PPP in construction projects: legal aspects

Most PPP projects are traditionally related to construction or reconstruction of an immovable property object and its subsequent use. In this connection, the legal matters that regulate attraction of private investments to the construction of objects of public or state significance directly affect the effectiveness and the possibility of wide practical application of PPP projects.

PPP projects are most frequently implemented in the sphere of construction of transportation and social infrastructure. Within the framework of preparation for the World Football Cup of 2018, which is to be held in Russia, PPP projects in the areas of construction of sports installations (stadiums, training bases and sports grounds) as well as other infrastructure objects become especially topical.

It should be noted that there is currently no federal law, which would comprehensively regulate the matters of public-private partnership. Regional PPP laws have been adopted in a number of units of the Russian Federation, but most of those are framework and unable to sufficiently provide legal regulation of public-private partnership.

The main part of the federal PPP projects is implemented on the basis of the provisions of Civil Code of Russia, of the law “On concession agreements” and the law “On investment activity in the Russian Federation performed in the form of capital investments”.

Only several large construction projects with the use of concession schemes were implemented over the entire period of validity of the law “On concession agreements”. In particular, the project of construction of the Western High-speed Diameter in Saint Petersburg was successfully realized; the constructions of the automobile road Moscow – Saint Petersburg, of the Central Belt Automobile Road, and the reconstruction of the Pulkovo airport are currently underway.

It should be stated that concessions have never become widely used. This is largely due to the excessive categoricity of the law “On concession agreements”, which contains a number of limitations that hamper or materially hinder the use of concessions. Such limitations, in particular, include:

The possibility to fix the grantor’s payment only in relation to automobile roads and utilities infrastructure objects;

the closed list of the objects that can objects of concession;

the impossibility to use the concession object or the concessionary’s rights to attract funds (pledge ban);

the impossibility to assign eh object of concession to private property.

The bigger part of said limitations will be lifted, if the State Duma adopts in February of 2014 the draft law on amendments to the law “On concession agreements”.

When the law “On contractual system” was adopted, it became possible to implement PPP projects in the form of life cycle contracts (LCC), which include the obligations of the private investor to construct the object and to provide maintenance (repairs, use) afterwards.

LLCs acquitted themselves well in the foreign practice, because they allow distributing the parties’ duties in such a way that the State bears virtually no risks involved in the construction of the object. LLC provides private investors with wide choice of the ways to carry out the project and also guarantees the receipt of long-term budget funding.

Implementation of PPP projects is also possible without any special legal regulation. Before the law “On concession agreements” was adopted, the interaction of the State and business in the sphere of construction was done on the basis of investment agreements or lease agreements with an investment element. Such forms are currently in active use too.

In general, one may state that the interest to PPP projects from the part of the State as well as of business is steadily growing. In this connection, one of the primary tasks of the State is to create a stable system of flexible and universal mechanisms for PPP projects.