Infrastructure Sharing Contract
ANEEL (the national electric power agency), ANATEL (the national telecommunications agency) and the ANP (the national petroleum agency), recently agreed to regulations regarding the sharing of infrastructures. The rules and conditions are included in Resolution 1, November 11 1999, and refer to the principles contained in the existing law (Law 9,427 of December 26 1996, Law 9,472 of July 16 1997 and Law 9,478 of August 6 1997).
The regulation defines 'sharing' as the joint use of an infrastructure by electric power, telecommunication and petroleum sector agents. 'Agents' are legal entities who are holders of concessions, authorizations or permits to exploit a public service.
'Infrastructure' is defined as the public easements, ducts, conduits, posts and towers that are owned, used or controlled by the agents that operate public electric, telecommunication and petroleum services. 'Services' also includes petroleum by-product and natural gas pipeline transport services, as well as non-activated metallic, coaxial and optical fiber cable. These cables may only be made available for sharing when not activated, and will be directly or indirectly controlled by a telecommunication service agent.
The regulation provides that agents operating any of the services described above have the right to share the infrastructure of another agent of any of the sectors. The various quality, security and environmental protection parameters must be satisified (as established by competent agencies). Other factors to consider are:
- the optimization of resources;
- the reduction of operating costs; and
- the benefit to users of the services they provide.
Agents that directly or indirectly own, manage or control an infrastructure shall define the excess capacity (ie, the infrastructure available for sharing with other agents) and the conditions attached to sharing. The owner will maintain the excess capacity, complying with the obligations contained in the concession, permit or authorization instrument.
In accordance with Article 9 of the regulation, in order for the owner to share the infrastructure, it must give notice in at least two national (and one local) newspapers, for three days. Notice must include information about the infrastructure, the conditions of sharing, technical information, prices and other terms.
A request for infrastructure sharing must be made in writing, and shall contain the necessary technical information to enable a feasibility analysis to be carried out. The owner of the infrastructure shall reply in writing within 90 days of receiving the request, advising as to whether sharing will be possible. Sharing may only be refused if (i) there are capacity, security, stability or reliability limitations, or (ii) violation of the engineering requirements or conditions in the concession contract may occur. In the case of a refusal, the owner is required to justify its reasons. If the requesting agent does not agree with the reasons of refusal, it may seek arbitration to decide the issue.
In the event a request for infrastructure sharing is received without prior publication of the owner's intention to make the infrastructure available (and the request may reasonably be granted), the owner must still provide public notice, as described above (Article 9).
The relevant agencies must be notified of the formalization of a request to share infrastructures, involving their respective sectors, within 30 days.
Infrastructure Sharing Contract
If sharing is feasible and the request is granted, a sharing contract must be executed within 60 days of the owner's reply. The contract's validity will be conditional upon the express agreement of the relevant regulatory agency.
Article 20 of the regulation states that the infrastructure sharing contract must contain:
- the type and manner of infrastructure sharing;
- the rights, guarantees and obligations of the parties;
- the prices to be charged and other commercial conditions (which may be freely negotiated by the agents);
- the method of settling accounts between the parties;
- the technical conditions; and
- the termination conditions.
The contract must be submitted to the regulatory agency of the owner's service sector. It will then be sent (within 10 days) to the regulatory agency of the requesting entity, so that the latter may formulate its analysis, within 30 days. If there is no word from the requesting entity's agency within the stipulated period, agreement will be assumed. If the regulatory agency of the requesting entity expressly does not agree to sharing, it will not take place.
The contract will not be approved if it is considered prejudicial to broad, free and fair competition. Therefore, certain behavior will be unacceptable during negotiations between the agents, including:
- use of subsidies to artificially reduce prices;
- use of information obtained from competitors, with the objective of obtaining a competitive edge;
- omission of technical and commercial information relevant to the provision of the service;
- abusive conditions required in executing the contract;
- intentional obstruction or retarding of negotiations;
- use of coercion to execute the contract;
- inclusion of conditions that may lead to the inefficient use of the infrastructure; and
- inclusion of a proviso requiring the acquisition of goods or utilization of a service.
Once the contract is certified as valid (or the term elapses without hearing from the regulatory agency of the requesting entity), the contract will be implemented in 30 days by the regulatory agency of the owner. A copy of the contract will be made available for general public consultation at the owner's regulatory agency.
The sharing must begin within 180 days from approval. In the event this period is not complied with, the aggrieved party will be indemnified.
The sharing conditions may be altered by either party, subject to agreement. Proposed alteration must be notified at least 120 days before the intended implementation date, or in accordance with a contractual provision. If there is no agreement, the amendment may be the subject of arbitration.
Any adaptation or modification costs are the responsibility of the parties that would benefit from the modification, unless otherwise provided for in the contract.
Any conflicts that arise during the negotiations for infrastructure sharing contracts will be settled by the agencies (ANEEL, ANATEL and ANP). This will be by way of arbitration, to be defined in a joint regulation, issued by the agencies.
The agencies recently issued a joint Public Consultation reflecting the substance of the draft arbitration process for the resolution of conflicts arising from infrastructure sharing contracts. The Public Consultation is an instrument aimed at gathering comments and suggestions from the general public, making it possible to improve regulations produced by the executive branch.
The principal issue raised by the Public Consultation has been identifying the legal nature of the proposed arbitration process. The consultation establishes that any conflict that arises must be resolved by the procedure established in the draft. It seems, however, that the mandatory nature of this misinterprets the established arbitration principle, whereby the parties must express their desire to resolve the conflict outside the judicial sphere. The arbitration process proposed by the agencies fails to consider the express consent of the parties. The arbitration panel is not elected by the parties and the procedure adopted is not established in the contract, nor by the panel. Rather, it is set forth in the consultation.
Therefore, it has been determined that the consultation describes an administrative, rather than an arbitration, process. Inherent in this decision is the acceptance that the principles of civil law applicable to arbitration must give way to the principles of administrative law. Therefore, all the decisions of the arbitration panel will be subject to judicial analysis. This means that, regardless of the decision of the arbitration panel, it will be possible to appeal to the judiciary. The judiciary will then be able to examine the issue and may lawfully overturn the panel's decision.
Infrastructure sharing must still be widely discussed for its application to be effective, efficient and economically feasible.
What has been established is the existence of enormous variations in prices charged by infrastructure holders, in association with a reluctance to assign their infrastructure. In principle, the parties most adversely affected are telecommunications operators who have network expansion obligations. At the same time, electric power companies are applying for authorizations to provide telecommunication services and will certainly begin to compete with the current providers.
Despite arbitration in this context being considered an administrative process, it is believed that it will remain an important means for establishing fair and reasonable criteria for infrastructure sharing. The participation of the regulatory agencies will make it possible to settle conflicts in an impartial manner, with the technical support essential for resolution.
For further information on this topic please contact Oscar Petersen or Ricardo Barretto at Barretto Ferreira, Kujawski, Brancher e Gonçalves – Sociedade de Advogados by telephone (+55 11 3066 5999) or by fax (+55 11 282 8735) or by e-mail ([email protected] or [email protected])
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