Living in Peru : your everyday companion

by
Miguel Ángel Ronceros, partner, ROSSELLÓ Abogados and member of the AmCham Peru Legal Affairs Committee

One of the main problems facing Peru is the infrastructure gap. In this sense, a good regulation of the Public-Private Partnerships (PPPs) Law, which energizes investments (and does not cause them difficulties), is essential to shorten the gap that affects key sectors such as health, education and ports, among others.

The publication of Supreme Decree No. 146-2008-EF, a norm that has regulated Legislative Decree No. 1012, has generated a series of comments. It is known that the law was promulgated by the Executive to approve the Public-Private Partnerships (PPPs) Law, the publication of whose regulation was awaiting, as is required to the law to enter into force (with the exception of the private initiatives regime).

The publication of the above-mentioned regulation presents a number of opportunities to promote investment in infrastructure, but it must also be recognized that there are some aspects that deserve modifications in order that the PPPs can actually fulfill their potential.

PPPs are modalities of participation of private capital in investments in which elements of the traditional models of State ownership and privatization are combined, through contract structures, with capital, assets, expertise, knowledge, public and private equipment and technology, for the development of a public service infrastructure project, in which the risks of the project should be distributed between the public and private sectors under criteria of efficiency.

Thus, PPPs have emerged worldwide as a mechanism that has revolutionized the traditional way of generating and improving infrastructure and providing public services. Contracts for public works have given way to other contractual arrangements that permit the transfer of risks and responsibilities from the public to the private sector, and the State has gone from being a provider of infrastructure and public services to be, rather, a facilitator of investment in infrastructure and a regulator of public services.

Considering that the infrastructure gap is growing ever greater, PPPs must play a fundamental role in the growth of our country. Not in vain, President García himself has recognized that the regulation of PPPs will be vital for the anti-crisis plan that the Executive Branch is implementing.

In this context, the systematization of the regulation governing public-private partnerships should be noted, and a number of positive elements that have been introduced in the new norms should be welcomed.

In the first place, it is important to have established the responsibilities of the various government entities involved in a PPP, including the Ministry of Economy and Finance, the regulators and the Comptroller General of the Republic. This will undoubtedly provide a greater degree of transparency and certainty to private investors.

Secondly, it is also important that these norms have set some deadlines for emitting decisions required by government entities. The lack of a regulation in this regard has, in general, generated a series of delays to the detriment of the promotion of investments. Complementing this, it should also be noted that, in the absence of an express statement by the competent authorities, a positive silence has been established in some assumptions.

The regulation will also release ProInversión of the need to oversee smaller projects, but rather, let it concentrate on other projects that are more relevant to the country. We believe that this step was necessary to energize the development of projects real national importance.

Moreover, it is also remarkable that the regulation has incorporated mechanisms to encourage the presentation of private initiatives such as permitting, in cases where an initiative results in a selection process, the person offering an initiative to pronounce a tie if he had not won the respective selection process, in which case the person offering the initiative and the original winner of the process go to a second round that decides who is the winner after the submission of new offers. We believe that this innovative and imaginative formula presents advantages that can encourage the filing of private initiatives.

Nevertheless the above, as mentioned previously, there are some aspects of the legislation that require amendment. The broad powers that were granted to the Ministry of Economy and Finance must be curtailed to revitalize project evaluation and decentralize decision making.

The classification of PPPs as self-financed and co-financed is not happy exercise, more so if we believe that such partnerships are normally used only in projects that require some form of public support. In any case, to maintain this classification it is necessary to raise thresholds to define what case we are in with respect to a co-financed public-private partnership.

Neither has it been a good decision to limit the addenda to PPP contracts and the coverage of the economic equilibrium clauses. The diversity of projects that can be the subject of a PPP means that there can be no immutable rules for their design and structure. This should depend, rather, on the nature, size, risks and possibilities of the specific project to be executed.

Finally, a serious error of the regulation is its limitation of private initiatives for co-financed projects. This measure, if not modified, will place limits on the potential of PPPs rather than encourage investment. If the National Public Investment System now acts as a filter for projects that are neither economically nor socially profitable, it makes no sense that the law absolutely prohibits the possibility of developing co-financed projects.

In conclusion, the success of PPPs should be based on a real recognition that despite having different objectives, the public and private sectors can complement one another’s roles and objectives, but this will require a relationship of mutual cooperation rather than rivalry. Much will depend on the capacity of government to meet the challenge of creating formulas that fit the needs of each project. For this, certain modifications to existing norms are still required.

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