Public-private Alliances (PPA) is a collaborative instrument between a government agency and a private sector company that is being used to finance large-scale public projects, such as transport networks, renewable energy and other projects related to infrastructure.
Through this agreement, the government agency and the private sector company come together to sponsor and build the project with shared risks and costs. Normally, PPAs have long-term contracts (in the case of the Dominican Republic it cannot exceed 40 years) and the private sector company participates in the financing, design, construction and operation of the project in exchange for tax benefits or other concessions.
The private sector company may also be granted facilitated access to permits, liability protection, and partial property rights over nominally public property and services. The use of these alliances has enabled the completion of a large number of public infrastructure projects around the world.
The Dominican Republic’s recent Law and Regulation on PPA.
The Dominican Republic has one of the fastest growing economies in Latin America. The country’s average GDP growth rate for the last 10 years has been above 5.5%. Despite a pandemic-induced recession, the Dominican Republic is expected to once again achieve 5.5% GDP growth in 2021. In response to the need to have a specific regulatory framework for PPAs, in line with the 2030 National Development Strategy, and with the objective of doubling investment in the country’s infrastructure, Law No. 47-20 on PPA and later, in September, the law was supplemented with a regulation, promulgated by Decree No. 434-20. Both regulations provide the legal framework for the initiation, selection, award, procurement, execution, monitoring and implementation of PPAs in the Dominican Republic. The law distinguishes between PPAs of public initiative and those of private initiative and, in both cases, establishes the procedural steps for the final award of a PPA agreement.
According to the law, the agreement that establishes the terms and conditions applicable to the APP, must include (as a minimum) the following content: a financial model, the remuneration regime, the profit distribution scheme, the transfer of public resources for the development of the project, intervention of the public agent in case of breach of the contract and risk matrix that includes risk distribution. The APP contract can only be entered into between legal entities, whose activities are exclusively to execute the contract. When a PPA involves the transfer of State resources, it must be carried out through a trust that will administer the rights and duties provided, and may incur debts and grant guarantees on the assets that are part of it.
Approval of the National Congress will be required when the APP entails the definitive alienation of State assets, exemption from taxes, affectation of national income and public credit operations. The law establishes a temporary exemption during the first 5 years that follow the beginning of the execution of the project by the successful tenderer, consisting of the return of ITBIS in the operations of purchase or rental of equipment, materials and supplies, directly related to construction, repair o expansion of goods and infrastructure object of the APP during the first 5 years that follow the beginning of the project execution by the successful bidder.
The law also created the General Directorate of Public-Private Associations (DGAPP), an administrative body in charge of evaluating and qualifying the proposals submitted by public and private agents and maintaining the publication registry of all public-private alliance projects, among other technical aspects. , administrative and promotional functions.
In early 2021, DGAPP revealed the next PPA projects that involve the economic development of the Pedernales region with an estimated investment of US $ 3 billion. The investments will be allocated to sustainable infrastructure development projects, including roads, electricity and water services, an airport and more than 10,000 rooms in hotel complexes. The DGAPP office and the Pro-Pedernales Trust aim to start infrastructure projects in the region before the end of July 2021. Another PPA project currently under development is the construction estimated at US $ 400 million of the Amber Highway that connects the second largest city in the Dominican Republic, Santiago, and its third largest city, Puerto Plata, with its airport and new cruise terminal.
PPAs and the COVID-19 pandemic Latin America has been seriously affected by the COVID-19 pandemic, and the economy of the Dominican Republic, which is highly dependent on the tourism sector, has been particularly affected. In 2020, the country’s GDP was projected to grow by 5.1% and, in fact, contracted by 6.73%. The Presidential Decree No. 141-20, of April 2020, created the Emergency Management and Health Committee, whose mission is to advise the Government in its response to COVID-19. This includes the development of PPAs to improve the capacity and readiness of the local health system to deal with the pandemic. Overall, the macroeconomic and fiscal challenges posed by the COVID-19 crisis have intensified the government’s appetite and interest in fully implementing PPA legislation and making extensive use of this new legal framework. Therefore, it is expected that the promotion of PPAs will not only lead to an expansion and improvement of the national health system to help combat the effect of the pandemic, but will also strengthen the infrastructure and economy of the country as a whole.
The Dominican Republic is a nation committed to continuing to be one of the fastest growing economies in Latin America. With the adoption of the PPA Law, it is able to incorporate more coherent regulation to support infrastructure development, increasing opportunities to attract more foreign investment through innovative opportunities and adequate protection. If implemented consistently, this can lead to considerable progress both in the country and in the region.