Highways, Tunnels, Hospitals: How the New Public-Private Partnership Law Will Work

A total of 16 pages, divided into nine chapters – that is the scope of the new draft law on public-private partnerships, which is intended to open the door wider to private capital for the construction of major infrastructure projects while alleviating the need for them to be financed entirely from the state or municipal budgets.

Highways, tunnels, bridges, and water and sewer networks, as well as hospitals, schools, kindergartens, and energy and digital infrastructure, are among the projects the government sees as having the potential to be implemented under this model. The main condition is that the private partner provide all or part of the funding and assume operational risk, while the public and private sectors share the project’s financing, responsibilities, and risks among themselves.

A similar mechanism was announced when Rumen Radev’s regular cabinet took office. Now the mechanism has been laid out in a specific bill, published for public comment with a deadline of October 3.

Why is a public-private partnership necessary?

The government’s main argument is the shortage of public resources relative to the enormous need for new infrastructure. The explanatory memorandum cites the transportation, energy, water and sanitation, social services, health care, education, and digital sectors, where investment needs are growing while public budget capacity remains limited.

According to an analysis by the Ministry of Economy, there is currently no comprehensive framework governing not just the selection of a contractor, but the entire process – from assessing whether a given project is even suitable for a PPP to financing, risk allocation, operation, and oversight.

And the data show limited use of this model. As of 2025, Bulgaria is implementing, on average, between zero and one new PPP project per year. For the period 2019 – 2023, projects totaling approximately 880 million euros were reported, while for the same years in Greece, their total value reached 2.31 billion euros. The goal of the bill is to increase the number of projects in Bulgaria from two during 2019–2023 to at least five during 2026 – 2030.

What is a PPP?

According to the draft bill, a public-private partnership is a long-term collaboration on a project of public interest, in which the public and private parties share resources, responsibilities, and risks. However, there are two key conditions: the private partner must assume operational risk and provide all or part of the project’s financing.

Public partners may include state and local authorities, public-law organizations, and public enterprises, while private partners may include commercial companies and their associations.

This is also important for distinguishing PPPs from the already familiar public procurement and concessions. The bill explicitly excludes both of these regimes from its scope – public procurement will continue to be conducted under the Public Procurement Act, and concessions under the relevant concession legislation.

Simply put, in public procurement, the state or municipality pays the selected contractor for construction, a service, or a supply. In a concession, the private operator is granted the right to operate a facility or service and assumes the associated operational risk. If a proposed project must essentially be implemented through a public procurement contract or a concession, the Interdepartmental Council will not be able to approve it under the new regime but will refer it to the appropriate procedure.

The procedures will also be open to foreign companies and consortia involving them, with the same rights and obligations as those of Bulgarian companies. However, when a project falls under the foreign direct investment screening regime, a contract cannot be signed until the review is complete. In the event of a negative decision, the foreign investor will not be permitted to proceed. For more complex or high-risk projects, the public authority may require the selected foreign investor to establish its project company in Bulgaria.

First, it must be demonstrated that the private model is superior

The process for any future project will begin with a preliminary assessment. Before the state or municipality commits to a private investor, a comparison must be made between the public-private partnership (PPP) and the option of implementing the same project using public funds alone.

The analysis will take into account the costs over the project’s entire life cycle, the expected benefits, the distribution of risks, the impact on the budget, and the socioeconomic effects. Separately, there must be a comparative model for the costs, risks, time required, and expected results under fully public financing.

In practice, the government will have to demonstrate why, for example, a highway, hospital, or other large-scale project is economically and financially more efficient to implement in partnership with a private investor rather than through traditional budgetary funding.

A project will be given the green light only if it is in the public interest, aligns with applicable national or sectoral strategies, demonstrates better economic and financial efficiency than alternative models, complies with state aid rules, faces no fiscal obstacles, and poses no risk to national security.

Projects will not come solely from the government. The law also allows a potential private investor to propose a PPP project to the government on their own initiative. To do so, the investor must submit a preliminary financial model, an ownership analysis, a proposal for risk allocation, and information on costs, benefits, and socioeconomic impacts. It is important to note, however, that this will not give them any advantage in the subsequent award process. The bill explicitly states that the company that proposed the idea does not receive any rights to the project, preference, or other exclusive rights.

How many government “filters” will the project have to pass through?

Here, the draft law establishes an entirely new institutional system. An Interagency Council for Public-Private Partnerships under the Council of Ministers will be created to decide which projects can be implemented under this model and which should be rejected. Its decisions will be made by a two-thirds majority. It will also have a secretariat within the administration of the Council of Ministers.

Meanwhile, the Ministry of Economy, Investment, and Industry will establish a specialized unit for PPPs with representatives from a number of ministries and institutions. This unit will review the projects, analyze risk allocation, ownership, state aid, and issues related to national security.

The review and preparation of the project for submission to the Interministerial Council must be completed within 60 days of the application’s submission. Separately, each project will be reviewed by the Minister of Finance, who has 45 days to assess its compliance with fiscal rules and the restrictions under the Public Finance Act. In the event of a negative opinion, the specialized unit must recommend that the project be rejected.

Only after a positive decision will the procedure for selecting the private partner begin. It will be launched by the relevant public partner following approval by the Council of Ministers, and in the case of a municipal project, by the municipal council. Information about the project and the announcement of the procedure must be published on the public partner’s official website.

The selection process concludes with a reasoned decision specifying the technical, functional, financial-economic, and legal parameters based on the winning bid. The specific types of procedures and the detailed rules for their implementation will be further outlined in the regulations for the implementation of the law.

Contracts of Up to 35 Years

Following the selection comes the long-term commitment. PPP contracts will have a term of between 10 and 35 years. These contracts must specify in advance the financial model, sources of financing, payments, indexation, risk allocation, quality indicators, oversight, guarantees, liability for non-performance, and termination rules.

Upon the contract’s expiration, the private partner must return to the public party the assets and rights granted to it, as well as those acquired or arising during the project’s implementation, under the terms specified in the contract.

The bill also restricts the possibility of subsequently modifying the parameters. It is not permitted to use an amendment to substantially alter the nature of the project, to distort competition, or to grant the private partner an unjustified economic advantage.

In the event of unforeseen circumstances, the so-called economic balance of the contract – the ratio between the risks, obligations, costs, and expected revenues agreed upon at the outset – may be restored. This may require changes to technical parameters, financing, or the term; however, the term may be extended or shortened by no more than one-third of the originally agreed-upon term.

The government and the investor will be able to form a joint venture

The draft law also provides for several options for corporate structuring. One option is to establish a project company for the specific facility, which would not be permitted to engage in any activity other than the performance of the relevant PPP contract. The other model is even more interesting – the state, a municipality, or a public enterprise may become partners with the private investor in a joint venture.

The public party will be able to contribute both cash and non-cash contributions – for example, property necessary for the project. The participation itself must be approved by the Council of Ministers or the municipal council.

To protect the public interest, the state or municipality will have a veto right on key decisions regardless of the size of its stake—for example, regarding an increase or decrease in capital, the disposal of contributed public property, or the reorganization or dissolution of the company.

Where will the money actually come from?

This is precisely the core of the new model. Projects will be able to be financed simultaneously from several sources:

• the private investor’s own funds;
• payments from the state or municipality, including so-called availability payments;
• revenue from users of the infrastructure or service;
• European funds and other international financial instruments;
• a combination of these sources.

For example, in an infrastructure project, the private investor may contribute its own funds and secure bank financing, while the state participates through specific payments or European funding.

The law also permits so-called availability payments. Simply put, these are payments from the state or municipality to the private partner to ensure that the constructed facility is accessible, operational, and meets predetermined quality requirements. If the service is not provided or the agreed-upon performance indicators are not met, these payments may be reduced or suspended.

For larger investments, the law also permits the use of so-called project financing. In this case, the private investor typically does not provide the entire amount from its own equity. A separate company may be established for the specific project to secure bank loans, funds from international financial institutions, or bond financing. European or national grants are also permitted, provided they are compatible with state aid rules.

The idea is that the loans raised and the returns to investors will be repaid from the revenue that the project itself generates during its operation. In other words, under this model, the bank provides funding specifically for the particular infrastructure project and expects it to be financially viable throughout its years of operation.

With contracts that can last for decades, conditions in the financial markets are bound to change. Therefore, the bill also provides for the possibility of subsequently replacing the initial loan with more favorable financing. For example, if the project company took out an expensive loan at the outset but is able to refinance it at a lower interest rate a few years later, its costs will decrease. If this increases the private investor’s financial return above the initially agreed-upon level, the additional benefit must be shared with the public partner.

The state or municipality will not necessarily receive this benefit as a direct transfer. The law provides for several options: reducing fees for end users; lowering future payments from the public budget; having the private partner make additional investments in the project; or, if these options are not applicable, making a one-time payment to the budget.

In an infrastructure project worth hundreds of millions, banks may be the primary source of capital, and accordingly, the law provides a mechanism to protect their financing. If the private partner begins to default on the contract and there is a risk that it will be terminated, the public party will not be able to simply terminate the project without notifying the financing institutions. The banks must first be given the opportunity to resolve the issue. In the event of a more serious problem, they may even temporarily assume the private partner’s functions or propose another operator to continue the project.

The idea here is twofold: on the one hand, to ensure that public services – such as the operation of a specific infrastructure facility—are not disrupted; and on the other, to prevent the funds already invested and the project itself from being lost immediately due to a problem with the original investor. However, the state will not be obligated to accept every proposed replacement. It may reject the proposal if there is a risk to national security or public order, or if the candidate does not meet the conditions that the originally selected private partner was required to meet.

To grant large loans, financial institutions will be able to receive collateral in the form of the project company’s assets. The bill allows for the commercial enterprise itself, the shares or equity interests in the company, and its receivables under the public-private partnership agreement to be pledged as collateral. However, this does not automatically mean that the bank can acquire the public infrastructure facility. The law separately protects the assets that the state or municipality has contributed to the PPP company – no security interests may be established on such real property by the PPP company itself.

In the event of early termination of the agreement, the public partner may be liable for compensation, but the amount will depend on the reason for termination, the pre-agreed allocation of risks, and the residual value of the project. The law also explicitly states that the state or municipality does not automatically assume all of the private investor’s obligations to its banks.

Oversight will not end with the signing of the contract

The public party will have to monitor the project throughout its entire lifespan – through performance indicators, audits, reporting, and scheduled and unscheduled inspections. The private partner will be required to report on an ongoing basis on both the project’s progress and the technical condition of the infrastructure.

A report will be published annually, detailing the agreed-upon public payments, their maximum amounts, their distribution by year, contingent liabilities, guarantees, indexation, termination compensation, and changes to the financial model.

A public electronic registry of PPP projects will also be established, containing approval decisions, contracts and amendments, annual reports, inspections, audits, and information on terminated contracts.

All individuals involved in the preparation, evaluation, awarding, and oversight of projects will be required to declare the absence of a conflict of interest.

And fines for circumventing the law

The draft also provides for personal sanctions. A mayor or head of a public organization or enterprise who enters into a contract in violation of the law may be fined between 2,500 and 5,000 euros. For a minister, the penalty ranges from 5,000 to 10,000 euros. The same fine applies to the person who signed the contract on behalf of the private partner. A penalty of between 1,000 and 3,000 euros is also provided for in cases of failure to comply with the obligation to publish information regarding the launch of the procedure.

The detailed rules for the procedures will be set forth in regulations that the Council of Ministers must adopt within six months after the law enters into force. The assessment anticipates that the necessary administrative and expert capacity for work on PPPs will be established within one year.

Translated with DeepL.