Public Private Contracts in Argentina: a long-expected new regulation to boost infrastructure development

by 3 Dec 2016Companies, Contracts, Doing business in Argentina

Law Number 27,328 regulating Public Private Contracts in Argentina (Ley de Contratos de Participación Público-Privada, hereinafter the PPPLaw) will become effective as from 9 December 2016.
The main provisions of the PPPLaw are the following:
1. Objectives
The participation of public and private sectors in the contracts regulated by law (hereinafter the Public Private Contracts) may serve the purpose of a project developing in the fields of infrastructure, housing, activities and services, productive investment and applied research and technology innovation (Article Number 1).
2. Legal vehicles
Participation of public and private interests pursuing the objectives allowed by law may be carried out through contractual and organizational schemes (such as special purpose vehicles between the public and private sectors that might be even authorized to trade their equity publicly under the Capital Markets Law Number 26,831. PPPLaw, Article 7).
3. Public Private Contracts
a) The parties
Public Private Contracts in Argentina may be entered into by and between:
i) Any public agency or entity of the federal public sector (hereinafter the Agency); and
(ii) Any private or public entity allowed for the PPPLaw (hereinafter the Contractor) (PPPLaw, Article Number 1).
Under Article Number 23 of the PPPLaw, certain individuals and legal entities are deemed to have conflict of interests in these kind of projects and thus banned from entering into Public Private Contracts, such as those having been hired by any Agency as consultants to implement the project (Sub-Article b) and public officials of the Contracting Agency or companies or entities the public official has interest in or is linked to as a manager or employee (Sub-Article c).
b) The terms and conditions
Irrespective of additional regulations to be issued in the future and of the specific contractual and bidding documents´ stipulations, Article Number 9 of the PPPLaw sets forth the minimum provisions the contracts must include.
For its importance to international investors, it is worth noting the following provisions the contracts may contain:
i) In no case may the contractual term and potential extensions exceed in total 35 years (Sub-Article a);
ii) The contract is to provide for the retribution to be paid for the execution of the project, either by the users, the Agency or third parties. It must also contain procedures for revision of its price so as to preserve its economic-financial equation (Sub-Article f). Consistent with this content, the PPPLaw excludes the application of the prohibition of indexation set forth by Law Number 23,928. Further, the price may also be agreed upon in foreign currency;
iii) The Agency’ s power to unilaterally introduce modifications is restricted to only the project performance and under no circumstance may modifications exceed 20% above or below the total value of the agreement. The Agency shall be bound to adequately compensate for the alteration, keeping the original economic-financial equilibrium and the financial possibilities and conditions (Sub-Article i);
iv) The events and procedure of termination of the contract and applicable compensations must be set forth. When termination operates based upon public interest grounds, no limitation of liability provision will apply, neither directly nor supplementary or analogically (Sub-Article p);
v) The assignment of the Public Private Contract´s rights or receivables arising thereof as collateral, as well as the right to securitize cash flows (PPPLaw, Sub-Article q);
vi) The right to temporarily suspend performance of obligations in case of default (Sub-Article s);
vii) The Contractor´ s right to totally or partially assign the agreement, as long as the assignee meets the proper conditions to be a contractor and at least either 20% of the contractual term has expired, or 20% of the committed investment has been disbursed. Before executing the assignment, the Contractor has to get the acceptance of the financing agents and guarantors, and the Agency´s authorization (Sub-Article t); and
viii) The procedures and methods to settle technical, interpretative or economic disputes (Sub-Article w). Arbitration procedures and foreign venues may be agreed upon (Sub-Article x).
c) The bidding procedure
The Contractor may be selected by a national or international public bid (PPPLaw, Article Number 12). According to the project´s features, the direct or indirect participation of small and medium-sized companies and national work and industry must be fostered (PPPLaw, Article Number 12). However, protections granted to domestic industry and services may be excepted or limited by a justified Executive Order based on convenience or necessity (PPPLaw, Article Number 12).
d) Collaterals and investment protections
i) Collaterals
The Agency´s payment commitments may be secured through the following possibilities listed by Article 18 of the PPPLaw:
The specific allocation or assignment of tax resources, public assets and funds and any other type of credits and / or public revenues, with the relevant authorization from the Federal Congress (Sub- Article a);
Trusts set up over the assets and with the purpose and authorization referred to above (Sub-Article b); and
Any other guarantee or security granted by a local or foreign entity, as allowed by Argentine law (Sub- Article c).
ii) Protection of investments
The PPP Law provides for different mechanisms to protect the intangibility of the private investment, such as:
The parties’ liability shall be governed by the PPPLaw, its additional regulations and the bidding terms and the contract. The Civil and Commercial Code will be supplementary applicable. Therefore, Law Number 26,944 regulating the Federal State´s liability and all the limitations stated therein will have no effect over the Public Private Contracts;
The restrictions to the power to amend the contract referred to in 3. b) iii) above;
The suspension or nullity of the contract on the grounds of illegitimacy may be only judicially declared (PPPLaw, Article 9, Sub-Article p);
In any case of anticipated or termination of the contract by the agency, before taking possession of the assets, compensation must be fully paid out to the contractor, which in no case might it be lower than the non-depreciated investment. Further, financing repayment must also be guaranteed. All of the above does not mean the contractor may be subject to pay the damages provided for in the contract if any (article 10).
The Article Number 765 of the Civil and Commercial Code will not apply to Public Private Contracts (PPPLaw Number 31). Therefore, debts contracted under Public Private Contracts may not be discharged by paying the equivalent amount of local currency); and
The exclusion of compensation limitations referred to in 3) b) iv).
4. Dispute resolution
The PPP Law allows the bidding terms and the contracts to provide for arbitration. When the arbitration procedure is to be conducted abroad, the chosen of venue must be expressly approved by the Executive Power and informed to the Federal Congress (PPPLaw, Article 25).
Awards rendered by arbitrators seated in Argentina may be only challenged to be clarified or annulled. In no case may challenges to the arbitration award give grounds to review the facts of the case and the applicable law (PPPLaw, Article 26).
5. The Public Private Unit
By means of a Regulatory Decree of the PPPLaw, the Executive Power must set up a Public Private Unit to centralize the regulation of the Public Private Contracts and provide support to the State Agencies in connection with the design of the project, its feasibility and promotion, the bidding documents and the performance of the contract, among others (PPPLaw, Articles Number 28 and Number 29).
6. Conclusion
The law is quite balanced and does not only bear the public interests in mind but also strives for protecting the private contractors and lenders through different provisions and mechanisms, limiting the power of the administration and granting rights to protect the investment.
Should you want an in-depth explanation on any issue covered by the PPP Law or want to be updated on the future public biddings called within the PPP Law framework, please, contact us at your convenience.

Mario Eduardo Castro Sammartino

For additional information on these or any other issues related to doing business in Argentina, please, sign up for our Legal Blog or contact us at any time. Our publications exclusively express the author´s opinion and do not purport to be legal counsel on any case. Should you need it, you must consult with your trusted lawyer.​

 

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