30. April 2004

Statement on the Green Paper PPP

Bezug: on the Green Paper on Public-Private Partnerships and Community Law on Public Contracts and Concessions (COM(2004)327) final

The water and waste water disposal utilities organised in the Federal Association of the German Gas and Water Industries (BGW) welcome the presentation of the Green Paper on "Public-Private Partnerships and Community Law on Public Contracts and Concessions" (the so-called "Green Paper on PPP") submitted by the European Commission.

 

BGW would welcome if the representatives of the European Commission and of the European Parliament as well as the representatives of the Federal and Laender Governments were to take account of the following remarks during their upcoming consultations:

 

 

Underlying assumptions of the European Commission:



 


The European Commission stated that cooperative forms of public-private partnerships (PPP) are increasingly used in all European Member States. However, it holds the opinion that there is no suffi­cient Community legal framework. From BGW's point of view, this does not apply to the areas of water supply and waste water disposal. In Germany, public-private partnerships develop dynamically on the basis of existing EU law. A structural change towards more public-private cooperation, inter-munici­pal cooperations and the internationalisation of the supply industry with the participation of enterprises from many countries is taking place. Therefore, BGW considers the existing regulations on tendering and competition law as absolutely sufficient. BGW asks the Commission to review what factors prevent similar processes of competition from occurring in other Member States despite the same community legislation.

 

The Commission also refers to the court rulings of the European Court of Justice on so-called in-house dealings (Teckal decision). Being an integral part of municipal self-government, the activity of public special-purpose associations (Zweckverbände) is excluded from competition. Public procurement law and the court ruling on in-house dealings are therefore not applicable to the establishment and joining of such special-purpose associations (Zweckverbände). Otherwise, the initiative of many munici­palities in Germany to render a contribution, by an increased cooperation in associations, for optimising the supply structure, would be made more difficult. As the European Commission has stated in the case of the Municipality of Hinte (C (2004(1202), public procurement law does not apply to cases where an obligation to carry out a service is transferred from a municipality to a public special-purpose association (Zweckverband) by way of a purely administrative act.




Objectives of the Green Paper :



The European Commission proposes in its Green Paper on PPP that concession contracts, licence contracts or other exclusive contracts between municipalities and service providers (so-called service concessions) should be subject to the law of public contracts.

 

It furthermore suggests to make the selection of the participating private partner in newly established mixed-capital entities subject to the law on public contracts.

 

Also, the contracting public authority which participates in a newly established mixed-capital entity itself , is to be required to invite tenders for the award of contracts to this entity .



 


Furthermore, the so-called " competitive dialogue “ is to be developed further as a new variant in the award of contracts, intended to enable, in technically and economically particularly complex infrastruc­tural projects, that the contracting authority develops and outlines, in a joint dialogue with various poten­tial contractors on the part of the enterprises, the conditions and terms for performance of the contract.

 

 

The Situation in Germany:

 

Publicly and privately organised entities are no contrast in Germany. Cooperations under public law as well as public-private partnerships have a decade-long, well-proven tradition in Germany. The vast majority of municipal utilities, for example, operates under private law. The shareholders are the munici­palities and to an increasing extent also private enterprises.

 

In Germany, public construction and service contracts involving a transfer to third parties have been subject to public procurement law for a long time, with the result that in Germany, some 90% of the construction and planning services in the waste water sector are carried out by private third parties.

 

Service concessions are no public contracts and are therefore not subject to a compulsory public procurement procedure. Such an obligation would be conflicting with property rights regarding the distribution networks and waterworks. The ownership in the networks is regulated in different ways in the individual Member States. In Germany and England, the networks and other facilities are owned by the water supply utilities. In France the networks are normally owned by the municipality to be supplied and are rented by the supply utility. If as a result of public tendering a municipality charges a new service provider with the duty to carry out water services, this company is not allowed to use the networks of the original provider without interfering into the property rights of the latter. The change of a concession holder in the water supply would be linked with the transfer of ownership in the supply networks to the new contracting partner, or at least with the transfer of usufruct. It has to be pointed out that an obligation to tender for concessions would require regulations for the use of facilities – keyword unbundling – as they were necessary for the liberalisation of the energy markets. From BGW's point of view, an obligation to tender for concessions in fact leads to a liberalisation of the water sector, which, however, was rejected both by the European Parliament and by the German Bundestag in their most recent resolutions. BGW supports the positions taken by both Parliaments.

 

In many places, privately organised water utilities have the permanent right to use the real estate on which the water abstrac­tion facilities (wells) are located. An obligation to tender could mean a separation from the local water resource, since a foreign concession holder would possibly tend to purchase water outside the supply area. This would be incompatible with the principle of local supply stipulated in the federal water act of Germany and would in the long run pave the way for a trade with water which is currently neither supported in Brussels nor in Berlin.

 

 

Demands of BGW against this background:

 

1.       Regarding water supply services, BGW rejects a compulsory obligation to tender for service concessions . As stated above, an opening of the market by a tendering competition would be incompatible with the principles of a countrywide water protection. An obligation to tender could also undermine the local supply established in the federal water act. The required regulations on third-party access to the networks would mean a liberalisation through the backdoor. Article I-5 of the new European Constitution provides that: "The Union shall respect the national identities of the Member States, inherent in their […] regional and local self-government.“ This means that the municipalities continue to be free to decide whether or not they wish to award a concession to third parties.



2.       BGW rejects an obligation to making the selection of a private partner in mixed entities subject to the laws of public procurement (tendering). If a municipality decides to involve a private partner, it must be free to select such private partner without being obliged to invite tenders for the contribution of private equity. Only if the creation of a mixed-capital entity is linked to the transfer of a task to this entity, the relevant law on public procurement should apply.

 

3.       Regarding newly created mixed-capital entities where the public partner also awards the contract in its capacity as competent public authority, national law already requires a public tendering procedure. The BGW supports this position and opposes any rule that would extend the scope of the national law on public procurement beyond the present level.

 

4.       BGW requests that the municipalities' structural options are preserved. The activity of special-purpose associations (Zweckverbände) is one out of several possibilities of how a municipality can come up to its obligation regarding services of general interest. The foundation and joining of special-pur­pose associations is an administrative act of inter-municipal cooperation which is not subject to the procurement provisions under European law..

 

5.       BGW supports that an obligation to t ender for public contracts and services (not concessions) is effectively enforced by the transfer of the water supply and waste water disposal task to third par­ties all over Europe.



 




 




 


Further to the underlying assumptions of the European Commission:



European Commission:

There is no sufficient legal framework in the EU for public-private partnerships



 


BGW:

From BGW's point of view, this does not apply to the areas of water supply and waste water disposal. First of all, it has to be pointed out that the Green Paper on PPP does not only apply to water supply and waste water disposal, but to all infrastructural projects where the public and private sector cooper­ate. As the European Commission outlined in its recently submitted "White Paper on Services of general economic Interest", a structured debate in view of the water sector is first of all necessary. In BGW's opinion, this also applies to the present Green Paper on PPP.

 

The questions raised by the Commission for discussion are focussed on whether e.g. concession con­tracts between municipalities and supply utilities, so-called service concessions, are to be treated like other public contracts. This would mean an obligation to tender for concessions starting at specific threshold values, since other construction and service contracts are subject to the public procurement law and therefore to the obligation to tender.

 

The European procurement law has so far made a distinction on the one hand between public contracts which are subject to an invitation to tender, and on the other hand service concessions which are not subject to an invitation to tender. This was explained by the fact that in the case of the concession, only the right to an economic activity by a private enterprise is transferred, whereas a public contract, in­cluding a remuneration for the private entity, is not present. In the case of a concession, the enterprise also acts at its own economic risk. BGW considers this distinction as adequate and suggests to maintain it. Accordingly, service concessions should not be made subject to the laws of public procurement (tendering).

 

An obligation to tender for conces­sions is conflicting with the ownership question regarding the distribu­tion networks and waterworks. The ownership question is regulated in very different ways in the individ­ual Member States. In Germany, the networks and other facilities of the water supply utilities supplying under concession contracts, are normally owned by the enterprises. In France e.g. the networks are normally owned by the municipality to be supplied. If a municipality entrusts another enterprise in an invitation to tender, this other enterprise is not allowed to use the networks of the original provider without interfering into its property rights. The change of a concession holder in the water supply would in­evitably be linked with the transfer of ownership in the supply networks to the new contracting partner, or at least with the transfer of usufruct. To determine an adequate fee for the use, the value of the network would have to be calculated, which is a matter of profitability of the supply networks. This depends on the amount of water being supplied to customers. Since common carriage is not possible as far as water supply is concerned a substantial decrease of the amount of water supplied within one supply area lead to the situation that user fees are not covered by the profit of the networks. It has to be pointed out that an obligation to tender for concessions would require regulations for the use of facilities – keyword unbundling – as they were necessary for the liberalisation of the energy markets. From BGW's point of view, an obligation to tender for con­cessions in fact leads towards a liberalisation of the water sector, which, however, was rejected both by the European Parliament and by the German Bundestag in their most recent resolutions. BGW supports the posi­tions of the two Parliaments.



In many places, the water utilities are the owners of the real estate on which the water abstraction facili­ties are located. An obligation to tender could in the last consequence also mean a separation from the local water resource, since a foreign concession holder would possibly tend to purchase water outside the supply area and thus fulfil its supply task. This would be incompatible with the principle of local sup­ply stipulated in the federal water act of Germany and would in the long run pave the way for a trade with water which is currently neither supported in Brussels nor in Berlin. Experience also shows that water resources which are no longer used are less protected.

 

BGW asks the European Commission to review in how far the proposals presented for discussion would only unilaterally lead to changes in some few Member States, whereas the situation in other states, however, would remain unchanged. The objective of any new EU wide provisions should in BGW's opinion be oriented at the objective of ensuring the compliance with the EU Directives for the drinking water quality and the quality of waste water disposal and of guaranteeing an economically and ecologi­cally sustainable supply in the Member States at reasonable prices in the long run. All this has been in principle implemented in Germany. Especially the adherence to the principle of full cost recovery in­cluding the costs for the construction and the refinancing of facilities by the water price ensures the sustainable compliance with the standards reached. With a monthly burden of 0.5% of the average in­come for drinking water and 0.6% for waste water, the burden for the individual consumers is far below the 4% target value of the World Bank despite full cost recovery.



European Commission:



 


The judgement of ECJ on the so-called in-house dealing (Teckal decision) applies to all public contracts and concessions within the transfer to an independent legal person.



 




 


BGW:

The Green Paper reasons with the reference to the court ruling of the European Court of Justice on the so-called in-house dealing (Teckal decision) according to which in the opinion of the European Commis­sion the provisions on public contracts and concessions apply as soon as a contracting public authority decides to transfer a task to a third party (enterprise), i.e. to an independent legal person. It is irrelevant, pursuant to the Green Paper, whether the partner of the contracting public authority (municipality) has public, private or mixed status. For lack of a dominating influence of the municipalities involved, this could mean that the respective sharehold­ers (municipalities) would have to invite tenders, either indi­vidually or jointly, for the economic activity of the special-purpose association (Zweckverband) This would counteract the initiative of many municipalities in Germany to render a contribution, by an increased cooperation in associations, for optimising the supply structure. BGW considers this premise as a loss of the municipal executive power as well as of the municipal self-determination safeguarded in the German Constitution as well as in the new EU Constitution.

 

BGW expressly pleads for a definition of the outline conditions, under which municipalities render ser­vices of economic interest, exclusively at national level and not at European level. The long and suc­cessful German tradition of inter-municipal cooperation is to be preserved pursuant to Article I-5 of the new EU Constitution and may not be threatened by framework conditions which are placed at European level. The formation of special-purpose associa­tions has proven worthwhile. It is a form of service-rendering by the municipality itself. These account for approx. 20 % of all supply utilities in the water and waste water sector in Germany. In the opinion of the German Bundestag, the support of coopera­tions is a central element of the modernisation strategy for the water industry in Germany. The above-outlined development would restrict the devel­opment of such (inter-municipal) cooperations.

 



 


Further to the questions of the Green Paper relevant for the water supply and waste water dis­posal industry in detail:

 

Green Paper

 

1.       What types of purely contractual PPP set-ups do you know of? Are these set-ups subject to specific supervision (legislative or other) in your country?

 

BGW :

The operator model . The private partner (enterprise) concludes a works contract for pecuniary interest with the municipality. The private partner plans, constructs, finances and operates the facility and be­comes the owner of it. The private partner operates the facility on its own account by order of the mu­nicipality and in turn is paid an operator consideration from the municipality The municipality remains obliged to the citizens/enterprises to render the distribution service and levies charges. The operating company is in no direct relation to the charge payers. The operator consideration is exclusively paid as a service remuneration by the municipality. 

 

The utility management model . The private partner (enterprise) concludes a business management contract for pecuniary interest with the municipality and performs technical and commercial services for the municipality according to its instructions, in its name and on its account. The private partner is paid a consideration for this service by the municipality. The municipality remains the owner of the facilities and levies charges from the users. The private partner (managing enterprise) is in no direct relation to the users of the supply service.



The concession . The municipality grants the private partner (enterprise) an exclusive right to use public roads for the municipal area. The private partner commits itself to supply the municipality and its resi­dents with the public service at its own risk. The private partner itself concludes contracts with the cus­tomers/users and yields capital gains. The private partner pays concession taxes to the municipality from these gains. The amount of these concession taxes is limited by an ordinance. There are direct legal relations between the private partner (enterprise) and the users. The private law is applicable.

 

The compulsory transfer . Another form to be differentiated from the concession is the compulsory transfer where a complete, even if possibly conditional and limited transfer of the waste disposal obliga­tion to the enterprise takes place which again enters into a performance relation to the citizens.

 

The cooperation model . In the cooperation model, the municipal task (water supply, amongst other things) is performed by a mixed holding company established jointly by the municipality and private partners where the above-stated models can be implemented. This company, normally having a domi­nating municipal capital interest, then entrusts a spe­cialised third party with the actual management, taking account of the relevant public procurement law. The third party can also be the private partner which has an interest in the mixed holding company at capital level.

 

Award of construction and planning contracts to private third parties.

 

2.       In the Commission's view, in the context of a purely contractual PPP, the transposition of the competitive dialogue procedure into national law will provide interested parties with a pro­cedure which is particularly well adapted to the award of contracts designated as public con­tracts, while at the same time safeguarding the fundamental rights of economic operators. Do you share this point of view? If not, why not??



BGW :

The competitive dialogue as a new form of the tendering procedure cannot be used by water supply utilities. These are sectoral contracting authorities, and the competitive dialogue is not provided in the Sectoral Directive. Even though not all individual questions have been clarified so far, BGW pleads for enabling the competitive dialogue also for water supply utilities as sectoral contracting authorities.

 



 


3.       In the case of such contracts, do you consider that there are other points, apart from those concerning the selection of the tendering procedure, which may pose a problem in terms of Community law on public contracts? If so, what are these? Please elaborate.

 

BGW:

No.

 

 

4.       Have you already organised, participated in, or wished to organise or participate in, a proce­dure for the award of a concession within the Union? What was your experience of this?



 


BGW:

BGW sees material deficits in Europe in the application of the existing European leg­islation. This refers both to the award of concessions and of service contracts; especially the markets in the old EU Member States are hardly or not at all accessible. Concession or service contracts are normally awarded to the respective na­tional enterprises. German supply utilities have made the experience in other Member States that the decision-making processes of municipalities in other Member States are not transparent despite invita­tions to tender. The information required for an effective participation in a tendering proce­dure can only be obtained with difficulty and incompletely. For this reason, BGW supports the consistent application of the existing public procurement law in Europe.



 

5.       Do you consider that the current Community legal framework is sufficiently detailed to allow the concrete and effective participation of non-national companies or groups in the proce­dures for the award of concessions? In your opinion is genuine competition normally guar­anteed in this framework?

 

 

BGW :

BGW considers that the applicable EU procurement law is sufficiently detailed. It is possible for foreign enterprises to obtain concessions in Germany. The practical experience, however, shows that the diffi­culties regarding the implementation of the Single Market for the water supply cannot be solved by is­suing new rules, but by their practical and concrete implementation in Europe. This especially applies to the   presently existing public procurement law.

 

Regarding the question whether a sufficient actual competition exists, it must first of all be pointed out that in Germany, public entities transfer the execution of a commercial activity both by way of conces­sions and by contracts on the operation and management to third parties. It turns out that an actual competition takes place and also companies from other Member States are active on the German mar­ket. German municipalities have most recently concluded management, operator as well as concession contracts with international enterprises or with enterprises with international interest. Thus, companies from the Netherlands, Belgium, France, Italy and the USA have meanwhile been operating in water supply and waste water disposal.  

 

It is pointed out that in Germany, other forms of competition than in the other EU Member States domi­nate. On the one hand, industry and trade are entitled to abstract water themselves and thus to satisfy the demand by means of self-supply. This right is used in a considerable scope, with the consequence that the supply of industry accounts for only 5% of the distribution service by water supply utilities. In­dustry supplies itself by 95%. Furthermore, the competitive environment is marked by the competition   for private equity, price control under cartel-law resp. the supervision of local authorities as well as competition for water consuming companies to locate their premises in the area of a given municipality and hence its supply area.



 

6.       In your view, is a Community legislative initiative, designed to regulate the procedure for the award of concessions, desirable?



 


BGW :

BGW rejects a Community legislative initiative, designed to regulate the procedure for the award of concessions. The general principles of equality of treatment, transparency, proportionality and mutual recognition are binding already today, a further Community legislative initiative would not bring any practical advantages. As outlined above under questions 4 and 5, such a legislative initiative would not be a suitable instrument to increase the functionality of the European Single Market since there is no lack of adequate legal provisions, but of their compliance.

 

Furthermore, additional Community regulations for the award of service concessions would restrict fur­ther the municipalities' freedom to decide which is guaranteed in the German Constitution. Also the sub­sidiarity principle is a reason against an obligation to tender.

 

Moreover, the Commission correctly stated in the past that concessions stand out by the fact that in contrast to the public contract, the essential economic risk is borne by the respective enterprise. This means a high risk for the citizens particularly regarding the rendering of services of general interest by an enterprise. Taking such a risk is therefore only possible for the responsible municipality on the basis of particular mutual trust between the municipality and the enterprise. The already existing rules guar­antee the required neutrality by the municipality; further regulations are not necessary.

 

 

7.       More generally, if you consider that the Commission needs to propose new legislative ac­tion, in your opinion are there objective grounds for such an act to cover all contractual PPP's, irrespective of whether these are designated as contracts or concessions, to make them subject to identical award arrangements?



 


BGW :

New legislative action is not necessary. The above-mentioned factual difference between public con­tracts and concessions has to be reflected in a different legal treatment. The present legal situation is adequate.

 

 

8.       In your experience, are non-national operators guaranteed access to private initiative PPP schemes? In particular, when contracting authorities issue an invitation to present an initia­tive, is there adequate advertising to inform all the interested operators? Is the selection procedure organised to implement the selected project genuinely competitive?

 

BGW :

Due to the municipal responsibility for water supply and waste water disposal, the initiative for invest­ments normally comes from the municipalities. Private-initiative PPP's are a rare exception. The non-discriminating participation of foreign enterprises in projects is guaranteed in Germany which is proven by many examples.

 

 

10. In contractual PPP's, what is your experience of the phase which follows the selection of the private partner?



 


BGW:

This depends on the respective concrete situation.

 

 

 

14. Do you think there is a need to clarify certain aspects of the contractual framework of PPP's at Community level? If so, which aspects should be clarified?



 




 


BGW:

BGW does not consider it necessary to govern the contractual framework of PPP's at Community level..



 




 


15.   In the context of PPP's, are you aware of specific problems encountered in relation to subcon­tracting? Please explain.

 

BGW:

At times, a construction contract is awarded along with the award of operator contracts (for a definition, see the answer to question 1). The European procurement law should be designed in such a way that these contracts are separately invited for tender and are separately awarded.

 

 

16.   In your opinion does the phenomenon of contractual PPP's, involving the transfer of a set of tasks to a single private partner, justify more detailed rules and/or a wider field of application in the case of the phenomenon of subcontracting?

 

BGW :

See answer to question 15.

 

 

17.   In general, do you consider that there is a need for a supplementary initiative at Community level to clarify or adjust the rules on subcontracting?

 



 




 


BGW :

The existing Community law should be reviewed within the meaning of the answer to question 15.

 

 

18.   What experience do you have of arranging institutionalised PPP's and in particular, in the light of this experience, do you think that Community law on public contracts and conces­sions is complied with in such cases. If not, why not?



 


BGW:

The cooperation model outlined under question 1 has proven worthwhile in the practice. The coopera­tion between the public sector and private partners at capital level creates a joint loyalty regarding the supply task. Already existing Community regulations are adhered to.
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