent of the public entity. This prohibition is also applicable for any encumbrance or guaranty performed over the shares of the private company.In relation with the dispute resolution method, the Regulation establishes that prior to initiate the arbitration, the private party is obligated to exhaust the administrative procedure, before the public entity. Once this administrative procedure is completed, the private entity has 30 work days to initiate an arbitration procedure. National or foreign arbitration are allowed.