Law on Public-Private Partnerships (Nov 2022)

1. Introduction

The Law on Public-Private Partnership (PPP law) includes 14 chapters and 48 articles, was enacted on November 18, 2021, and abrogates and replaces the Law on Concessions (2007). The PPP law is intended to attract private investment into infrastructure projects by using state-offered financial assistance, guarantees, and/or investment incentives to facilitate agreements between the state and one or more private partners. The purpose of the partnerships is to restore, repair, expand, build, operate and/or maintain public infrastructure and/or to provide public services within a certain period under which the private partner invests, bears risks, and receives benefits based upon performance. While at present Cambodia seems to be developing infrastructure at a torrid pace, the law opens the door to development of significant new infrastructure in a wide range of sectors and this newsletter is meant to articulate some of the more salient points of the Law on Public-Private Partnership.

2. Scope & Competent Authority

The PPP law applies to all qualified projects seeking private investment into public infrastructure and public services. New investments under this law could be into roads, bridges, railways, airports, ports, public parking, canals, digital technology, mines, energy, education, health, environmental protection, tourism, water management, science, agriculture, and other public sectors as permitted by separate laws.
The law is implemented under the overview of the Ministry of Economy and Finance (MEF). The MEF has roles and responsibilities such as one-stop service, developing the PPP project by issuing regulations and standard operating procedures (SOPs), reviewing and providing risk allocation of the PPP project, and controlling and managing all PPP projects. Implementing Agencies (IA) amongst public sector institutions also play a key role in identification, selection, and implementation of the PPP projects.

3. Financial Support Mechanisms

To assist in the development of the project, the state may offer various forms of support including viability gap financing, availability payments, sovereign guarantees, asset contributions and/or investment incentives offered via the Law on Investment. Any financial support from the state may be offered via the national budget, official development assistance, or a special viability gap financing facility established under this law.
To further finance the project, the private partner may also establish security rights including over the project assets or the pledge of proceeds or accounts receivable in accordance with the applicable laws and regulations in Cambodia including the Law on Secured Transactions and the Civil Code.

4. Rights to Enter into a PPP Contract

As the name indicates, the PPP law forms a partnership between the public and private sectors.
The authorized public entities with the right to enter into PPP contracts include ministries, institutions, equivalent public entities, public administration establishments, public enterprises, and subnational administrations. These entities have only the right to enter into a PPP contract under their specific subject matter jurisdiction following the applicable laws and regulations.
The private counterpart to the public sector partner could be an incorporated company in the Kingdom of Cambodia, a foreign company registered in accordance with foreign laws, or any public enterprise that is not the implementing agency and has obtained the delegation of power in accordance with other applicable laws and regulations.

5. Selection of Private Partner

The selection of the private partner can by conducted for solicited projects and unsolicited projects. The selection of solicited projects can be implemented through a competitive bidding methodology or through a direct negotiation/selection methodology.
Unsolicited proposals that bring a new concept, technology, or innovation can also be received by IAs and brought forward for in-principle approval by the Royal Government of Cambodia through the MEF. The unsolicited proposals will be studied and then recommended to be procured through direct negotiation or bidding.

6. Duration

Based upon the negotiation, the PPP contract will specify the contract period and conditions to extend the contract. The term will be based upon factors such as the project assets’ life expectancy and the duration the private partner requires to recover its investment. Normally the initial contract period shall not exceed 30 (thirty) years from date of singing of the contract, however the Royal Government of Cambodia may fix the initial contract period beyond 30 years depending upon the PPP model. (Art, 41 LPPP)

7. Termination and Hand Back

The PPP contract will specify the circumstances for contract termination prior to its expiry, such as in the event either party to the PPP contract defaults on its obligations, force majeure, and/or early termination by the Royal Government. In the event of early termination, the PPP contract shall specify the rights and obligations of both parties to be fulfilled, mechanisms and formulas for calculating compensation. (Art 42, LPPP)
In the event the Private Partner has the obligation to hand bank the Project Assets(s) to the Royal Government, the PPP contract shall specify the conditions and procedures for hand back. (Art 43, LPPP)

8. Dispute Resolution

In the absence of a clearly articulated dispute resolution in the PPP contract, the first effort for dispute resolution will be mediation between the IA and private partner via the MEF, failing which within 2 (two) months of the initial request for mediation the matter may be sent to Cambodian or international arbitration with the consent of both parties. If there is no mutual consent for arbitration, either party may file a complaint within the Cambodian court system.

9. Common PPP Models

Annex 2 (two) of the PPP law identifies the following common PPP models:
Build-Operate-Transfer: The IA grants the private partner a right for design, finance, construct, operate, and maintain project asset(s) and collect fees, tolls, rentals, and other user charges from users of the project’s facilities or services for an agreed contract period as stipulated in the PPP contract. After the expiry of the PPP contract, the private partner transfers all rights and benefits relating to the project and the project asset(s) back to the IA, in accordance with the terms of the PPP contract.

• Build-Own-Operate-Transfer: The IA grants the private partner a right to design, finance, construct, own, operate, and maintain project assets and collect fees, tolls, rentals, and other user charges from users of the project asset(s) or services for an agreed contract period as stipulated in the PPP contract. After the expiry of the contract period, the private partner shall transfer all rights and benefits relating to the project and the project asset(s) back to the implementing agency in accordance with the terms and conditions of the PPP contract.
• Build-Own-Operate: The IA grants the private partner a right to design, finance, construct, own, and operate project asset(s) in perpetuity or for an indefinite period, in accordance with terms and conditions of the PPP contract. The private partner shall be entitled to make commercial use of the project asset(s), including collecting fees and other incomes from users of the project asset(s) or services.
• Management Agreement / Operations and Maintenance Agreement: The private partner provides daily services relating to operations and maintenance of existing project asset(s) or other state assets owned by the IA in return for service charges payable by IA or other parties in accordance with the terms and conditions of the PPP contract.
• Design-Build-Finance-Operate-Maintain: The IA grants the private partner a right to design, build, finance and provide operations and maintenance services for project asset(s) in accordance with terms and conditions of the PPP contract. The private party shall have the rights to collect revenue through the provision of services mentioned from the IA or other parties in accordance with the terms and conditions of the PPP contract. At the end of the contract period, the private partner shall transfer the project asset(s) back to the IA.
• Design-Build-Lease: The IA grants the private partner a right to design, build, and lease the project asset(s) from the IA, operate, and provide maintenance in accordance with the terms and conditions of the PPP contract.

10. Conclusion

The PPP law, which replaces the Law on Concessions (2007), is a significant piece of legislation intended to attract private investment into public interest projects in coordination with the recently passed Law on Investment (2021). The Cambodian government may provide financial support, guarantees, and/or investment incentives which can make a formerly unviable project viable. While it is still in its infancy, this law will likely be the basis for many new partnerships to develop significant infrastructure. Monitoring opportunities, navigating the bureaucracy and making the most of the legal framework will be key to achieving successful outcomes under this new law.