Public Private Partnerships: Paving a New Path for Development in Laos
The much anticipated Decree on Public Private Partnerships No. 624/GOV dated 21 December 2020 (“PPP Decree”) came into force on 28 January 2021. The PPP Decree formalises the requirements for public private partnership projects (“PPPs”) in Laos.
While the Lao Government has engaged in PPPs in the past, particularly in the energy and transport infrastructure sectors, the new PPP Decree paves the way for a more concrete path for development ensuring benefits for the general public. The PPP Decree provides for specific project structures, introduces proposal mechanisms and competitive bidding to ensure best value and transparency, optimises risk allocation, requires regular project monitoring, and widens the possible scope of PPPs to other sectors such as social services.
Joint Investment Formats
Public private partnerships are defined as either joint investment activities between the public and private sectors or activities with private sector as the sole investor in a State project.
Joint investment formats considered under the PPP Decree are:
|Design, Build, Finance and Operate (DBFO)||Build, Own, Operate and Transfer (BOOT)||Build, Lease and Transfer (BLT)|
|Design, Build and Operate (DBO)||Build, Own, and Operate (BOO)||Operate and Maintenance (O&M)|
|Build, Operate and Transfer (BOT)||Build, Transfer and Operate (BTO)||Other forms as approved by the government|
The specific format to be adopted for a project will be determined from the results of the detailed economic-technical feasibility study, based on the efficiency, type, scale, value, conditions, and specific and special character of the project.
Proposal, Bidding, and Contract Execution Process
Both solicited and unsolicited proposals are allowed under the PPP Decree, but in either case, a public bidding must be held for the project.
Solicited proposals originate from the relevant State sector based on the sector’s strategic plan. The proposal will be submitted for research and consideration of the Joint Investment Promotion and Management Committee (“JIPMC”). Once approved, the State sector will conduct a bidding to select the company who will conduct the survey phase, for the detailed economic-technical feasibility study and environmental impact assessment of the project.
In contrast, an unsolicited proposal is submitted for consideration by State sector or private sector entity for a project that is not within the State investment plan. It must be an important project involving use of new technology and advanced innovation, with high economic-social return, and sufficient details so as to allow for assessment or continuation of the detailed feasibility study.
If the unsolicited proposal is submitted by the private sector, such entity is responsible for all proposal expenses and project risks. If the proposal is accepted, a memorandum of understanding will be executed with the Joint Investment Office to conduct a detailed feasibility study and environmental impact assessment.
On completion of the detailed feasibility study and environmental impact assessment, JIPMC will review the results and issue the decision for approval, rejection, or modification of the study. If the JIPMC finds that the joint investment project shows efficiency and public benefit and approves the same, JIPMC will submit the PPP for approval and certification to either the National Assembly, Provincial Assembly, or Government, depending on the project type, scope, and State contribution requirements.
The private sector who submitted the unsolicited proposal or the consulting firm selected to conduct the survey and study does not have the right to be the direct project developer, as this will be determined through public bidding. If the private sector is not successful in the public bidding, it is nevertheless entitled to reimbursement for costs in the preparation of the unsolicited proposal from the successful bidder.
Bidding for the project will be announced through mass media for a period of seven days. A bidding committee, constituted from the different sectors, will select the winning bidder to be the project developer after considering the bids for completeness, technical standards, and pricing conditions.
After the selection is made, the joint investment contract will be negotiated between the project developer and the planning and investment sector. The PPP Decree sets out what must be included in the joint investment contract, and the process for the consideration and execution of the contract.
The PPP Decree further enumerates different forms of Government support for projects, such as:
- Legal support which facilitates the implementation of the joint investment project by formulating or amending legislations to effectively manage joint investment.
- Financial support may be provided through provision of budget for the project, facilitate access to domestic or foreign capital for the relevant sector and private developer, and financial support in accordance with the actual capacity of the Government.
- Promotional policy support determines relief or exemption policy on customs and taxes according to law. This also includes representation that legitimate assets, capital and benefits of the private sector will not be transferred to the State, except in the event of necessity for public interest. In this instance the payment of compensation will be based on the actual value of the investment, or market price at time of transfer or to agreed payment method, or as specified in the joint investment contract.
The PPP Decree further allows the project company to submit assets, rights under contract, and benefits in the joint investment project as loan security to secure funding for the project. Such securities include movable and immovable assets or benefits of the joint investment project, future receivables and income of the company from the project, and other securities, such as shares and deposit accounts.
Responsibilities of Sectors and Parties
The roles and responsibilities of the sectors and the project developer are detailed in the PPP Decree. The project owner, being the sector responsible for the project, is tasked with coordinating all relevant sectors in the monitoring, inspection, and assessment of the joint investment project at each stage, from bidding, contract execution, and implementation. The project owner is required to regularly report on the progress of the project and contract implementation to the JIPMC. Similarly, throughout the period of the project, the project company also has the obligation to monitor, inspect, assess, summarise, and regularly report the implementation of the project and the contract to the JIPMC.
Completion, Delivery, Transfer of Joint Investment Project
Depending on the joint investment format, there shall be a completion, delivery, or transfer of the joint investment project (except for the BOO model).
Once the implementation of works has been completed, according to the contract specification, there shall be delivery or transfer of the project to the public sector. Prior to the delivery or transfer, the project developer will provide a report on the completed work. The sectors, project owner, and project developer shall jointly agree on the appointment of an independent auditor for the audit and certification of the quality of the project. A committee will be appointed to inspect and assess the result of the joint investment project based on the standards specified in the contract and prepare a summary to the JIPMC.
Prior to the delivery of the joint investment project, the different parties are tasked to coordinate to determine technical standards, organise trainings, provide instructions for use and conduct use experiments before the official delivery of the project.
When transferring the joint investment project, the project developer shall transfer all assets, structures and facilities, as well as the project documents, to the public sector unconditionally and without demand for compensation. Project developer is tasked to conduct major repairs on structures and guarantee that all assets transferred are in good condition and can operate effectively for two years from the end of the joint investment contract. The project developer must also conduct final trainings for important operations and maintenance works for government offices at least one year before the end of the contract term.
Indeed, the PPP Decree is a positive stride towards development, brings greater transparency and accountability for projects, and promises a more supportive environment for foreign and local investors to embark in projects in Laos, with the least financial burden to the State. We are optimistic that this new law will indeed usher in new investments and foster the creation of more innovative and sustainable projects that will optimally benefit the country for the long-term.
If you have any questions or require any additional information, please contact Aristotle David or Cess Principe of ZICOLaw (Laos) Sole Co., Ltd. (a member of ZICO Law).