Austria: Effects Of Past Amendments To The Concessions Act

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

The controversial amendments to the Concessions Act have been in effect for more than a year and a half. At the time of their adoption by the Bulgarian Parliament they provoked widespread debate amongst the political parties, business circles and the Black Sea Municipalities on the anticipated negative consequences. Now, in the context of an economic crisis, the amendments seem even more inappropriate.

Many of the critics have argued that the amendments have created opportunities for corruption in relation to the granting of concessions and the performance of concession agreements. The sharp reaction against other parts of the amendments, which actually increase the possibilities for development of the Black Sea Coast, is also not a surprise. The basic amendments can be classified in several groups.

New outcomes for some of the legal provisions

This category includes an attempt to more clearly define the content of construction concessions and service concessions. A better differentiation between both types of concessions has been achieved. The scope of the construction concession is extended by providing an option for partial construction of a concession site.

Another new outcome is an amendment by which the concessionaire bears the entire risk for the construction and maintenance of the site and for the management of the services. Thus, the unclear wording of the previous text according to which the concessionaire undertook "the major part of the risk" is gone. Until now, assessment of the "non-major part" of the risk and who should bear it was left to subjective evaluation and interpretation, influenced by the specifics of the respective case. The amendment also corresponds to the nature of the concession as a legal instrument, which allows for financial compensation of the concessionaire precisely because of the fact that it bears the risk related to the development and maintenance of the concession site.

The newly proposed wording of the text regarding the term of the concession was adopted. The idea is a shorter initial term to be set with the opportunity for its subsequent prolongation within the maximum term (35 years) without execution of a new procedure. With good reason this proposal was subject to sharp critics in view of the opportunities for corruption it would create.

The purpose of the preparation of financial and economic analysis prior the starting of the procedure for granting of concession is to obtain precise data regarding the investment costs of the concessionaire for each year, the expected income, and to analyse the project's efficiency according to the grantor's point of view. Based on these conclusions, the term, the concession's conditions and the concession's payment should be determined. By adopting this amendment it became possible to announce procedures for short terms, meaning low expected returns on investments and limited interest of potential concessionaires – whereas a subsequent prolongation and lack of competition would entirely change the parameters of the initially announced procedure.
The controversial proposal of the legislator to cancel the requirement for preliminary analysis of the state-owned sites was not adopted at the second round of parliamentary discussions. Here the Parliament showed common sense since such an amendment would have led to a lack of control and an increase in the risk of corruption through amendments in the agreement during the concession process. Business circles sharply criticised an adopted proposal whereby, in case of a breach of a material condition of the concession agreement, the grantor is entitled to terminate it without giving the concessionaire time for performance. This allows the administration (upon various considerations) to terminate with an immediate effect an existing agreement without assessing whether it makes economic sense.

Adjustment of the law in accordance with Directive 2004/18/EO

Adopting the amendments removed the non-compliance of the law with the European directive, such non-compliance being the promulgation of the concession in the State Gazette prior to its announcement in the EU; the former practice violated the principal for equal treatment of the participants.

Attracting the private sector

A legal option is created for the granting of a concession to mixed commercial companies in which both the public and private sectors participate (public-private partnership). An entirely new procedure was established for selecting a private partner participating in the commercial company which concludes the concession agreement.

A positive change is the option for the granting of the concession to be initiated by an interested party (including a private sector party), whereby a justified proposal and prior investment analysis should be provided. With a view to observing the equal treatment of all participants, an investment intention declared in such a way does not create rights or privileges for the person who initiated it.

Amendments to the Black Sea Coast Development Act

This part of the proposed amendments was subject to the most public criticism. Disputes among the ruling parties have arisen over perceived intervention by lobbyists in the preparation of the bill and because the bill was not coordinated with some of the groups of Parliament or with the Black Sea Municipalities.

The proposal to prolong the term of the beach concession from 10 to 20 years was not approved at the second reading. This proposal had suspect justifications as it is questionable for an activity which does not require large investments to be the subject of a concession. Unfortunately, an amendment was adopted according to which land adjoining the water for a width of 200 meters will be subject to a concession. The coastal reinforcing utilities, artificial islands and "movable utilities" (more often being permanent sites on a concrete base) will get twice that amount. This means new possibilities for even more (over) development of the Black Sea coast. The new decision to permit the leasing of the sea coast for a term of up to five years when there is no interest of potential concessionaires is also disputable. According to the Bulgarian Constitution, sea beaches are exclusive state property and may be managed by private parties only through a concession.

Conclusion

Some of the amendments are positive since they improve the existing legal framework. At the same time, there are some quite troubling provisions, most probably influenced by the Black Sea investors. Considering the increased possibilities for corruption provided by the amendments, control over the administration of concessions should be increased and breaches of the law strictly sanctioned.

Many critics have argued that the amendments have created opportunities for corruption in relation to the granting of concessions and the performance of concession agreements.

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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