Legal News: Bill. Public Works’ Concessions. Bankability

On December 27, 2023, the National Executive sent a bill to the National Congress stating the “Bases and Starting Points for the Freedom of the Argentines”. Regarding public works’ concessions, the bill proposes amendments to Law No. 17,520, in order to provide greater flexibility and bankability to contracts and projects governed by this regime. The bill would be discussed at the Argentine Congress and will not become law until it is dully passed by the Senate and the House of Representatives approved by the executive branch.

Among the proposed amendments to the aforementioned law, the following may be highlighted:

Extension of the scope or object of the concessions and their revenues. The National Executive may grant public works and infrastructure concessions for the construction, conservation or operation of public infrastructure. The revenues of the concessionaire may consist of the collection of tariffs, tolls or other revenues.

Exclusion of the State as concessionaire. The concessionaires may only be private companies. The contracting bases may contemplate the incorporation of a special purpose company, trusts, other types of vehicles, or associative schemes, which will be in charge of the subscription and execution of the concession contract until its total termination. The possibility of granting the concession to companies with state participation (sociedades mixtas) or public entities is eliminated.

Public offering. Corporations and trusts may be authorized to make public offerings of negotiable securities pursuant to the provisions of Law No. 26,831.

Concession term and return on investment. Flexibility. Concessions may be for a fixed or variable term. The purpose of variable term concessions will be to mitigate the demand risk due to the impossibility of predicting the volume of traffic and to avoid the need for permanent renegotiation of the contracts and their frustration. In these cases, the variable term will be established on the basis of an estimate of total revenues to be received by the concessionaire during the entire term of the concession, which each bidder must explain when formulating its proposal within the framework of the corresponding bidding procedures.

Financing. Sovereign guarantees. The financing of the concessionaire may be guaranteed by payment obligations assumed by the Administration, by means of: (a) the specific allocation and/or transfer of tax resources, assets, funds and any kind of credits and/or public revenues with the authorization of the National Congress; (b) the creation of trusts and/or use of existing trusts.

In the latter case, the fiduciary ownership of tax resources, credits, assets, funds and any kind of public revenues may be fiduciary transferred, in order to settle and/or guarantee the payment of the pecuniary obligations assumed in the contract, with the corresponding authorization of the National Congress.

Likewise, the financing of the concessions may consist of: (i) the granting of bonds, sureties, by entities of recognized solvency in the national and international market and/or the constitution of any other instrument that fulfills the function of guarantee, provided that it is admitted by the current legislation; (ii) the constitution of guarantees on the exploitation rights of the public or private property that had been granted to the contractor to guarantee the repayment of the financing necessary to carry out the projects that are carried out within the framework of the present law.

Intangibility of the economic equation. During the entire term of the public works’ concession contracts, the Administration must guarantee the intangibility of the economic-financial equation considered at the time of its execution. Both parties are entitled to renegotiate the contract in case of distortion of the economic-financial equation due to causes not attributable to them.

Bidders must include in their proposals the economic-financial equation by means of the Net Present Value (Valor Actual Neto – VAN) and the Internal Rate of Return (Tasa Interna de Retorno – TIR). The regulation will establish a bilateral mechanism for objective monitoring of the evolution of the economic-financial equation.

Likewise, the bidding and contractual documentation must include mechanisms to restore the contractual equilibrium in the event of a significant breach of the economic-financial equation. The reestablishment of the economic balance of the contract will be carried out through the readjustment of the tariffs in force, the modification of the concession term and, in general, by means of any modification of the economic clauses included in the contract.

Transparency. Concessions may only be granted through public bidding.

Private initiative. Any person is empowered to submit private initiatives to the Ministry of Infrastructure or the one that may replace it in the future, for the execution of public works or infrastructure through the concession system.

The regulation will establish the incentive mechanisms based on the recognition of initiator’s rights and competitive advantages in the selection procedures.

The public work or infrastructure whose execution under concession is approved must be put out to bid within one year from the approval of the studies. Otherwise, the Administration must reimburse the bidder for the cost of the studies.

Limitation of the power of unilateral modification. The Administration may unilaterally modify the contract only with respect to the execution of the project, and up to a maximum limit, more or less, of twenty percent (20%) of the total value of the contract.

Early termination. Guarantees for the concessionaire and financing entities. The early termination of the contract by the Administration due to serious breach of the contract by the concessionaire shall be submitted to the consideration of the Technical Panel and/or the Arbitral Tribunal.

During the substantiation of such procedure, the Administration will not be entitled to proceed to take possession of the assets without prior payment to the concessionaire of the total amount of the termination payment that may correspond according to the valuation methodology and determination procedure established in the regulations and in the pertinent contractual documentation, which in no case may be less than the unamortized investment. Any unpaid fines pending shall be deducted from such amount.

The termination payment will be used, in the first place, to repay the financing applied to the development of the project.

Suspension or annulment of the contract. The suspension or annulment of the contract on grounds of illegitimacy must be requested and declared by the competent judicial court.

Restrictions on unilateral termination for reasons of public interest. Lifting of limitations to liability. In the event of termination of the contract for reasons of public interest, no rule that establishes a limitation of liability shall apply directly, supplementarily or by analogy.

The amount of the indemnity shall be determined by the Technical Panel and/or the Arbitral Tribunal, which may use as an objective weighting parameter the amount not amortized according to the investment record.

The payment of the indemnity shall be made before the termination of the contract for reasons of public interest.

Dispute resolution. Arbitration. All contracts shall provide for dispute prevention and settlement mechanisms, conciliation, mediation and arbitration. Notwithstanding the foregoing, technical or economic discrepancies arising between the parties during the execution of the concession contract that have not been resolved in the light of those may be submitted to a Technical Panel or Arbitral Tribunal at the request of any of them.

In the event that arbitration with arbitral seat in a foreign country is chosen, it must be expressly approved by the National Executive and communicated to the National Congress.

For further information, our infrastructure team is at your disposal.

Analía Battaglia: analia.battaglia@bruchoufunes.com

Jose Maria Bazan: jose.bazan@bruchoufunes.com

Hugo Nicolás Bruzone: hugo.bruzone@bruchoufunes.com

Matías López Figueroa: matias.lopez.figueroa@bruchoufunes.com

Ignacio Minorini Lima: ignacio.minorini.lima@bruchoufunes.com

Alejandro Perelsztein: alejandro.perelsztein@bruchoufunes.com

Juan Antonio Zocca: juan.zocca@bruchoufunes.com