Twenty-five years after the first legal rules were issued to promote private investment in State companies via privatization (Legislative Decree 674), and promote private investment in public infrastructure and public services via concessions and Public-Private Partnerships (PPPs) (Legislative Decree 758, Supreme Decree 059-96-PCM, Legislative Decree 1012, among others), we can assure that these legal rules have had a successful outcome. As a matter of fact, this success is reflected in economic dynamics and some indicators, like the one that shows that Peru ranks 5th in infrastructure in Latin America and 112th in the world, according to the World Economic Forum ranking.
However, in Peru there is still much to be done as far as infrastructure and public services are concerned: road and multimodal networks, ports, airports, railroads, logistical platforms, urban infrastructure, recreation infrastructure, cultural infrastructure, prison infrastructure, irrigation, health, education, telecommunication, energy, lighting, water, and sewage infrastructure and related projects like toll and rate collection systems and applied investigation and technological innovation projects, for which purpose an integrated legal framework currently exists (Legislative Decree 1224) for the purpose of having all three government levels (national, regional and local) efficiently implement their PPP projects, complying with budgetary accountability, transparency, value-for-money (VFM), risk transfer, competency, and results-based principles, which must be fulfilled during the planning-programming, formulation, structuring, transaction and contractual implementation stages which are part of every PPP project.
Accordingly, APP projects, regardless of their origin (State or private) and classification (co-financed or self-financed), must be contemplated in the so-called Multi-Annual Investment Reports and the amount thereof cannot be less than S/ 27,650.000 and S/ 39,500.000 for decentralized and national governments, respectively. These projects must be supported by quantifiable firm and contingent PPP commitments and must be linked up with the development plan of each entity. PPP projects are approved by means of a Ministerial Resolution, a Regional Resolution or a Municipal Resolution, depending on the government level that has decided to promote private investment in its jurisdiction.
For this reason, the existing institutional framework has been strengthened by creating the National Private Investment Promotion System. The Ministry of Economy and Finance is the entity in charge of verifying whether or not each PPP Evaluation Report has been correctly classified and whether or not there are enough elements to determine payment capacity, adequate risk transfer, availability and service quality indicators, cost minimization criteria, user financing conditions, an explanation of the advantages and limitations of the traditional public procurement system vis-à-vis the PPP, impact on the competition mechanism, market performance, and other information which allows proving whether or not the project is financially and socially profitable for the State.
In addition, the new legal framework allows ministries, regional governments, and local governments to promote their PPPs through Investment Committees which will be specifically set up for such purpose. Investment Committees will only be in charge of self-financed projects, that is, PPPs which do not require public funds or guarantees, to the extent they are paid with money collected in tolls, fares or other non-fiscal payments made by service users. It is also possible to contemplate the use of public property, assume the costs and expenses derived from purchase or expropriation processes, and remove interferences and/or provide clear title to property which, in view that it is related to the PPP, will not affect its self-sustainable nature.
It should be pointed out that investment committees set up by ministries only deal with State initiatives developed by their own sector which do not exceed S/ 59,250,000; moreover, although with greater possibilities, investment committees set up by decentralized governments deal with their own PPP projects, and also private projects, provided they do not need public funds and always within their sphere of competence. On the contrary, PPPs originating from private initiatives and requiring the use of public funds are co funded and, apart from the need to comply with the National Public Investment System (SNIP) protocol, without any exception whatsoever, must be proposed to the Private Investment Promotion Agency (ProInversión).
The new rules established in relation to the implementation of the procurement mechanism via PPPs intend to provide certainty for investors. The public officers in charge must choose options that result in the timely implementation of the project, promote investment, guarantee the availability of the service and/or allow reaching or keeping the established public service levels. These decisions must be technically, financially and legally substantiated and cannot be challenged by control bodies just because they have a different opinion, which is actually a difficult challenge to meet, considering that, in practice, preventive decisions are important to avoid sanctions or challenges.
Without a doubt in the implementation of PPP agreements, the management function, that is, the manner in which all three government levels must manage their PPP agreements within their organizational structure, is the most relevant aspect to be highlighted with regard to the existing legal framework, in view that it is difficult to manage long-term legal relationships.
Finally, the Ministry of Economy and Finance faces a big challenge: articulating and guaranteeing the fulfillment of the PPP national policy, while meeting the need to close gaps in infrastructure and public services nationwide in a balanced manner.