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Renewed Efforts to Develop PPPs in Romania

Renewed Efforts to Develop PPPs in Romania

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Although Romania’s history with public-private partnerships (PPPs) spans over two decades, the legal framework in force until 2018 did not attract sufficient private partner interest for the development of such projects. As a result, to date, the number of successful PPPs remains rather low.

The 2018 overhaul of the legal framework was part of a push to promote PPPs as a catalyst for investment in strategic infrastructure in the transport, healthcare, and energy sectors. The 2018 PPP law (Government Emergency Ordinance no. 39/2018) is widely considered to be a clear improvement over the previous attempts and generally compliant with international best practice. Nevertheless, its integration into the wider legal framework is not completely settled yet. Therefore, a number of clarifications at the infra-law level – for example, as regards the relationship between the PPP law and secondary legislation designed for traditional procurement projects, such as that governing pre-feasibility and feasibility studies for publicly funded projects – might be welcome in order to ensure that PPP projects can be structured and prepared in line with international best practice.

The lack of an adequate institutional framework, capable of ensuring the cooperation between the various public authorities involved in the implementation of projects as complex as PPPs, has been an issue with many former PPP projects. Notably, the 2018 designation of a non-specialized body within the Romanian Government to handle strategic PPPs proved to be an ineffective approach, which further delayed the use of PPPs.

It is in this context that the Romanian Government has taken a new approach by setting up the Public Investment and Management Unit (PIMU), a body functioning within the Romanian Ministry of Finance, tasked with elaborating policies, strategies, and recommendations, as well as with promoting good practices in the field of PPPs.

PIMU is expected to act as the focal point for the accumulation of knowledge and information in the field of PPPs and to develop into a body of experts capable of disseminating its know-how – notably, by means of guidelines, tools, and methodologies, as well as through standardized contractual clauses – to public authorities involved in the structuring, preparation, award, and implementation of PPPs. This top-down approach aims at ensuring that the principles which are set forth in the PPP law, e.g., the value for money assessment, the affordability assessment, and the long-term budgeting of PPPs, are adequately understood and reflected in practice.

An essential condition for successful PPPs is a coherent national strategy and PIMU is very well positioned to prepare such a document. The strategy should be expected to identify the key public bodies involved in PPP projects, clarify the institutional framework in which they exercise their respective competencies, and establish a list of priority sectors and projects (e.g., those deemed to have the highest chance at a successful implementation) capable of serving as pilot programs and practical learning opportunities.

The PPP model is an opportunity for Romania to not only take advantage of the experience that the private sector has already accumulated in delivering successful and cost-effective projects – an experience which is especially useful when structuring large infrastructure investments – but also to address financing needs that may not be covered by EU funds, including those available under Romania’s National Plan for Recovery and Resilience.

The PPP model is particularly useful in structuring government payment PPPs, where payments are made by the public partner (rather than the end-users) to the project company in the form of availability payments (such as for the development of hospital infrastructure – one of Romania’s sorely needed investments). For this type of government payment PPPs, the use of available EU funds would optimize the affordability of projects for the contracting authorities.

As Romania’s new approach to PPPs is gradually implemented, the decades-long negative trend has a very good chance of finally being turned around.

By Andreea Toma, Partner, and Mihnea-Ioan Ratiu, Associate, Leroy si Asociatii

This Article was originally published in Issue 9.4 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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