The Law "On Public-Private Partnership" was adopted on December 9, 2022. This law defines the legal framework for cooperation between the state and the private sector.
According to the law, the maximum duration of public-private partnership projects is set at 49 years. The main factors in determining this period are the useful life of the infrastructure to be created, the volume of investment by the private partner, the payback period of the financial resources involved, and the overall profitability potential of the project.
Water and waste management, transport and logistics, education, healthcare, and agriculture are among the priority sectors for public-private partnerships in 2025.
The economic justification analyzes the project's cost, capital expenditures (CAPEX), operating expenses (OPEX), and experience from similar projects around the world.
The project to produce drinking water by desalinating seawater in the Sumgayit region is the first pilot project. The production capacity of the project is planned to be 100 million m³.
The evaluation of a public-private partnership project consists of four main stages: strategic justification, economic justification, financial justification, and commercial justification.
The strategic justification determines the project's compliance with the state's development plans and its connection to long-term goals. The economic justification assesses the project's impact on the country's economy and evaluates the project's benefits. The financial justification analyzes the project's financial resources and financial sustainability, determines investment needs. The commercial justification assesses the project's market and trade potential, takes into account the participation of a private partner and profitability opportunities.
If, after the conclusion of the contract, the private partner's costs increase or its income decreases as a result of changes in legislation, the state must compensate for this difference. The amount of compensation can be determined in advance in the contract. This amount is paid in accordance with the rules of public-private partnership.
The competent authority evaluates the private initiative within 60 days and decides whether to accept it for the next stage, accept it with conditions, or reject it. The applicant is officially informed within 2 working days of the decision.
A needs assessment identifies the need for a project and trends that will influence potential future changes, ensuring optimal use of resources.
The land plots required for public-private partnership projects are allocated in accordance with the rules set out in the tender conditions. State-owned lands may be leased or transferred to a private partner for use. Depending on the nature of the project, the land lease fee is determined by the relevant executive authority and cannot exceed the duration of the public-private partnership.
A public-private partnership agreement may be concluded without a competitive tender in certain cases, based on direct negotiations. These cases include situations where only one bidder has the opportunity to implement the project, the implementation of projects related to defense and security purposes, the absence of competitive tenders, or only one tender.
At this stage, the project's alignment with national strategies and state programs, needs assessment, and strategic importance of the project based on past/forecasted indicators are assessed.
A public-private partnership agreement may be amended or terminated only in cases provided for in the agreement and in accordance with the Civil Code of the Republic of Azerbaijan. In the event of termination, the consequences are predetermined. These consequences include the calculation of the amount of compensation, the procedure for its payment, and the determination of the owner of the rights to the infrastructure, as well as intellectual property. The rights of the parties are fully protected in this process.
Public-private partnership projects are mainly financed through the state budget, loans from international financial institutions, private sector investments, and sometimes public-private consortiums.
Private initiative is the process of proposing a proposal for the implementation of projects not included in the list by the state within the framework of public-private partnership by a private sector representative. This means that the private sector makes a proposal for cooperation to the state with its resources and ideas. The bidder can prepare a project proposal in accordance with the conditions established by law and submit it to the state.
Issues such as information exchange conditions, encumbrances on state property, compensations, and the law to be applied in relations with foreign elements are regulated.
In this case, the winner's security deposit is not returned and the contract is concluded with the second or third place bidder, respectively.
Financing of public-private partnership projects can be carried out using various financial sources. These sources include funds allocated from the state budget, private sector investments and financial resources of commercial creditors. Depending on the specific characteristics of the project, several financing mechanisms may be applied. Applicants must justify the proposed financing model in order to ensure the financial sustainability and effectiveness of the public-private partnership project.
The allocation of risks in public-private partnership projects is determined by the contract concluded between the parties. Within the framework of general rules:
Commercial risks (for example, instability of revenue streams, decrease in market demand, increase in operating costs) are mainly attributed to the private partner.
Regulatory and political risks (changes in legislation, tariff regulations, obtaining permits) are mainly the responsibility of the public partner.
Natural disasters, force majeure and unforeseen risks can be shared between the parties.
Insurance, state guarantees, compensation mechanisms and other instruments specified in the contract are provided for the management of these risks. The goal is to optimally distribute risks for both parties and ensure the successful implementation of the project.
The main requirements for applicants are:
Having relevant activity and project implementation experience;
Having financial resources for the implementation of the project;
Having assets or being able to attract them;
No corruption and criminal facts;
Not being subject to international sanctions;
No legal restrictions on the implementation of the project
The establishment of a project company for the implementation of the project may be required if provided for in the competition terms and conditions.
A state partner may participate in the project company, but the state's participation should not exceed 49% of the authorized capital.
The evaluation is based on criteria such as technical suitability, financial model sustainability, innovative approaches, and risk sharing.
The bidder with the highest score based on the evaluation of the project proposals is declared the winner. The top three bidders receive an official notification and the results are announced on the website of the competent authority.
