Legal and tax toolbox

The Law on Public Procurements regulates explicitly which contracts for public procurement fall under its provisions and which do not. In the applicable situations, the procuring entities (e.g. state bodies; municipalities; public enterprises; certain state-owned companies; etc.) are required to follow the regulated public procurement procedures when awarding procurement contracts for goods, services or works.

The following authorities deal with certain aspects of the system for public procurement:

1. Public Procurement Bureau – it follows the implementation of the Law and proposes appropriate amendments, as well as operates the Electronical System for Public Procurements (ESPP - https://www.e-nabavki.gov.mk/PublicAccess/Home.aspx#/home).
2. Public Procurement Council - a unique body in charge for approving the tender documents and the selection criteria; and
3. State Commission for Appeals upon Public Procurements - responsible for legal protection of the participants in the public procurement procedures.

Award procedure

Currently, most of the public procurement procedures are carried out electronically through the ESPP. However, starting from 1 January 2018, the procuring entities will be obliged to use the ESPP for all open, restricted and procedures with request for proposals.

A procurement contract can be awarded through one of the following procedures:

• procurement of small value, used for procurements with an estimated value up to EUR 10,000 for goods and services and EUR 20,000 for works;
• a simplified open procedure, designed for procurements with an estimated value up to EUR 70,000 for goods and services and EUR 500,000 for works;
• open procedure, which encompass (i) submission of bids and (ii) potentially carrying out an electronic auction;
• restricted procedure, consisted of two phases (i) prequalification and(ii) submission of bids, as well as an (iii) electronic auction upon the discretion of the contracting authority;
• competitive dialogue, which includes (i) prequalification phase, (ii) dialogue phase for determining the subject of the procurement and (iii) submission of bids;
• a competitive procedure with negotiations, which is implemented through (i) a prequalification phase, (ii) a submission of initial bids, (iii) negotiations (if applicable), (iv) submission of final bids and (v) potentially an electronic auction;
• negotiated procedure, with or without prior publication;
• innovation partnership, when the procurement includes research and development activities.

Generally, awarding criteria during public procurement procedures is the most economically advantageous bid. As an exception, the procurement contract can be awarded to the bidder with the lowest offered price.

Privatisations

The entire privatisation process is/was regulated by several legislation pieces (e.g. the Law on Transformation of the Undertakings with Social Capital (1993); the Law on Privatisation of State Capital (1996); etc.), based on which North Macedonia managed to complete most of the privatisations since there are only few state-owned companies on the market. However, for quite some time the authorities are trying to find interested investors for the former “giants” on the Macedonian economy, the companies EMO from Ohrid and OHIS from Skopje.

With respect to the good standing state-owned companies, the authorities are considering the privatisation of the public enterprise Makedonska Posta, the public operator in the domestic and international postal traffic with more than 2000 employees, and potential “injection” of private capital (49%) in the biggest domestic electricity producer JSC Power Plants of North Macedonia (JSC ESM) Skopje.

Public-private partnerships (PPPs)

General information

The concept of PPPs was presented in the domestic legal system with the previous Law on Concessions and Other Types of Public-Private Partnership (2008). Currently, the main aspects of awarding and implementing a PPP are regulated with the Law on Concessions and Public-Private Partnership (2012), as general law, and the Law on Public Procurements.

At the beginning, public partners were not so keen to use PPPs as an investment model, but this is changing over the last years. According to the Register for Awarded PPP Contracts, there are 30 established PPPs, mostly smaller projects by municipalities and public enterprises.

PPPs / Concessions

PPP is characterized as a contractual long-term cooperation between the public and the private partner, established to facilitate the provision of a public service by one of the partners, through allocation of risks and undertaking specific obligations, mostly by the private partner (e.g. financing, designing, (re constructing, and/or managing/maintaining a public infrastructure). The PPPs are established by an agreement and based on the compensation method and the allocation of risks they can take one of the following forms:

• public works concession;
• public service concession;
• procurement contract for works; or
• procurement contract for services.

By definition, public partners are the entities which award the PPP agreement (i.e. the Republic of North Macedonia; the local municipalities; public enterprises/institutions and companies owned or controlled by state or local authorities; and other legal entities which perform public authorisations), while a private partner can be any domestic or foreign legal or natural person, including consortia, which enters into a PPP agreement or incorporates a special purpose vehicle (SPV) for that purpose.

As a comparison, the Law regulates so-called Concession for Goods of Common Interest which entitles the concessionaire to use goods such as: waters; mineral resources; public roads; construction land; etc.

Characteristics of a PPP

Term - PPP agreements can be concluded for a period up to 35 years from the moment of signing or entering into force of the agreement. There is a standstill obligation which impose obligation for the public partner not to sign the PPP agreement until the decision for selecting the most favorable bid is final and binding. In a period of six months prior to the expiry of the PPP term, the public partner initiates a procedure for establishing new PPP.

Special purpose vehicle - For the implementation of the PPP project, the private partner or the wining consortia may establish a SPV. Establishing a local SPV can also be a mandatory requirement imposed by the public partner. In such case the tender documentation regulate the requirements regarding the legal form of the SPV, the amount of the capital, the obligations of the selected bidder with respect to the incorporation, etc.

Ownership rights - As a rule, the public partner owns the constructed/re-constructed objects during a PPP, unless if it is otherwise agreed with the PPP agreement. The terms regarding the ownership rights have to be stipulated in the tender documentation, based on the carried analysis in the feasibility study for the project.

Step-in rights - The PPP agreement could regulate transfer of the private partner’s rights and obligations in favour of the lenders, as a security for their claims. Such transfer is possible only without jeopardizing the operations and the provision of the services, the quality of the activities, as well as the price.

Transfer of shares in a SPV is conditioned with prior written consent from the public partner.

Sub-contracting and awarding works to third parties by the private partner - The public partner can require at least 30% of the PPP established as public works/service concession to be performed by the sub-contractors. The bids needs to contain information on the percentage of the value of the PPP agreement which they intend to provide to sub-contractors.

For awarding works worth over EUR 3.000.000 during the PPP established as public work concession, the private partner has to follow certain rules with respect to the publishing of the notice and the deadlines for submission of bids.

PPP procurement

The public partner awards the PPP agreement in accordance with the terms from the Law on Public Procurements regarding the following procedures:

• open procedure;
• restricted procedure;
• negotiated procedure with prior publication; and
• competitive dialogue, respectively.

However, some of the aspects of the awarding procedure can be regulated by the Law on Concessions and Public-Private Partnership. For example, the content of the public call or the use of electronic auction through the electronic system of the Ministry of Economy as last phase during an open, restricted or negotiated procedure.

The procedure for awarding a PPP agreement is initiated by a decision from the public partner based on the preparatory activities, especially in accordance with the environmental impact assessment for the project. The entire awarding procedure is carried out by a Commission, established on case-by-case basis.

Financing

PPPs can be financed by a private partner through a combination of direct investments in capital or through lending, including the structured or project financing, provided by international financial institutions, banks, or other third parties.

With prior consent from the public partner, and subject to the legislation regulating ownership rights and the specific object/service, the private partner may establish security in favour of the lenders.