Amendments to the Public Works Concession Law

Law 27,742 of Bases and Starting Points for the Freedom of the Argentine People (Basis Law), introduces important amendments to different aspects of Law 17,520 on Public Works Concessions.

 

These amendments, inspired by the Chilean model of public concessions and the Public-Private Partnership Law 27,328, aim to encourage private investment in infrastructure in a context in which public works have been strongly reduced.

 

1. Main provisions

 

1. Scope of application – Procedure for award of new contracts 

 

The new amendments allow the Executive Branch to grant concessions for "public infrastructure" and "public services", in addition to "public works", for both fixed and variable terms.

 

Regarding the concessionaire's remuneration, the possibility of "other remuneration" is added to the "tariff" and "toll" variables. Consequently, such remuneration may be paid by "users" "third parties" or the "Government".

 

The procedure for granting concessions is mandated to be exclusively through competitive bidding (local or international).

 

The submission of private initiatives is promoted.

 

2. Contractual estructure

 

The bidding and contractual documentation must provide for, among other aspects:

 

1. Procedures for revising the contract price to preserve the contract’s economic balance;

 

2. Instruments for adapting the execution of the contract to technological advances and financing needs and requirements;

 

3. The Administration's power to modify the contract only with respect to the execution of the project, and up to a maximum limit of 20% of the total value of the contract, and preserving the contract’s economic balance;

 

4. The grounds for termination of the contract, indicating the procedure to be followed, the compensation applicable in the event of early termination, its scope and method of determination and payment;

 

5. The right to assign, in whole or in part, the contract to a third party, provided that the third party meets similar requirements as the assignor and at least 20% of the original term of the contract or of the committed investment has elapsed.

 

3. Strengthening of Concessionaires’ guarantees

 

The Basis Law grants greater guarantees for the maintenance of the contract’s economic balance and for early termination due to public interest.

 

Regarding the preservation of the economic balance, the contract must provide that:

 

1. The Administration must ensure the maintenance of the initial economic balance;

 

2. Bidders must include the initial economic balance in their proposals using the Net Present Value (NPV) or the Internal Rate of Return (IRR), as applicable;

 

3. The contract must include procedures for price review and restoration of contract’s economic balance;

 

4. If a distortion arises due to causes not attributable to any party, the parties shall have the right to renegotiate the contract to restore its economic balance or agree on its termination by mutual consent;

 

5. In the event of force majeure or actions by the Administration that cause a substantial disruption of the economic balance, the concession term may be extended for up to the same duration as its initial term.

 

Regarding early termination for reasons of public interest, it is provided that legislation setting forth limits to the grantor's liability will not be applicable, and compensation to the concessionaire must be paid prior to the grantor taking possession of the concession.

 

4. Dispute resolution mechanisms

Contracts may include mechanisms for dispute prevention and resolution, such as conciliation or arbitration, and that technical or economic disputes may be submitted to a Technical Panel or Arbitration Tribunal.

If the contract provides for arbitration abroad (i.e., outside Argentine), the arbitration clause must be approved by the Executive Branch and informed to Congress.

The suspension or nullification of the contract on the basis of illegality may only be ordered by the competent judicial courts.

5. Other provisions  

 

The Public Procurement Regime approved by Decree 1023/2001 and the prohibition of indexation provided for in the Convertibility Law 23,928 will not apply to concession contracts.

 

It is expressly provided that the Grantor will only be released from the obligation to pay the contract price if the concessionaire receives the committed amounts in the agreed currency, and judges may not modify the form of payment, or the currency agreed upon by the parties.

2. Preliminary comments

 

The amendments introduced by the Basis Law to the Law on Public Works’ Concessions reinforce a significant shift in the area of Government contracts. The Administration's traditional prerogatives are either excluded or severely limited, while the guarantees for private contractors are strengthened. Consequently, this creates a more favorable scenario for attracting private investment in public infrastructure.