The issue of concessional water utility operation
The issue of concessional water utility operation
Prepared by:
Dr. Iván Szabó, solicitor
1054 Budapest, Alkotmány u 4.
2018.
The issue of concessional water utility operation
In 2011, Act CCIX of 2011 on Water Utility Service (hereinafter referred to as Water Utility Service Act) introduced a type requirement for the contracts on the operation of the water utility assets; eliminating the preceding legal chaos in the operation of water utilities.[1]
Paragraph (2) of Section 15 of the Water Utility Service Act distinguishes three types of operation contracts: leasing-operation contracts, asset-management contracts, and concession contracts.[2] To ensure the functioning of the type requirement, the Water Utility Service Act subjected the legal relationship between the party responsible for supply and the service provider to the preliminary approval of the Hungarian Energy and Public Utility Regulatory Authority (hereinafter referred to as HEPURA or, in this context, Authority), and Government Decree No. 58/2013. (II. 27.) on the implementation of certain provisions of Act CCIX of 2011 on Water Utility Service (hereinafter referred to as Implementing Decree) specified the minimum content elements of the operation contracts.[3]
The limitation of the ownership structure, in Paragraph (6) of Section 16 of the Water Utility Service Act, makes the concession scheme significant:
The Act limits the scope of potential owners of a water utility service provider by limiting it to local governments or the state regarding the leasing-operation and the asset-management scheme[4] as meaning that the party responsible for supplying the area of operation must have a proportion of ownership in such a company. The only exception the Act allows from such limitation is that it recognises a business association owned either by the state or the local government, or both, and it does not regard any potential partial ownership of employees as grounds for exclusion. Partially or entirely foreign-owned companies which obtained their operating company with respect to Paragraph (3) of Section 37 of the Water Utility Service Act are an exception.[5]
These provisions have particular significance in terms of our paper because—regarding the provision as argumentum a contrario—operation under a concession arrangement would allow for the indirect and (to some extent) direct participation of the private sector in the operation of water utilities[6], not only in the sense that national ownership does not have exclusivity, but also in the sense that participation of the party responsible for the supply in the operating company is not an absolute requirement.
Provisions regulating the concessional operation of water utilities are in Section 27–28 of the Water Utility Service Act, in a not really casuistic way. If we consider that the Act left only this option to involve private capital in water utility service operation, then it is quite surprising how concisely (a few sentences only) the legislator deals with this issue. We cannot even say that the many amendments adopted after the entry into force of the Water Utility Service Act made this provision that short, because additions have been added to these provisions since their promulgation in the Gazette.
Considering the incompleteness of the regulations, legal practitioners may suspect that, besides the primary forms of operation (primarily lease-operation contract agreements, secondly asset-management services, which are significant because of the large regional public operators), the legislator relegated concessional operation—which would open the way to private capital—to the background a little bit.
If any party responsible for supply would decide not to choose the “convenient” lease-operation contract or asset-management contract for any reason (e.g. due to its terminating water utility operation contract) but the concessional form of operation, then it would have to interpret the law at first; to do so, the primary tool is Paragraph (1) of Section 15 of the Water Utility Service Act[7]: This provision of the Act states that the basic principles of three acts of Parliament (in addition to the special provisions of the Water Utility Service Act) must be considered for the legal relationship aimed at water utility operation: these three acts of Parliament are (at the time of writing this paper) Act CXCVI of 2011 on National Assets (hereinafter referred to as National Assets Act), Act CXLIII of 2015 on Public Procurement (hereinafter referred to as Public Procurement Act) and Act XVI of 1991 on Concession (hereinafter referred to as Concession Act).
It must be noted here that, according to the Water Utility Service Act, a legal relationship aiming at (water utility) operation must be interpreted according to the principles in the provisions of this Act (the Water Utility Service Act), which, in my opinion, has the primary meaning that the legal regulations referred to define the basic principles the legal relationship for operation may not be in conflict with; this, however, could obviously not mean that these pieces of legislation should only be considered for the legal relationship pertaining to the operation, because the provisions of a dozen of pieces of legislation (both Hungarian and European) are also applied—I, however, do not have room enough to discuss them here.
The effects the three pieces of legislation referred to have on each other cause some issues in their interpretation, because neither the Water Utility Service Act nor its reasoning define the piece of legislation the provisions of which should be regarded as primary.
According to the theory of legal sources, these three pieces of legislation are on the same level in the hierarchy of legislation; hence, only the order they are listed in could be authoritative[8]. In this case, however—in view of the significance of these pieces of legislation—it is sometimes doubtful the provisions of which act of Parliament are authoritative in case of conflicts.
Regarding these three pieces of legislation, the oldest is the Concession Act, still, (due to the subject of the regulations) the most important one is the National Assets Act, because this act of Parliament defines the option of national utilisation (of public or municipal assets).
By contrast, precedence in the application of the law may be a question in case there is a conflict between the Public Procurement Act and the Concession Act (only in terms of the specific provisions of the pieces of law and not in terms of the basic principles); moreover, even more interesting conflicts can be identified in the combined application of the Water Utility Service Act and Government Decree 58/2013. (II. 27.) on the implementation of certain provisions of Act CCIX of 2011 on Water Utility Service (hereinafter referred to as Implementing Decree).
Having regard to the declarative nature of the National Assets Act, we are in a relative easy situation as to concessional operation: Paragraph (3) of Section 12 of the National Assets Act says that the state and the local government may assign the right to temporarily conduct exclusive business activities (except for specified activities) only in the form of a concession and as specified by a separate piece of legislation.[9]
Paragraph (9) of Section 12 of the National Assets Act reads that the state and the local government may establish and operate water utility facilities that are owned by the state or form part of the core assets of the local government without the conclusion of a concession contract as follows:
(a) establishment of a business entity in its exclusive ownership, where exclusive ownership does not exclude the partial ownership by employees;
(b) the state and the local government establish a business entity together in which they have exclusive joint ownership; such exclusive joint ownership, however, does not exclude the partial ownership by employees.
As we can see, this is almost identical to the regulations in the Water Utility Service Act; the only difference is that the National Assets Act does not provide for the party responsible for the supply or the organisation of a holding company.
Section 1 of the Concession Act refers to the National Assets Act, saying that sectoral pieces of legislation laying down the detailed rules (in our case this is the Water Utility Service Act) are to be interpreted within the context provided by the National Assets Act and the Concession Act.[10]
A concession contract under the Concession Act may be concluded for a fixed term; the maximum length of such term is 35 years. The sectoral act of Parliament may allow for (without a separate call for tenders) the one-off extension of the concession contract under the Concession Act—such an extension may, however, not be longer than half of the original term—, if the concessionary and the concession company have fulfilled all their obligations in a contractual and timely manner. As regards national assets, a construction or service concession under the Public Procurement Act may be awarded for a fixed term, maximum 35 years.
Enactment of Section 3/A[11] in the Concession Act by the entry into force of the new Public Procurement Act is in some kind of a contradiction with this, as this Section stipulates that, if the concession contract is also governed by the Public Procurement Act, then the differences specified in the Public Procurement Act must be applied in the concession process.[12]
Given that Section 3/A of the Concession Act reads “If the concession contract is also governed by Act CXLIII of 2015 on Public Procurements...”, The conditional expression necessitates the examination—only in terms of the content of the legal relationship aiming at concessional operation specified in the Water Utility Service Act—of the question whether the Public Procurement Act must be applied for all legal relationships aiming at concessional (water utility) operation.
Luckily, the reasoning for Section 8 of the Public Procurement Act is of some help in this regard:
“In the context of the compatibility of the requirements of the Act with the Hungarian regulatory environment, we must mention the relationship with Act CXCVI of 2011 on National Assets and Act XVI of 1991 on Concessions. First of all, it must be emphasised that these acts of Parliament apply a definition of concession different from that of the Directive, the specific subject of such concession is assigning the exercising of state monopolies. In order to separate the concepts from each other, this Act does not use the term concession contract for transposing the provisions of the Directive, but it applies the terms construction and service concession and concessional procurement process, referring to the fact that the provisions of the Directive regulate concessions as one form of the contracts that implement procurements. The rules of this Act apply to the concession contracts under the National Assets Act and the Concession Act which constitute a procurement. The new Directive does not pertain to agreements in which the state only allows the conduction of an economic activity, sets its conditions and, under which, providing the relevant service is not an enforceable obligation of the economic operator.”
Takin the issue in the context of concessional operation regulated by the Water Utility Service Act on the grounds of the interpretation of and the ministerial reasoning for Paragraph (1) of Section 8 of the Public Procurement Act, we can unequivocally determine that establishing concessional operation regulated in the Water Utility Service Act always constitute a procurement transaction, because it provides grounds for enforcing the fulfilment of the obligation of the Service Provider, because the Service Provider is obliged to provide the service at the level of the basic principles: Based on Point (d) of Paragraph (1) of Section 1 of the Water Utility Service Act[13]. At the same time, however, Paragraph (8) of Section 140 of the Pubic Procurement Act reads that, if the contract (i.e. public procurement contract) also falls within the scope of the Concession Act, then, logically, the provisions of the Concession Act pertaining to concession companies should be applied. [14]
Therefore, if the case is concessional operation specified in the Water Utility Service Act, then the provisions of the Public Procurement Act should always be applied. Having regard to the application of the special provisions of the Public Procurement Act, Section 3/A of the Concession Act specifies which provisions of the Concession Act are not to be applied:
The provisions of the Concession Act pertaining to the calling of concession tenders are not applicable[15], the provision specifying that, in case of the state, it is the sectoral minister having jurisdiction over the activity in question who is entitled—with the agreement of the minister responsible for supervising national assets—to call for tenders, however, stays and is applies.[16]
This means, at the time of writing this paper, that if, for example, the concessional operation of a public system or shares of a regional water facility in majority state ownership under Paragraph (1) of Section 10/A, which is also applicable, are sold within the context of a call for concession tenders, then not the minister for national development would act, while (I will elaborate this in detail below) such events are currently excluded in case of regional water facilities in majority state ownership, having regard to the fact that these business associations are among those listed in Schedule No. 2 of the National Assets Act.[17]
The Concession Act still requires the application of Paragraph (2) of Section 5, requiring the requesting of the opinion of the local governments affected if a public call for concession tenders is announced.
In this regard, it would be interesting to model the situation that, during the integration (most of which was in 2011–2014), regional public service providers gave shareholdings to many smaller and larger local governments so that these service providers can expand; the combined voting rights of such local governments did, however, not reach 10% of the total voting rights in these companies. At the same time, however, if the shares of a regional public water facility could be subscribed in a concession process, then—given the fact that they are affected in all aspects—the opinion of such small local governments must be requested before announcing such a call for concession tenders. The question still remains, to what an extent does such a requesting of opinions affect the course of the concession process.
In case of local governments, the person granting the concession remains unchanged, it is the local council that announces the call in the name of the local government.[18] The Concession Act does not deal with the issue of joint responsibility for supply (it only mentions “local government”, and does not mention the person announcing the call, it also does not settle the issue of joint calling or the association of local governments; the Public Procurement Act, Water Utility Service Act and the Implementing Decree, however, settle such issues reassuringly).
Section 7 of the Concession Act requires that the caller checks the official permit necessary for the activity subject to mandatory concession before launching the tender. In our case, it is in accordance with Paragraph (3) of Section 16 of the Water Utility Service Act and Chapter II of the Implementing Decree, requiring the preliminary approval of the invitation-to-tender procedure by the HEPURA.
The applicable provisions still include—hence, it must be applied and imposes additional responsibilities on the callers—that they must request the opinion of the economic and business chambers having jurisdiction over the area in question.[19] One can justifiably ask in this case as well how strong powers does the right to “give one’s opinion” mean in terms of the application; public procurement experts, however, approach to this issue from the perspective of having to attach this document to the application package, and what consequences it might imply if such a document is late or is missing.
In accordance with the provisions of the Public Procurement Act, Paragraph (1) of Section 8 of the Concession Act (announcement of the call for tenders) may not be applied; its Paragraphs (2) and (3) of Section 8 do, however, apply; their provisions are in line with the Sections of the Water Utility Service Act, the Implementing Decree and the Public Procurement Act.
According to Section 3/A of the Concession Act, Paragraph (1) of its Section 8 are not applicable, because, logically, the provisions of the Public Procurement Act are to be applied instead of them; however, the rest of the paragraphs apply.
As for the content of the call for concession tenders (regarding the necessary components), there are two points to be considered for concessional operation under the Water Utility Service Act:
According to Point (c) of Paragraph (3) of Section 8 of the Concession Act, the minimum amount of the concession fee is a necessary component of the tender:
Both the concession contract and the concession procurement are sui generalis contracts ensuring valuable consideration.
Paragraph (1) of Section 13 of the Concession Act says that the parties may regulate the assignment of an activity in a contract ensuring valuable consideration. According to Paragraph (2) of the same Section: if the sectoral act of Parliament requires the payment of a concession fee as a valuable consideration, then it may specify its minimum amount only. The payment of the concession fee should be regulated in the concession contract.
The law is interpreted with some controversy regarding the cases where the Parties are obliged to pay a concession fee, having regard to the fact that the reciprocity of the concessional legal relationship may not be limited to the payment of the concession fee only.
Paragraph (2) of Section 13 of the Concession Act provides the conditional option whether the sectoral act of Parliament imposes the obligation to pay concession fees.
In our case, the Water Utility Service Act, as a sectoral act of Parliament (and also the Implementing Decree) does not say anything about the concession fee.
It is therefore still a question whether the concession fee is an obligatory component of the concession contract in case of concessional operation under the Water Utility Service Act.
The fact itself that the concession contract is sui generis a reciprocal contract does not imply that the consideration for assigning the exercising of the concession right is always the concession fee (a monetary amount). According to Tekla Papp, for instance, “As a consideration for the assignment of these rights, the ownership of the asset items
generated by the concessional investments and belonging to the exclusive ownership of the state or the core assets of local governments [205]
and the concession fee belong to the state or the local governments.[206]”[20]
As mentioned above, Point (c) of Paragraph (3) of Section 8 of the Concession Act mentions the minimum amount of the concession fee among the potential components of the concession procedure.
The fact alone that the consideration for the concession contract could be more than the concession fee and that, in our case, neither the sectoral act of Parliament nor the Implementing Decree specifies the minimum amount of the concession fee implies that concessional operation under the Water Utility Service Act is possible without paying the concession fee. Considering concessional operation under the Water Utility Service Act, the consideration could also be the acquisition of ownership of the asset items generated during the concession by the party responsible for the supply.
If we wanted to approach this issue from the perspective of investments, then the Water Utility Service Act does not provide separately for the investments among its provisions concerning the concessional operation; hence, we must in this case rely on the Concession Act and the other provisions of the Water Utility Service Act:
According to Paragraph (2) of Section 15 of the Concession Act, the asset item considered exclusive public property or a core asset of a local government and generated in connection with the activity subject to mandatory concession is transferred into the ownership of the state or the local government at the time of commissioning, under the conditions set out the concession contract.
„Paragraph (1) of Section 15: If the activity subject to mandatory concession is related to exclusive public property or the core assets of a local government, then the conclusion of the concession contract does not entail any change in the ownership of such property. A sectoral act of Parliament may provide alternative provisions for the ownership of natural treasures extracted under a mining concession contract.
Paragraph (2): The asset item considered exclusive public property or a core asset of a local government and generated in connection with the activity subject to mandatory concession is transferred into the ownership of the state or the local government at the time of commissioning, under the conditions set out the concession contract.
As the Water Utility Service Act, a sectoral act of Parliament, does not provide any relevant guidance in its provisions on concessional operation; hence, one must apply the general rules for the investments, within the meaning of which water utility investments are generally performed by the party/parties responsible for supply. [21]
Section 8 of the Water Utility Service Act, however, provides the opportunity to have the water utility investment performed by a third person different from the party responsible for the supply and the service provider:
According to the second sentence of Paragraph (1) of Section 8 of the Water Utility Service Act: “If the water utility is not implemented in a state or municipality investment, then the investor shall transfer the ownership of the water utility for the party responsible for supply when the water utility is commissioned. The Parties shall conclude a contract on the transfer.” [22]
Regarding the concessional operation specified in the Water Utility Service Act, the caller party responsible for supply and the person winning the call for concession tenders, the holder of the concession right, may agree that the consideration for the concession would be the water utility investments created by the concessionary (in this case, not the operating concession company, if such is established) during the term of concession.
The situation is completely clear in case of construction concessions, as the subject-matter of concession is, in our case, the creation, or operation, of a new water utility, which is transferred to the ownership of the party responsible for supply at the time of commissioning. In that case, the caller and the concessionary can make an agreement by which the creation of the product itself is the consideration for the concession right. In such a case, therefore, it is not necessary to stipulate a separate concession fee.
The primary question for this paper is whether it is mandatory to stipulate a concession fee for a purely service-type concession.
In my opinion, the caller can call for both service and construction concession tenders at the same time and it can also combine the two concessions; in such a case, however, the Public Procurement Act strongly separates the two types of concession (the service concession and the construction concession); accordingly, it supports the separation of the objective components of the purchase, meaning that separate contracts must be concluded for the service concession and the construction concession.[23]
In that case we have the question whether—having regard to the construction concession, where the consideration for the concession activity is the transfer of product created to the ownership of the parties responsible for supply—the concession fee can be omitted for the service concession?
In my view, it is not possible due to the specificities of the sectoral act of Parliament; the property, the result of the investments made by the concessionary, transferred to the ownership of the state or the local government could constitute the consideration instead of the concession fee.
To meet the requirement of reciprocity, a concession contract for water utility operation within the framework of a purely works concession requires, in my opinion, that a concession fee is stipulated as consideration for the concession right. Thought it may not be excluded that certain investments—which then are transferred by the commissioning to the ownership of the party responsible for supply—are implemented in case of a purely works concession; the nature of works concession (i.e. that the providing of a public service itself is the subject-matter of concession), however, implies that their value could not be equal with the right to provide the service. If the value of the water utilities to be created in the form of investments during the term of concession was in balance with the consideration for the assigned right to provide services, then both the construction and works concession should be launched in separate calls.
In this context, we must examine the question whether the concession fee has the same legal fate as the “use fee” specified in Paragraph (2) of Section 18 of the Implementing Decree.
At first sight, the answer is yes, because the “use fee” is a fee paid for exercising the right of water utility service; its concept is, therefore, identical to the concession fee.[24]
The question is, however, quite controversial, because, according to the Water Utility Service Act, a use fee shall apply if it is stipulated in a piece of legislation or the operation contract.[25]
We could see that, according to the Concession Act, the concession fee is not an unconditional component of the concession fee; moreover, both the Water Utility Service Act and the Implementing Decree are “silent” regarding the minimum concession fee; therefore, the condition “required by legislation” does not apply. In case of concessional operation, the operation contract does not necessarily fall within the scope of interest of the caller and the concessionary; having regard to the fact that—apart from the exceptional case where the concessionary proves the service(s) in person, without establishing a concession company—a concession company must be established for the actual operation. The Implementing Decree does not specify the use fee (even less the concession fee) among the mandatory components of the operation contract.
According to the concession-related provisions of the Water Utility Service Act, the concessionary is not obliged to establish a concession company if a consumer equivalent of 150,000 does not apply for the supply area, consequently, for a supply area where a consumer equivalent of 150,000 applies, the caller can oblige the tenderer to establish a concession company; according to Paragraph (2) of Section 27 of the Water Utility Service Act, however, even the tenderer may decide to establish a concession company.[26]
We can see that, based on the current regulations, the concession fee is, in terms of the law, not regarded as identical with the water utility use fee specified in Section 18 of the Water Utility Service Act (it is not provided for in any piece of legislation, and it is not a component of the operation contract made between the party responsible for supply and the concession company / operator; however, it could be a component of the concession contract, which is, however, not regulated by the Water Utility Service Act.).
In my opinion, posting and using the concession fee in a way identical to the use fee specified in Section 18 of the Water Utility Service Act would, in practical terms, obviously be in the interest of the caller/contracting authority/party responsible for supply and the concessionary; therefore, it would be practical if the legislator settled this issue by specifying the minimum concession fee for works concession and clarifying that it should be recognised and treated according to the Water Utility Service Act.
Concessional operation is special not only due to the fact that this is the only form of operation where private capital—either from technical investors or financial investors (or both)—may be involved in the operation of water utilities, but it is also a special, triple legal relationship (party responsible for supply/caller and holder of concession rights/concessionary and concession company/operator).
The Water Utility Service Act regulates basically the legal relationship between the party responsible for supply (the party giving the concession rights, the caller) and the water utility provider, and, in my view, it is not prepared for the situation where the real service provider (the concession company, if established) and the person, or consortium, being awarded the works concession (the concessionary or the holder of the concession right) can separate.
Moreover, neither the Water Utility Service Act or the Implementing Decree can appropriately treat the situation that concessional operation is not fully compatible with the conventional setup based on the legal relationship between the party responsible for supply, the service provider/operator and HEPURA, holding constitutive and declarative powers.
As we mentioned above, concessional operation allows for two concession types, construction concession and works concession.
For the works concession, Paragraph (5) of Section 8 of the Public Procurement Act provides the guidance:[27]
“Paragraph (5) of Section 8: Works concession is a contract for pecuniary interest concluded in writing by a contracting authority under this Act, whereby the contracting authority purchases the public works referred to in Paragraph (4) and the consideration by the contracting authority for the works to be carried out consists either of the right to exploit the work for a specified period of time or of this right together with monetary consideration; the operational risk related to the exploitation shall be borne by the concessionaire.
Paragraph (7): For the purposes of paragraph 5 and 6, the concessionaire is deemed to assume operating risk, where it is not guaranteed that the concessionaire can recoup the investments made or the costs incurred in establishing and operating the works or the services which are the subject-matter of the concession. The potential loss of the holder of concession rights may not be nominal or ignorable only. The operating risk shall encompass demand or supply risk or both and its existence may only be established on the basis of risks stemming from factors which are outside the control of the concessionaire.)”
Let us examine a basic situation:
A municipal local government or governments or their association decides, for some reason, that they do not want to use the easy-to-use leasing-operation contract or asset-management contract, but a concession contract for water utility operation, and they want to conduct a concession procurement procedure for the given supply area. The expression “for some reason” is, of course, somewhat ironic, because the leasing-operation or asset-management scheme only requires a symbolic proportion of ownership in an already existing water utility service provider, without a public procurement procedure. [28]
The “some reason” tends to be that the municipalities want to involve private capital; hence, they apply the sole form of operation allowing for the appearance of the private sector in water utility services; regardless, state-owned service providers have the option to submit a tender on the call for concession tenders; moreover, this setup could be attractive to them, because it is not necessary to provide the party responsible for supply with a share in the service provider, and this can “simplify” decision-making in the company.
As we have already mentioned it when we discussed the issue of applicable law: a concessional procurement procedure must be conducted but, according to Paragraph (8) of Section 140 of the Public Procurement Act, provisions of both the Concession Act and the Implementing Decree must also be applied.
Approaching from the perspective of the caller, the first exciting question we can face in preparing such a transaction—and which will basically determine the legal issues arising in connection with concessional operation—is the consumer equivalent in the supply area. [29]
Having regard to Paragraph (1) of Section 27 of the Water Utility Service Act, if the consumer equivalent available in the supply area subject to the concession reaches or exceeds 150,000, then the caller/contracting authority may oblige the tenderer to establish a concession company.[30]
If the consumer equivalent of a given supply area is below 150,000, then establishing a concession company may not be mandatory. It is another question that the concessionary, winning the tender, may, according to Paragraph (2) of Section 27 of the Water Utility Service Act, still decide to establish a concession company, with consideration of Points (a) and (b) of Paragraph (2) of Section 27 of the Water Utility Service Act, even if the caller is not requiring it as mandatory. We will investigate these situations in detail below.
Let us assume that the consumer equivalent available on the supply area subject to the concession granted by the party responsible for supply is below 150,000, and the tenderer does not want to establish a separate concession company.
In this case, we cannot really imagine any other solutions than that where the concessionary, i.e. the tenderer, itself provides the concessional service, i.e. the sectoral services, which are: potable water and sewage. This also implies that the concessionary could not be else than a water utility service provider already having an operating license, having regard to the fact that it would otherwise not meet the conditions in Paragraph (3) of Section 8 of the Concession Act and Section 35 of the Water Utility Service Act.
On the current Hungarian water utility market, such a situation would considerably narrow the scope of potential tenderers, given that only those non-state-owned service providers could count, apart from state-owned service providers, which could, in the light of Paragraph (2) of Section 83 of the Water Utility Service Act, keep their operating licenses when the Water Utility Service Act entered into force. [31]
This personal scope is further narrowed by the rule that non-state-owned service providers which were in a legal relationship aiming at operation on 15 July 2012 could keep their operating license until the date specified in their legal relationship for or aiming at operation and already existing at the entry into force of the Act. This period can, however, easily be shorter than a concession period in a current call for concession tenders.
(For instance, a privatised water utility service provider, which though holds a valid permit to provide services under Paragraph (5) of Section 37 and Paragraph (2) of Section 83 of the Water Utility Service Act, its service contract made withe local government(s) still before the entry into force of the Water Utility Service Act will expire in a few years. These service providers may, due to the ownership structure specified in Section 16 of the Water Utility Service Act, may not extend their permit because that would mean the establishment of a new legal relationship under Paragraph (3) of Section 83 of the Water Utility Service Act. If the tendering conditions of the concessional procurement preclude restrictions for the period covered by the permit as an eligibility criterion, then these companies may, in legal terms, enter the tender procedure; without establishing a concession company, however, they could not meet the tender criteria, because their permit would terminate in the meanwhile.)
Though this scheme is easy to treat in terms of operation and relatively simple in terms of permit review, it is quite restrictive of competition in terms of the goals (the opportunity to involve technical or financial investors) of concessional operation (on the Hungarian water utility market, the number of privatised service providers which could provide services directly is very low, financial investors are also out of the question in this scheme).
It is, however, without any doubt that this model is feasible and operational within the current legislative framework.
In the case where a technical or financial investor not holding shares in a water utility service provider currently having an operating license in Hungary wants to enter the call for concession tenders, then it has not other option but to establish a concession company.
By default, the first question remains: does the consumer equivalent available in the supply area subject to the concession reach 150,000? If yes, the situation is relatively simple: the winner of the call for concession tenders establishes a concession company, applying for a water utility service and operation permit from the HEPURA. (Getting the operating license is another question, but I will discuss this issue later.)
The case becomes especially interesting if the supply area subject to the concession does not meet the condition specified in Point (b) of Paragraph (2) of Section 37 of the Water Utility Service Act, i.e. the consumer equivalent is below 150,000.
In that case, the caller/contracting authority may not oblige the tenderer to establish a concession company; if the tenderer still decides to establish one, then, according to Section 27 of the W, the so-established concession company must meet one of the following conditions—of course, in addition to the technical, financial conditions provided for by the Water Utility Service Act and the Implementing Decree:
(a) the concession company was established by a water utility service provider holding an operating license issued in consideration of Point (d) of Paragraph (2) of Section 37, and it has assumed joint and several responsibility for fulfilling its contractual obligations, or
(b) in case of joint tenderers, the water utility service provider among them, holding the operating license under Point (a), is also a member of the concession company, and has assumed joint and several responsibility for its contractual performance.
(Remark: According to Paragraph (2) of Section 32 of the Implementing Decree, such a supply area may not have less than 100,000 consumer equivalents, because the Authority would otherwise not issue the operating license.)
(c) the consumer equivalent confirmed by the Authority is below 100,000 for the water utility systems to be operated there.
Let us first examine the concession company under Point (a) of Paragraph (2) of Section 27 of the Water Utility Service Act:
If we examine it in more detail, Point (a) of Paragraph (2) of Section 27 provides further restrictions concerning the potential personal scope: the concession company was established by a water utility service provider which held the consumer equivalent of at least 150,000 under Paragraph (2) of Section 37 of the Water Utility Service Act at the time the licenses were issued, and this “mother service provider” assumed joint and several responsibility for the contractual obligations of the so-established concession company.
As I have already mentioned in the foregoing, there are service providers have obtained their license to provide services, in consideration of the previously cited Paragraph (2) of Section 83 of the Water Utility Service Act, without having the required consumer equivalent. These service providers are therefore excluded from this personal scope.
I would like to make the remark here that, in my opinion, the Act puts it wrongly when it uses the past tense to describe concession companies (it uses the term “established”), because both Section 20 of the Concession Act and Section 140 of the Public Procurement Act define the establishment of a concession company as a future obligation of the winner of the concessional procurement procedure, while this provision of the Water Utility Service Act regards the establishment as a given fact.
If Paragraph (2) of Section 27 of the Water Utility Service Act mentions concession companies “established as a result of the decision of the winner of the concession process in the permitting procedure”, then this implies that such a concession company does still not exist at the time of concessional procurement; consequently, it is established during the obtainment of the license to provide services, after winning the call.
We should stop here and study the question in more detail: in terms of the concession company, Section 20 of the Concession Act only requires that the winner of the call for concession tenders must establish a concession company within 90 days and it must be a member of that company; it, however, assigns the actual regulation to the sectoral piece of legislation: “if the sectoral piece of legislation does not provide for otherwise.”
Paragraph (1) of Section 20: Unless otherwise provided for by a sectoral act, the signatory of the concession contract must establish a business company with registered seat in Hungary (hereinafter referred to as Concession Company) to conduct the activity subject to mandatory concession, and the signatory must be a member of this company. In the event where the deadline is not met, the state or the local government may terminate the concession contract[32]
In our case, the Water Utility Service Act, as sectoral piece of legislation, has a different provision for the concession company under Point (a) of Paragraph (2) of Section 27 of the Water Utility Service Act; namely, that it was established by a water utility service provider, holding an operating license, which held the consumer equivalent specified in Point (b) of Paragraph (2) of Section 37 at the time of obtaining the operating license.[33] This provision of the Act, however, does not specify any criterion that the winner of the call for concession tenders should hold shareholdings in this concession company. This interpretation of the Act is supported by Point (b) of Paragraph (2) of Section 27, expressly providing for that the water utility service provider assuming the responsibility for the performance of the concession company must have a share in the concession company[34].
This Point could—emphatically in theory only—lead to a situation where a call for concession tenders under Paragraph (2) of Section 27 of the Water Utility Service Act is launched for a supply area. A foreign technical or financial investor without any shareholding in a Hungarian water utility service provider could also enter the call for concession tenders. This would, in my opinion, be feasible as follows:
After winning the tender, I do not see anything against the fact that this tenderer/investor enters into an agreement with a company holding a license to provide water utility services in Hungary that the other company (the one holding the license to provide services) establishes a company which will be the concession company performing the operation in the area covered by the concession, and assumes joint and several liability for its contractual obligations under Point (a) of Paragraph (2) of Section 37 of the Water Utility Service Act.
In the overwhelming majority of the cases, this would be—having regard to the specificities of the regulations in the Water Utility Service Act—a state-owned business company; moreover, the provisions of the National Assets Act would not be violated at all, because there is nothing against the fact that a state-owned business company establishes a new business company, only the guarantee requirements regulated in the National Assets Act must be met: consent of the holder of ownership rights, etc. (I would like to make the remark here that even state-owned regional water utility facilities could establish such a company, because they do not fall within the scope of the restriction in Paragraph (6) of Section 8 of the National Assets Act[35], because, having regard to Section 16 of the Water Utility Service Act, none of them is in exclusive state ownership.)
Considering the provisions of the Water Utility Service Act, two extreme models can be envisaged: In the first one, if one interprets the Water Utility Service Act literally, the winner of the concession procedure does not participate in the concession company, because Point (a) of Paragraph (2) of Section 27 does not oblige it to do so. One could, of course, argue that Paragraph (1) of Section 20 of the Concession Act would apply in this case (it must establish a Hungarian business company and be a member in it), but only if the sectoral act does not provide otherwise. It is a matter of interpretation whether it provides otherwise in this case at hand?
The other extreme model would be the opposite of this: after a water utility service provider holding an operating license has established the concession company, it transfers its shareholding in it to the winner of the call for concession tenders. If the given water utility service provider is not in majority state or municipal ownership (and held the necessary consumer equivalent when it obtained its operating license), then there is nothing special against it. If it is state-owned, then it has to comply with Section 8 of the National Assets Act to transfer its shareholding.
It is clear that the water utility service provider must guarantee the performance of the contractual obligations of the concession company (which are different from those in the concession contract, because those are the obligations of the concessionary) until the end of the concession period; this can, however, be solved in a business agreement between the concessionary and the establishing company. (The concessionary purchases a quasi-guarantee from the water utility service provider.)
I would like to stress again that this is a theoretical legal rationale only, because such a legal transaction would hardly be economically rational in today’s Hungarian water utility market; moreover, the below detailed reasoning imply that it is doubtful that a so-established, transferred concession company can get an operating license.
On the other hand, I am of the opinion that this literal interpretation of Point (a) of Paragraph (2) of Section 27 of the Water Utility Service Act is in conflict with the requirements defined in Paragraph (1) of Section 15 of the Water Utility Service Act, stipulating that a legal relationship aiming at operation requires the application of the “principles” of the National Assets Act, the Public Procurement Act and the Concession Act; consequently, it would not stand the test of judicial practice.
In my view, both the nature of concession, a legal institution, and the interpretation of the Concession Act imply that the stipulation in Section 20 of the Concession Act, namely that the winner of the call for concession tenders, the holder of the concession, must participate in the concession company, must be applied; currently, however, the Water Utility Service Act is not clear in this respect; hence the legislator must settle this issue. All that does not change, however, the fact that the Concession Act does not limit the shareholding of the concessionary in the concession company, and it may, subject to the relative legal relationship of the parties participating in the concession company, increase or decrease during the concession period.
The stipulation in Point (b) of Paragraph (2) of Section 27 of the Water Utility Service Act is much more compatible with practice: this provision is based on joint tenderers and assumes that the supply area subject to the concession does not have a consumer equivalent lower than 150,000; a water utility service provider that held a consumer equivalent of 150,000 at the time of obtaining its operating license must, therefore, participate in the concession company, and this licensed company must assume joint and several responsibility for the contractual obligations of the concession company.[36]
Let us again stop here for a moment and check what the legislative stipulation that the water utility service provider entering the tender as a consortium member must assume joint and several responsibility for the “performance of the contractual obligations” of the concession company actually means.
This is another case where a piece of legislation does not apply due diligence in formulating a legal institution; hence legal uncertainty of some degree is generated: the formulation that an already-licensed water utility service provider must assume joint and several liability for all contractual obligations of the concession company is clearly incorrect, and, to some extent, also unjust towards the water utility service provider entering the tender as a consortium partner, as it must also honour liabilities associated with the obligations of the concession company that are not associated with the water utility service providing of the concession company. Such can be, for instance, the business activity specified in Paragraph (4) of Section 43 of the Water Utility Service Act, but it can be any other contract that is not explicitly related to the activities of public interest at the concession company, as water utility service provider.
Interpretation of this piece of legislation makes it clear that this provision was included in the Act because, for the case where the concession company cannot prove a consumer equivalent of 150,000 underlying the business license, the legislator wanted to ensure that a strong and technically compliant water utility service provider, in the background of the concession company, “guarantees” that technical conditions apply. It would, however, be more correct to clarify these conditions in the text of the act.
I would remark here that it is theoretically possible that an already-licensed water utility service provider participates in the concession company that complies with Point (b) of Paragraph (2) of Section 37, but obtained its business license in consideration of Paragraph (2) of Section 83 of the Water Utility Service Act; this license would, however, expire before the end of the period indicated in the call for concession tenders. What about joint and several liability in this case? We can conclude that, since the act, if read literally, does not require the tenderer to “assume professional responsibility”, it is a possible situation where the water utility service provider, participating in the concession company and providing the guarantee, loses its business permit during the concession period, but it continues as a legal entity, which complies with the legal requirements, though formally only.
The question what the indemnity obligation of a participant in the concession company precisely means in such a situation would, therefore, require regulation.
Let us get back to the basic situation: we have a party responsible for supply or a set of such parties, which would want to involve private capital in its water utility service. The operating license of the previous service company expires for some reason. The consumer equivalent available in the supply area is below 150,000; the contracting authority may, therefore, not require the establishment of a concession company and the tenderer does not want to establish one.
As I pointed it out in the foregoing, the concession activity, the water utility service, will be provided by the concessionary / holder of the concession right. In that case, it is clear that only a Hungarian service provider currently holding a water utility service license and a consumer equivalent of 150,000 may enter the call for concession tenders.
It is clear that the Water Utility Service Act and the Implementing Decree prefer this single case (for the Implementing Decree, I will explain the reasons in detail).
One could, however, justifiably ask whether this narrowing the scope of tenderers violates competitive neutrality, with special regard to the international nature of the legal institution of concession?
Only state-owned water utility service providers and some other service providers that are non-state-owned or just partially state-owned could comply with the conditions mentioned in the example above, and their scope is also limited to those ones which held a consumer equivalent of 150,000 when they obtained their operating licenses.
Let us assume that a suitable service provider still wants to enter the call for concession tenders, and it wants to provide water utility services directly, without establishing a concession company. It submits the best bid in the call and wins the concession procurement; hence, it concludes a concession contract with the party responsible for supply.
Subsequently, according to the provisions of the Implementing Decree, it must request an operating license for the supply area subject to the concession, and must request the amendment of its already-existing business license from the HEPURA, for the area subject to the concession.
In this case, it is to comply with Section 32 of the Implementing Decree:
“Paragraph (1) of Section 32: The Authority—in the permit review procedure concerning the water utility service provider and with a view to the conditions of efficient operational organisation of the water utility service—checks operational efficiency and considers its effects.
(2) The Authority shall not issue a license to operate water utility systems directly supplying the town or towns indicated as supply area to the petitioner if
(a) the supply area subject to the procedure and the already-licensed supply are geographically not connected and it reduces operational efficiency, and
(b) the consumer equivalent confirmed by the Authority is below 100,000 for the water utility systems to be operated there.
(3) The Authority may not examine the effect the distance between geographically not connecting supply areas on operational efficiency, if the distance between the closest towns of such separate areas is more than 40 km, calculated from the border of the inner belt area”
I will deal with the question how Point (b) of Paragraph (2) of Section 32 of the Implementing Decree makes concession possible because our basic case is that the supply are has the consumer equivalent of 150,000.
One can, however, still see that the Implementing Decree is already limiting the scope of potential tenderers, as the potential service providers
- must already hold a water utility service license; therefore, it can be an operating, Hungarian water utility service provider only,
- it already held a consumer equivalent of 150,000 at the time of obtaining the business license and
- the distance between its current supply area and the supply area concerned by the concession is not greater than the 40 km specified in Paragraph (3) of Section 32 of the Implementing Decree.
Such limitation of the scope of potential tenderers makes the entire legal institution of concessional operation quite doubtful. One can justifiably ask how motivated a party responsible for supply and a state-owned service provider can be to go through such a problematic concession procurement process if they come across the conditions specified in Section 32 of the Implementing Decree, while it could conclude a leasing-operation contract with the potential service providers without a concession procurement process under Paragraph (1) of Section 29?
Paragraph (1) of Section 29: Within the meaning of the provisions concerning the exclusive activities of the state and the local government of the National Assets Act, a legal relationship aiming at operation can be established without a concession process if the requirements in Paragraph (6) of Section 16 of this Act are met (leasing-operation contract).[37]
As specified in the introduction of this study, concessional operation is, despite its many disadvantages, the only option to involve technical or financial investors into water utility operation.
As elaborated in the foregoing, a technical or financial investor that does not have any shareholding in a Hungarian water utility company holding a operating license can, practically, without the establishment of a concession company, not enter a call for concession tenders (because it cannot perform the concession service).
Let us assume that a foreign investor wants to enter a call for concession tenders launched with the basic conditions—even as a member of a consortium with a financial investor. After the concession procurement process, if the notice does not require it originally, then, using the option in Paragraph (2) of Section 27 of the Water Utility Service Act, it establishes a concession company which then requests a license from the HEPURA, concerning the operation of the water utility services in the supply area subject to the concession.
The question is: Can this concession company be given a water utility service license and an operating license?
Based on the legislation in force, it seems that it may not:
According to the still-applicable Section 21 of the Concession Act:
Paragraph (1) of Section 21: If the activity subject to mandatory concession requires an official permit under a separate piece of legislation, then the concession company may operate if it acquires it. The concession contract stipulation obliging the person or body signing for the state or the local government to issue an official permit is null and void.
(2) Withdrawal of the official license or the decision of the public administration body of appropriate jurisdiction forbidding the pursuance of the activity subject to mandatory concession until the elimination of the unlawful situation shall not render the concession contract invalid.
(3) If the concession company does not become entitled to pursue the relevant activity within six months as from the conclusion of the concession contract or the communication of the decision withdrawing the official license and forbidding the pursuance of the relevant activity, then the person or body acting on behalf of the state or the local government shall become entitled to terminate the concession contract.[38]
In our case, the HEPURA issues the water utility service license and the operating license necessary for the service subject to the concession, i.e. the water utility service under Section 35 of the Water Utility Service Act and according to Chapter II of the Implementing Decree.
The call must be conducted applying the provisions of the Implementing Decree, also applying the provisions of the Public Procurement Act and considering the specialties of the Concession Act. In this case, the issue lies within the fact that the Implementing Decree, similarly to the Water Utility Service Act, treats concession very vaguely and obscurely.
In this case where a foreign technical investor and a financial investor form a consortium to enter a call for concession tenders and establish a concession company in the licensing procedure, the newly established concession company will apply for a license from the HEPURA.
If we consider the requirement that the application procedure outlined by the provisions of the Implementing Decree must be conducted, than it is very interesting that the mandatory components of the application procedure include the requirement of Point (b) of Paragraph (2) of Section 5 of the Implementing Decree, stating that the applicant must attach a copy of its current water utility service license.
A newly established concession company does not have that.
In the absence of authoritative practice of public agencies, the question how the HEPURA would treat this question still remains: Does it, from the start, apply the interpretation that this point can logically be ignored for a concession company?
The Implementing Decree does not provide any guidance regarding the ignorance of this attachment; still, there is not any other solution to solve this situation than that the Authority logically ignores this provision in the licensing procedure, as it would be in conflict with Paragraph (2) of Section 27 of the Water Utility Service Act, regulating newly established concession companies.
In Point (c) of Paragraph (2) of Section 5,[39] the Water Utility Service Act still requires the applicant to attach the copies of official decisions that are based on Paragraphs (2), (3) and (5) of Section 3 of the Water Utility Service Act and became non-appealable in the 3 years preceding the launching of the tender, which is, presumably, a defect of legislative drafting at the time of writing this study, because it is uninterpretable in this context, as it contains administrative time limits.[40]
At the time of writing this study, the only known case where the HEPURA approved of concessional operation was the call for concession tenders launched by the Town of Felsőzsolca, where the only tenderer was the Észak-Magyarországi Regionális Vízmű Zrt (Northern Hungarian Regional Water Works Plc), which operates as the concessionary.
It must, however, be noted that the documents do not have all the information: based on available data, the Local Government of Felsőzsolca launched a tender procedure for supplying potable water under a concession contract; it first submitted it to the HEPURA for approval, which approved it with its decision No. KSFO 2015/849-4 (2015)[41]; in 2016, however, the tender documentation was first adapted and then resubmitted to the Authority.
It is remarkable that the first tender announcement concerned the “operation of water utilities”; the reworked tender documentation, however, concerned the “concessional operation of water utilities”.
In its Decision No. KSFO 2016/689-3 (2016), the HEPURA approved of the tender announcement again. It is an interesting fact that, among the substantive components of the tender, the decision mentioned that the tender document required that the decisions under Paragraphs (2), (3), and (5) of Section 3 of the Water Utility Service Act and concerning the past 3 years must be attached.
According to the Decision: “in this context, it is to be established that the tender documentation includes the provision in Point (c) of Paragraph (2) of Section 5 of the Implementing Decree currently in force; while, considering the text in force of the Water Utility Service Act, it is also to be established that, within the meaning of the amendments of the Water Utility Service Act, entered into force on 4 July 2016, the Paragraphs referred to were specified in Section 5/E of the Water Utility Service Act”. [42]
It is known, based on the public notice disclosed on the website of the Local Government of the Town of Felsőzsolca, that the call for concession tenders was announced on 15 August 2016.[43] As for the public notice, it is interesting that, though it refers to the Concession Act and the Water Utility Service Act and does not mention the Public Procurement Act, it still refers to Act LVII of 1995 on Water Management (hereinafter referred to as Water Management Act), which is not a problem, though Paragraph (4) of its Section 4 reads that issues related to water utility operation are regulated by the Water Utility Service Act. [44]
The abstract from the minutes of the closed meeting of the Municipal Council of the Local Government of the Town of Felsőzsolca, held on 16 November 2016, reveals that the only tenderer was Észak-magyarországi Regionális Vízmű Zrt, and the Local Government announced this tenderer as the winning tenderer. [45]
We could see that legal regulations concerning concessional operation is extremely difficult to interpret in the relation of the Concession Act, the Public Procurement Act and the Water Utility Service Act. Moreover, the striking controversies in the Water Utility Service Act and the Implementing Decree give rise to serious issues in the application of the law. Neither the established judicial practice (as there is none) nor the practice of the Authority may be relied on in eliminating such controversies. It is to be established that the current regulations operate with limitations that are quite restrictive of competition.
The issue does still not appear that significant due to the scale of concessional operation; it could, however, cause serious legal uncertainty in a major international concession process.[46]
Despite all these difficulties, one cannot ignore the option of concessional water utility operation, given that the increasing lack of funds in the water utility sector has again raised interest in involving the business sector into the operation of water utilities.
One must consider that, until current legislation remains unchanged, the only possible option to do that is concessional operation.
------------------------------------------
[1] promulgated on 31.12.2011.
[2] for more detail, see: Dr. Iván Szabó: Forms of operation and integration options after the entry into force of the Water Utility Service Act. Vízműpanoráma 4/2012.
[3] It must be added here that the Water Utility Service Act did not only introduce the type requirement but it also introduced a requirement of company form in Paragraph (2) of its Section 36, where it lays down that the license to operate as a water utility service provider can be obtained only with the company form of limited liability company or private company limited by shares. In this case it is important only to the extent that the Concession Act does not specify the legal form the concession company must have; the Water Utility Service Act, however, sets out the mandatory requirement that the company form must be either limited liability company or private company limited by shares.
[4] Paragraph (6) of Section 16 of the Water Utility Service Act
[5] Paragraph (3) of Section 37 of the Water Utility Service Act: The application for operating license of a petitioner not meeting the requirement specified in Point (d) of Paragraph (2) may not be rejected if the petitioner has an existing operating contract concluded before 31 December 2011 and the rejection of its application for operating license would conflict with international investment-protection treaties Hungary is party to.
[6] What I mean under direct participation is that in certain cases a Hungarian water utility service provider (partly or entirely in private ownership and holding a valid business license) can provide this kind of service directly.
[7] Paragraph (1) of Section 15 of the Water Utility Service Act: The establishment, content, amendment and termination of a legal relationship aiming at water utility operation are governed by the principles specified in the provisions of the National Assets Act, the Public Procurement Act and the Concession Act, and the special rules in this Act.
[8] Paragraph (2) of Section 1 of the Water Utility Service Act reads, for instance, that, in the event of a conflict between the basic principles, the basic principle having a higher rank in the sequence given in Paragraph (1) of the same Section should be applied (see the Water Utility Service Act).
[9] see: Paragraph (3) of Section 12 of the National Assets Act
[10] Paragraph (1) of Section 1 of the Concession Act
[11]in effect as from 01.11.2015.
[12] Paragraph (1) of Section 3/A of the Concession Act
[13] The principle of supplier responsibility in Point (d) of Paragraph (1) of Section 1 of the Water Utility Service Act
[14] Paragraph (8) of Section 140 of the Public Procurement Act.
[15] Section 4 of the Concession Act
[16] Paragraph (2) of Section 5 of the Concession Act
[17] Schedule No. 2 to the National Assets Act
[18] Section 6 of the Concession Act
[19] Section 7 of the Concession Act
[20] Tekla Papp: legal relations of concession, at http://jesz.ajk.elte.hu/papp16.htmla
[21] Section 10 of the Water Utility Service Act
[22] Paragraph (1) of Section 8 of the Water Utility Service Act: An investor not party to a legal relationship aiming at water utility operation with the party responsible for supply may implement the water utility investment with the preliminary approval of the party responsible for supply only. If the water utility is not implemented in a state or municipality investment, then the investor shall transfer the ownership of the water utility for the party responsible for supply when the water utility is commissioned. The Parties shall conclude a contract on the transfer. Paragraph (2): The party responsible for supply may refuse acceptance only if the water facility created does not meet the requirements specified in Paragraphs (4) and (5) of Section 6.
[23] Section 23 of the Public Procurement Act.
[24] Paragraph (1) of Section 18 of the Water Utility Service Act: If a piece of legislation or an operation contract stipulates a use fee, the party responsible for supply or the representative of the parties responsible for supply—the water utility service provider, if so agreed—shall keep the usage fee generating in the water utility service fee on a separate account, and may use it only to finance water utility development projects specified in the approved rolling development plan—including the preparation, recording and procedure fees and costs closely related to the water utility assets and their development, and the debt service related to the development credits—and the tasks specified in this Act. In accordance with Paragraph (1) of Section 10 and Paragraph (4) of Section 30, costs associated with the developments are borne by the owner of the water utility, it may not charge them to the service provider.
[25] By contrast, in case of a leasing-operation contract, Section 31 of the Water Utility Service Act stipulates the mandatory payment of a use fee.
[26] Paragraph (1) of Section 27 of the Water Utility Service Act: The caller may oblige the winner of the call for concession tenders only if Point (d) of Paragraph (2) of Section 37 does not exclude the issuance of an operating license to the concession company to be established for the supply area specified in the concession contract
[27] Paragraph (5) of Section 8 of the Public Procurement Act
[28] In this case, consideration should, of course, be given to the fact that the given water utility service provider gets, under the provisions of the Implementing Decree, the operating license for the supply area.
[29] Section 2 of the Water Utility Service Act: Point 7: consumer equivalent: shall mean the index expressing the number of consumers taking the water utility service uniformly based on the formula pursuant to Annex no. 1—broken down to water utility service sectors, taking into consideration the capacity demands of the consumers, Point 4. supply area: shall mean the area which can be delimited unequivocally with a settlement public administration area or more, within which the same water utility service provider ensures the given water utility service for the consumers.
[30] Paragraph (1) of Section 140 of the Public Procurement Act also deals with this question by regulating project companies, which will also mean—considering Section 8 of the Public Procurement Act—the concession company (This is a remark from the author).
[31] Paragraph (1) of Section 83 of the Water Utility Service Act: Except as provided for in Paragraph (2) of this Section, provisions of operation contracts concluded before 15 July 2012 and inconsistent with the provisions of this Act shall not be applicable
(2) Rights acquired lawfully and in good faith before 15 July 2012 shall not be affected by Sections 16 and 29 of this Act.
(3) An extension of the term of an operation contract made before 15 July 2012 shall be considered a newly established legal relationship.
[32] Section 20 of the Concession Act
[33] Point (a) of Paragraph (2) of Section 27 of the Water Utility Service Act
[34] Point (b) of Paragraph (2) of Section 27 of the Water Utility Service Act
[35] Paragraph (6) of Section 8 of the National Assets Act: For the public function it was established, a 100% state-owned or municipality-owned business company may not establish a business entity, except for companies exercising ownership rights under the State Assets Act.
[36] As we will see it later, the restriction in Paragraph (2) of Section 32 of the Implementing Decree, requiring that the supply area subject to the concession must have a consumer equivalent of at least 100,000, applies here as well; otherwise, the HEPURA would not issue the operating license, i.e. the option to obtain the operation right applies only if the consumer equivalent is 100,000.
[37] Paragraph (1) of Section 29 of the Water Utility Service Act
[38] Section 21 of the Concession Act
[39] Paragraph (1) of Section 5 of the Implementing Decree: Mandatory components of the tender:
(c) copies of official decisions that are based on Paragraphs (2), (3) and (5) of Section 3 of the Water Utility Service Act and became non-appealable in the 3 years preceding the launching of the tender
[40] Paragraph (2) of Section 3 of the Water Utility Service Act: The rules of Act CL of 2016 on General Public Administration Procedures (hereinafter referred to as the General Public Administration Procedures Act) shall apply in the procedure of the Authority with the deviations and complementation specified in this Act.
(3) In the procedures of the Authority, the administrative time limit shall be 75, except for Paragraph (4) and (5).
(5) The administrative time limit shall be
(a) 75 days for procedures of the Authority specified in Section 36;
(a) 60 days for procedures of the Authority specified in Section 37;
(a) 45 days for procedures of the Authority specified in Section 37/A.
[41] http://www.mekh.hu/download/b/7f/10000/6418_2015_palyazati_kiiras_jovahagyasa.pdf (02.04.2018),
[44] Paragraph (4) of Section 4 of the Water Management Act: Local government functions concerning water utility operation and water utility service and separated from water management and water administration are regulated by the Water Utility Service Act.
[46] According to the 2015 sector snapshot of MAVÍZ, only 10% of water utility operation contracts were concession contracts, source: http://www.maviz.org/system/files/kpmgmaviz_vizikozmu_agazati_helyzetkep_20150513.pdf
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