USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT
Energy Investment Activity (USAID EIA)
Contract Number AID-168-C-14-00002
Overview and Analysis of the Concessions Sector in the FBiH
Author: EIA Project Team
September, 2017
Implemented by: Advanced Engineering Associates International, Inc. (AEAI)
USAID COR: Ankica Gavrilovic
This document is made possible by support from the American People sponsored by United States Agency for International Development (USAID). The contents of this document were prepared by and are the sole responsibility of Advanced Engineering Associates International, Inc., and do not necessarily reflect the views of USAID or the United States Government.
Contract Number AID-168-C-14-00002 1
USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
OVERVIEW AND ANALYSIS OF THE CONCESSIONS SECTOR IN THE FEDERATION OF BOSNIA AND HERZEGOVINA (FBiH) 1. THE ROLE OF CONCESSIONS IN ENERGY INFRASTRUCTURE DEVELOPMENT 1.1 Introductory Remarks Concessions are, alongside public-private partnerships (PPPs), widely regarded as a concept and legal framework for encouraging investment.1 Concessions can have an important role in the energy sector, since energy infrastructure is often linked with exploitation of natural resources (e.g., watercourses, coal, oil/gas) or with provision of public services (e.g., providing heating or electricity to communities). Concessions are also an important tool in the long-term development of infrastructure and strategic services in a country. Furthermore, concessions contribute to the development of market competition, enable the efficient use of private sector know-how, and encourage efficiency and innovation. Different legal systems around the world define concessions in different ways. They are usually tied to the for-profit exploitation of natural resources, and are also often linked with PPPs. For example, the following definition can be found on the EU website: “Concession contracts are used by public authorities to deliver services or construct infrastructure. Concessions involve a contractual arrangement between a public authority and an economic operator (the concession holder). The latter provides services or carries out works and is remunerated by being permitted to exploit the work or service.”2 However, “concessions” are not defined in the Treaty on the European Union or other primary sources of European Union (EU) law. In the relevant secondary sources of EU law,3 concessions are considered public contracts and are strongly linked with public procurement, where two types of concessions are defined: works concessions and service concessions. Although usually not considered concessions in the true sense of the word, but rather as permits, concessions for exploitation of natural resources are contained in the secondary sources of EU law, having in mind their long history in legal and practical terminology of many countries. In Bosnia and Herzegovina, concessions are mainly defined in the basic terms of exploitation of natural resources; legal procedures for harmonizing legal frameworks on the FBiH and cantonal levels are currently underway. With growing interest in the sector of PPPs, concessions are often wrongly considered as a form of PPP or even as a synonym. Concessions are, in fact, one of the legal bases for a PPP model, where consideration to a private partner is paid, in part or in full, on the basis of a public service provided, that is, where the risk is transferred to the private
1 SIGMA (2009), Professional review: Concessions and public-private partnerships in Bosnia and Herzegovina, Final report. 2 http://ec.europa.eu/growth/single-market/public-procurement/rules-implementation/concessions_en 3 Directive 2014/23/EU on the Award of the Concession Contracts; Directive 2014/24/EU on Public Procurement; Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors; Regulation (EU) 2015/2172 amending Directive 2014/23/EU; and Regulation (EU) 2015/1986) on establishing standard forms for the publication of notices in the field of public procurement.
Contract Number AID-168-C-14-00002 2
USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH partner.4 In Croatia, after the Law on Concession was passed, contracts were harmonized with the EU legal tradition, a clear link between concessions and PPPs has been established so the public service and public works concession are considered “concessions with the characteristics of PPPs” and are awarded in accordance with the legal framework on PPPs.5 Having in mind the complexity of the legal framework on concessions and the direct correlation of concessions with investments, especially in the energy sector, USAID EIA has decided to prepare a review and analysis of the concessions sector in FBiH and four pilot cantons (Analysis). The analysis will review and compare international practice and the EU framework on concessions with the existing concessions legal framework in FBiH and four pilot cantons (Zenica-Doboj Canton, Tuzla Canton, Hercegovina-Neretva Canton and Middle-Bosnia Canton), with the goal of formulating recommendations for improving the existing regulation. 1.2 International practice and the European concessions framework Given the fact of rapid development and increased use of concessions and other forms of public- private partnership to implement large and important projects in the past two decades,6 major international financial organizations have developed a number of documents bringing together the best international practices in this area and providing guidance for legislators in developing countries for drafting their own legal frameworks.
Thus, the United Nations Commission on International Trade Law (UNCITRAL) prepared and published in 2001 its Legislative Guide on Privately Financed Infrastructure Projects (the Guide),7 followed by the Model Legislative Provisions on Privately Financed Infrastructure Projects (the Model Law) 8 published in July 2003. The Guide provides general recommendations to legislators on how to establish an effective legal and institutional framework for concessions, while the Model Law contains 51 “sample articles,” elaborating the basic recommendations and principles from the Guide in a practical way.
Using these two UNCITRAL documents as a foundation, the Organization for Economic Cooperation and Development (OECD) published a document titled Basic Elements of a Law on Concession Agreements (OECD Model Law).9 The OECD Model Law is designed for application in Eastern Europe and Central Asia and includes concessions for the use of natural resources. The major aims of the OECD Model Law are: i) to establish a transparent framework for selecting concessionaires; ii) to clearly and precisely define the procedure for granting concessions
4 Law on Public-Private Partnership (“Official Gazette of ZDC,” No. 06/16), available at: www.zdk.ba. 5 Law on Concessions (“Official Gazette of Republic of Croatia,” No. 69/17), available at: www.zakon.hr. 6 Green Paper on Public-private Partnerships and Community Law on Public Contracts and Concessions, European Commission, 2004. 7UNICITRAL Legislative Guide on Privately Financed Infrastructure Projects, 2001, available at: https://www.uncitral.org/pdf/english/texts/procurem/pfip/guide/pfip-e.pdf. 8 UNICITRAL Model Legislative Provisions on Privately Financed Infrastructure Projects, 2003, available at: https://www.uncitral.org/pdf/english/texts/procurem/pfip/model/03-90621_Ebook.pdf. 9 OECD Basic Elements of a Law on Concession Agreements, 1999-2000.
Contract Number AID-168-C-14-00002 3
USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH involving direct negotiations or unsolicited proposals; iii) the possibility for a creditor to take over the business of the concessionaire; iv) legal certainty to ensure that the interests of the concessionaire will be protected in the event of legislative changes.
The importance of concessions and their increasing use was also recognized by the European Union. Thus, the legislation package10 came to include Directive 2014/23/EU on the award of concession contracts (the Directive),11 which entered into force on 28 March 2014. Member States were obliged to transpose it into domestic legislation by 18 April 2016.
The main purpose of the Directive is to implement the basic principles from the Treaty on the Functioning of the EU12 (transparency, non-discrimination, equal treatment of all participants and reciprocity) in the area of concessions and to organize the awarding of concessions uniformly across Member States, while reducing bureaucracy and administrative procedures.
The key new concepts introduced by the Directive into the concessions sector pertain to the definition of a concession and rules to determine the duration of concession contracts. There are also new concepts in terms of determining the value of projects for which the application of the Directive is mandatory and in relation to the legal protection of participants in the concession award procedure.
The EU Directive defines concessions as obligatory13 written agreements for undertaking public works or public services, under which the concessionaire provides a public service or undertakes public works and the compensation for the concessionaire entails the right to charge users for the service or works. Within this arrangement, the concessionaire takes on the risk of inability to recover capital invested in the project. The Directive considers precisely this transfer of risk to the concessionaire a key element in determining whether a contract can be deemed a concession contract.14
The Directive further stipulates that the concession contract must be limited in duration in order not to permanently impair market competition.15 However, the European Commission has also recognized the great diversity of concessions, their particularities and specifics, and hence does not explicitly restrict the maximum duration of concessions; instead, it stipulates that when a concession lasts for more than five years, its duration should not be so long as to prevent
10 On the same date, two more directives entered into force, namely, Directive 2014/24/EU on Public Procurement and Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors. 11 Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 on the Award of Concession Contracts (OJEU L 94, 28/03/2014, p. 1). 12 Treaty on the Functioning of the European Union, OJEU C202, 7 June 2016. 13 Agreements containing a financial obligation. 14 Recital 18 of the Directive Preamble. 15 Recital 52 in conjunction with Article 18 of the Directive.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH competition and create a monopoly, but must still be long enough to enable the investor to recoup the invested capital. Limiting the duration of concessions was instituted, inter alia, because public contracts in some EU Member States had been signed for an indefinite term, which impaired the internal EU market.
The Directive is applicable only to larger concession projects whose value exceeds 5,186,000 EUR.16 There is certainly nothing to prevent applying the provisions of the Directive to awarding concession contracts below this value threshold, but this provision leaves the possibility of applying a simpler concession award procedure to smaller concession projects, provided that the basic principles of the Treaty on the Functioning of the EU are upheld.
And finally, the Directive explicitly stipulates the applicability of the “Remedies Directives”17 to the concessions sector. In essence, these directives stipulate an obligation to establish an effective and independent system of reviewing decisions through which unsuccessful participants in the procedure have the right to appeal any decision adopted within the concession award procedure. The decision on the appeal must be issued by an independent body with sufficient capacities to ensure the effectiveness and efficiency of the entire system. A concession contract may not be concluded until the “standstill period” of at least 10 days expires.
Below is an overview and analysis of the legislative framework for the concessions sector in FBiH and the mutual conformity of the laws on concessions, with respect to the state-level Law on Concessions of BiH. The primary focus is on the Law on Concessions of FBiH (FBiH Law) and the four cantonal laws on concessions from the four “pilot” cantons in FBiH – the Central Bosnia Canton (CBC), the Tuzla Canton (TC), the Herzegovina-Neretva Canton (HNC) and the Zenica- Doboj Canton (ZDC).
2. LEGAL FRAMEWORK FOR CONCESSIONS IN FBiH 2.1. Law on Concessions of BiH (BiH Law) The Law on Concessions of BiH18 (BiH Law) was adopted in 2002. This state-level law is particularly important in awarding concessions for the construction of large power facilities, such as hydropower plants on transboundary rivers, whose construction impacts watercourses in BiH (both entities) and neighboring states, in which case the BiH level is competent for awarding concessions. The implementation of projects of Energy Community Interest (PECI) in the territory
16 Article 8 of the Directive. 17 Council Directive 89/665/EEC of 21 December 1989 (OJEU L 395, 30/12/1989, p. 33-35) and Council Directive 92/13/EEC of 25 February 1992 (OJEU L 76, 23/3/1992, p. 14–20). 18 Law on Concessions of Bosnia and Herzegovina (“Official Gazette of BiH,” Nos. 32/02 and 56/04).
Contract Number AID-168-C-14-00002 5
USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH of BiH and the implementation of projects through the WB619 initiative fall within this category of projects, because they are by their nature regional and inter-state.
In the review of the concessions system in BiH conducted by the European Bank for Reconstruction and Development (EBRD) in 2012,20 Bosnia and Herzegovina received quite high marks for efficiency and conformity of domestic legislation with international standards and practices.21 The EBRD assessment pertains precisely to the BiH Law, because entity and cantonal laws on concessions were not included in the review. The review also covered the Law on Public Procurement of BiH because the areas of public procurement and public-private partnership were also subject to assessment.22
Due to the lack of consensus on the part of BiH governments that concessions should be awarded at the level of BiH and the absence of dialogue and strategic vision about the use of common energy capacities in the country and the region, not a single concession has been awarded at the level of BiH to date. 2.2. FBiH Law on Concessions In FBiH, concessions are regulated by the FBiH Law on Concessions (FBiH Law),23 which defines the basic principles of the concessions system in FBiH: the natural resources and activities of public interest that may be subject to a concession, competences for awarding concessions, the procedure for awarding concessions, the work and competences of the FBiH Concessions Commission, as well as other issues of importance for the concessions system in FBiH.
Article 5 of the FBiH Law defines a concession as: “the right to undertake economic activities using natural resources, public common resources and to undertake activities of public interest as determined by this Law. a) Subject to concessions in the energy sector Article 3 of the FBiH Law determines the list of natural resources, facilities and activities that may be subject to concessions in FBiH, including energy resources.
19 Initiative for 6 Western Balkans countries (Serbia, Bosnia and Herzegovina, Montenegro, Former Yugoslav Republic of Macedonia, Albania, Kosovo (without prejudice to positions on status and in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo declaration of independence). 20 EBRD, Concession / PPP Laws Assessment 2011 – Cover Analysis Report, May 2012. 21 According to the EBRD, out of 33 countries, Bosnia and Herzegovina is near the top of the list in the group of countries, including Croatia and Slovenia, which received high marks for conformity and efficiency of their respective concessions systems. The legal framework for the concessions system in BiH received much better marks, for example, than the concessions systems in Poland, Romania and some other EU Member States. 22 A law on public-private partnership was not passed at the level of BiH, so this area was excluded from the evaluation of BiH. 23 “Official Gazette of FBiH,” Nos. 40/02 and 61/06.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
Article 3 reads: . . . .
2. use of watercourses or other bodies of water in the territory of or of interest for two or more cantons; 3. construction of hydropower facilities of installed capacity above 5 MW; 4. construction and use of hydro-accumulations in the territory or of interest for two or more cantons; 5. exploration and use of energy sources and other mineral resources . . . .
Article 6 of the FBiH Law further stipulates the cases where the FBiH Government decides on the award of concessions, including in the energy sector:
Contract Number AID-168-C-14-00002 7
USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
Article 6
The Government of the Federation shall decide on awarding concessions for:
. . . .
2. the use of watercourses or other bodies of water in the territory or of interest for two or more cantons; 3. the construction of hydropower facilities of installed capacity above 5 MW; . . . . 5. the construction, use and management of oil and gas pipelines and storage in pipelines and terminals . . . . b) Concessions for construction of renewable energy facilities The FBiH Law does not stipulate the granting of a concession as a condition for constructing power facilities that use renewable energy sources (for example, wind power plants, solar power plants, biomass power plants), which differs from provisions in individual cantons. c) Participants in the concession granting process FBiH ministries or other bodies designated by the FBiH Government to award concessions have the role of Conceding Authority in the concession award procedure at the level of FBiH. These ministries and bodies primarily have the competences to make decisions on potential concessions, prepare replies to unsolicited proposals and implement procedures to approve concessions, including negotiations with potential concessionaires. Prior approval of the FBiH Government is needed to initiate concession award procedures set out under Article 6 of the FBiH Law. The entire procedure is subject to control by the FBiH Government and the FBiH Concessions Commission, which is established as a professional, autonomous and permanent body, similar to the BiH Concessions Commission. According to Article 5 of the FBiH Law, the FBiH Concessions Commission acts as a Special Joint Concessions Commission of FBiH, when the subject of the concession is spread across the territory of two or more cantons, or in the event of a jurisdictional dispute between FBiH and the cantons. In such cases it will comprise nine members, seven of which shall be permanent members of the Commission and the two impermanent members shall be from the municipalities on whose territory the subject of the concession is located.24
Changes and amendments to the FBiH Law from 2006 introduced the obligation of obtaining approval from the municipal council of the local community on whose territory the concession
24 Article 9, para. 2, FBiH Law.
Contract Number AID-168-C-14-00002 8
USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH is being awarded when the concession award predominantly affects one municipality. The FBiH Government makes the final decision about awarding the concession.
The role of the FBiH Parliament consists of appointing members to the FBiH Concessions Commission at the proposal of the FBiH Government and adopting the Annual Report on the Work of the FBiH Concessions Commission. Also, the Concessions Policy Document, adopted by the FBiH Government at the proposal of the FBiH Concessions Commission, must be submitted for information to the FBiH Parliament. d) Concession award procedure The FBiH Law recognizes two procedures for awarding concessions: 1) public tender and 2) unsolicited proposal. In line with the FBiH Law, concessions should be awarded mainly through a public tender procedure. Within this procedure, the competent sector ministry is obliged to conduct a study of economic viability and precisely define the criteria for the selection of the best concessionaire.25 On the other hand, the award of concessions based on an unsolicited proposal is foreseen as an exception. Thus, Article 28 of the FBiH Law reads:
Article 28 If a bidder submits a proposal to the ministry for a concession for which a public tender has not been published, the ministry shall assess whether there is a public interest in that concession. The assessment of the proposal referred to under paragraph 1 of this article shall particularly take into account: - that the project of the proposed concession can be implemented only using a process, design, methodology or engineering concept to which the bidder has exclusive rights; - the urgency of providing services or the existence of infrastructure for public use. . . . .
It follows from the above provisions that an unsolicited proposal should only be considered in two cases: i) if the bidder has exclusive rights to a certain methodology or new process of work, and ii) if the award of the concession is urgent in order to provide services or construct infrastructure for public use. In all other cases, the award of a concession should be subject to publishing a public tender and conducting the tender procedure to select the best bidder. Article 40 of the Rules on awarding concessions26 also stipulates that if more unsolicited proposals are submitted, a public tender should be published.
25 Article 24 of the FBiH Law. 26 FBiH Rules on Awarding Concessions (“Official Gazette of FBiH, Nos. 68/06, 87/11).
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
In the past, not one concession has been awarded at the FBiH level through a public tender procedure, and the few that were awarded, precisely in the energy sector (HE Vranduk and HE Janjici, HE Mostarsko Blato and the small HE Novakovici and HE Zapece), were based on unsolicited proposals. Thus, the award of concessions based on unsolicited proposals is the rule in FBiH and not an exception as prescribed by law. FBiH authorities justify these actions by the lack of budget funding to prepare studies of economic viability for projects, which are preconditions for decisions on concessions. As a result, they entrust the preparation of this key document to future concessionaires.
e) Procedure for unsolicited proposal The FBiH Law regulates the procedure for awarding concessions based on unsolicited proposals in only one article; Article 28 stipulates that the competent sector ministry shall assess the existence of a public interest to award a concession for which an unsolicited proposal has been submitted, and shall conduct negotiations with the bidder, having obtained the required authorization from the FBiH Concessions Commission. However, more detailed regulations on awarding concessions based on unsolicited proposals are to be found in the FBiH Rules on Awarding Concessions. Chapter IV of the Rules27 contains 10 articles regulating the negotiation procedure, stipulating the maximum duration of negotiations (90 days), the mandatory contents of the negotiations framework prepared by the competent ministry, and control of the negotiations by the FBiH Concessions Commission. Furthermore, Article 33, paragraph 2 of the FBiH Rules on Awarding Concessions stipulates the contents of the negotiations framework: “the scope and content of the subject of concession, the investment conditions and construction deadlines, the manner, duration and conditions of use of the subject of concession, environmental protection requirements and balancing the price of the product-service to be produced-provided to the public through exploitation of the subject of concession, the value of the concession fee and the deposit amount.” f) Preparation of the economic viability study Article 23 (1) of the FBiH Law stipulates that the “conceding authority28 shall prepare an economic viability study for each project subject to concession prior to publishing a public call for bids.” However, Article 24 (2) of the FBiH Law provides for a derogation from this rule.
Article 24 (2) reads:
“. . . If the conceding authority has not prepared an economic viability study, the Commission may require that a public invitation for bids include the obligation of the bidder to prepare an economic viability study, including environmental protection estimates. The economic viability study shall be taken into account when assessing the criteria for the award of the concession.”
27 Articles 30-39 of the FBiH Rules on Awarding Concessions (Official Gazette of FBiH, 68/06, 87/11). 28 Responsible ministry.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
The FBiH Law does not contain any explicit provision obliging the potential concessionaire submitting an unsolicited proposal to prepare the economic viability study, but such a provision is contained in Article 31 (2) of the Rules on awarding concessions29 and is common in practice. Bidders who do not submit the study are disqualified from the procedure, and the studies submitted by interested bidders are assessed by the FBiH Concessions Commission and awarded points in the bid evaluation procedure. g) Phase of the procedure where the concession is acquired The FBiH Law does not stipulate the phase of the permitting procedure when a concession must be acquired. Most investors apply for a concession at an early phase of the procedure, immediately after preparing a feasibility study and before applying for a building permit. h) Concessions registry The FBiH Law does not stipulate the obligation to establish and maintain a concessions registry in FBiH, which has been pointed out as one of the main shortcomings of the FBiH concessions system.30 Thus, the Reports of the FBiH Concessions Commission submitted annually to the FBiH Parliament are the only source of information on concessions awarded at the FBiH level. i) Concession fee and allocation of revenues The FBiH Law does not contain provisions on the manner of determining the concession fee, except for a provision identifying the concession fee as an important element of concession contracts. Article 21 of the FBiH Law stipulates that rules on determining the concession fee shall be adopted by the FBiH Concessions Commission. The FBiH Law does not contain any provision on the allocation of revenues from concession fees between individual levels of government in FBiH (Federation, canton, municipality). Article 66 of the Rules on awarding concessions defines concession fees as revenues of the FBiH Budget and stipulates that their allocation shall be subject to the Law on Allocation of Public Revenues in FBiH.31 However, the Law does not contain any provision on the allocation of revenues from concession fees in FBiH. Fees from concessions awarded at the FBiH level are collected in a separate sub-account of the FBiH budget and allocated to budget users based on the Law on the Execution of the FBiH Budget adopted for each fiscal year. The allocation of concession fees at the cantonal level is defined in some cantons by cantonal laws on concessions, and in other cantons by various bylaws – rules, regulations and decisions. The percentage allocation of revenues from concession fees between cantons and local self-governance units varies from canton to canton.
29 “Official Gazette of FBiH,” Nos. 68/06, 87/11. 30 For more, see: “Audit Report on the Management of Concessions in the Federation of Bosnia and Herzegovina”, Audit Office for Institutions in FBiH, Sarajevo, February 2011, and OECD/SIGMA, Final Report: Expert Review, Concessions and Public-Private Partnerships in BiH, November 2008 - September 2009 31 Law on Allocation of Public Revenues in FBiH (No. 22/06, 43/08, 22/09, and 35/14; 57/15; 94/15)
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH j) Legal remedies and legal protection The possibilities of legal protection are limited under the provisions of the FBiH Law. The possibility of review in the FBiH Law is limited only to the decisions of the Commission and only to two types of cases determined by the Law.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
Article 20 of the FBiH Law reads: Based on a request for review of a Commission’s decision, submitted within 60 days of the date of the decision, or acting ex officio, the Commission may review a decision and modify or overturn it in cases where: - a new fact is established which would have influenced the making of a different decision had it been known at the time, and - the interested party was not able to present observations on the decision for justifiable reasons. Lodging appeals against decisions of the sector ministry, the FBiH Government or other stakeholders in the concession award procedure is not possible, and complaints against decisions of the Commission are decided on by the Commission itself. This is contrary to the EU Directive on concessions which stipulates that complaints shall be decided by an independent, professional body. k) Term of duration In line with the FBiH Law, the maximum duration of a concession contract at the FBiH level is 30 years. Exceptionally, in the case of larger investments that require a longer time period, the FBiH Law stipulates that the concession contract may have a longer term, but no more than 50 years.32 The duration of the concession includes the period of construction, which can be up to several years for larger power facilities. Other time limits in the procedure are defined by the Rules on the Concession Award procedure in FBiH.33 Thus, the deadline for approval of the economic viability study is 30 days from the date of submission to the FBiH Concessions Commission; the deadline for selecting the best bid is 30 days; the deadline for signing the agreement is 60 days from the date of the decision to award the concession. The duration of the public tender and the deadline for submitting bids are not regulated by these Rules; they are individually determined for each public tender. l) Legal certainty – protection of concessionaires in the event of legislative changes The FBiH Law is the first law on concessions in the territory of FBiH and it does not contain provisions on the protection of the existing status of concessionaires. Articles 37 and 38 of the FBiH Law stipulate the obligation to sign a concession contract with all users of natural resources subject to the award of a concession. Not many of these agreements have been concluded to date. m) The possibility for a creditor to take over the concessionaire’s business It happens in practice that, due to insolvency, a concessionaire is unable to make loan repayments to a bank or other financial institution that provided credit. The financial institution has a
32 FBiH Law, Article 29, paragraph 2. 33 “Official Gazette of FBiH,” Nos. 68/06 and 87/11.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
legitimate interest in directly managing the investment (project) to protect its interest in the period until an alternative investor is found. As a general rule, the EU Directive allows for replacing a concessionaire, inter alia, due to insolvency. The FBiH Law stipulates the possibility for international financial institutions to take over the concession contract “in the event that the concessionaire fails to fulfill his financial duty to the financial institution of which Bosnia and Herzegovina is a member, without the approval of the FBiH Concessions Commission,”34 but no such possibility is stipulated for domestic banks or other domestic financial institutions.
2.3. Rules a) FBiH Policy Document on awarding concessions One of the basic tasks of the FBiH Concessions Commission is to prepare a Policy Document on Awarding Concessions with a “description of the economic sectors and industrial areas that may be delegated or awarded to domestic and foreign legal persons”35 under a concession contract. In other words, this document should be the FBiH “concessions strategy,” given that it should provide a long-term view of the available and potential natural resources and the possibilities of their exploitation. The Policy Document is adopted by the FBiH Government and is submitted to the FBiH Parliament for information.
The Policy Document on Awarding Concessions was passed and adopted in 2005.36 Part “I – Electric Energy” refers to the power sector and has not been modified to date. Serving as a basis for this part of the FBiH Concessions Policy Document was the “Plan for the Construction of New Power Generation Capacities in the Federation of Bosnia and Herzegovina” adopted by the FBiH Government. According to this Plan, the FBiH priorities are: a) repairing existing thermal power blocks - TE Kakanj G6, TE Tuzla G6 and TE Tuzla G5 (provisionally), and b) modernization and reconstruction - HE Rama, HE Jajce and HE Čapljina. The Plan also foresees that “in terms of new generation capacities, priority shall be given to projects with the highest degree of completion of investment-technical documentation, i.e., HE Ustikolina, HE Vranduk, and HE Mostarsko Blato.” These facilities are defined in the same way in the FBiH Concessions Policy Document. Apart from the power sector, the FBiH Concessions Policy Document also covers transport, which was added to the Document in 2011, while other sectors were never included.
The FBiH Concessions Policy Document generally recognizes wind potential as a possible energy source and states that necessary measurements should be performed in order to utilize this potential
34 FBiH Law, Article 29, paragraph 3. 35 Article 14 of the FBiH Law. 36 Adopted by the FBiH Government Decision V: 522/05 of 14 October 2005 (“Official Gazette of FBiH,” No. 64/05).
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH even though the FBiH Law does not foresee awarding concessions for the construction of wind power plants. b) Rules on the concession award procedure In line with the authorizations stipulated in the FBiH Law, in 2006 the FBiH Concessions Commission adopted the Rules on Awarding Concessions.
The Rules on the concession award procedure set out in more detail the procedure for awarding concessions through public tenders and unsolicited proposals. Also, the Rules on the Concession Award Procedure define the operation of the FBiH Concessions Commission, how the concession fee is to be determined, how concession contracts are to be concluded, the suspension, expiration and termination of concession contracts and supervision and control over the activities of concessionaires. In essence, the Rules supplement the procedural rules on the concession award procedure and concluding concession contracts that are not contained in the main text of the FBiH Law on Concessions. c) Rules on determining the concession fee In 2006, the FBiH Concessions Commission adopted the Rules on Determining the Concession Fee.37 Article 3 of these Rules defines the fee as:
1) a one-time fee for the right of exploitation of a natural resource, public good or performance of activities of public interest, to be paid prior to signing the concession contract, and 2) an annual fee calculated on the basis of revenues from the use of the subject of concession, to be paid throughout the term of duration of the agreement.
Articles 5 through 8 of the Rules on the concession fee stipulate the formulas and the main and additional criteria to calculate the concession fee. Some of the main criteria taken into account when calculating the fee are annual production, unit price of product or service, projected annual income and total investment amount. The additional criteria include, inter alia, environmental impact, investment profitability, economic impact of investment on FBiH, technological significance of the project.
3. LEGAL FRAMEWORK IN THE CANTONS This section of the analysis of the concessions sector in FBiH compares and analyzes the provisions contained in the laws and bylaws on concessions at the FBiH level and in the four selected cantons: the Tuzla Canton (TC),38 the Zenica-Doboj Canton (ZDC),39 the Central Bosnia
37 “Official Gazette of FBiH,” No. 67/06. 38 Law on Concessions (“Official Gazette of TC,” Nos. 5/04, 7/05, 6/11, 1/13, and 11/14). 39 Law on Concessions (consolidated text) (“Official Gazette of ZDC,” No. 5/03)
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
Canton (CBC),40 and the Herzegovina-Neretva Canton (HNC).41 Article 40 of the FBiH Law mandates the harmonization of cantonal laws with the FBiH Law.
3.1.Structure, definitions, basic principles
All of the analyzed cantonal laws on concessions were adopted after 2002, i.e., following the adoption of the FBiH Law. The ZDC Law was adopted in 2003 and has not been amended since; the laws in the remaining three cantons (HNC, CBC and TC) are more recent. In some cantons, they have been completely revised, such as the HNC Law from 2014 and the CBC Law from 2009. The TC Law has been amended four times since 2004, when it was originally passed.
In general, all four cantonal laws contain similar definitions of concessions and basic principles; and in that sense, they are harmonized with the FBiH Law.
3.2. Cantonal concession laws a) Subject to concessions in the energy sector The following have been defined as being subject to concessions in the energy sector in the analyzed cantons: Article 2 (1) of the CBC Law reads: . . . . 2. use of watercourses and other bodies of water 3. construction of hydropower facilities of installed capacity up to 5 MW 4. construction and/or use of hydro accumulations 5. exploration and/or use of fuels and other mineral ores, including all types of salt and saltwater . . . . 20. construction and/or use of facilities to transform wind energy into electric energy – wind power plants of 150 kW 21. other power facilities with capacity from 150 kW to 5 MW, apart from power facilities for own use.” Article 2 of the ZDC Law reads: (1) Exploration and/or exploitation of: - Mineral energy sources (coal, crude oil, natural gas, etc.);
40 Law on Concessions (“Official Gazette of CBC,” No. 8/09) 41 Law on Concessions of the Herzegovina-Neretva Canton (“Official Gazette of HNC,” No. 1/13, 7/16).
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. . . . (1) Use of watercourses and bodies of water of interest for the canton; (2) Construction and/or use of hydro accumulations of interest for the canton; (3) Construction and/or use of hydropower facilities of installed capacity below 5 MW . . . . Article 3 of the TC Law reads: (1) Use of watercourses and other bodies of water in the territory of the Canton; (2) Construction of hydropower facilities of installed capacity up to 5 MW; (3) Construction and use, or use of hydro accumulations in the territory of the Canton; (4) Exploration and/or use of fuels or other mineral ores, including all types of salt and saltwater as defined by a separate law; . . . .
Article 7 of the HNC Law reads: . . . . b) use of water bodies and public water resources for: . . . . 5) power generation of installed capacity from 23,1 kW to 5 MW; . . . . c) exploitation of fuels and other mineral ores, including all types of salt and saltwater as defined by a separate law; . . . . n) State owned land for the construction of new and reconstruction of existing power facilities and construction of new and reconstruction of existing power facilities on such land or the construction of new or reconstruction of existing power facilities located on privately own land as follows: 1) wind power facilities of installed capacity from 23.1 kW to 5 MW per installed unit; 2) solar power facilities of installed capacity from 23.1 kW to 5 MW; 3) other power facilities of installed capacity from 23.1 kW to 5 MW.
It follows from the above that when it comes to what is subject to aconcession, the provisions of the TC and ZDC concession laws are completely harmonized with the provisions of the FBiH Law
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH because the subject of a concession, in terms of energy resources, is defined in the same way. In contrast to these two cantons, in CBC, apart from energy resources stipulated in the FBiH Law, the use of wind power of 150 kW (and above) is also subject to a concession, as well as other power facilities of installed capacity up to 5 MW. Furthermore, the definition of resources subject to a concession by the HNC Law is furthest from those stipulated in the FBiH Law and includes the use of wind and solar energy to produce electricity, as well as other power facilities of installed capacity up to 5 MW.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH b) Concessions for construction of renewable energy power facilities As noted in the previous paragraph, the lowest degree of harmonization among the analyzed cantonal laws, both with respect to other cantonal laws and to the FBiH Law, is found in the definition of resources subject to concessions for the construction of renewable energy power facilities. These differences are illustrated in Table 1: FBiH TC ZDC HNC CBC Hydropower plants ✓ ✓ ✓ ✓ ✓ Wind power plants ✓ ✓ Solar power plants ✓ * Biomass power * * plants * The law does not explicitly enumerate these types of power facilities, but does contain the general provision for “other power facilities”. Key: ✓ - concession required for construction - concession not required
Table 1: The requirement of an award of a concession as the legal prerequisite for the construction of various renewable energy power facilities
In CBC and HNC, a concession must be obtained in order to construct certain power facilities that use renewable energy sources (e.g., wind power plants, solar power plants and biomass power plants), while in TC and ZDC obtaining a concession is not required, as it is not required under the FBiH Law. Furthermore, in HNC, a concession is awarded for land where a power facility will be constructed or reconstructed if the land is state owned, while in the case of construction and reconstruction of facilities on privately owned land, the concession is awarded for the construction and/or use of the power facilities. In CBC a concession is also foreseen for the construction/use of power facilities.
Hydropower plants All of the analyzed cantonal laws on concessions stipulate the award of concessions for the construction of hydropower plants. Provisions of the laws are also harmonized when it comes to competences, so that all cantonal laws stipulate cantonal competence for awarding concessions for the construction of hydropower plants up to 5 MW, while the competence of the FBiH level, as per the FBiH Law, is stipulated for facilities of installed capacity over 5 MW.
When it comes to the award of concessions for the construction of hydropower plants, investors cite the issue of imprecise terms used in the laws to define the awarding of concessions for the construction of these facilities, which may slow down or hamper construction. The laws of ZDC, TC and CBC, as well as the FBiH Law, do not recognize “public water resources” as subject to concession, and instead a concession is awarded for the “construction and/or use of a hydropower facility.” Investors sometimes have problems with resolving legal property issues over the land where they wish to begin construction, because they lack legal grounds to use land adjacent to a
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH watercourse. Only the HNC Law, in Article 7, paragraph 1, point b), provides for the award of a concession to “use bodies of water and public water resources” for different purposes, including for “power generation of installed capacity up to 5 MW.” This issue was also included in the “Information on the State of the Power Sector” from January 2016, prepared by the Federation Ministry of Energy, Mining and Industry for a special session of the House of Peoples of the FBiH Parliament.42 This document explains that the construction of hydropower plants requires the use of public water resources that include both the watercourse and the land plots owned by FBiH, cantons or local self-governance units.
Wind power plants In CBC, a concession is also required for the construction of wind power plants of 150 kW.43 This formulation does not specify the upper limit of installed capacity for which the competences lie with the canton. Since the FBiH Law does not contain provisions on awarding concessions for the construction of wind power plants, CBC would actually be responsible for awarding concessions for all wind power plants in the canton whatever their the amount of their installed capacity, i.e., whatever the size of the facility. The HNC Law also stipulates the requirement of obtaining a concession “for wind power plants of installed capacity from 23.1 kW to 5 MW per installed unit”44 if the wind power plant is to be constructed in the territory of HNC.
Solar power plants Among the four analyzed laws on concessions, only the HNC Law stipulates a requirement to obtain a concession for the construction of “solar power plants of installed capacity from 23.1 kW to 5 MW.”45
Other power facilities The CBC Law stipulates that “other power facilities of installed capacity from 150 kW to 5 MW” may also be subject to concession.46 Similarly, the HNC Law requires obtaining a concession for “other power facilities of installed capacity from 23.1 kW to 5 MW.”47 In essence, this means that in these two cantons, concessions may also be requested for other power facilities, which gives exceptionally broad powers of discretion to the authorities in these cantons to introduce a concession requirement for other power facilities for which a concession currently is not explicitly required in the law
42 http://www.parlamentfbih.gov.ba/dom_naroda/bos/parlament/propisi/El_materijali_2016/INFORMACIJA%20za%20parlament 43 CBC Law, Article 2 (1), point 20. 44 HNC Law, Article 7, n (1). 45 HNC Law, Article 7, n (2). 46 CBC Law, Article 2 (1), point 21. 47 HNC Law, Article 7, n (3).
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
Particularly relevant in this context is Article 62a of the HNC Law,48 which requires owners of power facilities in the territory of HNC to sign concession contracts within 180 days from the date of entry into force of the HNC Law. Since this interim provision does not specify that a concession contract is required for owners of power facilities listed in Article 7, paragraph 1, point n) of the HNC Law, this provision may be interpreted as requiring owners of all power facilities, not just those set out under Article 7, paragraph 1, point n), to sign concession contracts. Furthermore, this formulation of the provision essentially means that in HNC concession contracts are signed retroactively, i.e., that the provision applies retroactively to those power facilities that have already been constructed or are being constructed, for which the previous law did not require obtaining a concession as a prerequisite for construction. Therefore, this provision may be very unfavorable for investors because it adds new costs that the investor did not account for (could not have accounted for) when making the decision to invest. c) Participants in the concession granting process In the four analyzed cantons, the actors in the concession granting process in all the cantons are the governments, sector ministries and concessions commission (either permanent or ad hoc). The HNC Law also allows for local self-governance units to award concessions if the subject of the concession is located in the territory of the unit and if the unit has authorization from the HNC Government as the conceding authority with a prior opinion of the responsible ministry.49 The other cantons do not have such provisions.
The most significant discrepancies among the cantons with respect to each other and with respect to the FBiH level are to be found in the type of concessions commission (whether it is permanent or ad hoc), its composition, and the division of responsibilities between the competent ministry and the concessions commission.
A permanent Concessions Commission has been established and is operating in TC. The TC Concessions Commission adheres to the same principles as the FBiH Commission, has similar competences, powers and responsibilities, i.e., it acts as a regulator. The TC Concessions Commission comprises seven members, of which five are permanent members and two are appointed from the municipality in whose territory the subject of the concession is located.50
The CBC Concessions Commission is established as part of the individual concession granting procedure and comprises a total of five members, of which three are permanent members appointed for a term of five years, and two members are appointed as needed from the municipality in whose
48Article 62a of the HNC Law reads: “Owners of power facilities in the territory of the Herzegovina-Neretva Canton shall sign concession contracts within 180 days from the date of entry into force of this Law, provided they satisfy the conditions set out under this Law and other regulations pertaining to this matter.”
49 HNC Law, Article 9. 50 TC Law, Article 8.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH territory the subject of the concession is mostly or partly located.51 The CBC Concessions Commission, although it has three permanent members, does not have the same responsibilities as the FBiH Concessions Commission or the TC Concessions Commission, given that it does not have oversight powers over the work of concessionaires, does not prepare strategic documents on concessions (Concessions Policy Document) and does not handle consumer complaints.
In ZDC, the ZDC Concessions Commission is established with the responsible ministry for each individual concession award. The commission comprises at least three members who are “experts in engineering, law and other specializations.”52
An ad hoc Concessions Commission is formed in HNC comprising at least five members appointed by the responsible sector minister, of which three are appointed from a list of candidates determined by the Cantonal Assembly, while the remaining two are appointed from the local self- governance unit in whose territory the subject of concession is located.53 The list of candidates for the Commission is determined for a term of four years.
As for the role of the cantonal assembly, the TC Assembly has a role and powers similar to those of the FBiH Parliament, meaning that the TC Assembly appoints the permanent members to the TC Concessions Commission, approves the TC Concessions Policy Document and adopts the Report on the work of the TC Concessions Commission. The HNC Assembly considers and adopts the HNC Government report on the implementation of concession contracts (the government is required to submit a report at least annually) and determines the list of candidates for the ad hoc concession commissions in HNC. However, the CBC and ZDC Assemblies have no legally stipulated role in these cantons when it comes to concessions. d) Concession award procedure All cantonal concession laws stipulate two basic types of procedure for awarding concessions: 1) public call (tender, public competition) and 2) unsolicited proposal. Still there are some differences among the cantons in this respect.
The HNC Law foresees a third, exceptional, type of concession award procedure – “competition by invitation.”54 Article 18, paragraph 3 of the HNC Law reads:
The concession award procedure shall be conducted through a competition by invitation only when a public tender for the concession award procedure would impact the defense and security of the Canton, or for other specific reasons that
51 CBC Law, Article 6. 52 ZDC Law, Article 6. 53 HNC Law, Article 21. 54 Ibid, Article 16.
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must be justified, and that shall be decided by the Conceding Authority, and also in the event of an unsuccessful public tender procedure. This kind of procedure for awarding concessions is not included either in the FBiH Law or in the BiH Law.
All four cantonal laws define the public tender procedure as a rule for awarding concessions, with unsolicited proposals as the exception. However, just like at the FBiH level, this is not the case in practice where the majority of concessions are awarded based on unsolicited proposals. The main reasons given for not publishing public tenders tend to revolve around the lack of funding to prepare economic viability studies, which is then required of potential concessionaires through the unsolicited proposal procedure. e) Unsolicited proposal procedure The four analyzed cantonal laws contain different definitions and provisions for awarding concessions based on the procedure for unsolicited proposals.
The TC Law contains provisions identical to those of the FBiH Law; upon receipt of an unsolicited proposal, in line with Article 26 of the TC Law, the competent sector ministry “assesses whether there is a public interest for the concession” and then upon approval from the TC Concessions Commission opens negotiations with the bidder.55 The TC Law was changed and amended in 201156 so that Article 26 of the TC Law was amended by the addition of paragraphs 7 and 8, which read: (7) In the event that prior to a decision on awarding a concession, other bidders submit unsolicited proposals for the same subject of concession, their proposals cannot be taken into account.
(8) If a concession contract is not concluded based on the first received unsolicited proposal, the public tender procedure shall be conducted for the award of the concession.
This solution is contrary to Article 40 of the FBiH Rules on the Concession Award Procedure, which stipulates that in the event that more unsolicited proposals are received for the same subject of concession, a public tender shall be published.
In HNC, the concession award procedure based on an unsolicited proposal is regulated by Article 28 of the HNC Law and a number of bylaws (depending on the subject of concession),57 which
55 TC Law, Article 26. 56 Ibid., “TC Official Gazette”, No. 6/11. 57 The following bylaws have been adopted in HNC: Regulation on the concession award procedure (“HNC Official Gazette,” No. 2/14); Rulebook on the proposal, documentation and procedure for awarding concessions for the
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH regulate in more detail the required documentation, the contents of the proposal and the course of the procedure itself. The HNC Law stipulates that every sector ministry shall adopt a special Rulebook on concession award documentation, criteria and procedure. Thus, for example, a special rulebook has been adopted for energy facilities stipulating the contents of the concession proposal, the documentation to be submitted, the criteria for evaluating bids and the actions of authorities. Upon receipt of an unsolicited proposal with supporting documentation, the HNC Government obtains the opinion of the competent ministry and assesses the existence of a public interest before adopting a decision on whether to award the concession. In contrast to the TC Law, Article 28, paragraph 8 of the HNC Law stipulates that: “if more than one unsolicited proposal is submitted with respect to the same subject of concession, all proposals shall be considered.”
In CBC and ZDC, the receipt of an unsolicited proposal is always followed by a public tender. In these two cantons, an unsolicited proposal serves only to initiate the publication of a public tender, provided that a public interest is determined for the award of the concession. f) Economic viability study
In TC, ZDC, CBC, just like at the FBiH level, the competent sector ministry is tasked with preparing an economic viability study before publishing the public tender. Exceptionally, if the ministry did not prepare an economic viability study, the concessions commission (ad hoc or permanent) may require that the public tender include the prerequisite of bidders submitting an economic viability study, which is what happens most frequently in practice. Therefore, having potential concessionaires prepare economic viability studies is the rule in practice also at the cantonal level, and not an exception as foreseen by the laws.
It is only in HNC that the responsibility for preparing an economic viability study as part of the public tender procedure to award a concession always rests with the ministry or local self- government unit, while in the procedure for unsolicited proposals, responsibility for preparation of the study rests with the bidder. g) The phase of the power facility construction procedure when a concession is secured Neither the FBiH Law nor the cantonal laws stipulate a specific phase of the permitting procedure when a concession must be obtained in order to proceed with other permit requests to construct a power facility. As a rule, at the cantonal level, concessions are also obtained at the beginning of the procedure. exploitation of non-metal mineral ores based on an unsolicited proposal (“HNC Official Gazette,” Nos. 9/13, 5/14); Rulebook on documentation to be submitted with the unsolicited concession proposal in the area of water management and the use of state-owned agricultural land in HNC (“HNC Official Gazette,” No. 10/13); Rulebook on the proposal, documentation and procedure for awarding concessions for building land for power facilities based on an unsolicited proposal (“HNC Official Gazette,” No. 5/14).
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
h) Registry of concessions and concession common resources In contrast to the FBiH Law, all of the analyzed cantonal laws on concessions provide the obligation to establish and maintain a registry of concessions at the cantonal level. In HNC, the obligation to maintain a registry of all concession contracts rests with the Ministry of Finances,58 which was obliged to adopt a rulebook to regulate the maintenance of the registry in more detail. The rulebook has not been adopted to date, nor has a Registry of awarded concessions been established.
ZDC59 and CBC60 do not have unique concessions registries. Competent sector ministries each maintain their own records separately. These registries are not available online.
In the Tuzla Canton, establishing and maintaining the concessions registry is within the competences of the TC Concessions Commission,61 and this is also the only canton where the registry is available online on the Cantonal Government website.62
Also, only TC has adopted the Tuzla Canton Concessions Policy Document,63 passed in 2006, but not changed or amended since. This document has the same structure as the FBiH Concessions Policy Document, but it contains an overview of all concession areas, existing natural wealth and concession potential in the canton categorized by municipality. h) Concession fee and allocation of revenues from the concession fee Some cantonal laws contain provisions on calculating and allocating concession fees, and some do not. These and other issues are often defined by rulebooks, rules, regulations or decisions of the cantonal government. Just like the FBiH Law, the cantonal laws stipulate that the concession fee shall consist of a lump sum payment and an ongoing (annual) fee. In TC, the allocation of fees is regulated by the TC Law at a ratio of 20% for the canton and 80% for the municipality in whose territory the subject of concession is located. The criteria and methodology for calculating the concession fee are stipulated by the Rules on determining minimum concession fees64 in a way that is in compliance with the FBiH Rules on Concession Fees. Basic and additional criteria are used to determine the amount of the fee, as well as a corrective factor. The basic and additional criteria correspond to those at the FBiH level (e.g.,
58 HNC Law, Article 37. 59 ZDC Law, Article 16. 60 CBC Law, Article 17. 61 TC Law, Article 27a. 62 Available at: http://www.vladatk.kim.ba/Uprave/KZK/IZVOD_IZ_REGISTRA_KONCESIJA__1-59.pdf 63 Published in the “TC Official Gazette,” No. 7/06; 64 Published in the “TC Official Gazette,” 7/09.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH annual production, unit price of product, projected annual revenue, environmental impact criterion, investment profitability, economic impact on the canton, and technological significance of the project). The allocation of concession fees in ZDC has been determined by the ZDC Government Decision No. 02-14-2093/13 of 24 January 2013, 65 at a ratio of 70% for the municipalities and 30% for the canton. The methodology for calculating concession fees has been determined by the Decision on Determining Minimum Concession Fees.66 This Decision includes a table overview of the base amounts for calculating single and ongoing concession fees depending on the subject of the concession. For example, for hydropower projects in ZDC, the single fee base is 1.5% of the total investment amount, and the ongoing concession fee is 5% of total annual revenue. Article 18 of the CBC Law determines the allocation of revenues from concession fees at a ratio of 60% for the municipality and 40% for the canton. HNC has the most detailed provisions on the methodology of determining a concession fee. The HNC Law stipulates the allocation of revenues at a ratio of 45% for the canton and 55% for the municipalities, while municipalities are further obliged to allocate half the revenue to budgets of local communities where the subject of the concession is located.67 The methodology for calculating concession fee amounts has been determined in various HNC Government decisions, depending on the subject of the concession (i.e., sector). The methodology for calculating concession fees for power facilities has been determined by the Decision on Determining the Amounts, Manner and Deadlines for Payment of Concession Fees for the Construction of Power Facilities and Power Generation Activities in the Territory of HNC.68 This decision stipulates that a single concession fee is a “fee for acquiring the right to construct a power facility and carry out power generation activities using renewable energy sources (wind, solar, co-generation facilities),” while an ongoing concession fee is a “fee for using renewable energy sources” and a “fee for using state-owned land.”69 The basic criteria for determining the fee amount include the planned annual power generation, the purchase price of electricity, the projected annual revenue and the duration of the concession, while additional criteria are the same as at the FBiH level and include for example, the environmental impact criterion, project significance, and profitability of the investment. i) Legal remedies and legal protection Both the FBiH Law and the cantonal laws lack clear stipulations on legal protection for participants in the procedure, with the exception of the HNC Law. Article 29 of the HNC Law reads:
65 Published in the “ZDC Official Gazette,” No. 1/13. 66 Published in the “ZDC Official Gazette, No. 6/13. 67 HNC Law, Article 54. 68 “HNC Official Gazette,” No. 2/17. 69 Article 3, Decision on Determining the Amounts, Manner and Deadlines for Payment of Concession Fees for the Construction of Power Facilities and Power Generation Activities in the Territory of HNC.
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A participant dissatisfied with the concession award procedure may, within 15 days from the date of publication of the decision on the concession award, submit a request to the conceding authority to review the decision.
The request for review is submitted to the HNC Government, and the reasons for appeal are much more broadly defined compared to the FBiH Law. Thus, a request for review may be submitted, inter alia, if new facts come to light which could have resulted in a different decision, if the decision was based on false statements, if the decision was made by an official who should have been disqualified, if the participant was prevented from participating in the procedure, and the like.70
The CBC and ZDC Laws do not contain provisions on legal protection of participants in the concession award procedure.
In TC, legal protection is regulated in the same way as at the FBiH level. Article 18 of the TC Law determines that the request for review of decisions of the TC Concessions Commission is to be submitted directly to the TC Commission, which shall decide on the request within 60 days. The request may be submitted only if a new fact is established that could have impacted the decision or if the participant in the procedure was prevented from presenting observations on the decision. j) Term of duration Just like the FBiH Law, all of the analyzed cantonal laws stipulate a maximum term of 30 years for concession contracts in all four cantons, and exceptionally a term of 50 years. The duration of the concession includes the period of construction, which can be up to several years for larger power facilities. Only the HNC Law excludes the time needed to perform preparatory activities from the term of duration of the concession.
The TC Law does not stipulate any deadline for the actions of competent authorities in concession award procedures. This results in prolongation of the whole concession award procedure, a fact that the TC Concessions Commission has been pointing out in its Annual Reports, which are reviewed and approved by the TC Cantonal Assembly.71
70 Article 29, paragraph 3 of the HNC Law stipulates that the request for review may be submitted for any of the reasons set out under Article 246 of the FBiH Administrative Procedure Law (“Official Gazette of FBiH,” Nos. 2/98, 48/99) as reasons for renewal of procedure. 71 For example, in its 2015 Annual Report, the TC Concessions Commission noted: “The time required for individual administrative procedures, both in the concession award procedure and in the procedures to obtain the necessary permits, approvals and other documents, should be reduced to the minimum while upholding the legally prescribed deadlines.” Similar statements were also made in 2014, 2013, 2012, 2011 and in other years.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
Finally, most deadlines for undertaking individual actions within the concession award procedure (e.g., for selecting the best bid or concluding a concession contract) differ from canton to canton and from the FBiH level.
The deadlines for action in various phases of the concession award procedure as determined by concession laws at the FBiH level and in the cantons included in this analysis are given in Table 2. FBiH TC ZDC HNC CBC Approval of 30 days Not stipulated Not stipulated Not stipulated Not stipulated economic viability study Deadline for Not stipulated Not stipulated 30-90 days 30-90 days 30-90 days submitting bids (duration of public tender) Deadline for 30 days Not stipulated 90 days 90 days 60 days selection of best bid Deadline for 60 days Not stipulated The Government 60 days Determined in the concluding determines the concession award concession deadline for each decision for each agreement individual case. individual case Duration of 30 years, 30 years, 30 years, 30 years, 30 years, concession exceptionally 50 exceptionally 50 exceptionally 50 preparatory exceptionally 50 years years years activities not years counted in the concession term
Table 2: Overview of legal deadlines k) Legal certainty – protection of concessionaires in the event of legislative changes The TC Law, just like the FBiH Law, does not contain provisions on the protection of concessionaires in the event of legislative changes. However, the HNC Law explicitly stipulates the applicability of regulations (laws and bylaws) more favorable to the concessionaire. Thus, Article 50, paragraph 2 of the HNC Law reads: “If following the conclusion of the concession contract, regulations under which the agreement was concluded change, the relations set out under the agreement shall be subject to the provisions of the regulation in force on the date of signing of the agreement, or the changed regulations if they are more favorable for the concessionaire.” Protection for the existing status of the concessionaire is similarly regulated by the ZDC and CBC Laws. Thus, Article 29 of the ZDC Law reads: “Changes to laws and other regulations on the basis of which the concession was awarded shall not affect the relations set out under the concession contract.” l) The possibility for a creditor to take over the concessionaire’s business All of the cantonal laws, apart from the CBC Law, contain provisions similar to those of the FBiH Law regarding the transfer of concession contracts to international financial institutions in
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH the event that the concessionaire fails to fulfill his obligations. However, cantonal laws also do not stipulate the same possibility for domestic financial institutions. m) Municipality/local community approval Just like in the FBiH Law, the obligation to obtain the consent of local communities when awarding concessions is stipulated in the TC,72 CBC73 and HNC74 Laws, while the ZDC Law does not contain such a provision.
The HNC Law requires the competent ministry to obtain the consent of the local self-governance unit on the conformity of the subject of concession with the interest of the local community.75 Changes and amendments to the HNC Law adopted in 2016 introduced a new requirement whereby the concession must be in line with spatial planning documentation. In CBC, before granting consent, the local community is obliged to conduct a public debate.76
4. DRAFT OF NEW FBiH LAW ON CONCESSIONS
In April 2017, the FBiH Law adopted a new Draft Law on Concessions of FBiH (new FBiH Draft Law), which was then referred to Parliament for adoption. Below is an analysis of the provisions of the new FBiH Draft Law.
The new FBiH Draft Law contains different definitions of a concession and types of concessions. According to Article 6(7) of the New FBiH Draft Law, a concession is a “right acquired under the Concession Contract,” and the types of concessions are stipulated under Article 3, which reads:
Article 3 (Types of Concessions) (1) A concession for economic use of goods of general public interest or facilities constructed on a good of general public interest is a contractual legal relation whose object is the use of a good of general public interest or facilities constructed on a good of general public interest. (2) A public works concession is a contractual legal relation whose object is the carrying out of works and maintenance of facilities constructed on a good of general public interest. (3) A public services concession is a contractual legal relation whose object is the provision of one or more services of general public interest.
72 TC Law, Article 6. 73 CBC Law, Article 4, paragraph 2. 74 HNC Law, Article 8, paragraph 1. 75 Article 8 of the HNC Law. 76 Article 4, paragraph 2 of the CBC Law.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
Article 3 defines concessions as prescribed by the EU Directive. This Article still recognizes concessions awarded for common resources or in an area of general public interest, but it also introduces two new types of concession - for public works and public services. a) Subject to concessions in the energy sector The New FBiH Draft Law approaches defining the subject of a concession differently than the previous law. Instead of an exhaustive list of natural resources or activities that may be subject to concession, Article 7 of the New FBiH Draft Law cites different areas from which subjects of concession may be determined, including the energy sector, as follows:
“Article 7 (1): a) construction, maintenance and operation of power and other facilities for the purposes of generation, transmission and distribution of electricity, heat and natural gas, or their reconstruction, modernization, maintenance and operation; b) geological exploration and/or exploitation of mineral resources, geothermal energy, subterranean waters and drinkable subterranean waters for commercial and technical purposes, c) the use of watercourses and other bodies of water, or their parts or certain quantities of water for purposes determined by a special law; d) the construction or reconstruction, maintenance and operation of water facilities; . . . .
(2) The use of other natural resources in general use and other common resources of general public interest in line with a special law may also be subject to a concession under the provisions of paragraph 1 of this Article, and the same shall also apply to other activities determined by law to be activities of public interest.
(3) Forests and building land shall not be subject to concession.”
Furthermore, Article 8 of the New FBiH Draft Law defines concessions that fall within the competences of the Federation of BiH, including the energy sector, as follows:
“Article 8 (2) 4) power facilities in line with power regulations in the Federation of Bosnia and Herzegovina;
. . . .
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
6) watercourses or other bodies of water in the territory or of interest for two or more cantons; 7) hydro accumulations in the territory or of interest for two or more cantons;
. . . .
9) exploitation of the following mineral resources:
a) energy mineral resources – all types of fossil fuels, hydrocarbons in solid, liquid and gas form, all types of bituminous and shale rocks, and other gases found in the earth, and radioactive mineral resources;
From the above-cited provisions of Article 7(1) it follows that the New FBiH Draft Law defines the subject of concessions in the power sector in FBiH differently and more broadly than the current FBiH Law. Article 7(1) stipulates that a concession may be granted in the area of construction of power facilities for the purposes of power generation, which includes any type of power facility which the authorities in FBiH determine to be needed. Apart from concessions for the construction of power facilities, Article 7(1) of the New FBiH Draft Law also stipulates the possibility of awarding concessions for the maintenance and operation of power and other facilities for the purposes of transmission and distribution of electricity. Furthermore, Article 8(2), point 4 of the New FBiH Draft Law also defines the award of concessions from within the competences of FBiH in the energy sector by a provision that refers to regulations in the power sector in FBiH. Thus, in line with the Law on Electricity of FBiH,77 the FBiH Government would be competent for awarding concessions for: 1) Hydropower plants of installed capacity over 5 MW and a complex of hydropower plants of 2 MW installed capacity forming a sequence at a distance of 2 km from each other; 2) Thermal power plants and other combustion plants with thermal output of 50 MWt and above; 3) Wind power plants of installed capacity of 2 MW and above; 4) Solar power plants of 1 MW capacity and above; 5) All other power plants of installed capacity of 5 MW and above.78 Article 9 of the New FBiH Draft Law stipulates that cantons will adopt laws to regulate the manner, conditions and competences for concessions that do not fall within the competences of FBiH. a) Concessions for construction of renewable energy power facilities
77 “Official Gazette of FBiH,” Nos. 66/13, 94/15. 78 FBiH Law on Electricity, Article 78.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
The area defined under Article 7(1) of the New FBiH Draft Law also includes renewable energy power facilities for which the current FBiH Law does not require the granting of a concession. Thus, FBiH would be competent for awarding concessions for the construction of facilities using renewables as determined by electricity regulations in FBiH and in line with Article 8(2), point 4 of the New FBiH Draft Law. b) Participants in the concession granting process In line with the provisions of the New FBiH Draft Law, the participants in the concession granting process are the FBiH Government as the conceding authority, the competent sector ministry as the “contracting authority” with authorization to conclude a concession contract, and local self- governance units. The FBiH Concessions Commission would cease to exist in its present form as a permanent, independent regulatory body. Instead, a Concession Commission would have to be formed for each individual concession award procedure on an ad hoc basis, and its mandate would last until the adoption of a decision on the concession award. 79 The Federal Ministry of Spatial Planning (FMSP) would take on the role of overseeing the entire concession granting system and planning concession policy. 80
For awarding concessions located in the territory of local self-governance units, the FBiH Government is obliged to obtain the opinion of the cantonal government and/or the local community.
According to the current FBiH Law, the FBiH Parliament appoints members to the FBiH Concessions Commission and adopts its Annual Report; however, the New FBiH Draft Law does not provide for any role for the FBiH Parliament in matters related to concessions. Also, under the current FBiH Law, the Concession Award Policy Document, adopted by the FBiH Government at the proposal of the FBiH Concessions Commission, is submitted for information to the FBiH Parliament. However, the New FBiH Draft Law does not prescribe an obligation to any FBiH body to provide similar information to the FBiH Parliament. c) Concession award procedure The New FBiH Draft Law stipulates the award of concessions only through public tenders to be launched through an initiative of the public sector or of the private sector. The public sector initiative would be implemented through the preparation of a project viability study (Article 11 of the New FBiH Draft Law) to be required of potential concessionaires or competent ministries. The private sector initiative would be constituted by submitting an unsolicited proposal to the Contracting Authority and Conceding Authority and if it is accepted, the public tender procedure would be initiated.
79 New FBiH Draft Law, Articles 41 and 42. 80 New FBiH Draft Law, Article 42.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
Article 22 of the New FBiH Draft Law stipulates an exception from the public tender rule in the following cases: “1) the concession contract affects state security; 2) the concession contract was terminated due to a grave breach on the part of the concessionaire and a public tender cannot be conducted due to an urgent need to ensure continuation of the activities; 3) the concession contract affects the property, life and health of citizens.” e) Unsolicited proposal procedure In line with the provisions of the New FBiH Draft Law, unsolicited proposals are private sector initiatives. The private sector, i.e., interested companies, can initiate the award of a concession by submitting an unsolicited proposal to the FBiH Government or competent ministry and “shall submit a technical-financial study in support of the unsolicited proposal.”81 The FBiH Draft Law does not prescribe the mandatory content of the technical-financial study and does not determine whether this issue should be regulated by a regulation.
Afterwards, the ministry shall determine the acceptability of the proposal and whether awarding the concession is justified. If the proposal is acceptable, “. . .the contracting authority shall submit a proposal to the Conceding Authority to adopt a Decision initiating the concession award procedure through public tender. . .”82 The Draft Law does not prescribe criteria for assessing the acceptability of proposals or viability of awarding concessions and is not clear whether these issues should be regulated by a regulation, and if so which one. f) Economic viability study The New FBiH Draft Law does not recognize the term “economic viability study,” but instead stipulating that the sector ministry shall ensure: 1) the project viability study, and 2) the technical- financial study before publishing the public tender. The Draft Law stipulates the obligation of competent ministries to adopt implementing regulations determining the content and format of the technical-financial study.
The New FBiH Draft Law stipulates that unsolicited proposals must be accompanied by technical-financial studies. g) Phase of the procedure in which the concession is obtained In contrast to the current provisions of the FBiH Law, according to the New FBiH Draft Law, before initiating the concession award procedure, the contracting authority (competent ministry) would be obliged to: i) obtain the urban planning consent or site information; ii) determine the approximate value of the project; iii) obtain the environmental permit if the concession is awarded for the exploitation of natural resources or for public works; iv) resolve all property legal issues at the site where the concession is located.83 This would facilitate the implementation of the concession project for the investor.
81 New FBiH Draft Law, Article 12. 82 Article 13, paragraph 3 of the New FBiH Draft Law. 83 Article 44 (2) of the New FBiH Draft Law
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
h) Concessions registry Introducing a concessions registry is provided under Article 43 of the New FBiH Draft Law. The Federation Ministry of Spatial Planning (FMSP) would have a coordinating role in the development of concession policy in FBiH. This ministry would be responsible for preparing a three-year plan for concessions based on input submitted by other contracting authorities. The FMSP would be responsible for maintaining the central concessions registry, while the Federation Ministry of Finance would maintain the registry of financial obligations. In addition, each contracting authority would maintain a separate registry of awarded concessions from within its competences. i) Concession fee and allocation of revenues from the concession fee In contrast to the current FBiH Law which stipulates two parts to the concession fee – a single and an annual amount calculated using the methodology defined by the Rules on determining concession fees, Article 25 (2) of the New FBiH Draft Law stipulates that “the monetary concession fee may be agreed at a fixed amount and/or at a variable amount depending on the particularities of each type of concession.” However, the New FBiH Draft Law does not provide for the adoption of a rule, such as the current Rules on Determining Concession Fees, which would more precisely define the methodology for calculating the fee.
The New FBiH Draft Law also contains the precise allocation of the concession fee among the various FBiH levels of government, so that 20% of the fee is allocated to the FBiH budget, 30% to the budget of all cantons on whose territory the concession is awarded and 50% to all municipalities and cities on whose territory the concession is awarded. j) Legal remedies and legal protection of participants in the procedure Article 46 of the New Draft Law stipulates considerably more comprehensive legal protection for bidders participating in the public tender compared to the protection under the current FBiH Law. Thus, bidders are able to i) submit an objection to the contracting authority against any action of the contracting authority and concessions commission; ii) file a complaint with the Conceding Authority if the contracting authority fails to respond to the objection within 15 days or if the objection is rejected; iii) initiate an administrative dispute against the decision of the Conceding Authority before the competent court within 30 days. Finally, the FBiH Draft Law does not contain any provision on the standstill period within which the Concession Contract may not be concluded, which is obligatory as per the EU Directive. k) Legal certainty – protection of concessionaires in the event of legislative changes The New FBiH Draft Law contains a completely different approach to this issue in that it stipulates the right of the concessionaire to compensation in the event of a specific regulatory
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH change that results in increasing the costs or reducing the revenue of the concessionaire.84 The concessionaire exercises this right by signing a new concession contract in line with Article 63 of the New FBiH Law. According to the provisions of the New FBiH Draft Law, all concessionaires in FBiH must renew their existing concession contracts “within 90 days from the date of entry into force of the new FBiH Law without encroachment on the previously acquired rights of the concessionaires.85” l) The possibility for a creditor to take over the concessionaire’s business The New FBiH Draft Law does not provide for the possibility of creditors directly taking over a concession contract, be they international or domestic financial institutions. Article 32 of the New FBiH Draft Law requires approval from the conceding authority (the FBiH Government) for transferring the rights and obligations under a concession contract to another concessionaire under conditions determined by the concession contract itself. In addition, Article 35 of the New FBiH Draft Law provides for the possibility of the contracting authority terminating the contract “in the event it is no longer justified to expect that the concessionaire will be able to fulfil its obligations, due to the Concessionaire’s insolvency in excess of six months, a grave breach of contract or other reason as per the Concession Contract.” m) Term of duration The New FBiH Draft Law does not contain provisions on the term of duration for which a concession may be granted. Article 14 and 26 stipulate that the Decision on conducting the concession award procedure and the concession contract must specify the term of duration of the concession, but a general framework for individual areas (sectors) defining the maximum term of duration of a concession has not been stipulated, which is particularly significant in view of the EU Directive requirements. According to the EU Directive, the duration of a concession must be limited, it must not be so long as to prevent market competition, but it must be long enough to allow the concessionaire to recoup costs expended in implementing the concession project and obtain a return on the invested capital. Therefore, this matter should be regulated either by the Law on Concessions or by special sector laws for each individual subject of concession (e.g., in the Law on Water Resources, Law on Mining, Law on Electricity).
The New FBiH Draft Law does not contain provisions for deadlines for actions of competent authorities in the concession granting procedure. Thus, for example, the maximum duration of a public tender and the deadline for receiving bids has not been set, nor has a deadline been stipulated for selecting the best bid or for signing the concession contract after the completion of the public
84 Article 27 of the New FBiH Draft Law: “The Concession Contract shall determine the scope of the Concessionaire’s right to compensation in the event that the Concessionaire’s costs in implementing the Concession Contract change significantly or if the value of the Agreement changes significantly, compared to the costs and value of the Agreement originally foreseen, and if these changes result from changes to regulations specifically applicable to the infrastructure facility or services provided by the Concessionaire.” 85 New FBiH Draft Law, Article 63, paragraph 1.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH tender procedure. It is unclear from the text of the New Draft Law whether these issues will be regulated by rules (as is currently the case) and, if so, which ones.
CONCLUSIONS
4.1. Current legal (regulatory) framework in FBiH ➢ The absence of a strategic vision and a lack of readiness both on the BiH and the FBiH level to place concessions in the service of a more efficient use of resources with a view to accelerating economic development is also reflected in the incomplete Concessions Policy Documents, which are not being updated at any level of government in BiH, including FBiH and the cantons, but which should present the strategic vision for using concessions for this purpose. In FBiH, the Policy Document was initially adopted in 2005 and contained only the energy sector and has not been updated since (e.g., the Strategic Plan and Program of Development of the Energy Sector in FBiH was adopted in 2008). TC has adopted a more comprehensive Concessions Policy Document, while other cantons never adopted any. The lack of strategic vision for the development of the energy sector is also reflected in the fact that the FBiH Energy Strategy has never been adopted.
➢ The legal (regulatory) framework of the concessions system in FBiH is characterized by a multitude of laws and bylaws that have not been mutually harmonized and are often contradictory. The framework comprises 11 laws on concessions (one at the entity and ten at the cantonal level) and numerous rulebooks, decisions, regulations adopted at the level of FBiH and the ten cantons. This analysis points to not just an abundance of legislation, but the numerous legal and institutional discrepancies both vertically between FBiH and the cantons, and horizontally – among the various cantons. All of this has resulted in a diversity of solutions and complexity of procedures, which is confusing to investors and has a destimulative effect. In its Progress Reports on Bosnia and Herzegovina, the European Commission has continuously pointed out that the major shortcomings of the concessions system in BiH consist of its fragmentation, the lack of formal channels for cooperation among administrative structures responsible for managing concessions and non-conformity with the EU acquis, which creates “legal uncertainty and high administrative costs, and fragments the envisaged single economic space.”
➢ The definition of a concession in the FBiH Law and the cantonal laws is harmonized, i.e., it is defined as “the right to perform economic activities by using natural resources, public resources and undertaking activities of public interest.” As for the subject of concession in the power sector in FBiH, the FBiH Law and all the analyzed cantonal laws precisely list the use of natural resources and other public resources that may be “subject to concession.” Thus, all the analyzed laws stipulate “the use of watercourses and other bodies of water; the construction of hydropower facilities; the construction or use of hydro accumulations; the exploration and
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
exploitation of energy and other resources” as subject to concession. When it comes to defining the “subject of concession” the TC and ZDC Laws are completely aligned with the provisions of the FBiH Law, including facilities using renewables. The HNC and CBC Laws also contain additional provisions, apart from those stipulated by the FBiH Law, that pertain to concessions to construct facilities using some renewables, such as wind, solar and biomass power plants.86
➢ The FBiH Law does not stipulate the obligation to obtain concessions for wind or solar power plants, or for some other power plants, such as those using biomass. However, some cantons have a different approach: HNC and CBC require obtaining a concession for the construction of wind power plants, while TC and ZDC do not. HNC requires obtaining a concession for the construction of solar power plants, but TC and ZDC do not. The HNC and CBC Laws contain a provision whereby a concession may be required also “for other power facilities,” which implies that the authorities have powers of discretion to require concessions for other types of power plants, including those using biomass. The issue of non-harmonization of legal conditions for the construction of these types of power plants in cantonal laws with respect to those in the FBiH Law, is the subject of numerous discussions that have not yet resulted in a consensus. According to some, as the entity-level law, the FBiH Law (adopted in both Houses of the FBiH Parliament, including among cantonal representatives in the House of Peoples) has defined which natural resources and goods in FBiH may be “subject to concession”. According to this view, cantonal laws may not stipulate what is “subject to concession” in a way that differs from the stipulation in the FBiH Law, and so there is no real basis for cantons to introduce the obligation of obtaining concessions for the construction of wind, solar and biomass power plants. In support of this interpretation, they then cite the obligation of harmonizing cantonal laws, which is explicitly stipulated under Article 40 of the FBiH Law, which reads: “The cantons shall adopt a law on concessions harmonized with this Law, or harmonize their existing laws with this Law, as the case may be, within six months from the date of entry into force of this Law.” Those advocating a different interpretation invoke Chapter III, Article 2, point i) of the FBiH Constitution whereby the “use of natural resources” falls within the competences of both the Federation of BiH and the cantons and, therefore, the cantons have a legal basis in the FBiH Constitution to define what is “subject to concession.” These legal questions, as well as the question of whether solar-, wind- and biomass-produced energy can be considered “natural resources” in the same way as forests, bodies of water or mineral resources, should be answered by experts in the field and by the authorized interpreter of the FBiH Constitution.
➢ The lack of harmonization of cantonal laws on concessions with the FBiH Law and the separate regulation of concessions by the cantons is also reflected in other segments of the concessions sector, not just when it comes to obtaining concessions for certain types of power plants that use renewables, for which a concession is not required under the FBiH Law. In line with the
86 The CBC and HNC Laws employ the term “other power facilities.”
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
current legislation87 and regulations in the energy sector in FBiH, the division of competences between FBiH and the cantons for permitting procedures for key permits for the construction of power facilities is mostly based on installed capacity, i.e., the size of the facility. Thus, in most cases FBiH has competences for the construction of facilities with installed capacity of 5 MW and above, while the cantons are competent when it comes to the construction of facilities with less than 5 MW installed capacity. The fact that the current FBiH Law does not stipulate the requirement of obtaining a concession for the construction of wind power plants has enabled CBC, for instance, to adopt a law on concessions stipulating that CBC is competent in awarding concessions “for the construction of wind power plants of 150 kW installed capacity and above” without determining the maximum capacity for which cantonal competence is applicable. Meanwhile, HNC has established the maximum capacity of 5 MW for wind power plants that fall within cantonal competences. In addition, CBC and HNC allow competent authorities to require investors to obtain concessions also for “other power facilities” for which concessions are not explicitly required in the Law. Finally, HNC has a separate solution whereby a concession is awarded for land where a power facility will be constructed or reconstructed if the land is state owned, while in the case of construction and reconstruction of facilities on privately owned land, the concession is awarded for the construction and/or operation of the power facilities.
➢ Furthermore, cantonal laws also define the participants in the concession award process in ways that differ from the FBiH Law. At the FBiH level, apart from the FBiH Government and sector ministries, the FBiH Law accords an important role to the FBiH Concessions Commission as an independent and professional regulatory body responsible for overseeing the procedure. The FBiH Parliament is also given a certain role in the concessions sector through appointing members to the FBiH Concessions Commission and approving the Commission’s annual reports. The same institutional arrangements as at the FBiH level – a permanent Concessions Commission and a role for the assembly in the concessions sector, in addition to the cantonal government and sector ministries – are in place only in TC, while the remaining three cantons – CBC, HNC, ZDC – have opted for ad hoc concessions commissions and a limited if any role of cantonal assemblies in the concessions sector. Finally, the HNC Law also enables local self-governance units – municipalities – to award concessions when the subject of concession is located in their territory and if the HNC Government approves the award. The differences in the legal and institutional framework of the concessions sector in FBiH contribute to unequal treatment of investors and further fragmentation of the single economic space of FBiH.
➢ As for the concession award procedure itself, the public tender is stipulated as a rule by the FBiH Law and all the analyzed cantonal laws, while the unsolicited proposal is an exception. The HNC Law also provides for a third type of procedure, “competition by invitation,” which
87 CBC Law, Article 2 (1), point 20.
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is not provided in the FBiH Law. In practice, concessions are most frequently awarded on the basis of unsolicited proposals. At the FBiH level, apart from the obligation of the sector ministry to determine a public interest, the procedure for an unsolicited proposal is stipulated in a lot of detail by the FBiH Rules on the Concession Award Procedure. However, each of the analyzed cantonal laws contains its own particularities related to the implementation of the procedure for unsolicited proposals that differ from what is stipulated at the FBiH level. In CBC and ZDC, for example, the unsolicited proposal serves only to initiate a public tender procedure.
➢ The FBiH Law and bylaws at the FBiH level provide for the (exceptional) possibility of requiring bidders to prepare the economic viability study in the unsolicited proposal procedure and the public tender procedure. However, in practice, bidders are as a rule required to prepare this study, allegedly due to a governmental lack of funds for preparing economic viability studies, which is a prerequisite for the public tender and which are required of the potential concessionaire in the unsolicited proposal procedure. In TC, ZDC, and CBC, just like at the FBiH level, the competent sector ministries are tasked with preparing an economic viability study before publishing the public tender. Exceptionally, if the ministry did not prepare an economic viability study, the concessions commission (ad hoc or permanent) may require that the public tender include the prerequisite of bidders submitting an economic viability study: this is what happens most frequently in practice. Therefore, having potential concessionaires prepare economic viability studies is a rule in practice also at the cantonal level, and not an exception as provided by the laws. It is only in HNC that the responsibility for preparing an economic viability study as part of the public tender procedure to award a concession always rests with the ministry or local self- governance unit, while in the procedure for unsolicited proposals, responsibility for preparation of the study rests with the bidder.
With respect to this practice, whereby the interested bidder prepares the economic viability study when submitting an unsolicited proposal or when participating in a public tender, the OECD/SIGMA/EU Report88 notes that it is “concerning that the law allows for the bidder to prepare the economic viability study instead of the conceding authority. This is true of both public tenders and unsolicited proposals. By delegating this task to the bidder, the requirements of contracting authorities are evaluated by their future partner who, as a rule, has a distinct interest in being selected for a private partner within a project and therefore a vital interest in presenting the needs and benefits of the conceding authority in a very positive light. Preparing feasibility studies, including environmental impact assessment, is commonly a key task of the
88 OECD/SIGMA “Audit Report on the Management of Concessions in the Federation of Bosnia and Herzegovina,” Audit Office for Institutions in FBiH, Sarajevo, February 2011, Final Report: Expert Review, Concessions and Public-Private Partnerships in BiH, November 2008 - September 2009.
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competent authority. These studies usually contain specific elements that facilitate the comparing of bids.”
➢ Neither the FBiH Law, nor the cantonal laws stipulate at what stage of the permitting procedure a concession must be secured. Most investors apply for a concession in an early phase of the procedure, immediately after preparing a feasibility study and before applying for a building permit. This practice would be acceptable if obtaining a concession in FBiH entailed competent authorities already having conducted all the preparatory activities and investigations at the site and if the concession granted to the investor meant that the construction of the plant was possible, permitted and planned. However, obtaining a concession does not always mean that the investor will be able to obtain all the other necessary permits or that the plant will indeed be constructed. There were such instances in practice in the past when concession contracts could not be implemented. The FBiH Law does not prescribe the obligation of checking whether the concession project has been included in the spatial planning documentation, as noted by the Federation Ministry of Environment and Tourism in its 2010 Environmental Report.
➢ The FBiH Law does not institute the obligation to establish and maintain a Registry of Concessions in FBiH, while all the analyzed cantonal laws on concessions stipulate this requirement in the cantons. However, in practice, only TC has implemented this obligation and made the registers available online on the TC Government website.
➢ The FBiH Law does not stipulate how the concession fee is to be determined for concessions granted at the FBiH level or how the revenue is to be allocated among different government levels. The matter of calculating the fee at the FBiH level is regulated by the Rules on Determining the Concession Fee, which state that the concession fee shall consist of a single and an annual fee. The funds are paid into the FBiH budget, and since the FBiH Law on Allocation of Public Revenues does not stipulate how revenues from concession fees are to be allocated among the various levels of government (municipalities, cantons, FBiH), the funds are collected in a separate sub-account of the FBiH budget and expended on all budget users as per the FBiH Budget Implementation Law. Some cantonal laws contain provisions on calculating and allocating concession fees among levels of government, and some do not. These matters are most often defined by rules, decrees and decisions and differ from canton to canton. Thus, in TC and CBC, the ratio is 60% for the municipality and 40% for the canton, in HNC it is 55% for the municipality and 45% for the canton, while in ZDC it is 70% for the municipality and 30% for the canton.
➢ Legal protection of participants in the procedure is also variously regulated. The FBiH Law and the TC Law provide for quite restricted rights of appeal by participants in the procedure. The CBC and ZDC Laws do not contain provisions on the legal protection of participants in the concession award procedure, while the HNC Law provides for broader rights of appeal.
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➢ Both the FBiH Law and all of the analyzed cantonal laws stipulate a maximum term of duration of 30 years for concession contracts in all four cantons, and exceptionally a term of 50 years. The duration of the concession includes the period of construction, which can be up to several years for larger power facilities. Only the HNC Law excludes the time needed to perform preparatory activities from the term of duration of the concession. Time limits for actions within the procedure are also variously defined. Thus, at the FBiH level, the deadline to approve the economic viability study is 30 days, but this deadline has not been included in any of the cantonal laws. The TC Law does not stipulate any other deadline for actions of competent authorities in the procedures, such as i) the deadline for submitting bids (duration of public tender); ii) the deadline for selecting the best bid; or iii) the deadline for concluding the concession contract. These deadlines differ both among the cantonal laws and with respect to the FBiH Law.
➢ Provisions on the protection of concessionaires in the event of legislative changes are not contained in either the FBiH Law or the TC Law. However, such provisions are included in the HNC, CBC and ZDC Laws.
➢ Neither the FBiH Law nor the cantonal laws stipulate the possibility of domestic banks or other domestic financial institutions taking over the concession contract in the event that the concessionaire is unable to fulfill his financial obligations.
4.2. New FBiH Draft Law ➢ The New FBiH Draft Law has a generally different approach to defining the subject(s) of concession. Instead of an exhaustive list of natural resources or activities that may be subject to concession, Article 7 of the New FBiH Draft Law cites different areas from which subjects of concession may be determined, including the energy sector, and in much broader terms than the current Law.89 The same Article 7, paragraph (2) defines that apart from the subject of concession set out under paragraph 1 of this Article, the use of other natural resources in line with a special law may also be subject to concession, which means that laws from the power sector may further expand the subject of concession as defined under Article 7(1). Furthermore, Article 8(2) of the New FBiH Draft Law stipulates that the Federation of BiH is competent for
89 “Article 7(1) of the New FBiH Draft Law: a) construction, maintenance and operation of power and other facilities for the generation, transmission and distribution of electricity, heat energy and natural gas or their reconstruction, modernization, maintenance and operation; b) geological exploration and/or exploitation of mineral resources, geothermal energy, subterranean waters and drinkable subterranean waters for commercial and technical purposes; c) use of watercourses and other bodies of water or their parts or certain amounts of water for purposes determined by a special law; d) construction or reconstruction, maintenance and operation of water facilities. . .”
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awarding concessions for “power facilities in line with the regulations defining the power sector in FBiH.” This provision refers to the FBiH Law on Electricity (and other regulations) that define the competences of the Federation for issuing permits for the construction of certain types and sizes of power facilities. However, these laws do not define precisely which type and size of facility requires obtaining a concession, i.e., for the construction of which power facilities FBiH is competent to award concessions.
There is currently no law at the FBiH level that defines which power sector facilities require obtaining a concession (apart from the current FBiH Law), i.e., what is “subject to a concession in the energy sector in FBiH,” which facilities fall within the competences of FBiH and which fall within the competences of cantons. Given this context, the proposed formulation of “subject to concession in the power sector” in the New FBiH Draft Law may create more legal lacunae and lack of clarity than the existing legislation. This could give rise to an interpretation whereby concessions are to be awarded even for the construction of facilities that the current FBiH Law does not cover, such as hydropower plants. The proposed formulation of Article 8(2) of the New FBiH Draft Law would require consequent changes to all energy sector laws at the FBiH level to precisely define these issues, which would require time and effort.
➢ As for the current contentious provisions of cantonal laws related to requiring concessions for the construction of power facilities that use renewables, such as wind, solar, and biomass power plants, the proposed New FBiH Draft Law does not clarify the existing diverse legal interpretations on whether a concession is required at all and whether cantons can require investors to obtain concessions for the construction of power facilities for which obtaining a concession is not required under the FBiH Law as the lex specialis in the concessions sector. Only the proposed formulation of Article 7(3) excludes “forests and building land” from being subject to concession.
➢ According to the New FBiH Draft Law, the FBiH Concessions Commission as an autonomous, professional and permanent body would no longer exist as a participant in the procedure; instead, an ad hoc commission would be established for each individual procedure as prescribed in some cantons – CBC, HNC, ZDC. This would also reduce the role of the FBiH Parliament in the concessions sector, because the FBiH Parliament appoints members to the FBiH Concessions Commission and approves its annual reports. According to the FBiH Law, the existing system includes the FBiH Concessions Commission as a professional and independent body and an important participant in the concession procedure. In addition, the FBiH Concessions Commission has regulatory competences because it prepares expert documents such as the Concessions Policy Document and adopts bylaws - rulebooks pursuant to the Law. The New FBiH Draft Law does not clarify who will take on this role of the Commission and who will be responsible for adopting bylaws currently adopted by the FBiH Commission. According to the proposed provisions of the New FBiH Draft Law, the role of
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supervision over the whole concession system and over developing concessions policy should be taken on by the Federation Ministry of Spatial Planning (FMSP).
➢ The New FBiH Draft Law stipulates the award of concessions only through public tenders to be launched through an initiative of the public sector or of the private sector. A private sector initiative would be conducted via the Contracting Authority or Conceding Authority – the competent ministry. The private sector initiative would be constituted by submitting an unsolicited proposal to the Contracting Authority and Conceding Authority; and if it is accepted, the public tender procedure would be initiated. In this way, the direct negotiating procedure, which is part of the unsolicited proposal procedure under the current law and does not require a competition procedure, would no longer be possible.
Article 22 of the New FBiH Draft Law stipulates an exception from the public tender rule in the following cases: “1) the concession contract affects state security; 2) the concession contract was terminated due to a grave breach on the part of the concessionaire and a public tender cannot be conducted due to an urgent need to ensure continuation of activities; 3) the concession contract affects the property, life and health of citizens.”
➢ The term project economic viability study is no longer used in the New FBiH Draft Law. Instead, Article 11 (4) stipulates that the Contracting Authority shall “provide for a project viability study, analysis of sustainability and profitability and shall prepare the Proposed Decision to initiate the concession award procedure.” Article 11(4) further states: “The Proposed Decision to initiate the concession award procedure should contain: the title of the subject of concession, the technical and financial study with a statement on the financial effects of the concession, the term of duration of the concession and the manner of use of the concession . . . The competent ministries shall adopt implementing regulations determining the form and content of the technical-financial study.” From the above formulations, it is unclear whether the term “provide for” means that the competent ministry may require the bidder to prepare the project viability study, as is the current practice, or not. It is also unclear whether the provision refers to the same “project economic viability study” required under the current laws or whether these are, in fact, two separate documents: i) viability study, and ii) analysis of sustainability and profitability. Finally, it is unclear whether the third formulation used in this Article, namely “technical-financial study” is a third and separate document, whether these are separate sections of a single project economic viability study as currently recognized, or whether this is a different form of the currently recognized study. Particularly unusual is the provision whereby “competent ministries” shall determine the form and content of these studies, which effectively means that the adoption of 11 different instructions for the preparation of studies is enabled (and foreseen) – one at the FBiH level and 10 at cantonal level – and all this for a single technical document. It is important to define the “technical-financial” study given that Article 12(3) of the New FBiH Draft Law stipulates that, “When submitting an unsolicited proposal, the proposer shall also submit the technical-
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financial study.” If the “technical-financial” study contains elements of the existing “economic viability study” and is de facto that study but under a different name, then it can not be said that the most criticized practice of studies being prepared by the bidders has been abandoned.
➢ The New FBiH Draft Law contains a good solution to precisely define the early phase of the procedure and the obligation of the contracting authority to ensure key permits in the procedure before awarding the concession. Thus, before initiating the concession award procedure, the contracting authority (competent ministry) would be obliged to: i) obtain the urban planning consent or site information; ii) determine the approximate value of the project; iii) obtain the environmental permit if the concession is awarded for the exploitation of natural resources or for public works; and iv) resolve all property legal issues at the site where the concession is located.90 This would remove uncertainty and make it easier for investors to implement concession projects.
➢ Maintaining a central registry of concessions is provided under Article 43 of the New FBiH Draft Law; this would be a good step toward increasing transparency. FMSP would be responsible for maintaining this central concessions registry, while the Federation Ministry of Finances would maintain the registry of financial obligations. In addition, each contracting authority would maintain a separate registry of awarded concessions from within its competences. The proposed solutions provide for the exchange of information on shared concessions at all levels of government, but do not specify whether this means that all data are entered into the central registry, which would then be accessible by everyone.
➢ The New FBiH Draft Law departs from defining the concession fee as is done currently: in two parts – a lump sum and an annual amount. Thus, Article 25(2) stipulates that the “monetary concession fee may be agreed as a regular fixed amount and/or as a variable amount depending on the specifics of each type of concession.” However, the New FBiH Draft Law does not provide for the adoption of a rule, such as the current Rules on determining concession fees; adopting such a rule would more precisely define the methodology for calculating the fee. Thus, it is unclear which rules would more precisely define the calculation methodology or which body would adopt such a rule in place of the FBiH Concessions Commission. Without a comprehensive legal framework and a comparative financial analysis of the existing and the proposed model for calculating the concession fee, it is difficult to judge the justification for and advantages of the new model.
The New FBiH Draft Law also contains the precise allocation of the concession fee among the various levels of government in FBiH so that 20% of the fee is allocated to the FBiH
90 New FBiH Draft Law, Article 44 (2).
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budget, 30% to the budget of all cantons on whose territory the concession is awarded and 50% to all municipalities and cities on whose territory the concession is awarded. ➢ The New FBiH Draft Law stipulates considerably more comprehensive legal protection for bidders participating in the public tender compared to the protection under the current FBiH Law. Bidders are able to: i) submit an objection to the contracting authority against any action of the contracting authority or concessions commission; ii) file a complaint with the Conceding Authority if the contracting authority fails to respond to the objection within 15 days or if the objection is rejected; iii) initiate an administrative dispute against the decision of the Conceding Authority before the competent court within 30 days. However, legal protection is stipulated in two parts in the New FBiH Draft Law: in Article 20 (determining the best bidder and appeal procedure) and Article 46 (legal protection in the tender procedure), which define the legal protection procedure in all phases of the concession award process. These provisions are confusing and not completely harmonized, so they may lead to a misinterpretation regarding the applicability of legal remedies in the procedure.
➢ The New FBiH Draft Law stipulates the right of the concessionaire to compensation in the event of a specific change of regulations that results in increased costs or reduced revenues for the concessionaire.91 This means that individual concession contracts would determine this right to compensation and the amount. The concessionaire would exercise this right by signing a new concession contract in line with Article 63 of the New FBiH Law. According to this Article, all concessionaires in FBiH would have to renew their existing concession contracts “within 90 days from the date of entry into force of the new FBiH Law without encroachment on the previously acquired rights of the concessionaires.”92
➢ The New FBiH Draft Law does not provide for the possibility of creditors directly taking over a concession contract, be they international or domestic financial institutions.
➢ The New FBiH Draft Law does not specify the general term of duration for a concession in individual areas (sectors) that would define the maximum concession duration. This is particularly important in light of the requirements under the EU Directive.
4. RECOMMENDATIONS
91 Article 27 of the New FBiH Draft Law: “The Concession Contract shall determine the scope of the Concessionaire’s right to compensation in the event that the Concessionaire’s costs in implementing the Concession Contract change significantly or if the value of the Agreement changes significantly, compared to the costs and value of the Agreement originally foreseen, and if these changes result from changes to regulations specifically applicable to the infrastructure facility or services provided by the Concessionaire.”
92 New FBiH Draft Law, Article 63, paragraph 1.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
5.1 Current legal (regulatory) framework ➢ Although the topic of this analysis is the legal (regulatory) framework of the concessions system in FBiH, the construction of larger power infrastructure facilities (e.g., a hydropower plant on the Drina River), whose construction would have an effect on the territory of the whole of BiH (both entities) and that of neighboring countries in the region, would require viewing and improving the concessions system in FBiH from the perspective of harmonization with the BiH Law. The good marks for the degree of efficiency and conformity with international standards and practices that the latter Law received in the 2012 EBRD evaluation further support this approach. In the past period, points of imprecision in the BiH Law were often pointed out as the reason for not conducting concession award procedures at the BiH level and for inaction.93 All these issues will have to be addressed if we are to facilitate procedures for the construction of large energy infrastructure facilities in the country and the region. In this sense, useful recommendations can be found in the Regional Hydro Master Plan,94 which suggests the necessary steps to use the hydro potential of cross-border rivers such as the Drina River basin. Thus, one of the proposed measures is the adoption of a “Strategic Action Plan (SAP) with a strong transboundary component, a negotiated policy document that should be endorsed at the highest political level of all relevant sectors. It establishes clear priorities for action (for example, policy, legal, institutional reforms, or investments) to resolve the priority problems identified.”95
➢ The use of concessions in the power sector in BiH must be strategically defined at all levels of government in BiH, including FBiH and the cantons, so that this sector can be placed in the service of developing the needed new energy infrastructure. This strategic development vision should then be translated into new/updated Concessions Policy Documents at all levels of government in BiH.
➢ All the provisions of cantonal laws on concessions need to be harmonized with the FBiH Law to ensure equal solutions for the whole territory of FBiH, particularly with respect to the subject of concession and competences. What should and can be “subject to concession in the power sector” in FBiH, including plants fueled by renewables, needs to be precisely defined in a uniform way for all levels of government – FBiH and the cantons – in order to eliminate the current diverse, inconsistent and non-harmonized provisions for the construction of wind, solar and biomass power plants, and create equal conditions for investment throughout the territory
93 USAID EIA Draft Report on the Permitting Regime and Obstacles to Investment in Energy Infrastructure Projects in BiH, pp. 15-16. 94 WBIF-IPF3 Consortium, Regional Hydro Master-plan (Hydropower Development Study in the Western Balkans) Background Report No. 4: Transboudnary Issues, Draft, available at: https://www.wbif.eu/content/stream//Sites/website/library/WBEC-REG-ENE-01-Regional-Hydropower-Masterplan- ToR-Final.pdf. 95 Ibid., p. 87.
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of FBiH. In that respect, it would be useful to obtain clarifications of disputable provisions from the constitutional and legal framework surrounding concessions from the authorized interpreter of the Constitution and laws of FBiH.
➢ Transparency is the most important principle for the concessions sector. Concession contracts are long-term agreements granting a single party the right to perform an activity and create a monopoly for a certain period of time. Therefore, the transparent, fair and rule-based selection of concessionaires through public tenders is key in terms of maintaining market competition and attracting investment.96 It is important to establish adherence to this principle in the legal (regulatory) framework at all levels of government in FBiH. The procedure for unsolicited proposals must be clearly and precisely regulated by law in order to remove any doubt as to the impartiality and lawfulness of the procedure. It is also necessary to ensure that bidders are precluded from independently preparing economic viability studies in any type of procedure, and that this task is assigned to the conceding authorities, i.e., the competent ministries, which means that any provisions to the contrary should be removed from the present regulatory framework at the level of FBiH and the cantons.
Establishing a Concessions Registry in FBiH would certainly serve to increase transparency and enable linking data on awarded concessions at all levels of government in FBiH.
➢ The phase in which a concession is obtained should be defined by law, and the obligation of the competent ministry – conceding authority – to consider and obtain all necessary permits for the investment before the concession is awarded should be specified to avoid awarding concessions only to find that the investor is unable to obtain the necessary permits to construct the facility.
➢ The allocation of concession revenues among the various levels of government in FBiH needs to be defined by law and implemented transparently.
➢ The concession award procedure at the level of FBiH and the cantons, where this issue has not been satisfactorily regulated (e.g., TC), should be expanded to include provisions broadening the legal protection of participants in the procedure from the current very restricted possibility of filing an appeal.
➢ Provisions on the protection of the existing status of concessionaires in the event of legislative changes should be incorporated into the FBiH Law and cantonal laws where such provisions are missing (e.g., TC).
96 European Commission, “Guidelines for Successful Public-Private Partnerships,” March 2003, p. 8.
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➢ It would also be advisable to stipulate the legal possibility of creditors – domestic financial institutions – taking over concession projects in the event that the concessionaire is unable to fulfill his obligations.
➢ Since FBiH is a relatively small area; and, notwithstanding the administrative organization of 10 cantons, its territory constitutes a single economic space with limited resources. Thus, it would be useful to establish a system to simplify the concessions system and adapt it to the needs of investors in order to make it more stimulative. The very fact that this sector is regulated by 11 laws (plus the BiH Law) and a multitude of rules makes the sector unattractive, fragmented and complicated for larger and more significant investments. It would, therefore, be useful to reduce the number of laws and bylaws by having the future FBiH-level law and rules on concessions define all issues that would provide for equal treatment of investors throughout the territory of FBiH and ensure the single economic space of FBiH. Examples of such provisions are a unique definition of what is subject to a concession in the power sector and a clear division of competences for awarding concessions; a uniform and transparent concession award procedure; equal treatment of participants in the procedure; identical legal remedies and protections for the bidder in the concession award procedure; the same level of protection for existing concessionaires; a uniform methodology for calculating the concession fee; clearly defined allocation of concession fee revenues and a transparent payment system; equal rights to take over concession contracts; maintaining and regularly updating the concessions registry that would be accessible by all; identical templates and forms used in the concession award procedure. This system should enable cantons to directly apply regulations from the FBiH level if they should so desire, and those cantons that want to have their own laws would also be able to do so, provided that they remain within the framework solutions that apply equally to all. 5.2 New FBiH Draft Law ➢ The proposed provisions of the New FBiH Draft Law regarding what is “subject to a concession in the power sector” (Article 7(1) and (2) and Article 8(2)) are not sufficiently precise and may create legal lacunae that could affect the construction of all power plants (not just those using renewables) if changes to energy sector laws are not adopted in parallel with the New FBiH Draft Law. In addition, Article 9 of the New FBiH Draft Law stipulates that “cantons shall adopt laws to determine the manner, conditions and competences for concessions that are not within the competences of FBiH,” which implies prior changes to sector laws at the FBiH level defining the competences of FBiH for awarding concessions, i.e., the type and size of energy facilities for which FBiH would be competent to award concessions, given that this is currently not defined in any sector law at the FBiH level. It is, therefore, very important to precisely define in the New FBiH Draft Law what is “subject to concession in the power sector,” including types of plants using renewables.
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USAID Energy Investment Activity Project (EIA) Overview and Analysis of the concessions sector in the FBiH
➢ The reasons for abandoning the model of the FBiH Concessions Commission as a professional, permanent and independent body for concessions and an important participant in the concession award procedure are unclear. According to the Law, the FBiH Concessions Commission is not responsible for initiating and awarding concessions itself, the Law assigns these competences to the FBiH ministries and Government, but it has an important role in terms of expertise and oversight over the lawful implementation of the concession award procedure. In addition, the FBiH Concessions Commission has an important role in adopting bylaws and regulating the environment for the implementation of concession award procedures. By appointing members to the Commission and approving its annual reports, the FBiH Parliament has a certain role and oversight in the concessions sector, which is certainly conducive to a harmonious balance of interests between the various pillars of government in FBiH. Finally, this model has been implemented at the level of BiH and the level of RS for many years now, so abandoning it would mean departing from uniform solutions in the sector. This would also bring into question the award of concessions at the level of BiH because according to the BiH Law, three members from entity Commissions participate ex officio in the Joint BiH Concessions Commission when concessions of joint interest for BiH and the entity are being awarded. Finally, according to Article 5 of the FBiH Law, the FBiH Concessions Commission acts as a Special Joint Concessions Commission of FBiH when the subject of the concession is spread across the territory of two or more cantons, or in the event of a jurisdictional dispute between FBiH and the cantons, and in such cases will comprise nine members, seven of which shall be permanent members of the Commission and the two impermanent members shall be from the municipalities on whose territory the subject of the concession is located.97 The New FBiH Draft Law does not designate which body would act in the place of the FBiH Concessions Commission in such cases. Based on all of the above, further consideration should be given to the strengths and weaknesses of the model where the FBiH Concessions Commission is a permanent and independent body at the FBiH level.
➢ The solution proposed in the New FBiH Draft Law whereby concessions would always be awarded through a “public tender” even when initiated by an “unsolicited proposal” (Articles14 and 13(3)) is in the interest of improving the transparency of the procedure and should be supported. However, the current formulation of “provide for a project viability study” in Article 11(4) needs to be clarified in order to preclude the preparation of studies by bidders, which is a practice that has received the most criticism to date. The New FBiH Draft Law would also need to define certain terms, such as “project viability study,” “analysis of sustainability and profitability,” and “technical-financial study” in order to clarify what these documents are and how they differ from the currently stipulated “economic viability study.” It is particularly important to clarify the meaning of the term “technical-financial study” and the nature of this study, given that the bidder must submit it under the “unsolicited proposal” procedure. If this is de facto the current economic viability study, which would mean that the
97 FBiH Law, Article 9, paragraph 2.
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New FBiH Draft Law does not depart from the practice where bidders prepare the economic viability study in the unsolicited proposal procedure, it should certainly not be included.
➢ The solution of the New FBiH Draft Law, whereby the contracting authority is obliged to ensure key permits in the procedure before a concession is awarded (Article 44(2)), should be included because it contributes to better certainty and predictability in the investment environment and facilitates the implementation of investments.
➢ The provision on maintaining a concessions registry proposed under Article 43 is a good step toward establishing a transparent concessions system. It would be useful to supplement the New FBiH Draft Law with provisions on the central database of concessions awarded at all levels of government in FBiH, which would be regularly updated and accessible by all, both at the FBiH level and at the cantonal level.
➢ Before changing the existing model and methodology for calculating concession fees, a comparative financial analysis of the current and proposed model of calculation should be carried out to identify the potential benefits of the change. Also, in order to clarify what is being changed in the existing system of calculating concession fees, the entire legal framework must be taken into account. Since it is not specified which rule will replace the current Rules on calculating the concession fee and who will be adopting the new rule, it is impossible to judge the proposed model.
The New FBiH Draft Law also contains the precise allocation of the concession fee among the various levels of government in FBiH so that 20% of the fee is allocated to the FBiH budget, 30% to the budget of all cantons on whose territory the concession is awarded and 50% to all municipalities and cities on whose territory the concession is awarded. The allocation thus defined is much more transparent than the current model. ➢ A more comprehensive system of legal remedies and protection of bidders in the procedure is much better specified than the current restricted system of legal protection. Thus, bidders are able to: i) submit an objection against any actions of the contracting authority or concessions commission; ii) lodge an appeal with the Conceding Authority if the contracting authority fails to respond to their objection within 15 days or rejects the objection; iii) initiate an administrative dispute against a decision of the Conceding Authority before the competent court within 30 days. This proposed solution should be supported. However, the provisions of Article 20 (determining the best bidder and appeal procedure) should be harmonized with those of Article 46 (legal protection in the tender procedure), which define the procedure for legal protection in all phases of the concession award process. These provisions are confusing and may lead to misinterpretations regarding the application of legal remedies in the procedure.
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➢ Although the New FBiH Draft Law provides for the protection of concessionaires in the event of regulatory changes and the right of concessionaires to compensation in the event of specific regulatory changes, the proposed solution is very broadly formulated. This would allow arbitrary judgment of “incurred damages or lost profits” as a result of very wide powers of discretion on the part of the competent authorities. The solution whereby the right to compensation is separately determined for each individual concession contract by new agreements that the concessionaires are supposed to conclude gives the competent authorities very wide powers of discretion without having to adhere to predefined objective criteria. The legal protection of the status of existing concessionaires is an international standard that should be upheld, but it must be precisely defined by law and objectively applied equally to all concessionaires in order to prevent possible abuse. In particular, competent authorities should not be able to arbitrarily determine the damage incurred or profits lost by the concessionaire without objectively defined criteria for this procedure.
➢ It is recommended that the New FBiH Draft Law incorporate provisions on the possibility for creditors – domestic or foreign financial institutions – to take over a project (investment) in the event that the concessionaire is unable to meet his financial obligations.
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