VMB Partners Chairman about PPP

Decembrie 2018

Emergency Ordinance 39/2018 regarding Public-Private Partnerships (PPP) represents the most important instrument for city halls in Romania regarding long-term projects and for building fast high-quality infrastructure projects acclaimed by civilians. For many years, city halls have been unable to accomplish development projects meeting their needs. On one hand, the law has forbidden city halls to borrow more than 1.2 billion RON/year, at country level, loans being authorized by the Ministry of Finance. On the other hand, the old PPP law has been no help, and not many can brag about the high take-up of EU funds. Emergency Ordinance 39/2018, however, offers perspectives of long-term sustainable development. It is well known that public authorities do not have the financial strength to make major investments using only their own money. In this regard, the PPP law makes it possible for city halls to identify partners in the private sector to support major infrastructure projects. The action plan is simple: according to Law 98/2016, the city hall works with the private partner, creating a project company that makes the investment, operates and supports it for the entire contract period. The contract can be signed on a minimum of 5-year period, having no upper time limit. This implies that an infrastructure project used by taxpayers in the next 50 years will not only be paid by the people living and working today, but by every taxpayer generation benefitting from the implemented local project. The private partner’s job is to finance its part of the project: either by bank loan or its own revenues. The city hall’s duty is to ensure minimum 50% of the project company’s annual revenues, and at the same time, cashes part of the profit. It is highly important the private investor also handles maintaining and renovating services, its main interest being high quality services. It is a win-win kind of contract: the city hall implements the project fast and at high standards, avoids auctions and challenges (as it is the project company’s job to contract, hire and supervise all services), and the private investor makes a stable long-term profit. An issue represents finding an investor willing to make a long-term commitment in public-private investments. In Romania, this is a developing culture, but other countries like Poland or the Czech Republic based their growing economy on this type of partnership. Thus, we believe this is Romania’s best development instrument in the next few decades. For short, the steps a mayor should follow:
  • Make a base study to analyze the viability and bankability of the project, such as risk management.
  • Next is what we call “road show”. The project is presented to potential interested investors, and consultations are at the base of offer elaborating documents.
  • The auction to select the private partner is organized
  • The PPP contract is signed, which can be of two types
    • Institutional PPP – the new project company is created by contribution from both the local authority and the private partner
    • Contractual PPP where the project company is owned 100% by the private investor, without the city hall holding any shares, it being tied only to the goal of the project the PPP contract.
  • Beginning of the work towards the goal.
Without a doubt, the Emergency Ordinance 39/2018 is the base of coherent and fast development of communities with energetic builders.