Serbia: Public-Private Partnerships – Regulatory Aspects

Designed to improve the development of various industry sectors and to stimulate private investment, the new Public Private Partnership and Concessions Act (Official Gazette of Republic of Serbia, no. 88/2011; PPP Act), will most likely significantly impact the number of infrastructure projects developed in Serbia. The key regulatory aspects introduced by this new legal framework are expected to: (i) widen the scope and increase the number of projects realized; (ii) provide to local governments greater access to public-private partnerships (PPP) projects; and (iii) simplify the regulatory framework for the process of PPP and concession granting.

Key Regulatory Changes to Increase the Number of PPP Projects

Prior to the PPP Act, there were almost no concession or PPP projects deployed in Serbia. Out of five concession agreements concluded on a national level, four have not materialised. The issues hampering the launch of concession projects were mostly attributed to deficiencies of the old regulatory framework. The new PPP Act attempts to rectify these issues and provide a legislative base, harmonised with the EU rules, which will act to stimulate the development of PPPs and concessions in Serbia. Several regulatory aspects of the PPP Act enable different models of PPP/concessions while many contemporary notions of the PPP have been introduced.

Most importantly, for the first time the PPP Act clearly regulates PPPs, providing for two types of PPPs – an institutional and a contractual PPP. The “public contract” needed for developing PPPs is defined widely where the “public contract” may, but need not, include elements of a concession. Such definition makes it possible for PPPs to be realised in a wide variety of models, including provision of services, public roads, health care, etc.

The PPP Act allows that the public partner (and not always the private partner) may be responsible for payment of the concession fees. This is expected to act as a stimulus because different models and arrangements for the distribution of a commercial risk can be agreed between the parties.

The time period of concession’s is also significantly increased (from 30 to 50 years), which is expected to attract investment in projects that have a lower annual return. But, although an improvement, some argue that placing a time limit for concession projects may deter the private partner from investing in long-term sustainable projects.

Local communities’ greater access to PPPs – partnerships for public utilities

Simultaneously with the PPP Act, the Serbian Parliament enacted the Public Utilities Act (Official Gazette of Republic of Serbia, no. 88/2011; Public Utilities Act), which harmonises the legislative framework applicable to projects in the public utility sector (mostly relevant for local governments). Under the PPP Act, a unit of local government may easily enter into PPPs where the local assemblies are now entitled to grant concessions.

This is considered a major step forward for the PPPs in public utilities, which are usually contracted on a local level. Under the previous regime, the central government was entitled to render a concession act based on which the Government, for the account and in the name of Serbia, would sign the concession agreement. The local government could sign concession agreements only with the previous written approval of the central government. This has caused delays and derailed several attempted partnerships while waiting for the central government’s approval. With the local government now in control of the granting process, PPP investments should increase in the area of local public utility services.

Regulatory aspects and simplification of the granting process of PPP agreements

A key issue of the previous regulatory framework was the lack of clarity in the procedure for deploying PPP projects. This was a problem even in cases of similar project arrangements, caused laws stipulating different procedures, even to the same regulatory sector. The PPP Act now clearly designates the procedure for deploying PPP projects. For example, it clearly notes that it is applicable to all public contracts, and it provides adequate cross reference to other applicable laws (eg, public procurement laws).

Together with the Public Property Act (Official Gazette of Republic of Serbia, no. 71/2011), enacted only a few months before the PPP Act, and together with the Public Utility Act, the PPP Act sets a favourable legal framework for the future development of PPP/concession projects in Serbia. Less than a year in force, implementation of the act is, however, yet to be tested.

Under the PPP Act, a unit of local government may easily enter into PPPs where the local assemblies are now entitled to grant concessions.