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D4 Motorway PPP Coming to Market

D4 Motorway PPP Coming to Market

Czech Republic
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It’s been quite a wait, but the D4 Motorway PPP project should be coming to market in April. The project will involve the design, construction, financing, operation and maintenance of a 36 km stretch of motorway between Pribram and Pisek in the south west of the Czech Republic, with operation and maintenance of an adjacent 16 km of existing motorway.

The last PPP road project to get off the drawing board in Czechia was the D47 project back in 2002, which ended in fiasco when a contract was awarded to an Israeli investor without a proper tender. The D4 project has not had an easy start either. The project was approved by the government in January 2016, but more than a year was lost when the advisory tender held by the Ministry of Transport (MOT) got bogged down in multiple appeals. 

The key milestones of the D4 tender are expected to be notification of pre-qualification to an unlimited number of interested parties in April, submission by them of requests to participate in the competitive dialogue procedure in June (resulting in a shortlist of four participants), with the competitive dialogue proper starting in October. Commercial close (signature of the project agreement by the MOT and the selected bidder) seems doable by year-end, and financial close (the agreement of all finance documents and ancillary agreements) could be achieved in Q1 2019. 

Participants in the tender will need to navigate a weird legal landscape shaped by the specific conditions of Czech public procurement law (which has changed more than 25 times since the days of the D47!), as well as laws enacted over the years in preparation for a PPP market that has never arrived. 

The provisions of the Public Procurement Act that required government approval of the project no longer apply, although the project is being structured as a competitive dialogue in accordance with the 2016 approval. Hopefully, methods developed on successful Slovak road deals over the past few years will be used and we won’t have to reinvent the wheel.

Historically, there was a kind of procurement bogeyman in this country, in the existence of both public contracts and concession contracts (initially regulated by separate acts but since 2016 sitting together in the Public Procurement Act). If the substance of a given project fulfilled the statutory definition of a concession (in the context of a roads project, the private sector taking material volume risk), the contract needed to be procured as a concession. This was true even if the deal terms changed mid-tender, requiring cancellation of the tender and a return to square one. Now a concession contract can, for instance, be tendered using a competitive dialogue. There was also a requirement to request an opinion from the Ministry of Finance (MOF) on the economic impacts of a concession agreement prior to its signature. Failure to do so rendered the contract absolutely void under relevant case law. The requirement remains in the law, however it should not apply at the ministry level.

So there’s no need to be worried. Or is there? A handful of paragraphs in the Roads Act, shoe-horned in to ease concerns about the legality of the D47 project, create the concept of a concessionaire contract, which, despite sounding very much like a concession contract, is a different animal. A concessionaire contract is clearly not subject to MOF supervision. On the other hand, the Roads Act does require approval of a concessionaire contract by the government and of the state’s financial obligations set out in it by parliament. Since last year’s general election, communists and right-wing nationalists have gained in strength and confidence. This may well cause concern for bidders — especially international ones. How to address the risk of getting within a whisker of commercial close, only for parliament to throw the project out? Not in the concessionaire contract, because the parliamentary procedure occurs before it is signed, but perhaps in a side agreement providing that bid costs (and some loss of profit?) will be compensated.

So fingers crossed that all goes to plan. If so, there should be plenty of work for firms with experience in this area, whether for the contracting authority, sponsors, banks or sub-contractors. And if a successful precedent is created, next up could be the D7, D6, or D35!  

By Christian Blatchford, Partner, Kocian Solc Balastík

This Article was originally published in Issue 5.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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