Regulatory overload

01 May 2012

Sealed EC port concessions, including that of Piraeus, will avoid the incoming legislation. Credit: Pavlos
HFW's Anthony Woolich examines new proposals on the award of concession contracts to ports and terminals
In December 2011, the European Commission published a proposal to introduce a directive on the award of services and works concession contracts.
While the proposed Directive has yet to be scrutinised by the European Parliament and the European Council and so may be subject to further change, port and terminal operators should be aware of the legislation being proposed.
Currently, there are no specific legislative guidelines on services concessions contracts. The only guidance stems from case law on the principles of transparency, proportionality and equal treatment enshrined in the Treaty of the Functioning of the European Union.
With the publication of the proposed Directive in December 2011, the Commission seeks to address that current legal uncertainty, as well as a lack of homogenous guidelines across the EU, and a lack of legal/judicial protection.
Without legislative guidelines there are potential market distortions and inefficiencies concerning the award of services concessions. In particular, there are concerns about small to medium enterprises being unable to enter the market for concessions and public authorities failing to guarantee efficient public spending. The latter is critical during a period where public spending is under intense scrutiny.
The lack of guidelines itself has led to an uneven playing field in the award of concessions, while the lack of uniformity represents a barrier to enter the market as contracting entities have to obtain expert advice on complying with local conditions, leading to a prohibitive effect on competition and a reduction in value for money for customers.
There are also currently few remedies available to those who tender and wish to challenge an award decision.
Works concessions are defined in the proposed Directive as "a contract for pecuniary interest concluded in writing between one or more economic operators and one or more contracting entities and having as their object the execution of works, where the consideration for the works to be carried out consists either solely in the right to exploit the works that are the subject of the contract or in that right together with payment”.
Works concessions are currently subject to limited regulatory provisions.
Services concessions, as a form of public-private cooperation, are defined as where a public sector body grants a private sector operator the use of certain infrastructure if the private sector undertaking agrees to operate, maintain and invest in the development of the infrastructure involved. For example, a port authority may entrust a privately-owned company with a parcel of port land for providing cargo-handling services.
The private sector operator undertakes the operational and investment risk and consequently is entitled to the revenues generated by the particular infrastructure or service for the duration of the concession.
The European Sea Ports Organisation published a Policy View on the application of EU Law Principles on Port Terminal agreements in May 2011. The document recognised that port governance systems differ across Europe, with the vast majority of European ports being state owned.
The management of port infrastructure is often devolved to a port authority, which undertakes "landlord" functions at the managed port, including permitting market access to port land to provide port services. These contracts are governed by a variety of public and private law.
ESPO accepts that competitive award procedures are widely used within the ports and terminals sector, especially in the area of container traffic. ESPO has undertaken a "Fact-Finding Report" that illustrates the use of competitive bidding or tender procedures in the contracting out of port land. ESPO's statistics indicate that larger port authorities are likely to use competitive award procedures and that the average duration of terminal agreements is 30-35 years.
ESPO recommends that in any situation where port authorities permit third-party use of port land for port services, they must advertise the plans for use and adhere to selection criteria which are "fair, non-discriminatory and open for review".
From this standpoint, ESPO is largely supportive of the proposed Directive, believing that it leaves port authorities with the necessary flexibility on the setting of both selection and award criteria for service concessions.
However, ESPO has expressed concerns relating to the prolongation of an agreement between an incumbent operator and the port authority. ESPO does not endorse automatic prolongation but believes that if an incumbent operator is performing well and committing to infrastructure investments, the agreement with the port authority should be prolonged.
The Commission has indicated that an extension of duration of an existing contract may qualify as a new concession and may have to comply with the rules of the proposed Directive. There is thus a slight divergence between the views of ESPO and the views of the Commission on prolongation of contracts.
This minor tension is likely to remain unresolved for the moment. However, it may be that if prolongation was mentioned in the original contract award, the provision will remain valid, particularly if the concessionaire possesses the unilateral right to extend the concession if certain conditions were satisfied. Therefore, there could be no new "agreement" requiring the awarding body's consent, and the legislation would not be triggered.
The industry itself is still assessing the impact of the proposed Directive, and any further comment is also likely to take into account a new package of measures for ports being considered by the EC department for Transport and Mobility. This package is likely to contain measures to reduce the administrative burden at ports, to improve the transparency of port financing, and proposals for measures on port services.
While the proposed Directive on service concessions is yet to be adopted by the European Parliament or the Council of Ministers, it is anticipated that the measures will be adopted by the end of 2012. The current transposition date for the proposed Directive is June 30, 2014.
However, the Commission has confirmed that the proposed Directive will not have retrospective effect and so will not apply to contracts already in place at its date of entry into force.
Port and terminal operators may wish to expedite negotiations on new projects to finalise agreements, arrangements or variations to existing arrangements, before the new law comes into effect. They may also wish to make representations, directly or indirectly, on the final form of the legislation