PPP projects shall affect not only the interests of the state administration and “permit holder”, but also …
The House of Representatives of the Czech Republic Parliament approved in the first reading on 17 August 2005 the Government’s draft of the act on cooperation between the private and public sectors. The so-called Permit Act shall strengthen the legal security and create the bounds for the PPP projects application so that the private entities and public sector get unambiguous rules of cooperation. The act shall, among others, determine the procedure of a permit-holder selection and regulatory mechanisms of the partnership. It is assumed the act, after going through the approval process, shall become effective on 1 January 2006. However, besides the new act it will be necessary to amend some other acts so that the PPP model functions in the Czech milieu.
The Government’s draft of the act resulted from previous analysis of potential and existing obstacles for broader application of the PPP projects in the Czech Republic so that these projects become one of the standard instruments for securing the public needs. The interest in PPP projects is caused by long-term lack of public funding of public needs, particularly implementation of very expensive projects of traffic infrastructure. The PPP projects are also intended to apply to other public needs, such as education, health care or prison service.
The use of the private capital in traffic infrastructure was first approved by the Czech Government in January 2004 in its Resolution no. 7 approving the policy of the Public and Private Sector Partnership in the Czech Republic. This Resolution as of January 2004 was the first of three Government Resolutions relating to certain steps aiming at system implementation (Resolution no. 791 as of 25 August 2004) and specific master projects (Resolution no. 76 as of 19 January 2005 – 1st Phase or, respectively, Resolution no. 1017 as of 17 August 2005 – 2nd Phase). However, the 1990s were dedicated to intensive and international discussions about interconnection of the private and public sectors for the purpose of enabling the countries to establish a corresponding legal and regulatory framework. Therefore there was in late 2000 and early 2001 on the grounds of UNCITRAL created a Legislative Guide on Privately Finance Infrastructure Projects, the thread of which were in summer 2003 picked up by Model Legislative Provisions for privately finance infrastructure projects.
The Government’s and individual Ministries’ (specifically Ministry of Transport, Justice, Health, Local Development and Finance) interest in the PPP projects drew attention of entities who participate in such projects, particularly possible investors, banks or various professional consultants. Some of them had united and in November 2004 convened a founding general meeting of a PPP Association. The Association extended the Czech Government policy in the field of the public-private partnership, PPP Centre establishment and generally fell within context of creating favourable terms for the PPP projects implementation in this country.
PPP projects are nothing new in the Czech and international environment. For instance, from the current point of view, the permits for public transport operation in the second half of the nineteen century in the former Austro-Hungarian Empire were of public-private character. There are also more recent examples. The project for financing the extension and operation of passenger terminal on the Prague-Ruzyně international airport, in which the author of this article had been actively participating on part of Česká správa letišť and together with international consultants JP Morgan (financial), Debevoise & Plimpton (international law) and NACO (operation and technology) for almost four years, was a typical attempt for a PPP project. The project according to the original Government assignment from 1992 was in fact unsuccessful, particularly due to then insolvable obstacles in legal and regulatory grounds of the Czech Republic, specifically in respect to natural monopoly of certain “airport activities”. Therefore it is not surprising that the financing institution (IFC and commercial banks) later requested the Government to secure the revenues of a 25-year project with state guarantees, although it proved fatal to the project in the end. PM Miloš Zeman’s Government also intended PPP project for construction of the D47 highway from Lipník nad Bečvou to Polish border. This project also failed, albeit from other reasons.
Corresponding legal environment is essential for PPP projects implementation. However, it does not mean the PPP projects always and in all countries require a special act. In the United Kingdom, for instance, with more than 100-year experience in the PPP projects, there is no specific regulation (in our definition) considered necessary. However, one has to bear in mind that the UK is a country with rather different legal and cultural traditions and continuous legal development, in which the state is historically free to be contractually bound for the purpose of securing the public needs (i.e. to grant “permits” through contracts, not in a administrative-authoritarian way as in this country).
There are also many critics of the PPP projects around the world pointing out to the risk of non-competitive conduct of the permit-holder if enabled, by wrongly determined terms of exertion of the permit rights, to behave non-competitively, increase the costs of assignments and “suck” money from the end consumers. The market as such is then deformed accordingly. Consequently, such situations shall be mentioned in the regulatory provisions and enable the state to buy-out the permit-holders in the most blatant cases.
The contemplated master project shall outline the dimension of risk in the PPP projects, regardless whether relating to extension of the highway network (e.g. completion of D3 highway, contemplated extension of D1 highway or completion of D6 and D7 highways), field of justice (Palace of Justice) and prison service (guarded prison) or health care (completion of the Army Hospital complex in Prague). PPP projects shall affect not only the interests of the state administration and “permit holder”, but also the financing parties (the external – banks, as well as the capital investors of the permit holder). The last but least aspect of the PPP projects is that they shall affect the broad public – end consumers (a typical feature of PPP projects in the field of natural monopolies).
author is a partner in AK HOLEC, ZUSKA & PARTNERS Law Offices, a member of the Supervisory Board and Public Relations Board of the Czech Bar Association
author is a partner in AK HOLEC, ZUSKA & PARTNERS Law Offices and a member of the Supervisory Board of the Czech Bar Association