Bill on Public-Private Partnerships Passed

18 May 2011

Maputo — The Mozambican parliament, the Assembly of the Republic, on Wednesday passed the first reading of a government bill on private-public partnerships, large scale projects, and business concessions.

Introducing the bill, Finance Minister Manuel Chang said the purpose of the bill was “to guarantee an equitable share-out of the benefits expected from each undertaking between the contracting parties, the state, the national economy, civil society and the local communities”.

It was also intended “to prevent and mitigate economic and financial risks and those arising from conflicts of interest”.

The most detailed section of the bill deals with risk mitigation in public-private partnerships. It states that risks “inherent to, or arising from, technical, professional, technological, commercial or management capacity” and which impact on the contractually agreed objectives are the responsibility of the private partner.

It is entirely up to the private partner to mitigate these risks, and to bear any damage or loss which results from them.

On the other hand, political and legislative risks, or risks arising from institutional conflicts or interests, are the responsibility of the Mozambican government or public institutions, which must bear their consequences.

Among the economic and financial risks which are the exclusive responsibility of the private partner are the financial and exchange rate risks inherent to the undertaking, fiduciary risks arising from the undue use of financial resources, and risks that debt incurred in the undertaking will prove unsustainable.

Risks concerning supply and demand, depreciation of assets and the environmental impact of the undertaking are also the responsibility of the private partner.

Both sides in a public-private partnership must provide financial guarantees that ensure full compliance with their contractual obligations.

The bill also states that any assets handed over to private partners to be exploited and managed under a public-private partnership remain state property. “This removes any hypothesis of selling off to private individuals property and wealth that belongs to the state”, declared Chang.

All contracts must state specifically what direct or indirect benefits are expected from the undertaking – including the distribution of profits or dividends, the generation of fiscal revenue, the creation or rehabilitation of infrastructures, job creation, and the development of business links with small and medium companies.

Contracts for public-private partnerships are limited to 30 years when the concession concerns an undertaking built from scratch (but may be extended by a further 10 years in particularly complex cases). When the partnership concerns a simple management contract for an existing and operational undertaking, the contract cannot last for more than ten years. At the end of a contract, a new public tender can be held to offer a new contract.

Furthermore, in a break with the secrecy that has surrounded large scale undertakings, the main terms of contracts for public-private partnerships must be published in the official gazette, the “Boletim da Republica”. The accounts and regular reports from the undertaking must also be published.

The bill also envisages renegotiating contracts with mega-projects, but on the basis of “mutual agreement between the contracting parties”.

The bill was approved by consensus among the 180 deputies present in the chamber from the majority Frelimo Party and the Mozambique Democratic Movement (MDM). The main opposition party, Renamo, was not present. It boycotted the debate because its demand that the bill be postponed was rejected.

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