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«COMPILATION OF THE RESPONSES TO THE UNCTAD QUESTIONNAIRE Part I: Public Monopolies, Concessions and Competition Law and Policies COMPILATION OF THE ...»

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Although the term itself is relatively new concept, concessions and concession like agreements have been concluded in various other forms and on the basis of other legal acts for years. There is no single legal act on concessions as in a number of other countries. In principle, Estonian legislation allows the concluding of public-private partnerships (PPPs) through utilizing a concession model through public law contracts and private law contracts. The relevant legal acts which in principle allow such contracts to be concluded are Administrative Co-operation Act (contracts under public law), Public Procurement Act (works and services concessions), the Competition Act and a Governmental Decree21 issued on the basis of it (granting special or exclusive rights). A number of sectoral legislative acts also allow concluding contracts which are very similar to a concession, for example in the public transport sector.

Due to the relatively high number of different legal acts which can be used for creating a PPP in the form of a concession, the exact number of granted concessions is difficult to state. For example, the possibility of granting services concessions under the Public Procurement Act has been to our better knowledge used only once for finding a private sector partner to run shops in Estonian prisons. The duration of this services concession was set to 5 years. Relatively small scale concession contracts for works have been concluded twice. The duration of these concession contracts were set to 24 and 30 years, respectively.

Contracts under public law can be concluded only if there is an explicit legal basis stipulated by a relevant law. Unfortunately, there is no statistics on the number of such contracts and whether some of those contracts could be regarded as being concessions in substance. In any case, the Administrative Co-operation Act does not foresee a maximum duration for contracts under public law, but this duration can be established by other legal acts. Therefore, in practice some contracts under public law have been concluded without a set term, some remain valid only until the object of the contract is met and some have a fixed term, usually for five years.

Granting of special or exclusive rights on the basis of the Competition Act and a dedicated Governmental Decree is another instrument used for concluding concession like agreements. The “special or exclusive right” is defined in the § 14 (2) if the Competition Act and stipulates that special or exclusive rights are rights granted to an undertaking by the state or a local government which enable the undertaking to have a Governmental Decree no 303 of 25.09.2001 „Procedure for organizing a public tender for the grant of special or exclusive rights“ competitive advantage over other undertakings in a goods market or to be the only undertaking in the market. This definition does not in itself indicate that this right has similar characteristics to a concession, but the implementation of this right along with a contract, creates a framework where the chosen undertaking receives an exclusive right to offer a certain service along with the right to charge users (usually the general public) for using that service, which may be accompanied by a remuneration from the awarding authority. Due to this similarity, the granting of a special or exclusive right has a similar consequence to the granting of a concession and therefore is generally considered to be comparable to granting a concession. According to the Governmental Decree, the maximum duration of a special or an exclusive right is set at 3 years, for longer periods, the grantor must ask for a special dispensation from the Government of Estonia.

The award procedure for granting “special or exclusive rights”, which is regulated by the mentioned Governmental Decree, is analogous to the award procedure for public contracts, stipulated in the Public Procurement Act.

The granting of special or exclusive rights is used mainly in the water distribution and waste management sector. According to the Waste Act, local governments are obliged to designate a waste transport operator according to the tender procedure stipulated in the Governmental Decree. The chosen operator is granted an exclusive right for waste collection and transport in whole or a part of a territory of the local government.

According to the most recent data, about a hundred exclusive rights have been granted in this sector and this number is expected to rise, as a large proportion of local governments have not yet tendered for a waste transport operator. According to the Waste Act, the maximum duration of an exclusive right for waste transport operators is 5 years, which is usually the term used in practice, although there have been instances where exclusive rights have been granted for a shorter period.

The Public Water Supply and Sewerage Act also utilises the granting of exclusive rights for “water undertakings”. A water undertaking is a legal person in private law who supplies the water supply of the registered immovable of a client through the public water supply with water or organises discharge of waste water from the sewerage facilities of the client.

If a public water supply and sewerage system is in the ownership of a local government, a water undertaking is appointed by a decision of the local government council on the basis of the provisions of the Competition Act, using the Governmental Decree as the basis of the tender procedure. Unfortunately there is no reliable statistical data available on the number of exclusive rights granted t0 water undertakings. Duration wise, a number of local governments have asked from the Government for a dispensation to allow granting of an exclusive right to water undertakings for a prolonged period, as water distribution services usually require considerable long-term investments in infrastructure, necessitating a prolonged period of exploitation. These extended exclusive rights have been granted for periods between 10-15 years.

There also exist a number of exclusive rights (in essence reserved tasks) which have been granted directly by law without contractual ties between the grantor and the grantee of an exclusive right.

2. What were the modalities for creating a concession (Public offering/tender, decree, etc.)? Is there a law in your country for the granting/termination of concessions? Are there provisions in concession agreements which allow the government to terminate the concession?

Works and services concessions are created according to the regulations of the Public Procurement Act. Currently the applicable regime (award procedure) for granting of concessions is less detailed and simpler compared to the procedural rules applicable for public contracts, which is somewhat unbalanced, as some concessions might to be more complex and important to the public interest than conventional public contracts.

This unbalance is partly due to the fact that rules applicable for awarding of concessions are only harmonised on the EU level to a certain degree, and in case of services concessions, only the general principles of public procurement apply.

For the two works concessions mentioned in the previous point and one services concession that have been awarded on the basis of the Public Procurement Act, open tender procedure has been used.

The Administrative Co-operation Act requires that for the conclusion of a contract under public law, the tender procedure applicable for public service contracts stipulated in the Public Procurement Act must be used.

For granting special or exclusive rights, the procedural rules for tendering are regulated by the Governmental Decree, which are analogous to the provisions of the Public Procurement Act. The decree allows using the open tender procedure, negotiated procedure and negotiated procedure without a prior publication of a contract notice.

As stated previously, there is no concession law in Estonia. The conditions for termination of concession agreements depend on whether the contract is under the public law or private law. The legislation at issue does not specifically address the principles of termination of concession contracts.

In case of a contract under the public law, the contract can be terminated on the same grounds as a private law contract, with the exception that a contract under the public law can be terminated on the grounds of overriding public interest. This is stipulated in the Administrative Procedure Act § 102, which states that an administrative authority may unilaterally amend a contract under public law or terminate a contract under public law if this is absolutely necessary in order to avoid severe damage to predominant public interest.

Upon amendment or termination of a contract under public law, an administrative authority shall reason the amendment or termination of the contract under public law.

Upon amendment or termination of a contract under public law, an administrative authority shall compensate for the proprietary damage caused thereby to the other party to the contract.

For the single services concession contract concluded for running shops in Estonian prisons, the conditions for terminating the contract seem to be customary to private law contracts, keeping in mind the specific particulars of the object of the contract.

3. Were competition concerns taken into account at the time of granting a concession? What are the competition concerns or issues that have arose from concessions in your country? Was special protection in regard to dominance, entry or price control granted to concessionaires at the time of granting a concession?

Evidently from the answers given to the previous questions, most of concessions or similar contracts are granted by local governments and therefore it is difficult to assess, whether or what specific concerns are taken into account when granting them.

In the waste transport and collection sector, granting a concession is compulsory by law. For that reason it is safe to assume that in the legislative process (for the Waste Act) competition concerns were taken fully into account when choosing such a legislative solution. Understandably, exclusivity on markets is always accompanied by competition concerns, but the lawmakers decided that the benefits on environment outweigh the possible negative effects of restricted competition. In any case, as concessions in the waste collection sector are granted using a public tender, with usually a quite large number of competitors, there is no state discretion in choosing a concessionaire.

In principle concessions usually entail exclusivity (right of exploitation) for the concessionaire, which frequently implicates that the concessionaire might hold a dominant position in a certain market, which is most probably the case in waste transport sector.

As regards special protection this is a somewhat two-sided concept in practice. If we consider price controls for works and services provided by concessionaires in Estonia, these can be best described as co-ordinated prices.

For example, in waste collection sector, the chosen waste transport undertaking (concessionaire) will provide its services for customers using the prices and conditions which they stated in their tender. These prices are approved by the grantor of the exclusive right (local governments). This is also analogous in the water distribution sector. For that reason, the concessionaires are not entirely free to set their prices and other trading conditions. Due to this fact, it is debatable, whether the economic risk (risk of exploitation) for the undertaking enjoying an exclusive right, is considerable enough that the relationship between the grantor and the holder of the exclusive right, could be regarded as being analogous to that of a grantor of a concession and a concessionaire under the EU public procurement directives.

In addition, paragraphs 17 and 18 of the Competition Act foresee restrictions and obligations for undertakings enjoying special or exclusive rights. These regulations allow the grantor of a special or an exclusive right to lay down prices to be used by the undertaking enjoying such rights, taking into account the reasoned costs of the undertaking, or impose other conditions or obligations on the undertaking so that the buyers of the goods or services of such undertaking or sellers of goods or services to such undertaking are not placed in a substantially worse situation than they would be if competition were present in the corresponding area of activity.

This piece of regulation is somewhat archaic and has been used only seldom by local governments. The relationship between the mentioned paragraphs of the Competition Act and other legislation is also somewhat unclear.

4. Which sectors from your economy are exempted from competition law? Which sectors or what type of concessions are under a specific regulatory oversight?

Are concessions subject to the national competition law?

Exclusions or exemptions from general competition law in Estonia are extremely rare.

The few existing special regulatory regimes stem from relevant EU legislation applicable for these sectors.

For example, according to § 4 (2) of the Competition Act, the prohibition on agreements, concerted practices and decisions by associations of undertakings which restrict competition, excluding agreements on prices or other trading conditions, does not apply to agreements and practices of agricultural producers or to decisions by associations of agricultural producers, which concern the production or sale of agricultural products or the use of joint facilities, unless competition is substantially restricted by such agreements, practices or decisions. This partial exemption derives from the objectives of EU common agricultural policy and relevant EC council regulations22.

Behaviour of concessionaires is subject to national competition law like the behaviour of any other undertakings. The supervision of compliance with the Competition Act of undertakings granted a concession in any form is carried out by the Estonian Competition Authority.

5. Is there evidence in your country that concessions have brought about benefits for consumers in terms of greater infrastructure, diversification, higher quality, better prices; overall consumer welfare?

Evidently from the answers given to the previous questions, most of the concessions are granted by local governments, which make the conclusive answering to this question difficult. We are not aware of any studies carried out on this subject.

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