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Concessions

Imagine you are a policy-maker in an eastern European country with limited budget resources. Your goal is to encourage economic development and implement infrastructure projects in your country. 


The country may lack adequate roads to facilitate trade and development within the country and with the rest of Europe.  Untreated or minimally treated wastewater may be dumped into your rivers. The distribution of heating and electricity may be run by monopolies, each of which requires public subsidies to operate, massive investment to meet public needs, and accurate user charges to limit the draw on the public budget.

The country may possess some natural resources, but their development requires significant investment. The outright sale to third parties of public assets is not an option given the resulting lack of competition. 

Your preferred alternative may be granting concessions or contractual/licensing rights to private sector entities, while retaining other public rights and ownership over certain assets.

The challenge you face is to develop a legal regime that will encourage private investment in these sectors. When developing such a legal regime, you need to create an environment that encourages equity investment from international companies with sector experience. 

You also need to deal skillfully with the specific concerns of the financial institutions that provide debt financing.

The EBRD provides technical assistance to authorities who are committed to undertaking the reforms needed. The EBRD shares its experience as a direct investor and financier and helps develop international standards and guidelines.

Concession law assessments

The EBRD summarises its findings in concessions laws assessments, which analyse the state of transition in concessions laws in the Bank's countries of operations. The assessment questionnaire, which is the main analytical tool, is currently being processed.

Background

The aim of concessions law, which started developing in central and eastern Europe in the early 1990s, was primarily to attract foreign investors and to support transition economies. 

The laws adopted at the time contained principal rules without entering into details. They were mostly based on standards commonly accepted by western countries.

Since then, international institutions such as the United Nations Industrial Development Organisation and the United Nations Commission on International Trade Law have summarised established international principles of some common forms of private sector participation in infrastructure projects and public works. 

These became a significant reference tool in the legal reform field. The application of these contemporary and internationally recognised guidelines accommodates a more coherent approach to concessions regulation.

Why reform is needed

A major concern for all transition countries is how to attract private capital to help meet the region's infrastructure needs. The transition countries recognise the importance of a legal system for public-private partnerships that can mobilise this private capital. 

Concessions laws as well as transparent and competitive tender procedures are crucial to the establishment of a fair, predictable and stable legal system.

EBRD involvement

The EBRD offers technical assistance for reform of concessions laws. For instance, at the request of the Ministry of Finance in Slovenia, a project was undertaken to upgrade the concession legal framework in line with EU requirements ahead of Slovenia's accession. 

Reform of this area of law is very much about how to balance and arbiter between groups with different interests. A working group was thus created, comprising external consultants, local lawyers, the Slovenian Ministry of Finance, and various EBRD departments. 

It provided advice on best practices and modern standards.

In Lithuania, a project helped develop the legal framework to make it more attractive to the private sector and to add flexibility to administrative rules governing concession granting, negotiation and implementation. 

More about the EBRD's approach:

Law in transition, Spring 2001 - A favourable concessions regime: a lender's perspective and perceptions from transition countries (314KB - PDF)

Outreach

The EBRD further advances legal reform by publicising its work through the publication of articles and journals, organising and participating in conferences, seminars and other events:

Building the Legal Environment for PPPs - Business Forum, EBRD Annual Meeting 2001 (107KB - PDF)

Parisian PPP Debate - Ministry of Economy, Finance and Industry in Paris, April 2005

Law in transition 2007 - Public-private partnerships, legal reform in Russia (8MB - PDF)

The way ahead: PPP Alliance

In March 2002 the EBRD was invited to participate in the newly established Public Private Partnership (PPP) Alliance, an initiative of the United Nations Economic Commission for Europe. 

The Alliance's objective is to promote private sector and alternative finance by bringing together representatives from the private sector, international financial institutions, the donor community and the public authorities of the countries of operations. 

The EBRD takes an active part particularly in the Alliance's legal working group.

The key objectives of the PPP Alliance are to:

  • promote PPP in European transition countries
  • help transition countries acquire and accumulate expertise
  • promote education and know-how transfer
  • assist governments in establishing PPP units
  • promote cooperation among such units and between these units and the public
  • identify pilot projects
  • facilitate access to finance
  • assist PPP units and governments in formulation of PPP policies.

Further reading

Public Investment and Public-Private Partnerships (203KB - PDF) 
edited by Bernardin Akitoby, Richard Hemming and Gerd Schwartz, International Monetary Fund, 2007


  • Core principles

    Since its creation in 1991, the EBRD has worked to assist its countries of operations in their transition to market economies. 

  • International standards

    The EBRD refers to guidelines and standards that were developed by international organisations and which represent state-of-the-art models.