Law on Public-Private Partnerships: what is improved with the new Law

This Summary provides a brief on the key features of the newly adopted Law on Public-Private Partnerships.

On December 7th, 2022, the Parliament of Azerbaijan adopted Law “On Public-Private Partnership” No. 691-VIQ (hereinafter, the “Law”) coming into effect on December 9th, 2022. The Law substitutes and abolishes the Law “On the Implementation of Special Financing for Investment Projects in Connection with Construction and Infrastructure Facilities”, dated 15 March 2016 (hereinafter, the “Former Law”).

Legal Background before the Law

Prior to the adoption of the Law, public-private partnerships (hereinafter, “PPP”) in the field of construction, infrastructure, and energy were regulated by several laws and regulations including the Former Law, Rules on Build-Operate-Tranfer Model, etc. Besides, the Public-Private Partnership Development Centre was established under the Small and Medium Business Development Agency of the Republic of Azerbaijan and its Model Charter was approved by the Board of the Ministry of Economy on July 16th, 2019.

Main idea and principles of the Law

The Law aims to provide a more transparent and competitive environment for investors and private partners in the field of PPP, to stimulate the development of different sectors of the economy, to attract private investments including foreign investments as well as to increase the effectiveness, quality, and accessibility of government services and to create new workplaces. The provisions of the Law are based on basic principles such as rule of law, free competition, transparency, effectiveness, equality, and keeping of interest-risk balance.

Key provisions and novelties of the Law

The Law provides a more detailed regulation for PPP relationships, introduces a new system for PPP projects, and makes new opportunities for the actors of the private sector. Here are the main features of the Law:

• The Law widens the scope of regulated PPP projects in comparison with the Former Law (i.e. the addressees of the Former Law mainly were “Build-Operate-Transfer” projects). It regulates PPP projects related to the provision of government services and the establishment of infrastructure for such services.
• The scope of the Law excludes government procurements, privatization of state assets, and activities in the field of oil and gas. Those remain regulated by the respective laws. Furthermore, PPP projects related to renewable energy shall still conform to the Law “On Use of Renewable Energy Sources in Generation of Electric” and may enjoy reliefs prescribed therein.
• The Ministry of Economy determines PPP projects considering their importance, economic efficiency, financial risks, and distribution of the risks.
• The Ministry of Economy shall publish a list of PPP projects on annual basis in the electron information database which will be open to the public. Interested entrepreneurs may request to participate in the competition as a result of which a nominee with the most suitable portfolio will be elected for implementation of projects upon publication.
• Government bodies, government entities, municipalities, and municipal organizations can participate in a PPP project as a government partner in accordance with their powers granted by laws.
• Besides the listed projects, entrepreneurs may initiate their own offers to establish a new PPP project.
• The Law determines the eligibility requirements for entrepreneurs to be private partners in PPP projects. The requirements include sufficient experience, financial resources, tangible and intangible assets, knowledge, innovation, and technology of the entrepreneur to implement the PPP project, absence of criminal liability for corruption, fraud, money laundering or financing of terrorism, insolvency, good standing and sufficient legal capacity of the entrepreneur and additional specific requirements determined by the Ministry of Economy. Furthermore, the entrepreneur, its shareholders, beneficiary owners, director, and members of its executive body shall not be subject to any international sanction.
• The Ministry of Economy chooses private partners by means of competition. The Ministry evaluates the offers from the applicants based on the criteria which include the amount of payments to the partner, the amount of government support, duration of the project, compensation offers, prevention of risks, and technical, aesthetic, functional, and innovative features of the offer.
• The private partner may be determined without competition in the cases of the presence of a single entrepreneur that could implement the project, implementation of defense-related or security-related projects, lack of eligibility of the offers by the other entrepreneurs, or later ineligibility of the chosen partner.
• Several entrepreneurs may participate in the competition jointly to implement a PPP project.
• The duration of PPP projects shall not exceed 49 years.
• The PPP projects may be implemented by a joint venture company established by public and private partners. The public partner could participate in the charter capital of the joint venture company provided that the shares of the public partner do not exceed 49% of the charter capital.
• Foreign partners and international investors may choose foreign law as an applicable law for agreements concluded within the scope of a PPP project.
• The state assurances such as goods, materials, vehicles, minimum level of profits, minimum level of purchase, level of regulated prices, subsidies, loans, capital investments, exclusive rights, and compensation may be granted to private partners within the frame of PPP projects. Moreover, private partners shall be granted compensation in the cases of legislation changes. The government may also protect them from the negative impacts of exchange rate changes.
• PPP projects enjoy tax reliefs, additional financial support, assurances, exemptions, and compensations as well as incentives prescribed in Law “On Investment Activity”, dated 22 June 2022.
• Private partners or government partners may have the right of the first offer to purchase properties and infrastructures after the completion of a PPP project.
• Partners of a PPP project shall submit a report to the Ministry of Economy on annual basis and the Ministry publishes it on its official website and the electron information database.
• The Cabinet of Ministers will adopt a detailed regulation on PPP agreements, conditions of the competition, and other aspects of the Law within six months from December 27th, 2022.
• The Law is not applied to the agreements concluded as per the Former Law and those agreements are subject to the provisions of the Civil Code and the Law “On Investment Activity”.

You can access the full text of the Law on the official website via the link below:

e-qanun.az/framework/53020