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Concessions and PPPs

At the end of October 2008, the Croatian parliament adopted a new Concessions Law and a new Public Private Partnership Law (PPP Law). The adoption of these laws, in conjunction with the prior adoption of the Public Procurement Law, completes Croatia's regulation of public procurement. The PPP Law became effective on November 5 2008 and the Concessions Law will became effective on January 1 2009.

Concessions law

Concessions (the rights conferred by a public body to a private person to engage in economic activities of common interest) were until recently regulated by a general law adopted in 1992, as well as by more than 40 other laws and bylaws regulating specific industry concessions (telecoms, roads, agricultural land, hunting, maritime, free zones and public roads, among others). Such fragmented legislation and the non-transparency of concession-granting procedures resulted in numerous problems, which the new Concessions Law aims to resolve. The new law outlines the general principles of Croatian concessions, types of concessions, general procedures and phases related to the granting of concessions and the protection of associated rights.

In addition to a concession in the sense of a contractual relationship for the economic exploitation of common goods or goods of interest for the Republic of Croatia, the Concessions Law specifies two new types of concessions: concessions for the performance of public works and the provision of services in common interest, where the concessioner pays a consideration for the economic exploitation of the works done or services provided. By introducing a clear definition of concessions for public works and public services, Croatian law now recognises the same concession types as EU law.

The prior scattered legislative framework resulted in legal vagueness and non-transparency, and enabled a grey economy and corruption in the process of granting concessions. Furthermore, the protection of rights related to concessions and general concession politics have not been satisfactorily regulated.

The concession-granting process introduced by the new law now applies to all industry concessions as the general practice for granting concessions for the exploitation of common goods and public services. Granting concessions for the performance of public works is subject to the tender procedure prescribed by the Public Procurement Law. All industry concession laws must be aligned with the Concessions Law by June 1 2009.

Moreover, the Concessions Law regulates in much greater detail the entire granting process, from the preparatory steps through to the concession-granting procedure and the criteria for selection of the best bid and the signing of a concession agreement (including its content and termination).

The Public Procurement Law applies not only to granting concessions for public works but also protects the rights granted in the concession-granting procedure. The Croatian State Commission for Supervision of Public Procurement Procedure is designated as an appellate body for the entire concession-granting process. The protection of rights during the concession-granting procedure is further assured due to the fact that an appeal now suspends process. This was not the case under prior law.

The parties may now also agree to arbitrate disputes arising from the concession agreement.

Concessions politics

According to the law, the Ministry of Finance has full oversight of the concessions-granting process. The concession grantors are obliged to report to the Ministry of Finance on planned concessions, income derived from the concessions granted and any breach of a concession contract by a concessioner. Moreover, the Ministry of Finance supervises the fulfilment of the concessioners' obligations and is authorised to initiate administrative and inspection proceedings against breaching concessioners. The Ministry of Finance also manages the publicly available Concessions Registry. By granting these powers to the Ministry of Finance, the control over concessions and the income it generates has been centralised.

PPP law

Until recently, PPPs in Croatia were only regulated by the 2006 Government Guidelines. It became obvious that more elaborate regulation of the matter was necessary. Generally, PPPs are encouraged in Croatia as a desirable model of cooperation between public and private partners in the provision of services that are traditionally in the public domain.

The PPP Law defines PPP as a long-term partnership between public authorities and private companies where a private partner undertakes the obligation to design, construct and/or repair public infrastructure or to provide public service to final users, and a public partner grants to the private partner certain real estate rights and/or concessions and/or pays a consideration for the provided services.

For the first time, the PPP Law provides for both contractual and incorporated PPPs instead of just regulating contractual PPPs. As the 2006 Government Guidelines regulated only contractual PPPs, this is the first time incorporation PPP is defined and regulated by Croatian law.

For both contractual and incorporated PPP projects, the private partner is brought in either through a public procurement or concession-granting procedure (in those cases when a PPP project includes the grant of concession). The applicable procedure is covered by the Public Procurement Law in the first case and the Concessions Law in the second.

The PPP Law provides strict rules on the approval of PPP projects with a view towards harmonising the specific PPP goals, the development strategies of the particular industry and the control the project's value, structure, risk balance and other characteristics crucial to the project's attractiveness to a private partner.

The assessment and approval of PPP projects are, according to the PPP Law, to be conducted by a to-be-established Agency for PPP. The Agency for PPP will issue its opinion on a PPP project proposal, after approval by the Ministry of Finance (which assess the budget and fiscal risks of a PPP project). Once the PPP project is granted approval, the particular public authority will start preparing bidding documentation, which will also have to be approved by the Agency for PPP. The Agency for PPP must also approve the draft contract on the PPP, once the private partner has been chosen in the public procurement or concession-granting procedure. At this stage, the Agency for PPP will assess the harmonisation of the draft contract with the bidding documentation, as well as the balance of risks between the public partner and the private partner.

PPP politics

The Agency for PPP, as well as the assessment and approval of PPP projects, has the mandate to manage the PPP Registry, which will contain all PPP contracts (together with their amendments). The Agency for PPP will supervise the fulfilment of PPP projects and propose legislative improvements of PPP-related laws and regulations. It will also actively work on the successful implementation of the PPP model in the Republic of Croatia, as well as on the future development of the legislative and institutional PPP framework.

The main goal of the adoption of the new Concessions Law and PPP Law is to stimulate high quality concession and PPP projects, which should work for the benefit of both public bodies and private partners. By the adoption of these laws, the granting of concessions and the establishment of PPP projects will become more transparent and coherent. Transparency should then facilitate fair competition among interested parties, which will hopefully make more and more potential private partners interested in cooperation with the public sector.

Dubravka Grujic

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