Public Private Partnership Contract As A New Civil Law Institution In The Republic Of Kazakhstan

In the Address, dated 29 January 2010, 'New Decade - New Economic Growth - New Opportunities for Kazakhstan', the President of the Republic of Kazakhstan - N.A. Nazarbayev, said, in particular: 'A great potential of raising private investment belongs to the public private partnership. We have launched this mechanism in Kazakhstan, but it requires improvements to comply with the best world practice'.

In order to implement this Address of the President of the Republic of Kazakhstan, according to the Resolution of the Government of the Republic of Kazakhstan No. 731 dated 29 June 2011 a Programme for the development of public private partnership in Kazakhstan for 2011-2015 was adopted, and the Government of the Republic of Kazakhstan represented by the Ministry of National Economy issued a legislative initiative on development of a new law 'On Public Private Partnership'.

Adoption of the Law 'On Public Private Partnership' is expected before the end of 2015, and the next year or two will show the changes in the ratio of concessional and non-concessional public private partnership projects in Kazakhstan, attractiveness and effectiveness of the institution of the public private partnership contract as compared with a concession agreement both for business and state.

Thus, the study of the institution of public private partnership contract becomes especially important, and even at the stage of consideration of the draft Law 'On Public Private Partnership' it is required to try avoiding mistakes in the right definition, including the subject, parties, and content of the public private partnership contract.

This Article is, therefore, aimed at the following:

ü to identify the legal essence and main features of the public private partnership contract;

ü to define the subject and other material terms of the public private partnership contract;

ü to develop proposals on improvement of the draft Law 'On Public Private Partnership'.

Chapter 1. The Concept and General Description of a Public Private Partnership Contract

§ 1.1. Public private partnership contract within the framework of the current legislation

The current laws of the Republic of Kazakhstan (hereinafter - 'Kazakhstan') do not provide for a legal definition of the contract on public private partnership (hereinafter - 'PPP Contract').

At the same time, Article 1.19 of the Law of the Republic of Kazakhstan No. 167-III dated 167-III 'On Concessions' (hereinafter - the 'Concession Law') defines the concept of public private partnership as a form of cooperation between the state and private entrepreneurship entities aimed at the financing, creation, reconstruction and (or) operation of social and vital infrastructure facilities.

Article 7-2 of the Concession Law provides for the following exhaustive list of public private partnership principles in Kazakhstan (hereinafter - 'PPP Principles')1:

"1) a principle of consistency - formation of mid-term or long-term mutual relationships between public private partnership participants on a contractual basis;

2) a principle of contentiousness - determination of private partner on a basis of competitive tender;

3) a principle of balance - mutually advantageous distribution of risks, profits, guarantees and obligations between public private partnership participants;

4) a principle of efficiency - establishment of criteria and indices, permitting assessment of public private partnership results."

Finally, Article 7-1.1 of the Concession Law clearly outlines that public private partnership (hereinafter - the 'PPP') in the Republic of Kazakhstan is divided into institutional and contractual. It is noteworthy that according to Article 7-1.3 of the Concession Law, 'contractual public private partnership is implemented within the framework of concession agreements, tenancy and trust management of state property in the procedure prescribed by this Law or other laws of the Republic of Kazakhstan'. Since the list of possible forms of contracts is exhaustive, according to a literal interpretation of the current edition of the Concession Law, contractual public private partnership can be only implemented within the framework of concession agreements, tenancy and trust management of state property.

Below we briefly discuss currently available contractual forms of PPP in Kazakhstan:

Concession Agreement

Under Article 1.18 of the Concession Law, 'a concession agreement is a written agreement between concessor and concessionary, which determines the rights, obligations and liability of the parties, conditions for implementation of the concession".

Legal terms and conditions of concession, types of state support to the concessionary and social relations arising in entering into, performing and terminating concessions agreements shall be governed by the Concession Law.

In particular, pursuant to Article 1.6 of the Concession Law, 'a concession is an activity aimed at the construction (reconstruction) and operation of concession facilities, and performed at the expense of concessionary funds or on conditions of co-funding by a concessor'.

A concession facility in Kazakhstan can only be the so-called 'social and vital infrastructure facilities included into the list, which shall be constructed (reconstructed) and operated under a concession agreement' (Article 1.14 of the Concession Law). Under Article 1.2 of the Concession Law, 'social and vital infrastructure facilities are facilities, complexes of facilities used for satisfaction of public needs, securing of which imposed on state authorities in accordance with the legislation of the Republic of Kazakhstan'.

The term 'concession project', pursuant to Article 1.8 of the Concession Law, means 'a set of actions on carrying out of concession implemented within limited period and having terminated nature in accordance with the budget laws of Kazakhstan and this Law'. This term obviously means that any concession project must be completed within a period of time established in a concession agreement and being not more than thirty years (Article 23 of the Concession Law). As to the concept of 'terminated nature' of a set of actions, a legislator apparently meant that all actions performed by the parties to a concession agreement must be completed in full rather than terminated at a mid-stage.

Please note that the Concession Law (Article 5.3) provides for concessionary option to reserve the right to the concession facility upon completion of the concession project, and, therefore, under a concession agreement all world available PPP schemes - BOT, BOOT,ROT,BTO,BOMT,BOO, etc may be structured. In particular, according to Article 21-1 of the Concession Law, a concession agreement is signed in the following types:

'1) a concession agreement that provides for the construction of a concession facility by concessionary with subsequent transfer of concession facility into the state property;

2) a concession agreement that provides for joint activity of concessionary and concessor on the construction (reconstruction) and operation of a concession facility;

3) a concession agreement that provides for the transfer of a concession facility being in the state property in trust management or in tenancy (lease) of concessionary for the purpose of reconstruction and operation;

4) a concession agreement that provides for the transfer of a concession facility being in the property of concessionary in tenancy (lease) of concessor or person authorised thereby, as well as with the right of redemption of the concession facility by the concessor."

A concession agreement may include elements of one or more of the above-mentioned types of agreements, as well as the elements of other agreements not prohibited by the legislation of Kazakhstan and aimed at the construction (reconstruction) and operation of a concession facility.

Another distinctive feature of a concession in Kazakhstan is that the concession facilities during the term of the concession agreement cannot be the subject of a pledge and cannot be alienated for the period of validity of the concession agreement (Articles 5.5 and 5.6 of the Concession Law).

Agreements for tenancy and trust management of state property

As to the agreement of tenancy of state property and agreement for trust management of state property (in the form of a state enterprise as a single property complex or management of batch of shares/participatory interests in the charter capital), these kinds (types) of PPP Contracts are settled by the Law of Kazakhstan 'On State Property'.

In particular, under Article 72 of the Law 'On State Property', state property2 can be transferred for use on the basis of the following agreements:

1) tenancy (lease) of state property;

2) trust management of state property.

A principle of contentiousness as one of the PPP Principles provided by the Concession Law is obviously met by the fact that, generally, state property facilities are transferred in tenancy (property lease) as...