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The crisis and public-private partnerships

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Victor Almonacid Lamelas. Secretary of Local Administration

Once we have analyzed the reality of two phenomena, extremely current in local government, we believe that it is time to relate through some reflections on the present-future situation of the local financial crisis and the growing instrument of public-private partnerships.

The concession contract for public works

From a longstanding legal tradition somewhat removed from that derived from the 13/2003 Law, the figure of the concession stands today in the paradigm of private involvement in the public (public works, utilities...), intervention is justified -of course- for economic reasons, since we intend to fulfil these public purposes precisely without the use of public money (or at least minimizing the cost incurred by the Administration). We are talking about the difference between works contract and works concession:

"... In this latter case the consideration for the contractor-concessionaire consists either solely in the right to exploit the work (pure concession), or in this right accompanied perceive a price. Here's the difference, the form of payment of the price consisting of the payment of a single price in the works contract, and much more complex in the works concession contract. And we say much more complex because the sources of financing of the contract are not only the two mentioned, but many more. I refer to the Articles. 236-241 GCA, and 253 to 260 TRLCAP (in force)... In granting that we have been called "pure" (despite not being the most common, by the high costs of operation and maintenance), the builder of the work "pays the price himself" (forgive the expression, perhaps very colloquial), and commercialises it by exploiting the work and directly receiving user fees. Other times the Administration pays an additional price, but it will always be less than the value of the work. And sometimes funding comes as we have seen in other ways. At the end of the day, the work always involves a significant investment, and the fact that we insist in articulating formulas -probably artificial, we insist- for their funding, it makes sense, particularly in this time of "recession". Therefore, without prejudice to this type of contract that has been used frequently, their use will be even more prevalent in the future than in the past and present".

In the creation of this complex system of funding, it will be interesting to monitor what is today a Draft Bill to capture market financing through the concession of public works, awarding contracts of collaboration between the public sector and the private sector and mixed economy partnerships created for the execution of public contracts, which seeks to establish a guarantee scheme to facilitate access to private financing of the concessionary companies of public contracts. In this way, there would be compliance with the provision contained in the Law on Public Sector Contracts relating to the regulation of private financing from concessionaires of public works, and aims to strengthen the commitment of the successful tenderers, demanding a greater share of their own funds in the financing of a project, and opens new avenues to help external financing of these companies. According to the source La Moncloa the most interesting content of the rule in question would be:

"Concessionaire requirements

In this sense, the future legal text requires concessionaires that the proportion of their own resources volume reaches at least 10 percent of investments that will be made. Thus we establish new solvency requirements to undertake submissions to public tenders, seeking greater commitment to the successful bidders in contract financing from its own resources and greater safety for the Administration and creditors.

Similarly, it will be limited to 80 percent of the planned investments in the amount of the award susceptible to be securitized debt or mortgaged.
On the other hand, one of the main innovations introduced by the text is the possibility of obtaining government guarantees as guarantees for any financing formula with private companies seeking to finance public works, something that so far the law only reserved for bond issues. The aim is to provide for contractors of public contracts to obtain the necessary funds in the capital markets. This warranty shall not apply in cases of securitization of mortgaging the concession. Barriers to early repayment of the participating loans are also eliminated.

Public-private cancessions

The Draft Bill also regulates the process of selection of private partners to cooperate with public authorities in the capital of mixed companies to be established for the execution of public contracts, as an expression of the so-called institutional public-private partnership. In application of the principles of transparency and objectivity, the selection of private partners shall follow the same procedural requirements as for the award of public contracts.

Because of the importance acquired by the phenomenon of public-private partnership, the draft bill extends the possibility to apply for government guarantees to companies awarded collaboration contracts and mixed economy companies".

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