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Views/ A New Concessions Act Passed in Croatia
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06/10/2017
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The New Croatian Concessions Act entered into force on the 14th of July, 2017. Those already involved in the pending concession granting procedures do not have to worry about legal instability because the application of the Old Concessions Act will continue for procedures that were initiated earlier.

Much Ado about Nothing

The entire Croatian public rose to their feet when the motion of the New Concessions Act was published, motivated primarily by the "Zlatni Rat" affair, which took place in April, 2017. The Split-Dalmatia County granted a concession for one of the most attractive beaches on the Adriatic to a dubious company, in the procedure which was later annulled by the Ministry of Administration. This event drew the public's attention to the passing of the New Concessions Act, causing protestations from several NGOs.

In fact, the novelties are mostly oriented on improving the technical aspects of the procedure, improving efficiency and accelerating the procedure, while several material aspects remain unchanged, especially those related to the maritime domain.

Reasons for Exclusion

The New Concessions Act provides a number of facts, as reasons for the exclusion of a potential concessionaire, i.e.:

  1. breaches of labour, environmental and social regulations;
  2. an on-going bankruptcy procedure;
  3. the potential concessionaire committed a severe professional breach, bringing into question his integrity;
  4. conviction for a criminal deed, which was committed conducting business activities;
  5. cartel-like behaviour; and,
  6. a previous concession agreement concluded with the respective entity terminated, or the potential concessionaire had to pay damages due to its defaults.

It is important to note that these reasons must be published in the tender documents, if the concession provider wishes to apply them in the respective procedure. However, the reasons under a) and c) seem very broad and quite vague. In fact, it is left for the concession provider to adjudicate which professional omissions or environmental breaches are severe enough to qualify for exclusion. It remains to be seen if the respective provision will result in any abuses, as such ambiguities usually do.

Pledge over Concessions

A lot of noise was raised in the general public concerning the possibility of the concessionaire to pledge its concession right in favour of the financial institution. However, the solution to this issue remained unchanged in comparison with the Old Concessions Act. So, the concession right may be subject to a pledge in favour of the financial institution (exclusively), if the consent of the concession provider is obtained.

Further, the financial institution may exercise its right as pledgee, by transferring the concession right to another entity. In such case, consent by the concession provider should be obtained, and the new entity entering the legal relation is to fulfil all the legal prerequisites for being a concessionaire.

Despite not being a novelty, we expect this mechanism will be used more often in the upcoming period by the banks in the maritime domains, beaches and marines. The concessions have proven to be low-risk investments thus far, so the expected increase of investments in the Adriatic will most certainly be followed by an increase of the banking sector.

The New Concessions Law does not provide major novelties with respect to the transfer of the concession itself, which still remains subject to concession provider`s consent. The only addendum to the content is reflected in the legal possibility to transfer the concession through the restructuring procedure.

Sub-concessions

The obligation to obtain the concession provider`s consent to a sub-concession agreement also remains. Further, in order to amend the existing sub-concession agreement or change the sub-concessionaire, it is also necessary to obtain the concession provider`s consent. The reasons for the exclusion of a potential sub-concessionaire would still apply.

Misdemeanours

As expected, the New Concessions Act provides more severe fines for misdemeanours committed with respect to the concessions. It especially focuses on exploitation without the adequate permit or concession agreement. In that respect, the upper limit amounts to HRK 1,000,000 (approximately EUR 133,000), while the director may be fined by up to HRK 20,000 (approximately EUR 6,600). There is also a number of other determined misdemeanours, with the highest prescribed monetary fine of HRK 500,000 (approximately EUR 66,000).

Expectations

It is safe to say that the New Concessions Act did not bring any vital changes to the procedure, but only administrative relief - which always represents good news. However, when we talk about concessions related to beaches and marinas, we face another problem – the maritime domain. It is important to note that all maritime domains which could potentially be subject to concessions are not registered with the competent land registries, and their limits are not yet determined in all of the Croatian counties. Without a step forward in the right direction on that front, Croatia will not see as much development as may be expected. However, as investments increase, we expect that the local municipalities and counties will take the lead in this process.

For further information on this subject, please write to info@karanovic-nikolic.com.

 

 

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

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