May 2022
Luke Hung and Sally Yang
The Executive Yuan resolved during the Executive Yuan Council meeting on February 17, 2022 to adopt the draft Partial Amendments (hereinafter, the “Draft”) to the Act for Promotion of Private Participation in Infrastructure Projects (hereinafter, the “Act”) and submitted the same to the Legislative Yuan for reviewing. The Legislative Yuan included this Draft in the agenda of its legislative sessions in March 2022 and handed it to the Finance Subcommittee for review. The Draft is highlighted below:
I. Expansion of the public infrastructure and service categories and inclusion of “green energy” and “digital development”
Since the current Act only includes “power industry” facilities, “green energy” facilities are added to accommodate the coverage expansion of the government’s forward–looking infrastructure projects. In reference to the explanation of the Ministry of Finance, green energy facilities refer to related infrastructure facilities needed for energy production such as energy creation, energy saving, energy storage, and other necessary industry facilities related to the full lifecycle of the green energy industry and are no longer limited to the energy production facilities stipulated under the Renewable Energy Development Act. In addition, digital development, including 5G mobile communications infrastructure development, broadband development in remote areas, etc., is also included (Article 3 of the Draft).
II. Addition of the mechanism for government acquisition of public services for value
In reference to the practices of various other countries and the current model of private participation in projects such as sewage systems, incineration plants, desalination plants, and the Electronic Toll Collection System for the Freeways, it is additionally stipulated that the authority in charge may acquire with payment of compensation the public services provided by private institutions in whole or in part during the period of operation on condition of necessity, priority, and urgency according to policy assessment, of superior benefits relative to construction and operation by the government, and of detailed operating guidelines separately prescribed by the Ministry of Finance, which is the competent authority (Article 9-1 of the Draft).
III. Addition of negotiation and compensation mechanisms in case of failure to negotiate or sign an agreement
In principle, the authority in charge still has the discretion to decide whether or not to negotiate or sign an agreement based on the circumstances of the case after the best applicant has been decided. However, to avoid unforeseen burdens on, or losses to, the best applicant, these amendments additionally stipulate that if the authority in charge ultimately decides not to negotiate or sign the agreement due to policy changes or public interest considerations, it shall notify the best applicant in writing and negotiate with it the amount of compensation, which shall include the reasonable costs incurred in the preparation of the application and the reliance on the tender evaluation. If the negotiation for the above compensation amount is not successful, a lawsuit may be filed with the administrative court for payment (Article 45 of the Draft).
IV. Clarification of the protest and complaint procedure in the application and review stages of cases
For the controversies over the application and review stages of cases under the current Act, the protest and complaint procedures are governed mutatis mutandis by the provisions on disputes over the tender, bid review, and bid award under the Government Procurement Act. However, the Ministry of Finance is authorized to separately prescribe the Regulations Governing the Handling of Disputes during the Application and Review Procedures for Private Participation in Public Infrastructure Projects (hereinafter, the “Dispute Handling Regulations”). To ensure consistency and clarity of relevant requirements, these amendments delete the application of the provisions on the mutatis mutandis application of the Government Procurement Act, and specifically stipulate in the provisions of the Act the deadlines for protests and complaints filed with the authority in charge and for the authority in charge’s handling under the current Handling Regulations (Article 47 of the Draft).
V. Addition of the mechanism of a contract dispute mediation committee organized by the Ministry of Finance
The current Act only stipulates that a mediation committee shall be organized for a specific investment contract, and the disputes shall be referred to arbitration when the mediation is unsuccessful. To accelerate dispute resolution, the Draft additionally provides that the competent authority – the Ministry of Finance – shall organize a contract dispute mediation committee as a third-party mechanism. The committee will consist of 9 to 35 members, who are appointed (recruited) from high-ranking officials of the competent authority or fair-minded people with expertise in engineering, finance, and law. Except as otherwise stipulated under the investment contract, contract disputes may be either coordinated by the coordination committee or referred to the contract dispute mediation committee of the Ministry of Finance for mediation (Article 48-1 of the Draft).
Summary
1. According to news reports, the Minister of Finance said to the public that the investment market has a positive outlook due to the recent return of foreign capital, and will actively promote the amendments to the Act to optimize domestic public construction projects through the Draft. As the Ministry of Finance already pre-announced the Draft to solicit public opinions in 2021 and lawmakers also introduced different versions of the Draft in the Legislative Yuan in March 2022, it seems that the Draft is quite likely to be adopted.
2. The Draft expands the scope of public infrastructure projects and services by including both green energy and digital development in the scope of promotion of private participation in infrastructure projects. This not only increases the flexibility for the government’s promotion of such participation but also provides more room for the private sector to propose projects.
3.The Draft provides for a new compensation mechanism for failure to negotiate or sign an agreement, which may cover reasonable costs incurred in preparing the application and relying on the application evaluation. Such a mechanism may reduce the risk of private participation in public infrastructure projects. However, the explanation field of this Draft only gave an example in which “the best applicant revises its investment plan according to the results of contract negotiation or the recommendations of the selection committee members.” It seems that the scope of the so-called “reasonable costs” is still limited and is likely to cause disputes. Therefore, private institutions are still advised to prudently assess contracting risks in advance.