PPPs in the Republic of Serbia: Let the Game Begin - The Lawyer

inf rapppwo rld.co mhttp://infrapppworld.com/ppps-in-the-republic-of-serbia-let-the-game-beginPPPs in the Republic of Serbia: Let the Game BeginArticle written by Dragutin Nenezic, Associate at Karanovic & Nikolic, Belgrade, Serbia1. PPP/Project Finance Framework[1]Republic of Serbia (RoS) got its f irst proper public-private partnerships (PPP) law in 2011. The Law onPublic-Private Partnership and Concessions (“Of f icial Gazette of the Republic of Serbia” no. 88/2011; thePPP Law) reshaped the legal f ramework f or PPPs in RoS in its entirety, introducing the concept of PPPf or the f irst time in Serbian legal system, and regulating it by a single piece of legislation together withconcessions, which were earlier regulated by a separate law. Further, Law on Public Utilities (“Of f icialGazette of the Republic of Serbia” no. 88/2011) rounds up the statutory f ramework f or PPPs byreplacing the old public utilities law, which has been used as a basis f or realization of all PPP projects ona local level bef ore 2011[2]. In addition to these two laws, Decision on Establishment of Commission f orPublic-Private Partnership (“Of f icial Gazette of the Republic of Serbia”, nos. 13/2012 and 108/2012)rounds up the current general legal f ramework f or PPPs. In f uture, it is expected that the Commission f orPublic-Private Partnership (Commission) will adopt the bylaw on value-f or-money methodology, which iscurrently undergoing a public discussion, as well as the bylaws on the supervision and registration ofawarded PPP contracts, and that it will prepare template PPP contracts and direct f inancing agreements.Project f inance has until recently been a concept whichwas relatively unregulated by Serbian law, beingexplicitly recognized only in banking regulations.However, the PPP Law has f or the f irst time explicitlyrecognized project f inance as a concept in Serbian law,together with other modalities of f inancing such asstructured f inance. In practice, project f inance is verypresent on the Serbian market, and based either ongeneral contract law rules (under Serbian law-governedagreements) or templates such as LMA documentation (under English law-governed agreements). Inaddition, particularly important are Serbian f oreign exchange regulations, which impose a number ofrestrictions that have to be complied with if a specif ic project is f inanced on a cross-border basis.Standard security packages used in Serbian deals are regularly governed by Serbian law, and usuallyinclude mortgage, pledge (over equipment, receivables and accounts), sureties, bills of exchange anddirect debit authorizations. Finally, in transactions involving public sector, laws regulating public property,public enterprises, public procurement, public debt and budgetary system have to be considered as well. Itremains to be seen to what extent will the abovementioned template PPP and direct f inancing contractsref lect these peculiarities of the project f inance in RoS, as well as whether they will be based on existingcomparative models, such as those developed by the PPPIRC.2. Potential PPP Projects in 2013Under the PPP Law, only one project has been realized so f ar in early 2012, concerning the constructionof the f iber-optic network in Novi Sad. The website of the Commission has become available onlyrecently[3], and there is no publicly-available inf ormation on this project, nor there any inf ormation ofprojects in the pipeline. In addition to a number of small-scale projects in public transport sector that willprobably be realized on a local level, a number of large-scale projects on the national level might beexpected to be realized in 2013 and beyond. Projects that are f requently mentioned in the public sphereinclude a port in the city of Apatin on the Danube River and two lots (Belgrade-Obrenovac and Preljina-Pozega) of the E763 highway, and they will most likely be realized in 2013. On the other hand, PPP modelis invoked in respect of two large-scale projects – the civil airport in Cenej near Novi Sad, andconstruction of the hydroelectric power plant Djerdap 3 on the Danube River – but they seem to be f ar

f rom realization at this stage.Specif ic impediment f or development of PPP projects in Serbia is the concept of “strategic partnership”,which is used f or realization of inf rastructure projects of national importance. Namely, under SerbianConstitution, international agreements are enjoying supremacy Serbian laws as long as they are inaccordance with the Constitution. This has served as a legal basis f or awarding of the largest projects inenergy and transport inf rastructure sector, such as the construction of the remaining lots of the E763highway and the Zemun-Borca bridge on the Danube River, through international agreements concludedby the RoS, rather than through procedures envisaged under the Serbian law. Usually an interstate loanagreement will contain a clause on awarding the construction to a particular entity named therein,f inanced f rom the proceeds of the loan, thus circumventing Serbian public procurement and/or PPP laws.It is expected that the “strategic partnership” trend will be continued, and that most of the large-scaleprojects in energy and transport inf rastructure will be modeled in this manner.Finally, PPP Law has introduced a possibility of realization of PPP projects in certain sectors, such assports and tourism, which did not exist in earlier laws, and it remains to be seen whether thesepossibilities will be utilized or will they succumb to the “strategic partnership” concept.3. Key PlayersCurrently, the key players on the PPP scene in RoS are international f inancial institutions (IFIs) and theCommission, having in mind the general lack of PPP projects, as well as the scope of application of the“strategic partnership” concept (which is reserved f or other sovereign f inanciers, such as China, RussianFederation, Azerbaijan, UAE or Kuwait).IFIs have greatly participated in the draf ting of the PPP Law, and are expected to f und the developmentof PPPs in this initial stage. PPP Law provides f or a comf ortable position of IFIs, especially in respect ofthe direct f inancing agreements, with wide scope of security and step-in rights, and recognition of allmajor modalities of f inancing such as project f inance or structured f inance. IFIs present in RoS do notintend to decrease the amount of f unding which is currently provided f or RoS projects, and potentialprivate partners willing to engage in PPP projects in RoS shall be encouraged to seek their assistance.On the other hand, the Commission has been granted the ultimate power of approving each PPP project,implying that no project can be realized without an approval of the Commission. Notwithstanding certaininstitutional weaknesses of the Commission, it will play the crucial role in the development of PPPs, andits capacity-building ef f orts shall be supported by all stakeholders. EU enlargement process is likely toprove as crucial in this respect, considering the recommendations made to the Government of RoS in thecourse of the accession negotiations.[1] For more inf ormation on PPP f ramework in Serbia, please ref er tohttp://www.lexxion.de/en/verlagsprogramm-shop/details/2961/204/epppl/epppl-4/2012/country-report.html.[2] It is not possible to estimate the number of PPPs granted on a local level under the old public utilitieslaw due to lack of publicly available inf ormation, but it is somewhere between two and three dozens,mostly in the waste management and public transport sectors. Five concessions were granted under theprevious concessions law on a national level, out of which only one or two are still in f orce; f our havebeen granted in the mining sector and one has been granted f or construction of Horgos-Pozegahighway.[3] http://www.ppp.gov.rs/