Public- Private Association Law: New Investment Opportunities in Nicaragua

Nov 17, 2016 | English Blog

During the last decade, Nicaragua has witnessed the growth and enhancement in different sectors of the national economy, such as energy, communications, agribusiness, mining, construction and, in general, in a large part of the industrial segment. Even though such growth has had its main impact in the country´s macroeconomics, it is also true that there have been great efforts to try to transfer the benefits and improvements in a more tangible way to large and diverse sectors of the population, especially in terms of a major infrastructure development and a more efficient rendering of public services.

A recent endeavor towards such aim, is the law known as the “Public-Private Association Law” (“PPA”), approved by the Nicaraguan Parliament in the first days of October 2016, which key objective is to regulate the participation of both the public and private sectors in the formulation, contracting, financing, execution, operation and extinction of projects under the PPA scheme.

A PPA project (“PPA Project”) comprises a number of characteristics such as the formulation, financing, construction, development, use, enjoyment, operation, maintenance, modernization, extension and improvement of new public infrastructure facilities, and the associated equipment, as well as the rehabilitation, modernization, exploitation and maintenance of the already existing public infrastructure and the rendering of public services, through a private participant contributing resources into the goods of the State.

Basically, PPA seeks the promotion and incentive of private investments in national interest projects, for the development of the country and for the most efficient benefit and satisfaction of the people´s needs without prejudice of the national sovereignty. In achieving this, PPA Projects should respond to the materialization of the common good, clearly establishing the socioeconomic objectives to be met supported on the cost-benefit analysis.

The governmental regulator for PPA is the “Ministerio de Hacienda y Crédito Público” (Ministry of Economy), acting through its division “Dirección General de Inversiones Públicas” (General Direction for Public Investments) (“Regulator”), in charge of the elaboration and coordination of plans, policies and norms for the development and well-functioning of the PPA contracting scheme, and to supervise PPA Law´s compliance, amongst other attributions.

The Regulator, together with the governmental or public contracting entity, should identify and choose APP Projects, which entails: (i) the identification of projects with potential to be developed under the APP scheme, and aligned to the country´s objectives; (ii) pre-feasibility and feasibility assessments; (iii) economic assessment to determine the convenience of the APP scheme; (iv) environmental assessment; and (v) fiscal risk and sustainability assessment.

In general, an APP Project is brought to public bid by the Regulator and the governmental contracting entity, so the interested private investors may participate as bidders in the process. Both the technical and economical offer should be reviewed by an Evaluation Commission integrated by two representatives of the Regulator, one representative of the Presidency of the Republic, and two representatives appointed by the governmental contracting entity, which should evaluate proposals according to the bid´s terms and conditions, and their decision should be made by simple majority.

The private entity elected, that is, the bid winner, should incorporate a legal entity under Nicaraguan law, which business should be confined to the development of the APP Project according to the project´s terms and conditions (as displayed in the bid´s terms and conditions). The legal name of such entity must necessarily include the PPA acronym.

APP contracts (“APP Contracts”) should be executed in public deeds before the Notary of the State, by and between the contracting governmental entity and the Nicaraguan legal entity created by the private investor winning the bid. The APP Contract so executed, should further be sent over to the President of the Republic in order for him to send it over to the National Parliament in the form of law initiative, to seek and obtain the final legislative approval, which should be done in the form of law of the Republic.

Regulations to APP Law have not been issued yet; notwithstanding, APP Law, as it is now, has been regarded by many sectors in the Nicaraguan society as a new and good opportunity to diversify investments in the country, and to expand the range and scope of businesses by implementing the new contracting scheme APP Law presents.