Peru: Towards a Model for Developing Public–Private Partnerships in accordance with International Practices and Standards
Where we began
The private investment promotion process started in Peru about three decades ago, within the framework of a governmental policy of economic stability and market liberalisation.
With the issuance of the first private investment promotion regulations in 1991 and the enactment of the 1993 Peruvian Constitution, the primary roles of the state and the private sector were clearly defined: the state is mandated to guide the country’s development and promote public services and infrastructure, and the private sector is expected to make investments and conduct business activities.
After it was decided to promote investment through structural reforms (by issuing Legislative Decrees 662, 674, 757 and 758) and the legal stability of investments was guaranteed (stability of the tax and labour systems, and free availability of foreign exchange), as well as the equality between Peruvian and foreign investors, free competition, the freedom to set prices, private investment, the access to arbitration in investment matters and the prohibition of discriminatory treatments, the table was set.
In 1996, our country saw a boom in concessions, explained by a legal framework that regulated the delivery in concession of public utility services and infrastructure (the Consolidated Text of Concessions, approved by Supreme Decree 056-96-PCM). Subsequently, in 2003, as part of a public decentralisation policy, the state decided to promote investment on a decentralised basis with a view towards achieving the comprehensive and sustainable development of each region in the country, through a strategic alliance with the regional and local governments, private investment and civil society (Law 28059).
A few years later, in 2008, a rule was enacted expressly regulating the Public–Private Partnerships (PPP) mechanism in Peru. By means of Legislative Decree 1012, which approved the PPP Framework Act, several contractual modalities for the development of public infrastructure and utility services were included in this participatory scheme.
In order to align our PPP legislation with international standards (among them, the Recommendations on Principles for Public Governance on Public–Private Partnerships of the Organisation for Economic Cooperation and Development (OECD) and the valuable recommendations of multilateral organisations such as the World Bank and the Inter-American Development Bank, among others), Legislative Decree 1224 of September 2015 established a unified regulatory framework to promote private investment in PPP matters as well as in asset projects, in order to contribute to stimulate the economy, the creation of productive jobs and the competitiveness.
In March 2016, Peru became the first non-OECD country to adopt the Recommendations on Principles for Public Governance on Public–Private Partnerships, also known in Latin America as Principles for Public Governance of Public–Private Partnerships. Accordingly, taking into account the best public governance practices embodied therein, our regulations are focused around three fundamental principles:
- establish a clear, predictable and legitimate institutional framework supported by competent and well-resourced authorities;
- ground the selection of public–private partnerships in value for money; and
- use the budgetary process transparently to minimise fiscal risks and ensure the integrity of the procurement process.
While it is true that there are always several opinions that bring into question the regulatory changes in one way or the other, we consider that it is indispensable to understand that this particular change seeks to achieve and consolidate a regulatory framework that is consistent with the best international practices concerning the implementation of PPPs, without leaving aside our socio-political reality and legal-administrative culture. We should bear in mind that, to the extent that there is not a ‘single PPP framework model’, it will likely evolve over time in response to the specific challenges it might face on its path towards consolidation.
Presently, despite the huge amounts invested over the last decades, there is a significant gap in public infrastructure and utility services that must be necessarily bridged. As a matter of fact, according to the estimate made by the Association for the Promotion of National Infrastructure (AFIN) for the 2016–2025 period, the infrastructure gap amounts to US$160 billion approximately. While these estimates are always referential in nature and are subject to modifications depending on different variables, our position as the 89th economy in infrastructure among other 140 global economies according to the Global Competitiveness Report 2015–2016 of the World Economic Forum is a clear indicator that correlates with the above-mentioned estimation and underscores the urgent need to continue developing public infrastructure and utility services projects.
Horizon to which we must aim
Economies with remarkable and significant PPP development, such as the United Kingdom, Australia and Canada, shed light on the main aspects on which a regulatory framework aiming at the full development of a country’s infrastructure must be based. Such aspects include:
- clear public policies articulated within the framework of an adequate management of governmental finances and sustainability in all areas;
- planning and prioritisation of project strategies by sector;
- transparent, clear and predictable legal framework; and
- clear and predictable institutional framework, with defined competencies and jurisdictions, strengths in preparation, bidding, award, and monitoring of projects, and fluid communication and coordination capacities at an inter-institutional level.
The above-quoted OECD’s Recommendations recognise that PPPs pose particular challenges due to the usual complexity of these participatory schemes. According to the OECD, these challenges are tackled through (1) the development, at a governmental level, of a number of skills in terms of institutionality and regulatory framework; (2) a robust system of assessing value for money based on prudent public policies and consistent guidelines or methodologies; (3) quantification and contractual transfer of risks to the party that is in a better position to manage them; and (4) capacity to monitor the PPP agreement during its term.