A Viable Framework for Private Investment in the Utility Sector: An Analysis of the 2005 RF Law on Concession Agreements

Abstract

AbstractThis article is based on an analysis which the author produced for a working group of the RF Ministry of Economic Development established to draft a model concession agreement, a result of the new Law on Concession Agreements which entered into force on 21 July 2005. The work entailed identifying the necessary amendments to key areas of legislation that would enable such concession agreements—which the RF government has proclaimed its intention to grant for the operation and development of both infrastructure and networks in the water supply and wastewater sectors—to be workable in practice.With regards to the new Law on Concession Agreements itself, the present article highlights its failure, in the view of the author, to clearly identify the nature of the obligations and rights assumed by the parties of a concession agreement vis-à-vis one another, and to include provisions—typically found in other jurisdictions—that ensure a balance of interests and allow for the effective transfer and mitigation of risk. This analysis is located within a framework which recognizes that—as a result of the current circumstances, where unclear regulations, a lack of transparency about the financial status of utilities, and a lack of commercial tariffs, predominate—the nature of the reform which is required is all-encompassing. As a consequence, the author maintains that the erection of a framework for the development of concession agreements demands the integrated development: of the fiscal relationship between national and municipal government; of social policy, i.e., tariffs and subsidies, and, of access and right of usage rules.Finally, when identifying such problems, the author illustrates how and why the practical experience gained in other countries should be incorporated, emphasizing how this experience reveals both the difficulty and necessity of concluding balanced agreements for what are long-term projects the performance of which is vulnerable to changes in market conditions, and which involve the operation and development of assets of social significance.