Regulatory

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.