The Federal Law No. 115-FZ on Concession Agreements was enacted on 21 July 2005 (hereinafter the “Concession Law“). It was supplemented by the Model Concession Agreement regulations and with the amendments of 8 November and 4 December 2007, 30 June 2008, 17 July 2009, 2 July 2010, 19 July, 28 November and 7 December 2011, 25 April 2012, 7 May and 28 December 2013, 28 June and 21 July 2014, 3 November, 28 November, 29 December, 30 December 2015 and 3 July 2016.
The Federal Law No. 224-FZ on Public Private Partnership, Municipal Private Partnership in the Russian Federation and Amending Certain Legislative Acts of the Russian Federation was enacted on 13 July 2015 (hereinafter the “PPP Law“). The PPP Law was subsequently amended by the Federal Laws No. 391-FZ dated 29 December 2015, No. 360-FZ and No. 361-FZ both dated 3 July 2016.
The latest amendments to both the Concession Law and the PPP Law entered into force on 1 January 2017.
The Russian concession legislation is enacted exclusively at the federal level, but applies to all federal, regional and municipal projects. Regional and municipal authorities are entitled to enact laws and regulations on non-concession PPP. So, the constituent parts of the Russian Federation have adopted their own PPP acts.
The PPP Law aims to unify the legal conditions for PPP projects at the federal level in order to improve the availability and quality of public services under the terms of risk allocation. According to the PPP Law, the acts of the constituent parts of the Russian Federation, the municipal acts concerning the public-private partnerships and the municipal-private partnerships have to be brought into conformity with the provisions of the PPP Law by 1 January 2025.
Agreements concluded in accordance with regional and municipal PPP acts before the date of entry into force of the PPP Law, are valid until the end of their term, in accordance with the terms on which they were entered into. The PPP Law shall apply to agreements entered into after 1 January 2016.
The concessions are interpreted as the model for exclusive public ownership of an infrastructure granted for use to a private person, whereas public-private partnerships are all other PPP projects that can be implemented with or without a transfer of ownership. The main difference between the two instruments is the ownership transfer and not the remuneration or the transfer of operating risk. In addition, the Concession Law allows for availability payments. This could possibly qualify as a non-concession PPP since the payment does not come from the end-user.
Uncertainty, which provisions apply
Therefore, there is no clear criterion to determine whether a project is to be dealt with as a concession PPP or a non-concession PPP, except with respect to the ownership criteria. A number of sectors are eligible for either concessions or non-concession PPPs, including commercial and non-commercial sectors, which can make the selection of the proper contractual structure difficult for sector projects.
The Concession Law provides that if the object of the concession agreement is included in the programme of privatisation of the federal property, the concessionaire has the pre-emptive right to purchase such a facility, provided that the concessionaire fulfils its obligations under the concession agreement in good faith.
Under the Concession Law, agreements may be concluded with the person initiating the concession without a tender. If the authorised agency issues its approval, it will publish an offer to enter into a concession agreement on the internet, and if there are no expressions of interest from third parties, or no compliant response from a candidate who meets the requirements imposed on the concessionaire and the requirements imposed on the person initiating the conclusion of the concession agreement, the agreement will be signed with the person initiating the conclusion of the agreement without a bidding process. This may put transparency at risk.
The PPP Law provides for a preliminary feasibility study; the definition of the financing party; the definition of the direct agreement; the ability to pledge the subject matter of the agreement and the ability to substitute the private partner. The provisions on termination compensation require further clarification. It should also be clarified whether foreign law can apply to side agreements as it seems that this is not welcomed by the relevant authorities in practice. Additional uncertainty may be caused by the fact that under the PPP Law, there is no provision on the possibility of international arbitration and the Russian Federation has not yet ratified the ICSID Convention (although it is a signatory state).
The PPP Law provides for the restricted possibility of pledging a private partner’s rights under the PPP agreement solely for the purposes of securing the discharge of obligations towards the financing party if a direct agreement has been concluded. The Law clearly states that a concessionaire can pledge its rights under a concession agreement should it attract financing.
The difference between the PPP Law and the Concession Law is particularly obvious when it comes to pledging immovable assets. The PPP Law explicitly provides for the possibility of creating security interests over the project immovable assets for the financing of a project, whereas the Concession Law prohibits the creation of security interests over immovable public assets or assets constructed on public land. The fact that non-concession PPPs are only to be granted to Russian nationals may be considered as a disadvantage as compared to concessions which seem not to be subject to such restrictions.
The private initiative mechanism provided for in the PPP Law is similar to that of the Concession Law but has a number of significant differences. When an investor submits its proposal to conclude a PPP agreement to the public partner, it must confirm it has 5% of the required total investment by providing an independent guarantee issued by a bank or other lending institution. This financial threshold is the same under the Concession Law. The PPP Law, however, is stricter and more precise than the Concession Law, which merely requires the investor to demonstrate it has or is capable of attracting at least that same amount, without requiring the submission of an independent guarantee. The amendments to the PPP Law contribute to the efficiency of the comparative advantage assessment by limiting the assessment term to 90 days, compared to 180 days as it was previously.
- not all permits/licences have to be obtained prior to the conclusion of a PPP agreement, if the said permits/licenses can, according to the laws of the Russian Federation, only be obtained after the conclusion of the agreement and compliance with certain terms of the agreement;
- a confirmation of the compliance of the private partner with the award criteria may be provided by persons defined under Article 21.7 in addition to the bidding private partner;
- the list of PPP objects was expanded so that industrial and/or other production assets were included.
The latest amendments to the Concession Law expanded the list of concession objects so that it now also includes facilities for processing, accumulation, utilization, neutralization and placement of solid municipal waste, communal infrastructure or utilities, including power supply facilities, illumination of territories of urban and rural settlements, landscaping, social services and gas supply.
Other significant amendments to the Concession Law in 2017 refer to concessions for the heat
supply facilities, centralized systems of hot water supply, cold water supply and/or water disposal as well as separate objects of such systems. A whole new chapter (Chapter 4) was introduced addressing the particularities of those types of concessions.
There is no general national policy framework for PPPs and the main obstacle for implementing PPP/concessions is the lack of budgetary funding and /or guarantees.
Many Federal Ministries and some regional and municipal governments have created special PPP units. There is no uniformity among Russian regions. In addition, the State Duma has established a PPP Expert Committee for Economic Policy, which is consulted whenever PPP-related legislation is enacted. The Ministry of Economic Development is responsible for monitoring the efficiency of PPP projects and developing methodological recommendations and the PPP Development Centre is an NGO whose mission is to develop PPP best practices in Russia. It works in close collaboration with the PPP Expert Council at the Ministry of Economic Development and the State Duma’s PPP Expert Committee for Economic Policy.
Over one thousand PPPs have been implemented in Russia since 2005. There is a very big variation in terms of value.
As mentioned above, the possibility of international arbitration should be further clarified. An additional positive signal would be for Russia to ratify the ICSID Convention.