The Projects and Construction Review: Uruguay
While infrastructure spending has increased in recent years in countries that have established mechanisms to attract resources and the expertise of the private sector – such as Colombia, Peru and Chile – in Uruguay there are still significant shortfalls. Public investment is key, but even more so is the success of the institutional reforms being undertaken by governments to perfect the public-private partnership (PPP) model. In Uruguay, infrastructure investment is likely structured through public work concessions or financed through standard collateral secured loans. In a few cases, large-scale finance is supported by development agencies, multilateral banks, international financing institutions and export credit agencies. In some cases, too, projects increasingly depend on private investment and operations.
The volume of operations has not met pre-pandemic levels, in addition to past sluggish growth and political scandals impacting governments throughout the region. Argentina, for example, has experienced economic contraction, corruption scandals and problems in the public works. However, despite regional difficulties, Brazil intends to invest some several billions in the construction and development of transport infrastructure and urban mobility by 2023.
Uruguay received, from 2015 to 2019, an increased flow of direct foreign investment in several projects with expected high cash flows in areas such as wind farms, photovoltaic parks and infrastructure.
Since 2014, new projects have been developed under the Public-Private Partnership Law No. 18,786 of 8 August 2011 (the PPP Law). The PPP Law deals with private sector and government joint ventures in areas such as roads, railways, energy, prisons, health centres, hospitals and education centres. Services are not excluded by the PPP Law, but they will unlikely occur.
The Large-Scale Mining Law approved in September 2013 regulates mining activities for the first time and sets forth the contents of mining exploitation agreements between, and to be signed by, miners and the Executive Power.
A change in the energy matrix has allowed 98 per cent of electric power to be generated from renewable sources. This poses the following investment opportunities: transmission and distribution of energy, incorporation of renewable energy in transport (public and private) and energy efficiency.
It is estimated that one-third of these investments will be executed through PPP contracts. The remaining two-thirds may also be contracted with private individuals through the employment of other forms. Since 2021, the government has applied a new model, similar to the PPP regime but shorter in duration: the combined rehabilitation and maintenance (CREMA) contracts. According to these contracts, the company must present the construction project and carry out the work within approximately two years. After that, the state starts paying 70 per cent of the investment, and for 10 years the company has to take care of the maintenance. Thus, the company assumes liability on the works for 12 years, and in this time frame, the state completes the payment.
PPPs in Uruguay are regulated by the following laws and regulations, on which this analysis will be mainly based:
- Law No. 18.786 adopted in 19 July 2011 (the PPP Law);
- Decree No. 17/012 dated 26 January 2012 (the PPP Regulatory Decree);
- Decree No. 280/012 dated 24 August 2012, which modifies Decree 17/012;
- Decree No. 251/015 dated 14 September 2015 (Decree 251/015); and
- decrees for taxation benefits that were issued for PPP projects Nos. 43/016, 20/016, 326/015, 181/015, 75/015, 357/014, 127/013 and 045/013, and the Guide for Recommendable Practices issued by the Ministry of Economy and Finances.
The PPP Project Unit, created by Law No. 18.786 19 July 2011, is the specific unit handling PPP projects.
Besides the PPP Project Unit, the National Corporation for Development (CND), a private entity subject to public regulation, created by Law No. 15.785, may also participate in the PPP process. Article 10 of the PPP Law provides that the Procurement Authority may hire the CND to structure PPP projects (including counselling and the elaboration of previous studies, counselling on the procurement terms, bid analysis, collaboration with the technical commission, and counselling in the elaboration of control and follow-up systems). Moreover, Article 11 of the PPP Law sets forth that the Executive Power may request the CND to structure and implement PPP projects that could afterwards be assigned to the private sector.
The year in review
The Plan for 2015–2020 set by the authorities included energy (US$4.23 billion); roads (US$2.36 billion); social infrastructure (US$1.87 billion); housing (US$1.32 billion); communication (US$550 million); water and sanitation (US$550 million); ports (US$750 million); rail transport (US$360 million); and other projects (US$380 million). There is also a commitment regarding UPM's pulp mill (US$1.1 billion).2
In 2022, UPM is expected to complete the construction of railway between Paso de los Toros and the port of Montevideo for the transportation of products from the mill. Other works related to the mill include a new area in the port and a viaduct.
In 2019, a contract was signed between the government and UPM for the installation of a second mill, a project with an estimated cost of US$4 billion. Pursuant to the contract, the government is supposed to update the country's infrastructure. To improve rail links, the government must expropriate land or set an ease on the land to allow the railway to be considered. The call for bids for the construction of 290km of new rail track (the Central Railway Project) was awarded to a joint venture of local, Spanish and French companies.
Currently, the status of the PPP projects is as follows ('C' means circuit and 'E' means educational project):
- Private prison UPPL No. 1: under operation, with a US$93 million investment.
- C0, routes 21–24 and bypass to the city of Nueva Palmira (180km): under operation, with a US$77 million investment.
- C1, routes 12, 54, 55 and 57 and bypass to the city of Carmelo as part of route 21 and route 97 (260km): under construction, with a US$96 million investment.
- C2, route 9 (between the cities of Rocha and Chuy), route 15 (between Rocha and connection with route 13) and the connection of route 9 and route 15 (200km), under construction, with a US$ 76 million investment.
- C3, route 14 west, bypass to the city of Sarandí del Yí and connection of route 14 and route 3 (292km), under construction, with a US$133 million investment.
- C5, route 14 (between routes 6 and 15) and route 15 (between route 14 and connection with route 13 (191km), contract signed, with a US$121 million investment.
- C6: route 6 (from Avenida Belloni to the connection with route 12) and bypass San Ramón (71km), contract signed, with a US$108 million investment.
- C7, IP – route 3 and bypass San José (32.5km): under construction, with a US$72 million investment.
- E1, first project, 44 schools and 15 Centres for Child and Family Care (CAIF Centres): under operation, with a US$62 million investment.
- E2, second project, 23 schools, nine technological centres and 10 multisports centres: under construction, with a US$71 million investment.
- E3, third project, 27 CAIF Centres and 15 schools: contract provisionally awarded, with a US$39 million investment.
- A railway PPP project with investment of US$785 million is under construction.
The mining and oil and gas industries have seen insignificant activity.
Documents and transactional structures
Projects are structured either as public work concessions under a PPP scheme (the general rule) or a CREMA contract. Collateral is commonly set in the way of physical assets belonging to the project company, and is provided as collateral. Models such as build-own-operate-transfer, build-operate-transfer and build-operate-lease are not employed.
Typically, financing is secured by mortgages on real estate properties and by pledges on each of the spare parts to be used in the projects.
Wind and solar farm projects, and construction lines, are also being structured under project finance methods, using direct and indirect agreements, and operation and maintenance agreements. It is standard practice that the developer pledges wind generators once they have been set up and the property transferred to the developer, and mortgages the land or executes conditional lease assignment agreements.
Risk allocation and management
i Management of risks
Risks usually include the following:
- Sponsors' guarantees and share retention agreements are usually requested.
- Monitoring agreements have been used in, for example, toll road projects.
- Political risk.
- Exchange rate fluctuations occur. This has been solved by setting a mixture between local currency (indexed units) and the US dollar.
- The sale of collateral in the event of foreclosure can also be carried out in a foreign currency. Transactions in US dollars occur, especially in the power purchase agreements signed by renewable generators with the National Administration of Power Plants and Electrical Transmissions (UTE) and the operation leasing arrangements entered into by UTE with private constructors for transmission lines.
- Environmental risk.
- In public agreements in which the Republic or public entities act as counterparties, generally the risk of non-payment by the offtaker has not been seen by investors as a serious threat. This has taken place in particular when UTE and the state-owned oil and gas company (ANCAP) have supported some gas operations (i.e., the construction of a system to deliver gas with tubs and ships).
- Article 60 of the PPP Law regulates the accounting treatment for the commitments arising from PPPs. The accounting treatment of the obligations arising from a PPP contract will depend on the existence of a significant transfer of commercial risks in the construction and operation phase, that is, when payments by the public administration depend on the availability and quality of service or demand, according to the report made in accordance with the provisions of Article 18 of this Law. When there is risk transfer, payments to the contractor for investments made must be included in the investment budget corresponding to the fiscal year in which the investment is to be made. Whenever the contracting public administration is a National Budget subsection, payments within the Investment Budget of Item 24, 'Miscellaneous Credits', will be included, and the equivalent of the investment credit of the contracting entity will be deducted. In those cases where there is no significant transfer of commercial risks in the construction and operation phase, the investment component will be considered budgetary expenditure within the corresponding contracting public administration, to the extent that the investment is accrued and the deferred payments shall be considered as a liability. The National Accounts Office must identify, in an identifiable form, the registration of firm and contingent liabilities corresponding to PPP contracts, and to report in each instance of accountability the estimated amount of the same in a separate form from the public debt as well as the investment executed by the fiscal year and by the Budget. Additionally, Article 62 of the PPP Law limits the total of direct and contingent liabilities originating from PPPs (calculated on net present value) to
7 per cent of the GDP and the total amount of annual commitments arising from PPPs
to 5 per cent of the GDP.
ii Limitation of liability
Under Uruguayan law, damages and lost profits may be recovered.
The concept of damages includes patrimonial and extra-patrimonial damages, and a defendant is liable for the harmful results that have been caused by its acts. If no harm is caused by the negligent act, it is not liable.
Liability is ruled by the Civil Code. The general liability system of the latter allows parties to arrange exemption from or limitation of liability, although restrictions apply in cases of wilful and grossly negligent behaviour, in which it is understood that no limitation may apply. Gross negligence implies any verified breach of contract that, because of the extremely careless manner in which it happened, cannot be excused. Under the Civil Code regime, force majeure is a justified cause for non-compliance and works for both parties to a transaction.
iii Political risks
There is a consistent political backing of projects.
Uruguay has ratified investment treaties with several countries that state the terms and conditions for the compensation of investors in the event of breach of conditions and damages.
Property rights are expressly recognised in the Constitution for both nationals and foreign nationals. Article 32 of the Constitution states the specific procedures for carrying out expropriation, setting that, in all cases, fair and due compensation has to be paid by the state to the former owner in all cases.
The Multilateral Investment Guarantee Agency has provided guarantees for several projects in the country.
Security and collateral
The PPP Law authorises a contractor to set pledges over the cash flows generated by the project, guarantee trusts and all other real or personal guarantees over the goods and rights – whether existing or future – in favour of creditors (other than the administration) for the execution of the PPP contract. The Law expressly allows for a pledge over the rights originated under the PPP contract (concession pledge), but this is limited to obligations assumed with third parties for the financing of the operation or maintenance of the projects, as well as those resulting from a trust created for this purpose.
For the examples of tangible movable property mentioned above, the two most common forms of security are a pledge and a guarantee trust.
The formalities for creating and perfecting a pledge over movable property are that it must be in writing; and registered, if it is over a registrable asset or without displacement (see below).
- A pledge over a registrable asset must be registered at the registry applicable to that particular type of asset.
- A pledge without displacement must be registered in the national register of pledges without displacement (Article 4, Law of Pledges Without Displacement, Law 17.228).
- A pledge with displacement is perfected when the debtor hands over the pledged asset to the creditor. It terminates when the debtor has fulfilled its obligations under the loan agreement (paid the debt), or when the pledged asset is destroyed.
ii Guarantee trust
The formalities for creating and perfecting a guarantee trust over movable property are as follows: the agreement must be in writing, and the assets must be at the disposal of the trust.
Once the obligation has been fulfilled, the assets are returned to the original owner. If the obligor breaches its obligations, the fiduciary can sell or otherwise dispose of the asset, according to the procedure set out in the trust agreement.
Uruguayan law does not allow a lender to exercise an auto satisfactory remedy, requiring in all cases a court order to be submitted. Situations of step-in rights in favour of creditors without court process are not provided for in Uruguay.
The PPP Law expressly states that in cases of early termination of a PPP contract upon default of a contractor or abandonment, the administration may step in for no more than 24 months to guarantee continuity of services. Upon expiry of this term, it must be resolved whether the administration will continue to render the services or whether a private entity will take over, using the mechanisms set out in the PPP Law.
Bonds and insurance
The use of bonds in construction contracts and project finance transactions have been increasingly applied to these kinds of projects.
Standby letters of credit are not regulated under Uruguayan law.
Bank guarantees are similar to standby letters of credit, the main difference being that they are regulated by local laws and regulations. They are issued to cover an underlying transaction or contractual obligation. The most common guarantees are customs guarantees, lease guarantees and bid guarantees.
Insurance companies or insurers are legal entities that charge an amount of money called a premium for the coverage of a risk set forth in the insurance policy. If the insured experiences a loss that is potentially covered by the insurance policy, the damage, capital, income or other thing will be compensated as convened in the insurance policy.
Mutual insurance companies are insurance companies formed by an association of people who divide their corresponding individual risks, setting the amount that each of them will contribute to the recovery of damages or collective losses.
Insurance is a contract whereby one party undertakes, by charging a premium, to indemnify another party for loss or damage, or deprivation of an expected profit that could result from an unexpected event. Insurance companies require authorisation from the Executive Power to operate for reasons of legality, timeliness and appropriateness, with the advice of the Superintendency of Financial Services. Additionally, they require authorisation by the Superintendency to begin operating in the financial system. See the requirements for authorisation and permission to operate under Article 4 et seq. of the Regulation on the Superintendence of Financial Services.
For insurance companies, supervision is primarily aimed at protecting the stability and solvency of the entities based on the systematic and regular implementation of different supervisory mechanisms, which seek to encourage entities to manage their risks in a professional way (such as the risk of being used for money laundering or terrorist financing); to prepare financial reports in a timely and consistent manner; to operate with caution; and to maintain adequate compliance with regulations. Through these procedures, it is possible to have early warnings of problems, and thus company managers can take appropriate measures to solve them in a timely manner.
For mutual insurance companies, supervision of these entities is performed based on alerts.
In both cases, the role of protecting financial users is performed by responding to inquiries and denouncements.
To engage in insurance business in Uruguay – for national or foreign individuals or legal entities, and for any risk located in Uruguay – it is necessary to establish a corporation with registered shares (which may belong entirely to a foreign insurance company) having as its sole purpose insurance or reinsurance activities, and it must be authorised by the executive branch on the advice of the Superintendency of Insurance and Reinsurance within the Central Bank of Uruguay.
Finally, foreign reinsurance companies that want to operate in Uruguay must count a risk rating equal or superior to A- determined by a risk-rating agency selected from the entities established by the Superintendency.
Enforcement of security and bankruptcy proceedings
The most common circumstance in which a lender may wish to enforce its loan, guarantee or security interest is if the borrower defaults on the loan agreement. The procedure necessary for enforcement will depend on the agreement between the parties. Enforcement is usually done through the court, but the parties can agree on extrajudicial enforcement. When it is through the court, the sale is usually by public auction.
The main types of security interest are enforced by way of mandatory public sale. A judge usually determines this. A lender must start court proceedings to enforce the security and a judge must determine its execution. A public sale must be announced in two newspapers and, at the end, the asset will be sold to the highest bidder. Similarities in the judicial enforcement of pledges, registrable pledges and mortgages are set out under the General Procedure Code brought about by Law No. 19,090.
In the event of registered pledges, judicial enforcement applies unless the parties expressly agree upon an extrajudicial enforcement, in which case there is no need for attachment of the assets; the creditor sells the assets directly.
Company rescue procedures are available in Uruguay. A shareholders' meeting must be held and a majority of the shareholders must vote in favour of the rescue. The rescue is effected by the payment to the shareholders of the value of the shares. The aim is to take the shares out of circulation. There can be a reduction in the company's capital. Insolvency proceedings determine the order of priority for credit repayment. The start of insolvency proceedings does not prevent a lender's right to enforce its loan, guarantee or security.
Securities issued by a debtor within six months of its own insolvency and for a pre-existing obligation will be void (Article 81.2, Law of Bankruptcy Procedure, Law No. 18,387).
According to Law No. 18,387, there are two types of reorganisation or bankruptcy procedure: voluntary reorganisation (when the debtor acts upon its own insolvency) or necessary reorganisation (when the same is requested by any creditor or by the debtor but its assets amount to less than its liabilities).
On a borrower's insolvency, creditors are paid in the following order of priority (Law of Bankruptcy Procedure, Law No. 18,387):
- Creditors with special privileges. These are creditors secured with a pledge or mortgage.
- Creditors with general privileges. In order of priority these are:
- employee wages unpaid and accrued within the previous two-year period;
- social security payments due to the social security bank (Banco de Prevision Social) for employees' contributions; and
- tax and other similar government claims.
- Unsecured creditors.
- Subordinated creditors.
Once bankruptcy has been declared, however, the insolvent party's unsecured obligations shall be automatically converted into Uruguayan pesos at the exchange rate applicable on the date the bankruptcy is declared.
i Licensing and permits
Prior environmental approval (AAP) is required for certain projects, The procedure involves the following steps:
- notification of projects to the Ministry of Environment (created in 2020), specifically to the 'Dinama' office by providing information such as identification of the holder of the project, the landowners of plots affected and the responsible contractors; the location and description of the area of execution and influence; and a description of the possible environmental impact, stating any applicable pre-emptive or mitigating measures to be taken; and
- classification of the project by Dinama as category A, B or C (see below). Dinama has 10 business days to confirm or correct the classification proposed by the holder of the project. An environmental classification certificate is issued and communicated to the applicable competent authority.
A project is classified as category A if its execution has a non-significant negative environmental impact; category B if its execution has a moderate negative environmental impact, whose effects may be easily eliminated or minimised; or category C if it may cause significant negative environmental impact, whether or not preventive or mitigation measures are included.
If the project is classified as category A, the AAP is granted with no need for any further steps. Parties whose projects have been classified as category B or C need to carry out an environmental impact assessment (EIA) at their own cost and file a request for the AAP with Dinama. Details of the project (except for information deemed to be of a commercially or industrially confidential nature) and the EIA are then made available to interested parties for comments for 20 business days. A public hearing follows if the project has been classified as category C or if Dinama believes that the project will have a significant cultural, social or environmental impact.
Finally, Dinama issues a resolution stating whether the AAP has been granted. The AAP will only be granted if the project is considered to cause only acceptable residual negative effects. Dinama may also grant the AAP subject to the introduction of amendments to the project or the adoption of any preventive or mitigating measures deemed necessary. The AAP will be valid for a term determined by Dinama.
ii Equator Principles
Application of the Equator Principles is not common practice in Uruguay, but it is increasingly required for financing.
iii Responsibility of financial institutions
Laws are in place for the prevention of money laundering and terrorism financing and have to be complied with by financial institutions.
PPP and other public procurement methods
Pursuant to the PPP Law, the main principle is guaranteed through the intervention of the Planning and Budget Office, located in the executive unit of the Presidency of Uruguay. One of its main functions is to advise the executive branch on the definition of the economic and social strategy of the government, and the formulation of plans, programmes and national and departmental policies consistent with it. The approval of the Planning and Budget Office is required to undertake PPPs as regulated by Articles 17 and 19 of the PPP Law.
The Planning and Budget Office has on its website support material and methodological guidelines that work as documents of reference for investment projects.3
Article 19 of the PPP Regulatory Decree indicates that the procuring entity shall elaborate the draft contract along with the bidding terms. This article also enumerates the requirements that must be contained in it.
Article 8 of the PPP Law establishes that, for each PPP project, the procuring authority public administration shall designate a technical commission to advise on all the stages of the procurement procedure. The technical commission will be composed of a minimum of three and a maximum of five members, two of them, at least, officials of the procuring authority. Its members must be suitably qualified in areas related to the object of the procurement process, and at least one must possess recognised technical expertise on the subject matter of the contract. Articles 2 and 3 of PPP Regulatory Decree further regulate the membership of the Technical Commission.
According to Articles 15 and 21 of the PPP Regulatory Decree, when the procuring entity intends to implement a public initiative under the PPP modality, it shall communicate it to the Ministry of Finance and that communication shall be published on the Ministry of Finance's website, and shall be submitted to the Projects Registry; and the public call for the submission of bids will be published on the state procurement website without prejudice to other means deemed appropriate to ensure the publicity of the act. The publication must be made at least 90 calendar days prior to the date on which tenders should be submitted, respectively.
The PPP Law limits the application of PPP projects to the activities indicated therein. Infrastructure projects include:
- road works (including rural), railways, ports and airports;
- energy projects (except for monopolised activities);
- waste disposal and treatment; and
- social infrastructure, including prisons, health centres, educational centres, public housing, sports centres and urban projects (improvement, equipment and development work).
Contracting of educational, health or security services is expressly forbidden, as are contracting services relating to the rehabilitation of prisoners, and the implementation of educational and health centres or prisons. The exploitation of monopolies is also excluded.
The PPP Law expressly sets out the principles that PPP contracts should follow, including transparency and publicity, public interest, economic efficiency, proper distribution of risks, transfer of assets to the government when required, equanimity, temporality (not more than 35 years), fiscal responsibility, control, sustainable growth and regard for labour conditions. It further defines the 'economic efficiency principle', stating that the value-for-money concept includes the reduction of costs, risk levels and availability.
The content of PPP contracts is also regulated. They should include:
- the purpose;
- risk-sharing conditions;
- performance objectives;
- remuneration: causes and procedures to modify the remuneration and maintenance of the contractual financial–economic equation;
- payment terms;
- control regulations;
- conditions for amendments and termination;
- the ultimate purpose of the work and equipment after termination of the contract;
- contractor guarantees;
- mechanisms applicable to liquidation of the contract, including compensation;
- reference to the relevant general terms and conditions or particular ones; and
- other contractor obligations, such as the presentation of audited financial statements.
Article 32 of the PPP Regulatory Decree establishes that in the provisional award resolution, the PPP will be awarded to the most convenient offer according to the interests of the procuring entity and necessities of the service, giving express constancy of the fundamentals for which that resolution is adopted.
A contractor may assume different forms and be paid by the users, the administration or both. Compensation and retention rights in favour of the administration for the implementation of penalties under the PPP contract are granted. It also provides that the administration will be able to receive certain income whether from the contractor or users. Furthermore, it is stated that the administration will be able to give minimum revenue guarantees, but it is not allowed to ensure profits or levels of returns. When required, the executive should grant some of these contributions.
The contracting procedure as regulated in the PPP Law is divided into stages.
A contract can be initiated ex officio by the administration or by a private initiative submitted by a proponent. The administration should receive the assessment document referring to the feasibility and suitability of the project concerned. Based on the characteristics of each project, the subsequent initial evaluation will be based on the pre-feasibility, feasibility and impact studies. These studies will be presented to the Planning and Budget Office and the Ministry of Economy and Finance for their consideration and the preparation of reports.
The proponent of a private initiative (which must be submitted to the National Development Corporation) will have certain rights and preferences: it can obtain the reimbursement of certain costs incurred in feasibility studies if it is not awarded the contract, and can also obtain an advantage of up to 10 per cent of its offer with respect to the best offer; the promoter of the initiative will not pay to receive a copy of the terms and conditions of the bid documents (which is a requirement to place a bid). All the information regarding a private initiative is confidential.
Once reports from the relevant bodies have been obtained, the contracting administration can start the competitive dialogue, which is one of the most innovative aspects of the PPP system and consists of a debate held between the administration and the interested entities that fulfil the technical and economic solvency requirements. This allows the parties to discuss all the relevant aspects of the PPP contract and define the special terms and conditions. This phase is essential for the private sector to be able to introduce modifications or adjustments.
After the competitive dialogue and notification to participants, the administration will call for the submission of offers. The call can only be directed to those that have participated in the competitive dialogue. However, if only one party participates, other interested entities should be admitted. The call should also state whether the participants in the competitive dialogue will receive any preference or compensation. Upon completion of the stages and approvals mentioned in the PPP Law, and the institution of the relevant guarantees, the administration will award the PPP contract and execute the relevant agreements according to the terms and conditions discussed during the competitive dialogue.
According to Article 66 of the PPP Regulatory Decree, the contracting administration must perform biannual reports regarding contract status to be submitted to the PPP Unit. These must be prepared in accordance with the Guidelines for Control and Monitoring Reports by the Ministry of Finance.
According to Article 39 of the PPP Law, the contracting administration shall monitor compliance with the contract, informing the PPP Project Unit biannually. It shall also inform the Unit of any substantial change or breach within 10 working days of the verification of such change or breach. The PPP Unit may request the contracting authority to provide at any time any information or documentation concerning the enforcement of contracts, as well as recommend hiring specific external audits to help ensure proper monitoring of contracts.
The PPP Law has a chapter specifically dedicated to the modification and cession of the contract: Chapter X, from Article 47 to Article 50. This indicates, among other aspects, that the PPP contract can include a faculty for the administration to modify the contract; and that the PPP contract may establish conditions that, once met, the parties may agree on their revision. Article 49 also establishes certain circumstances in which the contract can be renegotiated by request of one of the parties. Likewise, Article 73 of the PPP Regulatory Decree establishes the procedure to follow for the renegotiation of the contracts.
Article 47 of the PPP Law regulates the possibility of including in the contract the right of the procuring authority to require modifications of the contract, but limits this to 20 per cent of the original budget. Article 48 regulates the possibility of an agreement to review the contract, but limits this to 50 per cent of the total budget (and up to just 30 per cent in the construction stage).
Article 49 of the PPP Law indicates that the parties may request to renegotiate the PPP contract when any of the three hypotheses thereby established occurs. One of them is the Literal B of the Article, and it says: 'When causes of force majeure not foreseen at the moment of the celebration of the contract determine in direct manner the substantial rupture of the economic-financial equation of the contract at the moment of its celebration.'
Article 50 of the PPP Law and Article 75 of the PPP Decree state that the PPP contractor may enter into subcontracts except when the PPP contract or the bid documents expressly prevent them from doing so.
ii Public procurement
The general public bidding law of Uruguay is set out in the Coordinated Text of the State Accounting and Financial Management Law (TOCAF), which states that tender procedures shall be ruled by the following principles: publicity, so that the largest number of competitors can be attracted; equal treatment of bidders and impartiality of the public administration; and stability, resulting from strict compliance with all applicable rules and regulations. Other general principles include flexibility, materiality and truthfulness.
Under TOCAF, however, preference may be given to national products provided they are of the same quality as foreign ones. In public work contracts, preference may be given to offers that imply a larger use of domestic raw materials and labour.
Administrative acts in bidding procedures or public work contracts may be challenged before the Court of Administrative Litigation. This authority is completely independent and has within its faculties the right to annul or hold in force all administrative acts. Under the legal regime in force, the submission of a request for review in some cases has an automatic suspensive effect on the act being challenged, unless the administration, by a duly grounded decision, declares that a suspension would affect urgent needs of service or would cause serious damage.
Foreign investment and cross-border issues
There are generally no restrictions on foreign lenders making loans to local borrowers. Each party must comply with anti-money laundering requirements. A foreign lender does not have to be registered with or approved by the government or the Central Bank of Uruguay (Banco Central del Uruguay) (BCU) unless the lender is a financial intermediary. An entity that is classified as a financial intermediary must register with the BCU and be authorised by the government. The BCU then has complete regulatory authority to monitor and control the financial intermediary's activity.
The Uruguayan authorities encourage all investment, without discrimination between local and foreign investors, and incentives for investments are available for both. Furthermore, and under the Investment Law, the remittance of profits and repatriation of capital are guaranteed.
The tax system does not discriminate against or favour foreign investment.
Further, there is a general system for promoting industrial activities, and a special promotion system for specific activities and sectors such as fishing, merchant marine, national aviation and hydrocarbons, with varying benefits.
The Industrial Promotion Law makes it possible to grant national interest status (ex officio or at the request of the interested parties) to any activity, specific project or company fulfilling objectives such as:
- increasing and diversifying exports of processed goods incorporating the greatest possible added value;
- establishment of new industries and expansion or reform of existing industries when this implies better use of raw materials and labour; and
- technological research geared to exploitation of non-exploited local raw materials, and training of technicians and workers.
National interest status implies promotional benefits in terms of credits (to buy assets, cover establishment expenses, imports, raw materials, etc.) and in terms of taxes (total or partial exemption from taxes, assessments, contributions and rates or public prices, as well as total or partial exemption from taxes and duties on imports or in connection with imports).
With the exception of certain generic benefits regarding imports of equipment, all other tax benefits must be requested by the interested parties and must be expressly granted or recognised by the authorities in each case.
There is no exchange control policy in Uruguay. Therefore, there are no restrictions on foreign currency debt obligations, and parties are free to choose.
Repatriation of profits and investment
The Uruguayan exchange market operates under complete freedom of transaction and holdings in currency and metals; there are no exchange control laws in force. Similarly, there is total freedom regarding transfers and remittances to and from the country in any currency.
In principle, there are no restrictions, controls or fees on remittances of investment returns or loan payments to parties in other jurisdictions, but taxes do apply.
i Special jurisdiction
There are no specific courts or tribunals in Uruguay dealing with project finance transactions or constructions contracts.
A foreign investor will not need to establish a place of business or be permanently domiciled in the country to appear before a court or arbitration committee; however, it is compulsory to establish a special domicile in Uruguay for the purpose of serving any notices, court papers or writs within any procedure.
Article 54 of the PPP Law establishes that for the settlement of disputes arising in connection with the application, interpretation, execution, performance and termination of PPP contracts, the parties shall recourse to arbitration. The arbitrators shall be appointed by mutual agreement by the parties or, in its absence, in accordance with the provisions of Article 480 of the General Code of Procedure, and they must rule according to law. The award of the arbitral tribunal shall be final.
ii Arbitration and ADR
Although judicial proceedings are still the primary manner in which disputes are settled, alternative dispute resolution is widespread.
Arbitration is ruled by the General Code of Procedure, which includes thorough procedural regulations that apply in the absence of determination thereof by the parties. In principle, arbitration is decided in equity, but parties may agree that the arbitrators apply statutory law. All disputes – including project finance and construction disputes – can be resolved through arbitration.
Uruguay is a signatory to a number of international treaties regarding arbitration and the enforcement of arbitral awards. In the absence of a treaty, the rules of enforcement of foreign judgments also apply to foreign arbitral awards (the procedure for recognition and enforcement can take between 12 and 18 months). Further, Uruguay is party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).
Outlook and conclusions
Uruguay is characterised by its legal and economic stability. The country has not registered any history of expropriations, for which the rules for investors are very clear and protective.
Construction of infrastructure in the country is necessary to boost economic growth, particularly as there has been a moderate recession following the covid-19 pandemic.
The main project of 2022 is the Central Railway Project. The Grupo Vía Central consortium, formed by Sacyr, NGE, Saceem and Berkes, is developing under the PPP modality, including the design, construction and maintenance of railways from Montevideo to Paso de los Toros. It is estimated that the work will take 36 months, and commissioning another three months. The total cost of the project will be approximately US$1.1 billion, financed by CAF, IDB Invest, commercial banks and shareholders' own funds.
The lack of policy on large-scale mining is an ongoing issue.
It has been confirmed that the growth of the renewable energy industry has been slow because the electric matrix is undergoing completion. It is expected that the matrix will be discussed again soon and is likely to be widened to include options such as hydrogen.