We would like to share with you an analysis of the nature and legal scope of the guidelines that the establish provisions for determining the social profitability, as well as the advisability of engaging in a project through a Public Private Partnership (“the PPP Guidelines”).
On November 22, 2012, the PPP Guidelines issued by the Ministry of Finance and Public Credit (SHCP for its initials in Spanish) were published in the Official Federal Gazette (DOF for its initials in Spanish).
Prior to that, on January 16, 2012, the Public Private Partnerships Law (“the PPP Law”) was published in the DOF, and in parallel certain related provisions of the Public Works and Services Law, the Public Sector Acquisitions, Leases and Services Law; the Expropriation Law, the General National Assets Law and the Federal Civil Procedures Code were amended.
The PPP Law introduces, defines and regulates for the first time in Mexico, the means for the development of public private partnership projects (“PPP Projects”), regulating articles 25 and 134 of the Political Constitution of the United Mexican States.
The issuance of the PPP Guidelines was provided for in the Third Transitory Article of the PPP Law, which establishes that the preparation and initiation of the projects referred to in that that Law, will be subject to the issuance of the corresponding guidelines by the SHCP.
In this regard, the publication of the PPP Guidelines fulfills the terms of articles 14, section VI, and 17 of the PPP Law, as well as 26 and 31 of its Regulation (published in the DOF on November 5, 2012). These articles establish that the agencies and entities, in order to determine the social profitability of a PPP Project, must observe the Guidelines that the SHCP will determine for that purpose.
The PPP Guidelines will also serve as support for complying with articles 14, section IX, and 17 of the PPP Law, and 26, 29 and 31 of its Regulation, which provide that the interested agencies or entities must evaluate and demonstrate the advisability of carrying out the projects in this form in comparison with other possible forms. This evaluation must incorporate a Cost Benefit Analysis, the profitability of the project, the relevance of the timeliness of the starting period, as well as the alternative of doing another project or carrying it out with a different form of financing than a PPP.
In view of the above, the PPP Guidelines establish the procedure that the bid calling Agencies and Entities must observe to determine the social profitability of the projects supported with budgeted federal resources. The procedure that the PPP Guidelines establish presume: (i) the presentation to the Investment Unit of the SHCP of the Cost Benefit and Social Profitability Analysis of the PPP proposal, showing that it can generate a net social benefit under reasonable presumptions; and (ii) Registering the PPP Project in the Investment Portfolio of the SHCP through the Integrated Process of Programming and Budget System (PIPP for its initials in Spanish), once the benefit and profitability analysis is validated. Thus, only the investment projects registered in the Portfolio can be included in the draft Federal Expenditures Budget of the fiscal year in question.
For purposes of registering the Portfolio, the PPP Projects are classified as:
Economic infrastructure projects,
Social infrastructure projects,
Governmental infrastructure projects,
Real estate, maintenance, pre-investment study projects, and
Other investment projects.
The Profitability Analysis applicable to the investment projects that the interested Agencies and Entities present are the following:
Technical sheet,
Cost-benefit analysis,
Simplified cost-benefit analysis,
Cost-efficiency analysis, and
Simplified cost-efficiency analysis.
Furthermore, the Agencies or Entities also must classify the PPP Project according to the type of contribution of federal resources, whether they are: (i) Pure Public Private Partnership Projects or (ii) Combined Public Private Partnership Projects.
The PPP Guidelines also require the Agencies or Entities to do a Risk Analysis in which they identify, describe, valorize and assign the risks of the PPP Projects, as well as identify and valorize the elements of mitigation, such as bonds, insurance, guarantees or hedges, indicating the amount covered and its duration.
The Investments Unit of the SHCP will be responsible for the interpretation of the PPP Guidelines, although other administrative units of that Ministry may also have functions to exercise in terms of the applicable provisions.
Finally, the APP Guidelines are specific with respect to the multiple considerations to be addressed in the different analysis to be done in order to consider a PPP Project viable and profitable. To pass the evaluation that the Investments Unit of the SHCP does on each project, the Agencies or Entities should, in summary:
Do a Social Profitability Analysis that shows that the projects can generate in each case a net social benefit for the target population.
Do an Advisability Analysis that shows the relevance of doing the project through a public private partnership in comparison with other possible forms of contracting or mechanisms of financing; and finally,
Do an Analysis of the Relevance of the Timeliness of the Start Period that includes the scheduling and timing justification for initiating the execution of the Project and the time it should last.
We hope the above information is useful; we would be glad to help you if you have any questions.
If you would like to learn more about this topic, please contact Mr. Rafael Sámano: rsamano@samanosc.com.mx.