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Principles for balanced contracts between municipalities and private operators

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Since 2008, the Municipal and Environmental Infrastructure team (MEI) has engaged with Russian private operators active in the communal services sector to stimulate a cohesive and sustainable development of this important market segment, where municipalities do not always have the resources to solve municipal infrastructure sector problems.

To further its policy dialogue in a practical way, the EBRD undertook to formulate principles for balanced contracts between municipalities and private operators with a view to improving the bankability of investment projects in the sector.

The EBRD engaged the Russian Institute for Urban Economics to summarise the key principles to be applied in lease agreements and concession agreements to bring them closer to best practice in terms of definition of services and targets, disclosure standards, investment and tariff policy, rights and obligations of the parties including penalties for non-performance, dispute resolution and termination etc.

Download the "Review of key principles for the establishment of well-balanced long-term contractual relations in the municipal sector" in:

Until mid-2008, federal legislation did not require lease contracts to be tendered in a competitive way, as Procurement Law #94-FZ (2005) was applicable only to contracts relating to providing goods and rendering services for state and municipal needs (i.e. not attending to leasing of municipal assets). Similiarly, Concession Law #115-FZ (2005) did not apply to public-private partnerships established on the basis of long term lease agreements.

Hence, in full compliance with then applicable Russian laws, most private sector entries were made on a directly negotiated basis, mainly due to the complexity associated with the registration of municipal property, which made tendering an arduous and lengthy process. Many of these existing contracts between municipalities and the private sector show deficiencies, affecting both parties, and have therefore created an imperfect partnership which is not conducive to long term investment and financing.

From 2007, the Bank started to work closely with the Federal Anti-Monopoly Service of the Russian Federation (in order to ensure that in future all leases of municipal assets would be awarded on a transparent and non-discriminatory competitive basis. In early 2008, FAS prepared and distributed to the regions a set of guidelines describing in detail the requirements for tenders and auctions to be held by municipal authorities. The FAS guidelines, however, were not mandatory and a key further step was therefore the introduction in June 2008 of an amendment to the Law on Competition #135-FZ (2006) explicitly requiring competitive award of leases in the municipal sector.

This “Review of key principles for the establishment of well-balanced long-term contractual relations in the municipal sector” can assist regions and municipalities working with the EBRD to achieve a fairer and more balanced relationship with private operators.

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