Concession agreements: boom, trap and additional legal risks
The website of the newspaper Vedomosti posted material on the topic "Communal concessions are experiencing a boom" (https://www.vedomosti.ru/economics/articles/2017/08/25/730951-kommunalnie-kontsessii) indicating that it is also published No. 4393 of 08/25/2017 under the heading: A trap for the concessionaire.
I am not going to retell it, but I’m not going to, but the main idea is that the concessionaires are not ready to participate in municipal concessions and the existing legal and other risks lead to negative consequences for many.
Considering the material itself and some of our experience in the field of accompanying certain issues related to concession agreements, let us pay attention to the following.
Firstly, it is reasonably enough drawn attention that the documentation on the concession, the concession agreements themselves may contain mistakes, contradictions to the current legislation, gaps in the regulation of individual situations. Consequences: from the failure to conclude a concession agreement due to the absence of essential conditions in it, the insignificance of the competition for concluding a concession agreement and the increasing risk of litigation.
Moreover, if the Grantor or the Concessionaire developed (made) concession agreements and documentation on their own and in the absence of sufficient time to study the legislation, practice of application, referring to the already existing experience and knowledge, including consulting companies, then, as noted above, similar to be expressed in mutual reproaches to each other.
Secondly, Concedents and Concessionaires, each in their own way, of course, save and do not conduct a proper assessment, analysis of documentation, concession agreement, as well as property transferred to the concession. As a result, his condition may be somewhat in a different state than we would like.
Thirdly, the Concessionaires may overestimate the sources for the return on investment and the generation of business income. If such a source is a tariff for a regulated type of activity, then its size may differ significantly from the one desired by the Concessionaire itself. For example, in a situation when the tariff authority did not accept the tariff authority as a reasonable expense, the costs and documents presented by the Concessionaire were not accepted. As a result of this, there may be some funding problems for the Concessionaire, which, in turn, may affect the performance of obligations to third parties.
Fourthly, is partly a consequence of the previous one. If the Concessionaire is entitled to receive payment from conducting regulated activities from third parties, then who said that they will properly and all fulfill their payment obligations? If so, then there is the risk of a cash gap, when the Concessionary must pay his counterpart for the resources received, and he has not yet received money from his clients (consumers). Do all of the Concessionaire have airbags for such cases, and what size should they be, if such a situation persists?
Fifth, the activity of the Concessionaire will always attract the attention of the authorities. For example, law enforcement. It may be assumed that the money is spent by the entrepreneur for other purposes, with other priorities, which leads to harm to the counterparties of the Concessionaire. Or prosecutors. Naturally, within the framework of general supervision and control, it is extremely difficult to ignore the desire to wave a stitch with or without a stash. But it is she (the prosecutor's office) who has the right to file a claim in the protection of an unlimited circle of persons. This is enough to challenge the results of the competition for the right to conclude a concession agreement or to file a claim forcing the Concessionaire to perform certain actions in the interests of consumers.
Sixthly, when a concession agreement is terminated, it is advisable to settle the consequences of reimbursement of expenses incurred on investments in objects of concession. But in my opinion, in spite of the above, the quality of presentation in the agreements themselves is likely to be a litigation.
It seems to me that this is enough to recognize the riskiness of activities in the field of concession agreements. And if so, then the cones will fill the business. The main thing is that some of them do not kill the business itself.
August 25, 2017
Vitaly Vetrov
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