Public procurement and PPP

Legislation

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 and 2018, 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.

Proposal consideration

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 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.

Model agreement

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.

Approval

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 Ministry of Economy.

The passing of a specific law is not required.

Projects

On what basis are port projects in your jurisdiction typically implemented?

Port projects are typically implemented on the basis of a concession contract.

Term length

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.

Apart from general division into works, services and mixed concessions, the law recognises several types of concession specific for the Croatian port sector:

  1. a concession for the performance of port activities that does not require the use or construction of new infrastructure, superstructure or other objects;
  2. a concession for the performance of secondary port activities that does not require the use or construction of new infrastructure, superstructure or other objects;
  3. a concession for the performance of port activities that requires use of the existing or construction of new infrastructure, superstructure or other objects; and
  4. 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 (1) and (2) may be granted by a competent port authority for a term of up to 10 years, and concessions under (2) and (4) 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 (3) and (4) 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 that 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.

Fee structure

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.

Exclusivity

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.

Other incentives

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 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;
  • economic activation of otherwise inactive property of the Republic of Croatia; 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 cofinancing and free lease).

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 benefits mostly relate to various tax incentives and incentives for capital investments and employment.