The draft law on state regulation of concessions approved by the State Duma in the second reading

The draft law on state regulation of concessions, which has been hanging in the State Duma for a year, was yesterday approved by the lower house in the second reading. The document is intended to increase guarantees for private investors in such projects. This will be done, among other things, by distinguishing between the institutions of concessions and public procurement – by introducing a rule that the financial participation of the public party cannot fully cover the costs of investors. Experts have concerns about the practical application of this clarification, but in general they note that the draft law removes a number of problems in the concession market.

The government bill on fine-tuning the concession mechanism was yesterday approved by the State Duma in the second reading, a year after it was considered in the first. As the Ministry of Economy explained to Kommersant, “the conceptual changes being made affect not only the market, but also a significant number of stakeholders” – during the discussion, many proposals were received, which eventually ended up in the project. Its goal is to increase the level of protection of investors’ interests in public-private partnership (PPP) projects, the ministry assures.

The most significant changes relate to the distinction between concessions and public procurement – they are made as a result of a dispute that lasted several years between the Ministry of Economy and the Federal Antimonopoly Service on the maximum share of state participation in PPP projects (see Kommersant dated August 31, 2020). As a result, the mildest restriction option was chosen (see Kommersant dated March 3, 2022) – the amount of compensation to the investor should be less than the costs of creating and operating the facility. The draft establishes the forms of state participation in projects: a capital grant (at the stage of creating and reconstructing an object it can cover up to 80% of the costs), a grantor’s fee (reimbursement of expenses after the commissioning of the object) and compensation for lost income by the concessionaire.

Amendments to the second reading of the bill clarified that the investments of the public side can cover the payment by the investor of interest on loans taken for the implementation of the project, and the cost of insuring the facility. The approach to agreeing on changes in the terms of regional and municipal concessions has been softened (it is temporarily not required in 2022–2023). There will be no need for this further (except in some cases of concession without a tender) – if this does not change the conditions and amount of the financial participation of the grantor, and also does not shift the terms of the latter.

Anna Batueva, Managing Director for Legal Support of Projects of the National PPP Center, positively assesses the innovations, believing that they should improve the attractiveness of PPP projects. According to Lusine Harutyunyan, Head of Infrastructure and PPP Practice at Kachkin & Partners, “the bill cannot be called revolutionary – it is rather intended to resolve gaps and controversial issues in law enforcement.” According to her, the amendments resolve the issue of the limits of the financial participation of the public side, but there are concerns that even after their adoption, questions will arise in practice. For example, about whether the 99% participation of the concessor will be considered acceptable – according to the text of the bill, it is quite possible. In this regard, Svetlana Dubinchina, Managing Director of the Investment Agreements Service of InfraVEB, notes the importance of further elaboration of by-law regulation of the procedure for calculating the maximum amount of such participation. Anna Batueva adds that the introduction of a limit limit “entails risks for the implementation of projects in which there is no commercial revenue from the use of the facility or is insignificant,” in particular, social projects. Lusine Harutyunyan notes that a direct indication that the concessor’s payments can also be used to compensate for certain financial expenses of the concessionaire will make it possible to insure the investor against disputes.

Evgenia Kryuchkova