Public Private Partnerships in Bulgaria

Public Private Partnerships in Bulgaria

How has the concept of public-private partnership (PPP) developed in your jurisdiction? What types of transactions are permitted and commonly used in your jurisdiction?

The concept of PPP in Bulgaria has evolved following recent major legislative changes introduced in line with the new concessions’ legislation at EU level (Directive 2014/23/EU). A new Concessions Act (CA) was adopted on 1 January 2018; the previous Concessions Act (explicitly distinguishing the concession from the available PPP forms in Bulgaria), as well as the specific Public-Private Partnership Act, were revoked.

By virtue of the new legislative framework, the concession is defined as a: ‘public private partnership whereupon an economic operator executes works or provides services awarded by a public authority by way of a works concession or a services concession’. A fundamental common feature of these two PPP forms is that the operational risk is always transferred to the private partner, who is nevertheless awarded with the right to collect the revenues from the public service provided through the operation and exploitation of the public assets.

The works and the service concessions, as laid down in the CA, cover most of the internationally applied forms of PPP (eg, operate-maintain, design-build-finance-maintain, design-build-finance-operate-maintain, design-build-operate, etc). The key element distinguishing between the works and the services concessions is whether the leading activity shall be the construction of the public asset, through which the public service shall be delivered, or the exploitation or operation thereof.

A third form of concession has been introduced in the new CA, notably the ‘use concession’, which constitutes the award to a private partner to carry out a particular economic activity using a facility constituting public state property or public municipal property, without entrusting the execution of works or the provision and the management of services. The concessionaire pays to the grantor a concession fee and assumes an obligation to implement an investment programme ensuring the maintenance of the property. Considering the CA definition of concession, however, this type of concession is not deemed as a form of PPP.

PPPs in Bulgaria may be structured as a direct contract between the public partner and the private investor (or with a special purpose vehicle (SPV) set up by the latter for the purpose of the project), or as an institutionalised PPP, where the share participation in the newly established project company is shared between the public partner and the private investor.

What categories of public infrastructure are subject to PPP transactions in your jurisdiction?

By virtue of the CA, the object of a works concession shall be one or more self-standing construction sites or part of a construction site with a defined title, location and intended for an independent function, in respect of which the public authority has entrusted the specific works. The object of a service concession, on the other hand, is a facility or set of facilities by means of which the services are provided.

Assets and facilities that can be granted on concession may be state, municipal or private property and include:

  • road infrastructure, including highways, streets, roads;
  • railways, airfield runways;
  • sports facilities, including stadiums, swimming pools, gymnasiums, tennis courts, golf courses and other sports installations;
  • gas and heating networks;
  • electricity production and distribution networks;
  • automated transportation systems, tramway, trolley bus, bus or cable car transport facilities;
  • airports, maritime or inland ports or other terminal facilities;
  • postal services and networks; and
  • facilities related to the provision of healthcare, educational, cultural, religious, administrative and social services, as well as correctional and public security facilities, as laid down in the CA.

Is there a legislative framework for PPPs in your jurisdiction, or are PPPs undertaken pursuant to general government powers as one-off transactions?

The PPP legal framework consists of the newly introduced CA, which was effective as of 2018 and was last amended in February of that year, as well as of the sub-legislative acts on its implementation, namely the two Council of Ministers’ Ordinances on the Financial and Economic Elements of Concessions (effective as of May 2018), and on the Monitoring, Management and Control over the Implementation of Concession Projects by the Bulgarian Privatisation and Post-Privatisation Control Agency (effective as of the date of publishing in the State Gazette).

In addition, depending on the specific public assets or services awarded through PPP, other sector-specific legislation may apply.

Is there a centralised PPP authority or may each agency carry out its own programme?

As far as state concessions are concerned, the authority entrusted with the strategic development and planning of concession projects is the Council of Ministers, which determines the state policy on concessions and, to this end, approves a National Concessions Development Strategy and an Action Plan for State Concessions. The Council of Ministers also approves, prior to the issuing thereof, the decisions of ministers for launching and termination of concession award procedures and for modifications or termination of existing concession contracts.

The state policy on concessions is implemented by ministers, in accordance with their line competence. The relevant minister shall act as grantor (contracting authority) carrying out the required preparatory action (feasibility studies and preparation of tender documentation), respectively launching and carrying out the concession award procedure and finally executing the concession agreement with the selected bidder. Only projects included in the relevant Action Plan for State Concessions may be subject to a concession award procedure.

The regulation on municipal level is quite similar. The policy on municipal concessions shall be determined by the competent Municipal Council, which shall adopt, by a resolution, an Action Plan for Municipal Concessions to be implemented by the municipality mayor (acting as grantor). Concession award procedures for projects that are not included in the relevant Action Plan for Municipal Concessions for the respective programming period may not be initiated.

Are PPPs procured only at the national level or may state, municipal or other subdivision government bodies enter into PPPs?

By virtue of the Bulgarian PPP legal framework, concessions (PPP) may be awarded on a state and municipal level, as state or municipal concessions, depending on the ownership of the assets to be awarded to a private partner. Concessions may also be awarded jointly by two or more state or municipal bodies, as well as by a state and a municipal public authority, in which case they are regarded as joint concessions (see question 4).

How is the private party in a PPP remunerated in your jurisdiction?

Both in the case of works and service concessions, the private partner is granted the right to collect the revenues from the services and or other economic activities provided by the concession assets (ie, the right to exploit the construction site in a works concession or to provide the service of public interest in a service concession). These revenues are generally collected from the end users of the respective service or economic activity.

Financial payments from the grantor (the public authority) are envisaged only by way of exception in the following cases:

  • where customers do not owe direct payments for the services provided by the concessionaire, or if such payments are due, they are not supposed to be collected by the concessionaire;
  • for the purpose of achieving a socially acceptable cost of the services provided by the concessionaire; and
  • where the prices of the services provided by the concessionaire are state-regulated.

The total forecast turnover of the concessionaire (the aggregate of his forecast revenues over the entire concession term) constitutes the provisional value of the concession, which is the criterion to define the concession as one of trans-border interest, in case its provisional value exceeds the threshold established by a regulation of the European Commission adopted pursuant to article 9 of Directive 2014/23/EU.

May revenue risk or usage risk be shared between the private party and the government? How is risk shared?

By virtue of the CA, the operational risk shall always be borne by the concessionaire and shall be deemed to be assumed where, under normal operating conditions, the return of concessionaire’s investments and costs incurred in operating the works or the services awarded on concession is not guaranteed by the concession agreement. In a works concession, along with the operational risk, the concessionaire shall also assume the construction risk, notably the probability of occurrence of any events, facts or circumstances that may affect the value or the time for execution of the awarded works.

All other risks (and benefits) inherent to the concession shall be allocated between the public and the private partner, therefore forming the economic balance of the concession, which shall be maintained throughout entire concession term. The allocation of risks between the public and the private partner is made on a case-by-case basis for each PPP depending on the partners’ potential to evaluate, control and manage the different risks. The risks that the parties can relatively equally assess, control and manage shall be allocated between the said parties as shared risks.

In situations where the private party is compensated in whole or in part through availability or other periodic payments from the government, are the payment obligations of the government subject to the relevant legislative body approving budgetary funding in the future?

At state level, it is the Minister of Finance who shall carry out a preliminary assessment regarding compliance with fiscal rules and restrictions under the Public Finance Act of projects for state concessions with payments by the grantors prior to the inclusion of any such projects in the action plan for state concessions. Further, the Minister of Finance shall approve annually a cost estimate for financing the expenditures on state concessions.

Is there any cap on the rate of return that may be earned by the private party in the PPP transaction?

Neither the CA nor Ordinance on the Financial and Economic Elements of Concessions provides for specific values of the private partner’s rate of return. The said rate is determined based on the preliminary feasibility studies and analyses preceding the respective project and is part of the financial model of the transaction (also relevant for its economic balance). Depending on the industry and the specific features of each project, the value of the rate of return commonly applied in Bulgaria varies in the approximate range of 4 per cent to 10 per cent.

Is the transfer of direct or indirect ownership interests in the project company or other participants restricted?

While the PPP legislation does not pose specific restrictions as to the possibilities of change in control over the concessionaire company, it shall be noted that the new shareholders undertake joint responsibility (along with the concessionaire) for the implementation of all obligations under the relevant concession agreement.

Further, it is common practice for change in control clauses to be explicitly stipulated in the concession agreements, setting forth specific conditions in this regard (including the mandatory condition of the grantor).

What procedures normally apply to a PPP procurement? What evaluation criteria are used to award a PPP transaction?

The CA foresees that the granting of a concession comprises the following steps:

  • taking preparatory action;
  • conducting a concession award procedure for selection of the concessionaire; and
  • execution of a concession agreement.

The new legislation allows public authorities to select between three different concession award procedures, namely:

  • open procedure;
  • competitive negotiated procedure; and
  • competitive dialogue.

The open procedure shall be conducted in a single stage where the economic operator shall submit, simultaneously, an application and a tender. It does not involve negotiation.

A competitive procedure with negotiation shall be a staged procedure whereupon:

  • the economic operator shall submit an application and shall enter a selection in order to receive an invitation to submit an indicative tender;
  • candidates who have received an invitation shall submit an indicative tender and shall participate in negotiations on improving the tenders; and
  • after being invited to do so, the candidates who participated in the negotiations shall submit a tender.

A competitive dialogue shall be a staged procedure whereupon:

  • the economic operator shall submit an application and an indicative tender and shall enter a selection in order to receive an invitation to participate in the dialogue;
  • the candidates who have received an invitation shall participate in a dialogue with a view to clarifying one or more solutions that must meet the needs by the award of the concession; and
  • after being invited to do so, the candidates who have participated in the dialogue shall submit a tender.

Concessions of trans-border interest may be awarded by means of one of the three available procedures, whereas concessions without trans-border interest may only be awarded through an open procedure (see question 6).

The grantor shall set out, as conditions for participation, one or more requirements to the professional or technical ability of the economic operators and or to the financial and economic standing thereof. These requirements must conform with the subject-matter and the specificities of the concession and shall aim to ensure genuine competition. The requirements, the minimum levels of the fulfilment thereof and the documents whereby performance is proved, shall be described in the tender documentation and shall be set out in the procedure initiation notice.

As award criteria, the public partner shall set out objective requirements related to the subject-matter and the object of the concession (eg, quality of the works and or of the management and maintenance of the object of the concession, quality of the services provided, lowest price of the works or of the services, technical advantages, including technical equipment and facilities etc), the assessment of which makes it possible to identify the most economically advantageous tender at the best value for money. The award criteria may refer to factors that are not purely economic, but influence the value of a tender from the point of view of the grantor and permit it to identify an overall economic and or social advantage of the concession award at the best value for money (eg, environmental protection measures, social criteria, energy efficiency targets, innovation related criteria, etc). The value of the concession fee proposed by the bidders is also one of the most often applied award criteria; in addition, the amount of payments (compensation) by the grantor, where any such are envisaged, shall mandatorily be set out as an award criterion.

May the government consider proposals to deviate from the scope or technical characteristics of the work included in the procurement documentation during the procurement process, without altering such terms with respect to other proponents? How are such deviations assessed?

By virtue of the CA, in case of open procedure, the grantor shall have determined appropriate conditions for the implementation of the concession, financial and economic elements and legal construct and applying the award criteria alone is sufficient for the designation of a concessionaire without holding negotiations.

A competitive procedure with negotiation shall be conducted where the grantor has established the technical, functional or qualitative requirements but the quality, the financial and economic elements, the deadlines, social, environmental or innovative solutions, or benefits to consumers, as well as the legal construct, can be optimised by means of negotiations.

Conversely, a competitive dialogue shall be conducted where there is a need of the works and or the services included in the subject-matter of a concession with a cross-border interest that can be met by more than one solution relating to the technical, functional or qualitative requirements, the financial and economic model or the legal construct, as well as where it is possible to include innovations.

Therefore, deviations from the initially announced scope or technical characteristics of the concession may be acceptable, depending on the specific case and selected award procedure.

The minimum requirements towards the presentation and content of the different options included in a single bid, as well as the evaluation criteria for each of them, shall be announced in the tender documentation. However, again subject to the selected concession award procedure, the possibility for bidders to offer different options may be restricted by the public authority, such a restriction to be explicitly indicated in the tender announcement.

May government parties consider unsolicited proposals for PPP transactions? How are these evaluated?

Unsolicited proposals are explicitly envisaged in the CA.

Under the CA, an unsolicited proposal may be, along with the initiative of the respective public authority, a possible ground for a contracting authority to commence preparatory actions for award of concession. The unsolicited proposal by an economic operator shall contain a description of the subject-matter and object of the concession, justification and a financial and economic analysis. In the case of a works concession, the unsolicited proposal shall be accompanied by a development proposal that shall contain a pre-development study or terms of reference for the preparation of a development-project design, a conceptual design or another phase of a development-project design, which shall identify, inter alia, the projected technical and functional characteristics and technical and economic parameters of the works.

The public authority shall assess the proposal and, it its sole discretion, may take steps for the inclusion of the project in the respective action plan. In addition, the development proposal may be used by the grantor in the establishment of the technical and functional requirements of the future concession, in which case the economic operator that submitted the said proposal, unless selected as concessionaire, shall be entitled to remuneration.

Does the government party provide a stipend for unsuccessful short-listed proponents or otherwise bear a portion of their costs?

The economic operator whose unsolicited proposal has been used as grounds and basis of a concession awarded to a different bidder shall be entitled to remuneration. The amount of the remuneration shall be determined by the grantor according to a methodology specified in the Council of Ministers’ Ordinance on the Financial and Economic Elements of Concessions.

Does the government party require that proposals include financing commitments for the PPP transaction? If it does not, are there any mechanisms during the procurement process to ensure that the applicable PPP transaction, once awarded, is financeable?

No specific requirements for financial undertakings on the part of the private party submitting a PPP bid are introduced in the CA. However, it is common practice for such requirements to be included in the tender conditions and respectively investment commitments to be made by the tender participants as part of their offers (the investment proposal by the selected bidder subsequently becomes an integral part of the relevant concession agreement).

The financial guarantees for the availability of the stipulated investments are achieved through:

  • the performance guarantee provided by the private partner;
  • the option for contracting authorities to place specific preselection criteria towards the financial status of the tenderers;
  • the statutory joint liability for the tenderer along with the concessionaire or private partner’s company (in the cases of setting-up of an SPV for the purposes of the relevant PPP project) in relation to the project implementation (which includes the investment commitments); and
  • specific guarantee provisions inserted in the relevant concession or PPP award contract.

May the government ask its counsel to provide a legal opinion on the enforceability of the PPP agreement? May it provide representations as to the enforceability of the PPP agreement?

The launching of award procedure, both for concessions and for specific PPP projects, is preceded by carrying out extensive preliminary studies (within the framework of the preparatory actions for each procedure). These studies involve a legal, financial-economic and technical analysis, as well as ecological analysis (depending on the case). One of the main issues addressed by the legal analysis is the presence of valid legal grounds for the award of the relevant project, respectively the enforceability of the award agreement. In the event of a negative conclusion on this matter, the public authority shall terminate the procedure and dismiss any further action towards the launching of selection procedure. The preliminary studies are carried out either by the in-house experts of the relevant public contracting authority, or by external consultants, appointed following a competitive public procurement procedure.

In addition, it is common practice to include an explicit representation or warranty on behalf of the grantor or public partner confirming its powers to validly enter into the award agreement, in order to guarantee the private partner’s rights in the event of unenforceability or annulment of the said agreement.

Are there restrictions on participation in PPP projects by foreign entities? May foreign entities exercise control over the project company?

There are no limitations or restrictions under the CA with respect to the nationality of the potential candidates or private partners in PPP projects.

Does local law mandate that any particular form of contract govern design and construction activities? Does it mandate the choice of governing law?

Bulgarian law does not govern the specific form of contract for award of design and construction activities. In practice, especially on large scale infrastructure projects, the International Federation of Consulting Engineers forms of contract are often applied.

The choice of law is also left to the parties’ contractual freedom. However, in the implementation of regulated activities (including construction), the relevant mandatory provisions of the Bulgarian legislation must be observed.

Does local law impose liability for design defects and, if so, on what terms?

The Spatial Development Act (governing the construction process) does impose specific fines for certain violations of the relevant construction requirements by the designers and the persons assigned with the supervision of the construction process. In addition, the Act requires the designer to be insured against professional liability for any detriment inflicted on the other participants in construction and third parties as a result of wrongful acts or omissions in the course of, or in connection with, the performance of its duties.

Does local law require the inclusion of specific warranties? Are there implied warranties in cases where the relevant contract is silent? Does local law mandate or regulate the duration of warranties?

The minimum warranty periods for executed building and construction works, facilities and construction projects are set forth in a specific Ordinance (sub-legislative act). Any contractual warranty periods for executed building and erection works, facilities and construction projects may not be shorter than the minimum periods fixed by the said Ordinance.

Are liquidated damages for delay in construction enforceable? Are certain penalty clauses unenforceable?

Liquidated damages for delay in construction projects are admissible and applicable, subject to the parties’ contractual arrangements. Penalty clauses are generally not allowed under Bulgarian law.

What restrictions are imposed by local law on the contractor’s ability to limit or disclaim liability for indirect or consequential damages?

Limitation of liability issues are not subject to sector-specific regulation, but are governed by the general civil legislation. Pursuant to the Obligations and Contracts Act, limitation of liability may not extend to the cases of non-performance owing to gross negligence or deliberate default.

May a contractor suspend performance for non-payment?

Such suspension is allowed under the general provisions of Bulgarian civil legislation. Under the aforementioned Obligations and Contracts Act, a party to a contract may refuse performance of its obligation until the other party has duly performed its own counter obligation or until it is given adequate security.

Are ‘equivalent project relief’ clauses enforceable under local law?

The use of equivalent project relief clauses is illegal. The CA regulates the main terms and conditions for appointment of subcontractors (in the tenderer’s bid or, subsequently, following award of the relevant PPP agreement), but not the contractual relations between the private partner and its subcontractors.

May the government party decide unilaterally to expand the scope of work under the PPP agreement?

The new concessions and PPP regulations allow for broader and more flexible options for amendment of PPP contracts. In general, the amendment of the PPP contract is executed through a bilateral agreement of the parties and may not be unilaterally imposed by the contracting authority. However, specifically with regard to the possibility for the public authority to unilaterally expand the scope of work under the PPP agreement, such an option may be admissible if initially included in the tender conditions.

Does local law entitle either party to have a PPP agreement ‘rebalanced’ or set aside if it becomes unduly burdensome owing to unforeseen events? Can this be agreed to by the parties?

The occurrence of unforeseen circumstances and events is one of the cases allowing amendment to the PPP agreement. As long as the economic balance is one of its main elements, it should be admissible to modify it in order to reflect the new conditions in which the project is implemented.

Are statutory lien laws applicable to construction work performed in connection with a PPP agreement?

No statutory lien laws apply to construction work performed in connection with a PPP agreement under Bulgarian legislation.

Are there any other material provisions related to design and construction work that PPP agreements must address?

PPP agreements relating to construction projects must be in full compliance with the regulations of the Spatial Development Act and the sub-legislative acts on its implementation. Further, the applicable environment protection legislation must be observed through inclusion of respective clauses in the agreement.

Are private parties’ obligations during the operating period required to be defined in detail or may the PPP agreement set forth performance criteria?

The rights and obligations of both parties (public and private partners) are part of the mandatory content of each awarded PPP agreement, which, conversely, is part of the tender documentation. Generally, no amendments are allowed to the draft award agreement prepared by the public authority’s team at the preparatory action stage of the award procedure. In addition, the law allows changes and amendments to the PPP agreement, once awarded, only in exceptional or unforeseen circumstances. Therefore, the parties’ contractual rights and obligations, as well as the terms and conditions for their implementation, are usually defined in detail. However, depending on the specific PPP project, the envisaging of performance requirements (eg, KPIs) is common practice.

Failure to maintain

Are liquidated damages payable, or are deductions from availability payments possible, for the private party’s failure to operate and maintain the facility as agreed?

The contractual liability of the parties in case of failure to perform is part of the minimum mandatory content of a PPP agreement, by virtue of the CA. The latter further provides that liquidated damages must be explicitly envisaged in the event of early termination of the respective award agreement. The issues relating to damages and indemnification seem to have been left to the contractual freedom of the parties (or, to the discretion of the contracting authority, which is the one actually preparing the draft agreement as part of the tender documentation). There is no regulatory provision in place prohibiting the indemnities from the private partner to be stipulated in the form of liquidated damages or reduction of due concession payments from the grantor.

Refurbishment of vacated facilities

Are there any legal or customary requirements that facilities be refurbished before they are handed back to the government party at the end of the term?

Upon termination or invalidation of the concession agreement, the concessionaire shall be obliged to hand over the concession assets to a commission appointed by the concession-granting authority, in conformity with the requirements of the CA. The time limit to hand over and accept the concession assets shall be 30 days from the date of termination of the concession agreement. However, there is no legal requirement concerning in what condition the subject of the concession needs to be handed back to the authorised commission.

How is the risk of delays in commercial or financial closing customarily allocated between the parties?

The law does provide only general rules regarding the allocation of risks between the public and the private partner in a PPP (see question 7).

By virtue of the CA, in concessions, the concessionaire undertakes the main risks (ie, construction and operational risks). However, the actual risk allocation matrix is prepared at the preliminary analysis stage, usually as part of the financial-economic analysis. The so determined allocation is then formalised in the relevant concession award agreement.

No explicit allocation of the risk of delays in commercial or financial closing is provided in the law.

The financing obligations are usually undertaken by the private partner; therefore, the financial closing of a PPP transaction is usually at the risk of the investor. However, in some cases it is possible for the public entity to also have some funding commitments, for example, when co-funding is required for the purposes of utilising an EU grant. In such cases, it is possible for the commented risk to vest in the public partner or to be shared between the latter and the private partner.

How is the risk of delay in obtaining the necessary permits customarily allocated between the parties?

No explicit allocation of this risk is provided in the law.

The obtaining of permits and licences is generally inherent to the main activity awarded under the PPP agreement. Therefore, those risks generally vest in the private partner, to the extent that the delay in their issuance is not caused by reasons falling under the control of the public partner (eg, required assistance or consent on the part of the latter is unreasonably withheld).

How are force majeure and geotechnical, environmental and weather risks customarily allocated between the parties? Is force majeure treated as a general concept relating to acts outside the parties’ control or is it defined with reference to specific enumerated events?

Force majeure is treated as a general concept, because the CA does not provide any distinctive or special definition different from the one defined in the Bulgarian contractual law. By virtue of the CA, the occurrence of force majeure is not part of the operational risk (always undertaken by the private partner) and may lead to distortion of the economic balance of the concession (which is grounds for amendment or adjustment of the relevant PPP contract in order to re-establish the said balance).

Third party risk

How is risk for acts of third parties customarily allocated between parties to a PPP agreement?

No explicit allocation of these risks is provided in the law. To the extent that the actions of third parties are considered outside of the control of the PPP partners, these risks are usually shared between them in accordance with the specific terms and conditions under the PPP agreement.

Political, legal and macroeconomic risks

How are political, legal and macroeconomic risks customarily allocated between the parties? What protection is afforded to the private party against discriminatory change of law or regulation?

There is no specific legal framework in the matter of concessions regulating the risk of nationalisation or expropriation; therefore, the general legislation shall apply. In the event of changes to legal, tax or sector regulation, the concessionaire could have an extension of the period of the concession agreement, if, because of the changes, it has become impossible to maintain the economic balance or to perform the work that is the subject of the concession agreement.

Mitigating events

What events entitle the private party to extensions of time to perform its obligations?

The period set by the concession agreement is granted for up to 35 years for works concessions and 25 years for service concessions, respectively. The concession term may be decreased or extended by no more than one-third in the following cases:

  • the option for extension is initially envisaged in a revision clause of the PPP contract;
  • the extension is due to unforeseen circumstances; or
  • necessity for the grantor to assign additional works and services to the private partner (ie, the scope of the contract has been expanded).

Further, the contract term may be extended as a measure to restore the economic balance of the concession, if the latter has been distorted.

What events entitle the private party to additional compensation?

Payment (compensation) from the grantor to the private partner is allowed in the following circumstances:

  • where customers do not owe direct payments for the services provided by the concessionaire, or if such payments are due, they are not supposed to be collected by the concessionaire;
  • where the purpose is to achieve a socially acceptable cost of the services provided by the concessionaire; or
  • where the prices of the services provided by the concessionaire are state-regulated.

The grounds for compensation from the public authority, as well as its maximum amount, are established based on the preliminary financial economic feasibility study at the preparatory stage of the concession project; they are also reflected financial model of the concession. The exact amount of the payments and the terms and conditions therefor are specified in the concession agreement, in accordance with the concessionaire’s offer. No payments from the grantor exceeding the stipulated maximum amount thereof shall be allowed.

How is compensation calculated and paid?

The amount of the compensation for the private partner (see question 39) and the terms and conditions for its payment shall be specified in the relevant concession agreement, in accordance with the concessionaire’s offer. The calculation of this compensation is done on a case-by-case basis.

Are there any legal or customary requirements for project agreements to specify a programme of insurance? Which party mandatorily or customarily bears the risk of insurance becoming unavailable on commercially reasonable terms?

The insurance risk is usually borne by the private partner. The subject of insurance are the public assets awarded to the private investor. The insurance is in favour of the grantor or public partner.

What remedies are available to the government party for breach by the private party?

The issue is not explicitly regulated in the law. The consequences in the event of default by the private partner shall be determined in the respective PPP award agreement and could be stipulated in the form of indemnities, liquidated damages, compensation, reduction of due payments from the grantor or public authority, etc. In the cases of non-performance of the concession agreement, caused by an action or inaction of the concessionaire, steps for early termination of the concession agreement may be taken by the public partner.

On what grounds may the PPP agreement be terminated?

Before the expiry of the duration of the concession, the concession contract shall be automatically terminated upon the occurrence of one of the following events:

  • total loss of the object of the concession in a works concession and as from the date of the total loss in a use concession;
  • dissolution of the concessionaire company: as from the date of dissolution of the company;
  • adjudication of the concessionaire in bankruptcy: as from the effective date of the judgment;
  • the concession contract is terminated by a court judgment: as from the effective date of the judgment; or
  • on other grounds provided for in a law or by the concession contract: as from the date stated therein.

The public authority may terminate the contract unilaterally in the event of:

  • threat to national security, public health or environment;
  • occurrence of one or more of the grounds for exclusion of the concessionaire from the tender procedure that has not been remedied by the concessionaire; or
  • corporate restructuring of the concessionaire by means of universal succession, without the grantor’s express consent for the replacement of the concessionaire company (unless the new concessionaire company meets all tender requirements for participation).

Further, either party may terminate the concession contract with prior written notice, in the event of default by the other party that has not been remedied within the respective cure period.

Is there a possibility of termination for convenience?

The CA does not envisage a termination for convenience option for the grantor.

If the PPP agreement is terminated, is compensation available?

The consequences of early termination of the PPP agreement shall depend on the termination ground.

Upon early termination of the contract for a reason for which the grantor is liable, the concessionaire shall be entitled to compensation amounting to:

  • the unrecovered costs incurred by the concessionaire on investments in the concession assets, where the latter are state property or, respectively, municipal property; and
  • the sum corresponding to the rate of return for the concessionaire, as determined by the financial and economic model, for the entire concession term, debited with the value of the recovered costs of investments in the concession assets, where the latter are property of the concessionaire.

Upon early termination of a concession contract for a reason for which the concessionaire is liable, the grantor:

  • shall owe the concessionaire compensation amounting to the lesser of the unrecovered costs incurred by the concessionaire on investments in the concession assets, debited with the rate of return for the concessionaire, as determined by the financial and economic model, for the entire concession term, and the market value of the investments made by the concessionaire in the concession assets by the date of termination of the contract, where the assets are owned by the state or, respectively, by a municipality; and
  • shall not owe the concessionaire any compensation, where the concession assets are owned by the concessionaire or by a third party.

The recovery of the costs incurred by the concessionaire on investments shall cover the equity capital at a rate of return determined by the financial and economic model and the debt capital at the price thereof, taking account of the allocation of risks between the parties.

Does the government provide debt financing or guarantees for PPP projects? On what terms? Which agencies are responsible?

Currently, the cases where public funding of a PPP project shall be allowed, as strictly defined in the law (see question 39). In general, the financing of PPP operations is the prerogative of the private investor. In addition, the issuance of state guarantees is not admissible, except upon a parliamentary decision.

Are lenders afforded privity of contract with the government party through direct agreements or similar mechanisms? What rights will lenders typically have under these agreements?

Although not regulated by local law, there are examples of large-scale PPP projects in Bulgaria where the mechanism of the direct agreement is applied. Usually in such cases, the direct agreements provide for control powers for the lender over key aspects of the PPP project (in the form of right to information, required consents, etc), as well as step-in rights in the event of insolvency or dissolution of the private partner and financial undertakings on behalf of the public partner towards the lender for full payment of the debt in the event of default by the private partner (beneficiary to the debt).

If the private party refinances the PPP project at a lower cost of funds, is there any requirement that the gains from such refinancing be shared with the government? Are there any restrictions on refinancing?

Any restrictions on the refinancing conditions would only stem from the contractual arrangements between all parties involved in the relevant transaction.

What key project agreements must be governed by local law?

Pursuant to the CA, the applicable substantive law as regards the relevant concession agreement shall be stipulated by the related parties. However, the specific obligations of the concessionaire in the fields of environmental, social and labour law, stemming from the Bulgarian national legislation, EU law, collective agreements or by the international social and environmental conventions, must be observed. In addition, to the extent that the project involves regulated activities (eg, heat and energy production and distribution, civil aviation services, etc), the relevant Bulgarian statutory regulations need to be addressed.

Under local law, what immunities does the government party enjoy in PPP transactions? Which of these immunities can be waived by the government?

Currently the law does not provide for immunities for the public partner in the execution and implementation of PPP transactions.

Is arbitration available to settle disputes under the project agreement between the government and the private party? If not, what regime applies?

Pursuant to the CA, while the dispute resolution mechanism shall be set out in the concession agreement, any disputes regarding the execution, performance, amendment and termination of a concession contract shall be settled according to the procedure established by the Bulgarian Code of Civil Procedure.

Is there a requirement to enter into mediation or other preliminary dispute resolution procedures as a condition to seeking arbitration or other binding resolution?

Mediation is an option and not a required step in the dispute resolution procedure. It shall be expressly stipulated by the parties in order to become a binding contractual obligation.

Is there a special mechanism to deal with technical disputes?

To date, the law does not provide for a specific mechanism to deal with technical disputes.

Updates and trends

The newly introduced PPP legislation, which brings greater flexibility to concession-structuring options and award mechanisms, is expected to generate further possibilities within an improved environment between public-sector and private investment PPP initiatives of any size.

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