Review of the draft Federal law "On concession agreements"

At the moment, the state Duma is considering a draft law "on amendments to the Federal law "on concession agreements".

This project is aimed at the development of the legal framework for the modernization of public infrastructure. To implement this task, the project establishes a new form of interaction with the government – public-private partnership (PPP).

The use of PPP is aimed at reducing the existing risks that hinder the effective development of the economy in the field of concession agreements.

The main positive aspects of the project are as follows:

conclusion of concession agreements for complex objects (movable and immovable property);

the procedure for the transfer of property to the concessionaire and the definition of the reconstruction of the object of the concession agreement are defined;

provision for the possibility of concluding a concession agreement with several concedents;

the list of ways to ensure the performance of the concessionaire's obligations under the concession agreement has been expanded (to provide the possibility to pledge rights under the concession agreement);

establishing the duties of the grantor under the concession agreements and the responsibility for their violation;

clarification of the terms of the concession agreement regarding the term of transfer of the object of the concession agreement to the concessionaire,

clarification of the procedure for reimbursement of costs in case of early termination of the concession agreement, as well as the possibility of including in the terms of the concession agreement the parameters for the calculation of prices (tariffs) in the regulated activities;

provision of the possibility to lease the land plot on which the object of the concession agreement is or will be located to the concessionaire, as well as the establishment of a public easement in respect of land plots necessary for the creation (reconstruction) of objects of the concession agreement;

establishment of features of change and termination of the concession agreement in regulated activities;

establishment of a list of significant violations of the terms of the concession agreement by the Concedent;

establishment of the features of state and municipal guarantees in the implementation of the concession agreement related to its specifics.

However, a number of provisions of the Bill need to be substantially improved. 
There are comments to the draft law of General nature:
1) the Expansion of opportunities for conclusion of concession agreements according to the form chosen by the parties
This rule limits the right of the parties to conclude an agreement on the basis of the General civil principle of "freedom of contract". At the same time, given the variety of concession projects in the Russian Federation, no model concession agreement can fully meet the interests of all stakeholders.
On the basis of the above, it is advisable to provide in the law on concessions a provision according to which the model concession agreements are only of a recommendatory nature.
2) procedure for settlement of disputes arising from concession agreements
The requirement of article 17 Of the law on concessions on consideration of all disputes from the concession agreement in the territory of the Russian Federation needs to be excluded. In international practice to refer disputes relating to PPP projects in independent arbitration tribunals in third countries.
( 3) the draft Law amends the legislation to enable the conclusion of concession agreements with multiple concedents. Seems reasonable to provide for cases of concession agreement multiple concedente, the ability to transfer powers on holding a tender for a concession agreement from one grantor to another grantor, and concidental designee.
It is not clear what the consequences for the project are if the agreement between several persons participating on the side of the Concedent in accordance with the proposed wording of paragraph 1 of part 1 of article 5 of the Law does not contain all the essential conditions provided by the draft law or if these conditions differ from those formulated in the specified It would be more appropriate if all the agreements of the parties were reflected in the concession agreement.
4) the Bill makes the clarification of the procedure for individual changes under the concession agreement.
In accordance with the amendments made in part 2 of article 5 of the Law, the assignment of rights and transfer of the concessionaire's debt are proposed to be prohibited within 2 years from the date of signing the agreement. It seems that this regulation does not fundamentally correct the shortcomings of the current one (in which assignment is prohibited before the facility is put into operation). The right to substitute the concessionaire is usually part of a security package to banks and, in practice, need at the beginning of the concession period, as the risks of failure of the project by the concessionaire are particularly large in the construction period (when the concessionaire bears not only the costs, and not receiving income). In this regard, the ban on the assignment of the rights of the concessionaire for 2 years actually deprives banks of this security at the most dangerous stage of projects, and therefore leads to their rise in price. This situation is extremely disadvantageous to the state or potential investors.
5) the Draft law provides for amendments to the law on concessions, according to which, when the rights under the concession agreement are pledged, as agreed with the Concedent, the pledgee has the opportunity to replace the person under the concession agreement in the case of failure by the concessionaire to fulfill obligations under contracts, the performance of obligations under which is the pledge of rights under the concession agreement (the replacement of the person is based on the results of competitive selection)., a mandatory condition of which is the obligation of the winner to fulfill the obligations of the concessionaire under contracts with creditors, the performance of obligations under which is the right of the concessionaire under the concession agreement).
As a result of the competition to select a new concessionaire, it is assumed that the rights and obligations of the original concessionaire will be transferred to the new concessionaire from the date of the conclusion of the concession agreement with the new concessionaire. Given that the reason for the replacement of the concessionaire is the failure of the original concessionaire to perform its obligations, it cannot be excluded that such an initial concessionaire may also fail to perform its obligations under the concession agreement, in particular, not to carry out activities using the object of the concession. In such a case, the need for a tender and a new agreement means that there is a risk that the provision of services such as water, heating, etc. by the original concessionaire will be suspended during such procedures. 
(6) the Draft law provides for amendments to the law on concessions, according to which, in the event of early termination of the concession agreement, the draft law establishes the period within which the Concedent is obliged to reimburse the concessionaire for the value of the property created (reconstructed) under the concession agreement. This measure allows the concessionaire to make the necessary expenditures within the budget process. Unless otherwise provided by the agreement of the parties, the specified period is one year, if the agreement is terminated due to the fault of the concessionaire and three years at the fault of the Concedent.
The mechanism of compensation provided for by the proposed introduction into the law on concessions of part 5 of article 15 does not correspond to international practice, according to which, in case of early termination of the agreement, the concessionaire is compensated for the amount of the so-called senior debt, which is, as a rule, a debt to banks and other third parties independent from the concessionaire and its shareholders. In addition, depending on the reason for termination in international practice, the concessionaire may be authorized to claim all or part of the loss of profits (including those calculated in advance), as well as other expenses in connection with the project (for example, in connection with the concessionaire's payment of compensation under terminated employment contracts, contributions to compulsory social insurance, etc.).
7) the Draft law simplifies the procedure of transferring land plots to the concessionaire for lease and establishing a public easement in respect of them, which ensures the possibility of timely fulfillment by the concessionaire of obligations for the construction (reconstruction) of objects provided for by the concession agreement.
It is not clear on what basis it is proposed to deprive the owner of the land plot burdened with an easement of the right to demand from persons in whose interests the easement is established, a commensurate fee for the use of the land. It appears that this rule is not fully consistent with the constitutional principle of the full protection of the right to property.
It also seems appropriate to provide in the Bill amendments to the law on concessions, which will facilitate the granting of rights to the concessionaire to use such objects as subsoil plots, water bodies, forest, the use of which may be necessary for the implementation of the concession agreement. 
8) the Bill establishes a list of significant violations of the terms of the concession agreement by the Concedent;
The list provided by the draft Law is closed, which significantly limits the parties ' ability to negotiate a concession agreement.
* The review is made on the basis of the opinion of the Expert Council on legislation on public-private partnership of the state Duma Committee on economic policy and entrepreneurship.

Nikishenko, Andrey
East-European consulting LLC"