This Informational Notice refers to the enactment of the Law of Public Private Partnerships (Ley de Asociaciones Público Privadas) (the “PPP Law”) published in The Official Daily of the Federation on January 16, 2012.
Likewise, amendments to the Law of Public Works and Related Services (Ley de Obras Públicas y Servicios Relacionados con las Mismas), the Law of Acquisitions, Leases and Services of the Public Sector (Ley de Adquisiciones, Arrendamientos y Servicios del Sector Público), the Expropriation Law (Ley de Expropiación), the General Law of National Properties (Ley General de Bienes Nacionales) and the Federal Code of Civil Procedures (Código Federal de Procedimientos Civiles) were published to implement a harmonized legal framework, vis-à-vis, the PPP Law.
I. Purview of the PPP Law
The PPP Law will enable, inter alia, the implementation of new Mexican infrastructure projects in partnership with the Federal, State and Municipal Governments (the “Public Entities”) and the participation of private sector entities (“Private Entities”).
The PPP Law will enable rendering of public services with the participation of Private Entities entering into multiannual contracts with Public Entities.
The legal framework provided by the PPP Law will enable the implementation of new infrastructure and public services.
The PPP Law enables the carrying out of expropriation of property as necessary to implement infrastructure projects and public services.
The PPP Law provides flexibility and codification of provisions which in the aggregate contain an ample legal framework to facilitate investment by Private Entities.
The PPP Law will prevent conflicts of federal and local laws dealing with its purview.
The PPP Law contains sundry provisions granting step-in rights and other guarantees sought by investors and financiers in order to make PPPs bankable.
II. Initiating PPP Projects
The PPP Law allows Public Entities to initiate PPP Projects in infrastructure and public services.
PPP Projects in infrastructure and public services initiated by Public Entities may be targeted toward enticing Private Entities by invitation to submit proposals under the Bid Rules published in the respective Bid Calls. An Invited Private Entity selected from among participants in such Bid Calls may be awarded the PPP Project so called.
Interested Private Entities may propose PPP Projects in infrastructure or public services to Public Entities. PPP Projects so proposed by Private Entities may now be implemented under the applicable provisions of the PPP Law.
Private Entities upon proposing a PPP Project must have qualifications necessary to develop same.
Upon determination that the Private Entity proposing a PPP Project is eligible to become an Awardee of same and has the necessary qualifications and a viable and compliant PPP Project, the Public Entity in concern may enter into a PPP Agreement pursuant to Article 91 of the PPP Law. The PPP Agreement must describe in detail the authority of the representative of the Private Entity and the Public Entity, a full description of the PPP Project and its terms and conditions.
A PPP Project proposal may be made by individuals acting on their own behalf; however, PPP Agreements may only be entered into with special purpose Mexican commercial entities (“SPVs”).
Performance of PPP Agreements must be guaranteed by the SPVs entering into same and such guarantee may not be less than 10% (ten percent) and no more than 30% (thirty percent) of the aggregate cost of the corresponding PPP Project.
Article 14 of the PPP Law provides that PPP Project proposals by either Public Entities and Private Entities contain: (i) a description of the PPP Project and technical viability of same; (ii) property, assets and rights required to carry out the PPP Project; (iii) regulatory authorizations required for the PPP Project; (iv) legal compliance of the PPP Project; (v) environmental impact of the PPP Project; (vi) social benefit of the PPP Project; (vii) an estimate of the investment to be made by Public Entities; (viii) economic and financial viability of the PPP Project; and, (ix) benefit of the implementation of the PPP Project as compared with other available options.
III. PPP Project Issues
The Public Entity involved in a PPP Project may covenant to obtain the necessary property, assets and/or legal rights for the implementation of the PPP Project in concern; it should be noted that property for the PPP Project may now be obtained by expropriation. Expropriation of property requires a Declaration of Public Use and publication in the Official Daily of the Federation; in some instances, personal service to owners may be required. Otherwise, property for the PPP Project in concern may be obtained by means of purchases.
Owners of property to be expropriated may accept the terms of expropriation or contest the Declaration of Public Use within 20 (twenty) days of its publication in the Official Daily of the Federation.
Creditors holding liens on property to be expropriated may participate in the expropriation process and be eligible to receive the pro-rata share of compensation to be paid for the expropriation.
IV. Rights and Obligations of the Private Sector Proposers of PPP Projects
Private Entities participating in PPP Projects will be entitled to compensation for their participation in the PPP Project in concern, as set forth in the applicable provisions of the PPP Agreement. Likewise, Private Entities participating in PPP Projects may be indemnified for delays caused by Public Entities in the implementation of same.
Private Entities participating in PPP Projects will be obligated to: (i) render the services specified in the PPP Agreement; (ii) implement the works for the PPP Project; (iii) perform duties in accordance with applicable laws and the PPP Agreement; (iv) obtain adequate insurance; (v)provide financial information; (vi) enable auditing of the PPP Projects; and, (vii) maintain confidentiality regarding same.
PPP Project’s risks are borne by the Private Entity participating in same.
Private Entities participating in PPP Projects may establish any necessary and compatible commercial or other services on the PPP Project site.
V. Amendments and Termination of the PPP Project documents
Amendments to PPP Project documents may be carried out by the participants in same, provided that such amendments: (i) improve the PPP Project; (ii) expand the capacity of the PPP Project; (iii) update the PPP Project as a result of unforeseen events upon implementation of same; or, (iv) reestablish financial equilibrium of the PPP Project in concern.
Unless otherwise agreed to in the PPP Agreement, the PPP Project may terminate upon: (a) cancelation, abandonment or delay in the execution of its implementation; (b) lack of services rendered by the Private Entity for a continuous period of seven days without cause; and, (c) revocation of any material regulatory authorizations issued.
VI. Supervision of the PPP Project
The Ministry of the Public Function (Secretaría de la Función Pública) has the authority to supervise PPP Projects throughout all phases. Any breach of the PPP Agreement or applicable laws will result in the payment of liquidated damages by the participating Private Entity.
VII. Applicable Law
The applicable laws of the United Mexican States will govern, inter alia, Bid Processes of PPP Projects and PPP Agreements. Dispute resolution must be carried out by means of binding arbitration.