Cambodia adopted the Law on Public Private Partnerships in 2021 to establish a framework for developing public infrastructure and public services with private sector participation. One of the important mechanisms in this law is the step-in right under Article 29, which allows intervention from parties other than the original project sponsor.
Article 29 provides that:
“Both parties to the PPP Contract may agree on the provision of step-in rights in favor of the lender(s) to the Project and/or the Royal Government. The receiver of the step-in rights may obtain and renew the rights and obligations as stipulated in the PPP Contract to ensure continued performance of the Private Partner’s obligations under the framework of the PPP Contract and/or loan agreements relating to the Project.”
PPP projects usually require large financing from banks. Because lenders rely mainly on project revenues for repayment, they face significant risks if the Private Partner encounters operational failures, construction delays, or financial distress. Without a clear legal right to intervene, lenders may refuse to finance the project or may significantly increase the cost of financing. For this reason, step-in rights are recognized in many PPP systems and are considered important for project bankability.
Article 29 allows the Royal Government and the Private Partner entering into the Public Private Partnerships Contract (PPP Contract) to include a step-in clause. The existence of this clause creates a structured intervention mechanism that supports the overall stability of the PPP arrangement.
Understanding how the step-in right operates in practice—its legal nature, its relationship with the Civil Code, and the role of supporting agreements—is therefore important for structuring PPP projects effectively. The following sections examine these matters and outline key considerations for applying Article 29 in Cambodia.
A. What Is a Step-In Right?
Article 29 allows the PPP Contract to include a clause giving the lenders and/or the Royal Government the right to “accept and implement the rights and obligations” of the Private Partner. This is referred to as the step-in right.
Three important characteristics can be noted:
a. The step-in right applies only to the PPP Contract.
It does not extend to construction, O&M, supply, or service contracts. These remain with the Private Partner unless transferred through separate arrangements. Without addressing these contracts, the practical effect of the step-in right may be limited.
b. The step-in right is reserved exclusively for the lenders and/or the Royal Government.
Article 29 does not extend this entitlement to any other party. Because lenders are financial institutions and not project operators, it remains unclear whether they may appoint another entity to take over on their behalf once they step into the PPP Contract. The Law does not address this point.
c. The purpose of the step-in right is to ensure the continued performance of the Private Partner’s obligations.
Article 29 states that the receiver of the step-in right may obtain and renew the Private Partner’s rights and obligations to ensure continuity of performance under the PPP Contract and/or the loan agreement relating to the project.
B. Does the Step-In Right Require Government Approval?
Article 28 establishes the general rule that any assignment of the Private Partner’s rights and obligations under the PPP Contract requires prior approval from the Royal Government. The same article creates a clear exception for the step-in right under Article 29. Therefore, when lenders or the Royal Government exercise the step-in right in accordance with the PPP Contract, no additional approval is required at the moment of substitution.
Under this structure, the Royal Government’s consent to the step-in is understood as having been given when it approved and signed the PPP Contract containing the step-in clause. This consent applies strictly to the PPP Contract and does not extend to implementation contracts.
Although no new approval is required in principle, the practical exercise of the step-in right depends greatly on how clearly the PPP Contract defines the circumstances under which the step-in may occur. If the events triggering step-in are not clearly described or do not correspond with the events defined in the loan agreement, lenders may need to seek clarification or agreement from the Royal Government before acting.
The law provides that the step-in right aims to ensure the continuance of the Private Partner’s performance under the PPP Contract and/or the loan agreement. This makes it important for both documents to describe triggering events in a consistent manner so that the step-in right can operate smoothly in practice.
C. Does the Assignment Process Under the Civil Code Apply?
Article 29 allows the lenders or the Royal Government to assume the contractual position of the Private Partner under the PPP Contract. This raises the question of whether such substitution must follow the Civil Code rules on assignment of contractual position.
Under the Civil Code, an assignment of contractual position requires an agreement between the assignor and the assignee, together with consent or notification to the counterparty through an instrument bearing a fixed date. These formalities aim to determine the extent to which the assignment can be asserted against third parties.
Article 29 limits the substitution strictly to the PPP Contract and does not extend to other implementation contracts. This distinguishes step-in from a full transfer of all project relationships.
Two interpretations exist regarding the interaction between the Law on Public Private Partnerships and the Civil Code:
1. First School — Article 28 as the Only Required Formality (Lex Specialis)
Under this view, Article 28 provides the only formality for assignments under a PPP Contract: approval from the Royal Government. Because Article 28 expressly exempts the step-in right from this requirement, the exemption is interpreted as complete.
The Royal Government’s approval of the PPP Contract containing the step-in clause is viewed as advance consent, making additional Civil Code procedures unnecessary. Imposing Civil Code formalities could delay the intervention and undermine the purpose of ensuring continuity of performance.
2. Second School — Civil Code Still Applies Where the PPP Law Is Silent
This interpretation views the Law on Public Private Partnerships as displacing the Civil Code only where it contains specific provisions. Article 28 addresses government approval, but it does not regulate how the substitution becomes effective. Because neither Article 28 nor Article 29 describes procedural steps such as consent or fixed-date notification, the Civil Code remains applicable where the Law is silent.
Under this view, the Civil Code provides the mechanism that determines how the substitution can be asserted, particularly since lenders are not originally parties to the PPP Contract.
“While both interpretations are possible, the structure of the Law suggests that the exemption in Article 28 is limited to the issue of approval and does not expressly replace the procedural framework of the Civil Code. In the absence of specific provisions to the contrary, Civil Code rules may continue to play a supplementary role unless the PPP Contract provides a detailed mechanism for the substitution.”
D. How Can Lenders Step In If They Are Not a Party to the PPP Contract?
The step-in right is included in the PPP Contract, which is signed only by the Royal Government and the Private Partner. Lenders therefore do not acquire rights directly from it.
The Law allows the Royal Government and the lenders to enter into a direct agreement. This separate contract creates the legal link between the Royal Government and the lenders in connection with financing. Its purpose is not to create the step-in right but to recognize the lenders’ involvement and record matters relevant to their financing, such as notifications of events that may affect the project or the loan.
When the PPP Contract contains a step-in clause, the direct agreement enables lenders to rely on it. The direct agreement does not transform lenders into parties to the PPP Contract but provides the contractual link through which the Royal Government accepts that lenders may step into the Private Partner’s contractual position if the conditions in the PPP Contract are met.
E. What Liabilities Do Lenders Have During the Step-In Period?
When lenders exercise the step-in right, they assume the contractual position of the Private Partner under the PPP Contract. The scope of liability depends on the nature of this substitution and the structure of the project.
1. Liability as the project owner
By stepping in, lenders must comply with the PPP Contract in the same manner as the Private Partner, including performance standards, reporting, technical obligations, and operational requirements. Their liability begins at substitution and does not extend to pre-existing breaches.
This role does not correspond to the lenders’ ordinary business activities. Lenders are not developers or operators and may face regulatory or internal constraints. This highlights the importance of defining lender obligations and limitations clearly in the PPP Contract, the direct agreement, and other project documents.
2. Liability toward contracting parties of the original Private Partner
The step-in right applies only to the PPP Contract. It does not transfer implementation contracts such as EPC, O&M, supply, or service agreements. These remain with the original Private Partner unless transferred through separate arrangements.
This separation has practical consequences. Lenders may hold obligations toward the Royal Government but lack control over the contracts necessary to perform the project. Unless parallel arrangements are made, stepping in under the PPP Contract alone may have limited effect.
Lenders do not assume contractual liability toward contractors or service providers unless the implementation contracts are novated or separately assigned. However, lenders may still incur liability under general civil law if their actions during step-in cause harm to third parties.
F. CONCLUSION
The step-in right under Article 29 is an important mechanism designed to ensure continuity of PPP projects when the Private Partner cannot perform its obligations. By allowing lenders or the Royal Government to obtain and implement the rights and obligations of the Private Partner under the PPP Contract, the Law provides a means to stabilize the project and avoid service disruption.
The effect of the substitution resembles an assignment of contractual position, but it is limited strictly to the PPP Contract. Implementation contracts remain with the original Private Partner unless transferred through separate arrangements. The legal effect of the step-in right therefore depends on the overall structure of the project.
The relationship between the Law on Public Private Partnerships and the Civil Code gives rise to two interpretative views. One sees the Law as a complete special regime; the other views it as supplementing, rather than replacing, the Civil Code. The extent to which Civil Code procedures apply depends on how Articles 28 and 29 are interpreted in relation to the general rules on assignment.
Key Take-Aways for Lenders
- The step-in right applies only to the PPP Contract; it does not automatically extend to EPC, O&M, supply, or service contracts.
- The practical value of step-in depends on whether parallel arrangements address implementation contracts that remain with the original Private Partner.
- Lender obligations begin only from the moment of substitution; past breaches do not transfer.
- The PPP Contract and the direct agreement should clearly describe lender obligations and limitations during step-in.
- Civil Code procedures may apply where the Law on Public Private Partnerships is silent on formalities.
