Private Finance of Infrastructure Works

1.    The Regime

The Executive Power of the City of Buenos Aires (the “CBA”), with the support of the Bank of the City of Buenos Aires, has presented a bill to the local legislature that establishes a legal framework for the participation of private investors in the design, construction, operation, maintenance and financing of infrastructure works in the CBA (the “Regime”).

In order to fit each project to the legal structure that best suits each of the projects, the public interest and the conditions of both the financial markets and the CBA’s finances, the Regime provides that the agreements may be executed as leasing contracts, turnkey contracts or any other legal instrument provided for by public or private law.

This bill was prepared based on the National Regime created by Decree N° 1299/2000[1], in which Marval, O’Farrell & Mairal also advised the Argentine Government.

2.    Trust Fund

The Regime provides a Trust Fund for the Development and Finance of Infrastructure (the “Trust Fund”) that shall be managed by the Bank of the City of Buenos Aires (Banco de la Ciudad de Buenos Aires). The Trustee of the Trust Fund shall be a private financial institution, with background and experience in the administration of trusts and will be selected on the basis of a closed invitation to tender among private banks.

The function of the Trust Fund shall be to guarantee and/or make the payments due by the relevant contracting governmental entities. The assets of the Trust Fund shall consist of the resources assigned by the Executive Power of the CBA and by a percentage of the following taxes (i) Income Tax; (ii) Patents; and (iii) Territorial Contribution.

The Trust Fund must always have a cash reserve, which should be furnished and maintained by the relevant governmental entity.

If the funds in the Trust Fund are insufficient to establish the cash reserve, the Trust Fund, through the Trustee, will be authorized to execute loans, guarantees and contingent facilities with international economic and financial agencies or with national or foreign financial institutions and insurance companies, or to resort to capital markets, as established by the trust agreement.

3.    Contracts- Conditions Precedent

(i)    Budget allocations: all projects developed under the Regime must have been included in the CBA’s budget.

(ii)   Audit: construction, operation and maintenance of the project shall be audited by impartial technical consultants.

(iii)   Canon: canon may be determined in local or foreign currency. However, the value of the canon may be adjusted, during the construction period through the work’s price re-determination mechanisms established in the corresponding contract. The canon may include a financial component.

(iv)  Rights and Obligations: rights and obligations of the parties to the contract shall be those provided by the law that creates the Regime, the bidding terms, the contract and by regulations issued prior to the date of the agreement referenced therein and from private law rules which may be applicable. Therefore, chances of invoking ius variandi rights are excluded unless it is expressly provided.

4.    Assignment of the project / Step-in rights 

For purposes of project financing, the Regime permits the contractor to assign the project in favor of the relevant creditor in case of default. The credit against the relevant governmental entity may also be assigned for the benefit of the banks.

5.    Guarantees

The governmental entity may provide that payments shall be made and/or guaranteed: (a) through direct payment from the Trust Fund, provided the relevant governmental entity has advanced sufficient funds in due time; (b) as a Trust Fund’s subsidiary obligation to pay, if the governmental entity delays payment in more than thirty days; and (c) as a direct guarantee in favor of the contractor given by the Trust Fund or by the CBA with or without recourse to the Trust Fund.

6.    Arbitration

The CBA’s Executive Power may submit economic or technical disputes or disputes regarding the construction of the relevant contracts to arbitral tribunals and may waive any right to file a claim regarding the incompetent forum defense.