Use the Lexology Getting The Deal Through tool to compare the answers in this article with those from other jurisdictions.
Which are the key ports in your jurisdiction and what sort of facilities do they comprise? What is the primary purpose of the ports?
The key public ports in Croatia are the ports of Rijeka, Zadar, Šibenik, Split, Ploče and Dubrovnik.
The port of Rijeka is the largest Croatian cargo port. It is positioned on the Northern Adriatic, where the Mediterranean Sea reaches into the European continent. The port offers a very convenient sea route from Europe to the Middle and Far East, offering transit times that are as much as seven days shorter compared with Baltic and Northern Sea ports. The port of Rijeka comprises:
- a container terminal;
- a liquid cargo (crude oil and derivatives) terminal;
- a roll-on, roll-off (ro-ro) terminal;
- a cereal terminal;
- a multi-purpose terminal;
- general cargo terminals;
- bulk cargo terminals;
- timber terminals;
- conditioned cargo terminals; and
- a passenger and ferry terminal.
The port’s primary purpose is as a gateway to:
- Czech Republic;
- Bosnia and Herzegovina;
- West Ukraine;
- southern Poland; and
- southern Germany.
The port of Ploče serves as the main gateway to Bosnia and Herzegovina and is conveniently located at the southern terminus of Transport Corridor Vc, one of the three major pan-European transport corridors linking Croatia and European Union markets. The port comprises terminals used for:
- general cargo;
- bulk cargo;
- liquid cargo;
- alumina; and
The port of Split, located in the Central Adriatic, is the largest Croatian passenger port and one of the busiest passenger ports on the entire Adriatic coast. In recent years it has gained importance as a cargo port, with facilities for:
- general cargo;
- bulk cargo;
- conditioned cargo;
- special and heavy cargo; and
- containers (to a limited extent).
The port of Zadar (Central Adriatic) primarily operates as passenger port and continues to develop in that direction, with a focus on large cruise liners, ferry traffic and ro-ro traffic. The port also has the facilities to handle liquid, bulk and general cargo, and is well connected to the hinterland with direct highway and railway connections.
The port of Šibenik (Central Adriatic) comprises:
- a passenger terminal;
- a terminal for transhipment of phosphate;
- a bulk and general cargo terminal; and
- a timber terminal.
The development plans envisage the specialisation of the port for boutique ships and mega yachts (private vessels more than 24 metres long, also known as ‘super yachts’).
The town of Dubrovnik, at the southernmost part of Croatia, is a world-renowned tourist location and is predominantly a cruise ship port. In addition to mega cruisers, the port receives passenger ferries on regular routes between Croatian and Italian ports.
Describe any port reform that has been undertaken over the past few decades and the principal port model or models in your jurisdiction.
In the late 1990s and early 2000s, the Croatian government initiated a number of steps to reform port operations, including adopting a new seaports law, creating landlord port authorities and initiating port concessions.
The port enterprises that, during the socialist era, were ‘socially owned’ and in charge of the overall port business (management, investments and operations), have been mostly transformed into state-owned companies and, to some extent, companies owned by a number of small shareholders (mostly employees). These companies were granted the priority concessions; that is master concessions to operate the ports. Some of the priority concessions are still in force. Meanwhile, the privatisation process continues through the sale of shares of port operators and their subsidiary companies, as well as by announcing open tenders upon the elapse of priority concessions.
The principal port model in Croatia continues to be the landlord model.
State development policy
Is there an overall state policy for the development of ports in your jurisdiction?
In July 2014, the Croatian government passed the Strategy of Maritime Development and Integrated Maritime Policy for the period 2014-2020. There are areas of the Strategy that introduce integrated, innovative and, to some extent, radical and controversial changes in state port policy, including the specialisation of Croatia’s major ports for certain activities:
- Rijeka for container traffic and liquid cargo;
- Ploče for container traffic and bulk cargo;
- Zadar, Šibenik and Split for ro-ro, passenger traffic and acceptance of cruise ships; and
- Dubrovnik for cruise ships.
According to the Strategy, the result of specialisation and further development of the ports would be measured through the increase of cargo traffic by up to 30 million tonnes by 2020 (compared to the present 19 million tonnes). This is expected to create a framework to achieve the self-sustainability of the port system, reducing the participation of the state budget in co-financing the construction of the port infrastructure in Croatian key ports.
Another measure explicitly mentioned in the Strategy, aimed at reduction of the state’s share, is the co-financing of port infrastructure projects, providing more favourable conditions for private capital investment in the construction of port infrastructure and specialised port terminals (the development of public-private partnerships).
What ‘green port’ principles are proposed or required for ports and terminals in your jurisdiction?
Croatian port authorities are strongly committed to the protection of the Croatian marine environment. They are introducing environmental management systems according to internationally developed standards, and they participate in numerous international organisations promoting ‘eco’ and ‘green’ ports, trying to establish uniform ecological and environmentally friendly standards.
Regarding ship operations in ports, the 2013 Amendments to the Croatian Maritime Code transposed into Croatian national law Directive 2000/59/EC of the European Parliament and of the Council of 27 November 2000 on port reception facilities for ship-generated waste and cargo residues. The Maritime Code obliges port authorities and special port concessionaires to adequately equip the ports and provide a system of reception and waste management from ships, in accordance with international and European standards.
Legislative framework and regulation
Is there a legislative framework for port development or operations in your jurisdiction?
Currently, the ports are arranged pursuant to the requirements of the Maritime Demesne and Seaports Act.
Late in 2014, the Croatian parliament passed the Law on Strategic Investment Projects, with a view to facilitating the preparation and implementation of investment projects (private, public or public-private) that have been proclaimed as projects of national interest. Two large port projects are currently on the list of strategic projects: the development of the Zagreb Pier Container Terminal and the Liquid Natural Gas (LNG) Terminal - both within Rijeka port.
As of 24 March 2019, Croatia, as an EU member state, shall apply Regulation (EU) 2017/352 of the European Parliament and of the Council of 15 February 2017 establishing a framework for the provision of port services and common rules on the financial transparency of ports.
Is there a regulatory authority for each port or for all ports in your jurisdiction?
The regulatory powers for all Croatian ports are mainly vested in the central authority, which is the Ministry of Maritime Affairs, Transport and Infrastructure, seated in Zagreb.
In addition, each of the above-mentioned key ports has its own port authority, established by the Croatian government.
Local port authorities, which are mostly founded on a regional level, are in charge of smaller ports.
What are the key competences and powers of the port regulatory authority in your jurisdiction?
The Ministry of Maritime Affairs, Transport and Infrastructure is in charge of the overall national transport policy.
Port authorities are in charge of:
- building, maintaining, managing, protecting and improving the maritime demesne representing the port area;
- building and maintaining the port’s infrastructure and supervising building and maintenance activities;
- smooth performance of port traffic, technical-technological integrity and safety of the port area for navigation, as well as for the order in the port;
- providing for the services of general interest or services for which there is no economic interest of other business subjects (port guarding, fire protection, etc);
- reception of waste from vessels and the organisation of its disposal;
- coordinating and supervising the work of concessionaires in the port area;
- passing of decisions with regard to the establishment and management of free zones inside the port area in accordance with the regulations governing free zones;
- granting of concessions and concession permits; and
- other activities envisaged by the law.
How is a harbourmaster for a port in your jurisdiction appointed?
The harbourmasters are appointed by the Minister of the Maritime Affairs, Transport and Infrastructure. The harbourmaster offices are, in fact, branches of the Ministry and their tasks include, among other duties:
- control of navigation;
- search and rescue activities;
- navigation safety inspections;
- vessel registration;
- tonnage measurements;
- issuing documents required for navigation; and
- establishing the level of proficiency for professionals employed in maritime transport.
Are ports in your jurisdiction subject to specific national competition rules?
Competition rules are not specific to the port sector. General national laws apply.
Are there regulations in relation to the tariffs that are imposed on ports and terminals users in your jurisdictions and how are tariffs collected?
In Croatia, the term ‘port tariffs’ is a general term that entails both port dues and port charges that the operators collect from port service customers.
Port dues are determined and collected by the port authority and include quay dues, wharfage and berthage.
With regard to port charges, the operators are free to determine the prices for their services provided that they do not exceed the maximum level set and published by the relevant port authority. In practice, the operators usually pay due regard to other formally published port charges in competing ports along the Adriatic coast, including ports in nearby countries.
Are there restrictions relating to the currency applied to the tariffs or to any fees that are payable by a port operator to the government or port authority? Are any specific currency conditions imposed on port operators more generally?
There are no restrictions relating to the currency applied to the tariffs. However, the concession fees payable by a port operator to the port authority have to be paid in the local currency (Croatian kuna).
There are no other specific currency conditions imposed on port operators.
Public service obligations
Does the state have any public service obligations in relation to port access or services? Can it satisfy these obligations through a contract with a private party?
There are certain public service obligations (eg, fire fighting services, video surveillance and dredging), and they can be satisfied through a contract with a private party.
Can a state entity enter into a joint venture with a port operator for the development or operation of a port in your jurisdiction? Is the state’s stake in the venture subject to any percentage threshold?
Yes, a state entity can enter into a joint venture with a port operator for the development or operation of a port, and there is no percentage threshold for the state’s stake.
A perfect example can be found in Croatia’s largest port - Rijeka. Until recently, the state was the majority owner of the joint stock company Luka Rijeka dd (the Port of Rijeka jsc), which was the owner of all the shares in its subsidiary, Adriatic Gate Container Terminal (AGCT). In 2011, the predominantly state-owned Luka Rijeka dd sold 51 per cent of its stake in AGCT to International Container Terminal Services Inc of the Philippines. AGCT now operates Brajdica Container Terminal pursuant to the direct long-term concession contract with the Port of Rijeka Authority.
Are there restrictions on foreign participation in port projects?
There are no restrictions on foreign participation in port projects. Foreign investments are generally very welcome.
Public procurement and PPP
Is the legislation governing procurement and PPP general or specific?
In Croatia the legal term ‘public-private partnership’ (PPP) is restricted to arrangements where the majority of the private partner’s revenue comes, under the contractual arrangement, from government payments.
PPPs, in the strict sense explained above, are not typical for the Croatian port sector. This is because the port authorities are, in principle, responsible for constructing the port and terminal infrastructure, and transfer of the public construction obligation is rare.
As for the port services, the port authorities only have a right to grant concessions to the same, and the vast majority of port services are not provided to the general public, but to the benefit of a limited group of users (shipping lines transport companies, marine service providers), which cannot be considered as final beneficiaries.
For all these reasons, the Croatian PPP Act, passed in 2012 and revised in 2014, has had little practical impact on seaports and terminals so far. It may gain importance in build-operate-transfer projects, which are envisaged in some port development plans.
The term ‘PPP’ is sometimes used in a broader sense to describe the cooperation of a public authority and a private partner, which, when ports and terminals are concerned, is almost exclusively arranged as a concession relationship.
Concessions are seen as long-term contracts where the majority of the partner’s revenue comes from the final users of the service. In a concession relationship, the government does not make any regular payments to the private partner, or such payments account only for the minority of the private partner’s revenue.
The main piece of legislation which is relevant for regulation of the arrangements between the public authority and a port or terminal operator is the Maritime Demesne and Seaports Act (2003, as amended), which is a specific legal text supplemented by general laws, that is to say the Concession Act (enacted in July 2017) and the Public Procurement Act (enacted in December 2016).
Unlike the Concessions Act and the Public Procurement Act, the Maritime Demesne and Seaports Act has not yet been harmonised with acquis communautaire. This has caused a lot of practical problems in drafting proper tender documents for new projects that would satisfy both the national law and the principles that Croatia has accepted by joining the EU in 2013. Unfortunately, owing to the frequent political changes in the recent period, the process of enactment of the new Maritime Demesne and Seaports Act is not yet complete.
May the government or relevant port authority consider proposals for port privatisation/PPP other than as part of a formal tender?
Present concessions for port activities and related activities that require the use or construction of new infrastructure, superstructure or other objects may be granted only through the public tender procedure.
However, port concessions for port activities and related activities that do not require the use or construction of new infrastructure or superstructure can be granted upon request - in other words, without tender.
Other models of privatisation (eg, change of operators ownership structure) need to involve a public element as well (eg, public offering of shares).
Joint venture and concession criteria
What criteria are considered when awarding award port concessions and port joint venture agreements?
When awarding a port concession, the port authority would typically consider (by setting such tender evaluation criteria):
- the offered fixed part of the concession fee;
- the offered variable part of the concession fee (usually expressed as percentage of the operator’s revenue);
- the total offered investment into the development of the port;
- the offered amount of investment into environmental protection;
- the prospective new workplaces;
- the operator’s experience; and
- financial performances in preceding years.
As this is a typical, but not mandatory, list, one might expect other evaluation criteria, such as terminal usage efficiency or guaranteed level of port traffic.
As for port joint venture agreements, they are not in common use. Under the present circumstances, a joint venture agreement might be suitable to regulate relations among the partners, which would together assume the role of the port operator. Eventually, the concession agreement would be needed again to regulate the relations between the operator (consisting of two or more joint venture partners) and the port authority, so that the above listed evaluation criteria would apply again.
Is there a model PPP agreement that is used for port projects? To what extent can the public body deviate from its terms?
There is no model PPP, concession agreement or joint venture agreement for port and terminal projects.
What government approvals are required for the implementation of a port PPP agreement in your jurisdiction? Must any specific law be passed in your jurisdiction for this?
The decision to grant a concession in a port is within the competence of a port authority. Concessions that are intended to last more than 30 years must be approved by the Croatian government, and those over 50 years must be approved by the Croatian parliament.
PPPs, in the strict sense of the term (not including concessions), need to be approved by the Croatian Investment and Competitiveness Agency.
The passing of a specific law is not required.
On what basis are port projects in your jurisdiction typically implemented?
Port projects are typically implemented on the basis of a concession contract.
Is there a minimum or maximum term for port PPPs in your jurisdiction? What is the average term?
In Croatia, the arrangement between the port authority and a port or terminal operator is (almost exclusively) based on a concession contract.
The law recognises several types of concession in the port sector:
(i) a concession for the performance of port activities that does not require the use or construction of new infrastructure, superstructure or other objects;
(ii) a concession for the performance of secondary port activities that does not require the use or construction of new infrastructure, superstructure or other objects;
(iii) a concession for the performance of port activities that requires use of the existing or construction of new infrastructure, superstructure or other objects; and
(iv) a concession for the performance of secondary port activities that requires use of the existing or construction of new infrastructure, superstructure or other objects.
The term of the aforementioned concessions may be up to 99 years. The concessions under (i) and (ii) may be granted by a competent port authority for a term of up to 10 years, and concessions under (iii) and (iv) may be granted by a port authority for up to 99 years, whereas the government of Croatia must give prior consent to concessions from 30 to 50 years, and the parliament of Croatia must give prior consent to concessions of longer than 50 years.
Concessions under (iii) and (iv) are typically granted for 30 years.
On what basis can the term be extended?
The Maritime Demesne and Seaports Act allows, on an exceptional basis, for the prolongation of concessions for the performance of port activities and secondary port activities which require use of the existing or construction of new infrastructure, superstructure or other objects, in case of force majeure or new investment which makes approval of an extension economically justifiable. The extension must be approved by the Croatian government and the total duration of the concession must not exceed 50 years.
Another two exceptions are provided by the Concession Act: when the concession grantor has initiated the concession award procedure for public services in good time and such procedure has not been completed successfully owing to justifiable reasons, the concession grantor may extend the existing concession for a period not longer than six months, provided that certain legal conditions are fulfilled. Also, the term for which the concession is awarded may be extended if it is owing to changes of the concession agreement in accordance with the Concession Act.
What fee structures are used in your jurisdiction? Are they subject to indexation?
Croatia applies concession fees that consist of fixed and variable parts. The fixed part is usually calculated based on the surface area occupied by the concessionaire, and the variable part as a percentage of the revenue realised by the operator. The concession fee may be subject to indexation.
Does the government provide guarantees in relation to port PPPs or grant the port operator exclusivity?
Government guarantees are not typical. Exclusivity is generally not provided except in cases where, as a matter of fact, the type of concession involves exclusive use of a certain port area or facility.
Does the government or the port authority provide any other incentives to investors in ports?
According to the Investment Promotion Act (IPA), various incentives are envisaged for the purpose of investment promotion. When determining the availability of such incentives and conditions that one has to fulfill in order to be able to apply for the investment incentives, the provisions of other special regulations should also be taken into account (including those to which the IPA refers to). The incentives envisaged by the IPA relate to investment projects in the following fields:
- manufacturing and processing activities;
- development and innovation activities;
- business support activities; and
- high value-added services.
The projects should ensure environmentally friendly business activity and one or more of the following goals should be fulfilled:
- introduction of new equipment and modern technologies;
- higher rate of employment and level of training the employees;
- development of high value-added products and services;
- increase in entrepreneurial competitiveness; and
- uniform regional development of the Republic of Croatia.
The investment incentives prescribed by the IPA include tax incentives (a reduction in the corporate income tax rate), and also some other incentives (such as a grace period and cofinancing).
In addition, the Free Zones Act provides for certain incentives for the operators and users of free zones in Croatia (and major Croatian ports mostly enjoy a free zone status). The major tax benefits of free zones relate to possible exemption from paying VAT or customs duties in the case of the export and import of goods.
Port development and construction
What government approvals are required for a port operator to commence construction at the relevant port? How long does it typically take to obtain approvals?
Construction may start pursuant to a construction permit. The process of obtaining the permit lasts from two months to one year, depending on the complexity of the project. One of the prerequisites for obtaining the construction permit is preparation of the appropriate design documents, which can be a time-consuming process and usually lasts for several months. Additionally, to commence with the construction works, the port operator requires the consent of the port authority.
Does the government or relevant port authority typically undertake any part of the port construction?
Port authorities typically undertake port construction (quay wall construction, breakwaters, access channels, dredging). In fact, this is one of their main activities.
Does the port operator have to adhere to any specific construction standards, and may it engage any contractor it wishes?
Contracts for concessions that involve any construction works within the port area usually specify that the operator is obliged to obtain prior consent of the port authority regarding the proposed technical solution or design documentation, for which consent would not be unreasonably withheld.
The operators, their designers and contractors are obliged to adhere to the material and construction standards generally applicable in Croatia.
As for the freedom in election of the contractor, the answer depends on whether the port operator is the contracting authority in the sense of the Public Procurement Act or not.
What remedies are available for delays and defects in the construction of the port?
An entity other than the port authority may be allowed to construct an object of port infrastructure or superstructure only based on the concession contract. Therefore, delays and defects in the construction of a port facility could be seen as a violation of the concession contract, in which case the port authority could claim contractual penalties (if stipulated) and compensation of damages, and could ultimately revoke the concession from the concessionaire. Present contracts usually envisage security instruments in favour of the port authority to provide additional protection in the event of contractual breaches by the concessionaire.
The use of legal remedies by the port authority would, of course, depend of the nature and cause of the delay or defect, and the extent of responsibility of the concessionaire.
What government approvals are required in your jurisdiction for a port operator to commence operations following construction? How long does it typically take to obtain approvals?
Given that port authorities have constructed most of the infrastructure in Croatian ports, it is difficult to make any general statements from the operators’ perspective. The principal prerequisite for commencing any operations in a newly built facility, regardless of who has constructed it, is the operation permit that is issued by the Ministry of Construction and Physical Planning. If the construction works are executed properly, the operation permit could be obtained within two months following the completion of the construction works.
What services does a port operator and what services does the port authority typically provide in your jurisdiction? Do the port authorities typically charge the port operator for any services?
In principle, Croatian port authorities, as landlord port authorities, cannot perform port activities themselves. They can engage directly only when a certain public service needs to be provided or there is no market interest for the appropriate concession.
The port operators therefore provide port services based on concession contracts executed with the port authorities. According to the legal definition, port activities include:
- loading, unloading, operation, transhipment, transport and storage of goods and other materials;
- berthing and de-berthing of ships, yachts, fishing and sport vessels, and floating objects;
- operations of reception of vehicles, loading and unloading of vehicles from port surfaces;
- loading and unloading of passengers; and
- various commercial activities incidental to the aforementioned port activities (supply of ships, services to passengers, piloting, towing, agency, custom services, quality control, etc).
Access to hinterland
Does the government or relevant port authority typically give any commitments in relation to access to the hinterland? To what extent does it require the operator to finance development of access routes or interconnections?
The development of access routes and interconnections has so far been within the competence of the government, and operators have not been required to invest in hinterland connections. However, there are no legal obstacles to the consideration of that sort of arrangement.
How do port authorities in your jurisdiction oversee terminal operations and in what circumstances may a port authority require the operator to suspend them?
Port authorities monitor compliance by a concessionaire with the terms and conditions of the concession and Port Order Regulations. Additionally, terminal operations fall into the competence of other authorities, such as the harbourmaster’s office and state inspections (safety at work, environment). Those inspection authorities are entitled to order the immediate suspension of a dangerous or improper activity.
Port access and control
In what circumstances may the port authorities in your jurisdiction access the port area or take over port operations?
Generally, the port authorities may access the port area at any (reasonable) time, taking care not to disturb the port operator’s business operations unduly. The port authorities may take over only a minor segment of port operations, and only in exceptional cases. The port authorities are neither intended nor equipped to take over the operations of a certain terminal or entire port.
Failure to operate and maintain
What remedies are available to the port authority or government against a port operator that fails to operate and maintain the port as agreed?
The answer to this question depends on the contents of the concession agreement. Available remedies include contractual penalties, compensation for damages and, as an ultimate consequence, termination of the concession.
According to the Concessions Act (2017), prior to the conclusion or the entry into force of the concession contract, the concession grantor has a duty to collect, from the most advantageous tenderer or the applicant for the concession, the necessary guarantees or security of payment instruments for the concession fee and compensation of potential damages incurred owing to the non-fulfilment of obligations under the concession contract (debentures, bank guarantees, personal guarantees, bills of exchange, escrow account, etc), in accordance with the estimated concession value. Such guarantees need to be collected not only from new concessionaires, but also from existing ones.
What assets must port operators transfer to the relevant port authority on termination of a concession? Must port authorities pay any compensation for transferred assets?
A distinction must be made between immovable and movable assets.
According to the current Maritime Demesne and Seaports Act, if a concessionaire has constructed any part of a port infrastructure or superstructure, that property would become (once the concession is terminated) an integral part of the maritime demesne. The concessionaire is free to remove and take away only those objects that are easily detachable or that can be removed without destroying or inflicting damage to the maritime demesne.
The rights and duties of the parties with regard to movable assets that the operator brought to the site (eg, the operator’s equipment) depend on how they regulated this issue in the concession agreement. As far as the legislative framework is concerned, there is no generally prescribed obligation of a port operator to transfer any of its movable assets to the port authority once the concession is terminated. A reasonable concession grantor would, however, make sure that the concession agreement properly addresses this issue, providing appropriate legal tools to allow the continuity of the port’s or terminal’s operation to industry best practices upon the expiry or termination of any current concession agreement.
The law does not provide for compensation for any immovable assets that were constructed by the operator and transferred to the port authority upon termination of the concession. An exception is the situation where the concession agreement is prematurely terminated in the national interest, determined by the Croatian parliament. Even in such a case, the amount of compensation could not exceed the value of the constructed object at the time of transfer, decreased for the depreciation.
Potential investors in port infrastructure see these provisions as rather restrictive. In practice, the problem is resolved by allowing long-term concessions, enabling full depreciation of the newly built objects. Notwithstanding this, a more flexible legal framework could attract more interest in new port projects, especially those involving the construction of new port infrastructure.
Special purpose vehicles
Is a port operator that is to construct or operate a port in your jurisdiction permitted (or required) to do so via a special purpose vehicle (SPV)? Must it be incorporated in your jurisdiction?
The construction of port infrastructure has so far been mostly in the competence of the port authorities, and there have not been many cases of the introduction of new port operators. Therefore, it is not currently possible to make general statements. Considering the legal framework that is in force, and depending on the terms of the tender for a new port concession, the prospective port operator might be allowed to establish a Croatian SPV as this could significantly facilitate its daily operations during the construction or operation of the port. In that case, one should expect a detailed set of rules aimed to protect the concession grantor’s interests (eg, prescribing a minimal amount of the share capital and restrictions on free transfer of ownership interests).
Transferring ownership interests
Are ownership interests in the port operator freely transferable?
The ownership interests in the port operators are generally freely transferable, but it is (theoretically) possible to introduce restrictions by, for example, the concession agreement, or internally, by the operator’s statute.
Can the port operator grant security over its rights under the PPP agreement to its project financing banks? Does a port authority in your jurisdiction typically agree to enter into direct agreements with the project financing banks and, if so, what are the key terms?
According to the applicable laws, the transfer of the concession may be stipulated in the concession contract, in favour of financial institutions issuing loans to the concessionaire, for the purposes of the concession contract execution, or in the case of the concessionaire’s breach of concession contract, which may result in contract termination. In such cases, financial institutions may be authorised to transfer the concession contract to a third party, provided that such party fulfils the suitability criteria of a concessionaire set out in tender documents and in the notice of intent to award the concession.
In addition, the port operator can grant security over the entire concession by setting up a lien in favour of a financial institution, providing a loan for the purpose of performing the concession. The lien provides the financial institution, upon default, with the right to transfer the concession to a qualifying third party.
In practice, such and similar arrangements are exceptionally rare.
Agreement variation and termination
In what circumstances may agreements to construct or operate a port facility be varied or terminated?
The concession to construct or operate a port facility may be revoked (terminated) in the following cases of the operator’s breaches of the concession agreement:
- failure to construct, within the agreed period, the buildings or other objects for which the concession was granted;
- failure to comply with the provisions of Maritime Demesne and Seaports Act or terms of the concession;
- failure to exercise the concession rights, or using the concession in violation of the purpose for which it has been granted;
- exercising the activities that are not provided in the concession, or carrying out works that contradict the approved design;
- failing to settle the concession fees in due time; and
- failing to maintain and protect the maritime demesne in the manner determined by the concession contract.
If the concession is revoked pursuant to the above provisions, the concessionaire (ie, the operator) shall not be entitled to any compensation for early termination of the contract. In the vast majority of cases of contractual breaches, the concession is not revoked automatically - the concessionaires are generally allowed additional reasonable time for remedial actions, depending on the severity of the breach and the overall circumstances that caused it.
Regrettably, the above termination provisions make any terminal concession unbankable. No bank will grant credit to a terminal operator that might be terminated for any reason without compensation. Therefore, the legislative framework is indeed still rather restrictive.
It is to be mentioned that the new Concession Act (2017) provides for a substantially different concept concerning termination of the concession. While the Maritime Demesne and Seaports Act elaborates the reasons for which the concession may be revoked, the Concession Act provides for a list of reasons for unilateral termination of the concession agreement and the steps that need to be undertaken before such termination. Until the Maritime Demesne and Seaports Act is harmonised with the Concession Act and the Public Procurement Act, one may reasonably expect that the solutions applied in practice would be various and inconsistent.
Variations to the concession contract during its term can be allowed, by proposal of the concession grantor (port authority) or concessionaire (port operator), only when conditions and possibilities of change were foreseen in the tender documents and concession contract in a clear, unambiguous and precise way, and in several other specific circumstances.
Special cases allowing substantial changes to the concession contract include:
- threat to national security and defence of the state, environment or human health;
- special interest of Croatia, as determined in the Croatian parliament; and
- reasons specified in special laws.
Other than that, substantial changes to the concession contract during its term shall require the implementation of a new concession award procedure and the conclusion of new concession contract. The law sets precise criteria for what is considered a substantial change of the concession agreement. Among other circumstances, change of the concessionaire is also considered to be a substantial change that, by way of exception, can be permitted when it is the result of corporative restructuring of the concessionaire or when the concession contract is transferred to financial institutions. If the scope of the change may be expressed in currency, such a change shall not be deemed substantial if the value of the change does not exceed the threshold prescribed by the Concession Act.
The concession contract cannot be changed when the change is aimed at eliminating the defects in the concessionaire’s performance or consequences of improper performance or, when the change is aimed at compensating the risk of price increase, where such price increase is the result of market price fluctuations, which could have a significant impact on the performance of the concession contract and from which the concessionaire has secured itself by risk hedging instruments.
What remedies are available to a government or port authority for contractual breach by a port operator?
See question 35.
Must all port PPP agreements be governed by the laws of your jurisdiction?
Yes, all port PPP arrangements must be governed by the laws of Croatia.
How are disputes between the government or port authority and the port operator customarily settled?
The concession contracts that the port authorities typically enter into with the port operators envisage settlement of disputes in ordinary judicial procedure (administered by Croatian commercial courts) or arbitration.