The State Capitalism Versus the Public Private Partnership in Ecuador 

June, 2015 - Josemaria Bustamante, Alejandro Pérez Arellano

Ecuador is no stranger to the “State Capitalism” economic stream which prevailed in South America in the last two decades. This way to directly involve the central government to the country’s economy has triggered deep changes to the commercial relationships.In Ecuador’s case, the central government stopped being a simple regulator and became a reaffirming actor of the economy, by generating an aggressive public inversion, infrastructure projects that employed thousands of people over/for long periods of time. In 2009 a State-Own Companies Law was introduced, which allowed to create State-Owned Companies of diverse kinds like pharmaceuticals, dockyards, clothing, state assets imports, oil production and others. However, this way of organizing the country’s economy is already taking its toll to other countries in the region, such as Brazil. This South American giant took action as a minority shareholder in several enterprises, and also redirecting large amounts of capital by public institutions. If it is true that both Ecuadorian and Brazilian cases differ, but there are still some similitudes:

i) Both countries have involved with State-Owned Companies; 

ii) The economic sectors are considered as strategic; 

iii) Private sector was relegated into the background as an economy catalyzer. 

However the Ecuadorian government decided to take the first step to the economy destatisation, for it emitted the Public Private Partnership (PPP) regulation trough the publication of the Executive Decree 582 (Official Gazette March 6th 2015) that contains “Public-Private Regimen Regulation”. This regulation allows that all people of private right, individual or association (Private Proposer in this case), submit to the correspondent government entities the initiative to perform projects in strategic sectors (energy, coms, non-renewables resources, hydrocarbons, biodiversity, genetic heritage, radio electric spectrum, drinking and irrigation water, sanitation, electric energy, roads, docking), public services or common interest services. Likewise, allows that the initiative also surge from public sector’s organs and entities who are titular of the competent to be delegated (so-called Public Promoter). Consider that this is only a regulation and not a law, similar to the ones that exist in other countries. Neither is a regulation to the “concession figure” since it has other features. One of the most practical aspects of this regulation is the possibility to delegate both: existent and new projects to the private initiative. When the Private Initiative refers as existing projects, the Proposer is obligated to: 

i) Link the proposal to an executing delegated management contract signed by the Private Proposer, in your case, by one of its members; 

ii) Submit a detailed description the way the proposal links technically to the project in execution.

To link an existing contract to the new project, the Private Proposer must present, as an economic asset of the private initiative, a valuation of the project in execution. However, for new projects the private initiatives must fulfill these parameters: Proposal presentation. - Depending the type of the project the proposal must have at least the design, the economic-financial plan and the quality criteria of the derivate services of the operation and/or work exploitation as the case may be. The public entity may regulate the other specifications that considers necessary according to the specific requirements of each case. Public Interest Evaluation. - The public entity must evaluate if the project is of public interest, for it must emit a motivated resolution that analyze the pertinence or not of the project considering these parameters: 

i) Contribution grade to the fulfillment of the planning instruments of the public organ or entity; 

ii) Involvement grade and State role in the provision of the services that attends their model management. 

It is essential to highlight that this decision does not imply the consignment of an administrative act or approval of none of the components of the proposal or pronouncement about technical, juridical or economic viability of the project. Viability Analysis. - Once the public entity has decided favorably about the public interest of the project, the private proponent must entrust the additional required documents. The Public Promoter obligation is to make the complementary studies and validations that considers necessary to determine the juridical, technical and economic viability of the Private Initiative. It is important to consider that the viability of the Private Initiative does not oblige the Public Promoter to start the pre-contractual procedure for the adjudication of the contract. In the end of this process, the Public Promoter must call to a public open contest. The Private Proposer may participate in this contest as long as it fulfills the established requirements in the sheets for any offer. This regulation opens the door to create new synergies between the public and private sector, allowing a better economic development in the country.



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