4. INVESTORS GUIDE HN - 2021 PUBLIC–PRIVATE PARTNERSHIPS

4. INVESTORS GUIDE HN - 2021 PUBLIC–PRIVATE PARTNERSHIPS

GUÍA DEL INVERSIONISTAHONDURAS 2020-2021

PUBLIC-PRIVATE PARTNERSHIP PROJECTS UNDER PRIVATE INITIATIVE 4.1 CONTENT 4

PUBLIC – PRIVATE PARTNERSHIPS (PPP)

4. PUBLIC – PRIVATE PARTNERSHIPS (PPP)

HONDURAS INVESTOR´S GUIDE 2020-2021

4.1 PUBLIC-PRIVATE PARTNERSHIP PROJECTS UNDER PRIVATE INITIATIVE The Law for Promotion of Public-Private Partnerships created by Legislative Decree number 143-2010 and its implementing regulations allows the Private Sector to submit investment projects in infrastructure and services through private initiative scheme, opening the way for new business opportunities in the country and thus facilitating access for greater and better infrastructure and public services. A Private Initiative is defined as: Model of Public-Private Participation where individuals can propose projects to be qualified by the Public Administration. In this case the Superior Council for the Public-Private Partnership with the Specialized Technical Unit for PPP Projects (UTEP-APP, for its acronym in Spanish) were created in accordance with Decree PCM 064-2019 as of public interest, to be executed and financed fully or partially by the private sector, and under the supervision of the Public Administration directly or through a Financial Entity as Fiduciary. 4.1.1 MODALITIES FOR PUBLIC-PRIVATE PARTICIPATION According to article 4 of the PPP Law, public-private participation may opt for the following modalities: a. Construction, operation, transfer, maintenance of public works, and/or public services. b. Extension of existing public works and/or public services. c. Presentation of all or part of a public service, whether the performance of the public work. d. Execution of Public Works. e. Administration as trustee of goods, services, accounting systems, computer systems, programs or development projects, credit contract, among others. f. Any other modality that allows the realization of a Private-Partnership within the framework of this law.

*Natural persons or legal entities, local or foreign, who intend to be part of a Public-Private Partnership (PPP for large-scale projects), must demonstrate to be of recognized prestige, experience, financial and technical capacity for its development). 4.1.2 FORMS OF ORGANIZATION OF ENTERPRISES TO PARTICIPATE IN A PUBLIC-PRIVATE PARTNERSHIP a. Co-investment or Joint Venture b. Consortium c. Legal entities, with or without profit d. Participation Contracts e. Management Contracts f. Trusts g. Any other form or modality suitable for the execution of works or provision of services 4.1.3 SELECTION PROCEDURES According to Article 19 of the PPP Law; the Ministry of Finance, through the Fiscal Contingency Unit (UCF, for its acronym in Spanish), based on the evaluation of the technical studies, must select and determine which projects can be implemented under public-private participation schemes. These projects, as previously contemplated within the Public Investment System, must be authorized by the Department of Finance.

4. PUBLIC – PRIVATE PARTNERSHIPS (PPP)

HONDURAS INVESTOR´S GUIDE 2020-2021

4.1.4 DISTRIBUTION OF RISKS According to Article 9 of the PPP Law, the distribution between the parties of the inherent risks and costs must be agreed in accordance with what is most appropriate to the specific needs of the Public-Private Partnership (PPP). Those may be the extraordinary financial risks, attributable to unforeseen and commercial causes of the operations, among others. The conflicts by both parties must be clearly defined and the participation of the State in the Public-Private Partnership (PPP) should always be limited to its contributions to the Partnership. 4.1.5 AWARDING FORMULA According to Article 25 of the PPP regulation, the Public-Private Partnership shall be awarded to the holder of the most appropriate technical and economic proposal, according to the evaluation system set out in the bid specifications. In accordance with Article 10 of the Law, the economic qualification shall be limited to assessing the following aspects: a. The presentation of the service in better economic conditions for users without sacrificing quality and efficiency, in accordance with bid specifications and/or in the draft Public-Private Partnership Contract. b. The offering of greater economic benefits to the State. c. The requirement for less co-financing, guarantees or State contribution in the case of works, services and/or projects requiring co-financing or State contribution. The bid specifications shall lay down the criteria, time limits and the formalities to be followed in the evaluation of proposals in each case. According to Article 10 of the PPP Law, the awarding formula must be simple and consider only two components: economic and technical.

4. PUBLIC – PRIVATE PARTNERSHIPS (PPP)

HONDURAS INVESTOR´S GUIDE 2020-2021

4.1.7 ADMISSIBILITY OF AN INITIATIVE According to Article 19 of the PPP Law; the Ministry of Finance, through the Fiscal Contingency Unit (UCF, for its acronym in Spanish), based on the evaluation of the technical studies, must select and determine which projects can be implemented under public-private participation schemes. These projects, as previously contemplated within the Public Investment System, must be authorized by the Minister of Finance. PROCEDURE According to article 18 of the PPP Law; projects must be incorporated into the National System of Public Investment under public-private participation models. They must present a previous feasibility inspection including cost-benefit analysis and viable financing schemes to ensure the execution of the project, work and/or delegable service. These analyses must be carried out by the Superior Council for the Public-Private Partnership with the Specialized Technical Unit for PPP Projects (UTEP-APP, for its acronym in Spanish). The Ministry of Finance is instructed to participate in the entire project cycle of the Public-Private Partnership initiatives. Its participation includes: all matters relating to the processes of presentation, socio-economic evaluation, assessment of budgetary capacity, declaration of eligibility and selection, structuring and awarding of projects under public-private partnership models, whether the initiative is of public or private origin, including those projects that have a trust approved by Decree of the National Congress and that are still in the process of structuring by the trustee and UTEP-APP. Based on Technical Studies carried out during the entire cycle of the Public-Private Partnership (PPP) project, the Fiscal Contingency Unit (UCF, for its acronym in Spanish) of the Ministry of Finance must issue an opinion authorizing or disallowing on the start or continuation of each of the projects under public-private participation models.

The Economic component should be limited to assessing one of the following aspects: a. The one who provides the service in better economic conditions without sacrificing quality and efficiency in accordance with what is specified in the pre-established terms of employment; b. The one who offers greater benefits to the State; and, c. The one who requires less co-financing or State contribution. 4.1.6 PRIVATE INITIATIVE PRESENTATIONT According to Article 36 of the Regulations of the Promotion Law for the PPP, for the presentation of the private initiative of investment projects must meet the following minimum requirements: a. Legal existence of the proposer. b. Financial capacity of the proposer. c. Background evidence of the experience of the author of the initiative. d. Appropriate management capacity, reliability and experience for projects of equal or similar size. e. Detailed identification and description of the project and its nature. f. Presentation of the baseline studies of the economic, financial and technical feasibility of the project, works, service or concerned delegable activity. g. Estimated total investment amount and investment breakdown by year, as well as the methodology used for its calculation. h. Declare, if the project does not involve investment, the savings generated, the improvement of the quality, the safety, the time of the goods or services to be provided. i. Indication of the resources source and the type of financing, including whether the project involves State co-financing and in what form. j. Whether the project involves the use of public property or State property and its identification. k. Environmental pre-feasibility study for projects that would have to undergo the environmental impact assessment process in

accordance with current regulations. l. Identification of the public interest.

The opinion must be approved by the holder of that Ministry, which is binding. To issue the above-mentioned opinion, the Higher Council for the Public-Private Partnership with the Specialized Technical Unit for PPP Projects (UTEP-APP, for its acronym in Spanish) is obliged to send it to the Ministry of Finance, the complete documentation and information of each project, within thirty (30) working days, before the issuance of that opinion. Likewise, the Ministry of Finance with the assistance of the Fiscal Contingency Unit (UCF, for its acronym in Spanish), must rule on the draft contract in each of its versions and the Draft Executive Decree (PCM, for its acronym in Spanish) after submission to the President of the Republic in the Cabinet, as established in article 11, final paragraph, of the Law for the Promotion of Public-Private Partnership. Therefore, the Superior Council for the Public-Private Partnership with the Specialized Technical Unit for PPP Projects (UTEP-APP, for its acronym in Spanish), must send the Draft Executive Decree accompanied 4. PUBLIC – PRIVATE PARTNERSHIPS (PPP)

HONDURAS INVESTOR´S GUIDE 2020-2021

with the draft contract and the opinion issued by the Ministry of Finance to the Secretariat of the Cabinet. Once the content of the contract has been approved by the President of the Republic in the Cabinet and by the National Congress of the Republic, UTEP-APP through the competent Minister, in accordance with the Public-Private Partnership (APP, for its acronym in Spanish) project in question, must send to the Ministry of Finance, the Draft Decree, the Executive Decree (PCM, for its acronym in Spanish) authorizing the signature of the contract, the copy of the contract signed between the parties and other related documentation. The Ministry of Finance (SEFIN, for its acronym in Spanish), through the Fiscal Contingency Unit (UCF, for its acronym in Spanish), will issue a favorable and binding opinion on such documentation, prior to its submission to the National Congress.

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