Concession of Public Service

• A concession of a public service is the contract where by a person the

grantee binds himself in favor of an administrative authority to run a
public service getting remuneration therefore by means of fees received
on the use thereof [(Art 3207(2)].
• The private sector (grantee) assumes the obligation to deliver public
service of a defined nature and earns remuneration in the form of
collecting fees for the use of the service.
• Hence, no payment is expected from the contracting administrative
authority. Yet it does not mean that there is no obligation the authority
assumes.
• concession for public service is a contract whereby government grants the
private sector to deliver service of a defined nature to the public, by
entrusting the private contracting party with the benefit of collecting fees
from the beneficiaries of the service.
 concepts related to but different from concession.
• These are privatization of government owned enterprises and lease.
• Privatization is the process of transferring ownership of enterprises from
government to the private sector. Hence, here unlike concession there is
transfer of ownership from the government organ to the private sector in
cases of privatization.
• lease contract relates to an agreement whereby the government organ
transfers the object of the contract to the contracting party for the payment
of money from the later.
• Concession is not acquired against payment of the value of the concession
from government whereas lease is acquired by paying the value for the
contract, (lease money).
• the service to be leased may not fulfill the service as public service.
• Government will not interfere into the administration and control of the
enterprise once privatized or reown it under normal conditions. When the
relationship is concession, the ownership remains with the government. It is
an agreement for a limited period. Government remains with the power of
taking the concession away to itself or to another grantee. Concession
requires a close control and directing the work.
 Right to Control of Administrative Authority
• Administrative Authority has the right to over see whether the service is
delivered efficiently and effectively as the main object of this relationship is
delivery of the service in the specified quality, quantity, price (pay from the
public), with out discrimination to all by the grantee Art 3208(1) .
• there is a duty on the side of the grantee, to assist the administrative organ
for the realization of the privilege Art 3208(2) . P 53
• grantee has to submit a report of what it /he/she performed in the execution
of the contract.
Modification of Prices or Tariffs
• The administrative authority and the grantee may agree to the effect that the
prices or tariffs mentioned in the contract are going to be modified in case
where a specified (mentioned) economic change occurs (Art. 3212).
• Here, no fresh negotiation is expected but the price or tariff that the grantee
is going to collect from the community is to be calculated in accordance to a
settled standard within the concession.
• Art 3213(2) provides that in case of contestation the court shall fix the new
tariffs and prices resulting from the application of variation clause.
• Revision clauses may also be included within the contract/concession so
that up on change of circumstances parties shall discuss on the change
of price or tariffs. Unlike the former, here no automatic changes on the
price or tariff will occur. But it ignites the parties to come together and
discuss on the change. The clause to be included within the contract
simply stipulates that the price and /or the tariffs will be revised when
economic (input prices change) “considerably”. It does not establish
precisely the bases of such revision. (Art. 3214) (1)]. Here lies the
difference between variation and revision clauses.
• The variation clauses precisely define the formula (the bases) for the
calculation of the increase or decrease in price /tariff, whereas the
revision clause does not define the basis of such revision.
• It simply provides the conditions up on the fulfillment of which the
revision will be called. Up on the fulfillment of defined condition or
conditions, the parties small negotiate the adoption of an additional
clause to the contract (Art 3214(2)].
• In this case, the court may be involved to fix a tariff that ensures an
equitable remuneration for the grantee. [Art. 3214(3)]
• The grantee is empowered to invoke the variation and /or revision clauses as
from the date of the tender to the period of performance of the concession.
Art 3215
• However any agreement may be included within the concession that the right
of the grantee to raise these clauses may be fixed to be only within a
narrower period or wider period.
• the grantee may invoke such clauses from the time of tender or before (if
agreed) to the normal period of performance and then to an additional period
expressly granted for the grantee by the authority. Art 3215 (2)
• in the absence of such clauses does it mean that the grantee cannot invoke
such variation in price of inputs for the service? it is good to include such
clauses than to expect from the law.
• Art 3215 as it only takes grantee into consideration. Does it mean that the
administrative authority cannot invoke such changes /fluctuations? the
authority is empowered as we are going to see to modify some provisions of
the concession contract.
 Unilateral Modifications of Concession Contract

• Art 3216 in a form of a general principle that during the life of the contract
the authority may impose on the grantee all the obligations which it thinks
for the proper operation or improvement of the service granted.
• this power of the authority cannot be removed from the authority by
agreement among the contracting parties. Any such agreement is null and
void by virtue of Art 3216(3).
• list out clauses subject to modification and those, which are not (Arts
3217-3220). Only clauses concerning the “service and its operation” may
be modified unilaterally by the authority even when the grantee
disagrees.
• (Art. 3219). The authority is barred to modify the financial benefits and
privileges the grantee is ensured by the concession.
• compensation may be due up on an order that requires the grantee to
perform additional activities, or reduce the extent of the service Art 3181
together with Art 3220
 The Relationship between the Grantee and Users of the Service
• The users and grantee have their own respective duties and rights: tariffs,
equality of treatment among users, benefit of services etc. are some of them.
• Art 3221 provides that the grantee is empowered to fix the maximum or any
between the maximum and the minimum. This happens when the
concession simply tells the maximum tariff the grantee may fix.
• fixing the amount of tariffs different from the concession agreement is going
to happen in case of modification. Modification of tariffs in case where it
occurs will not be applicable retroactively. It will be applicable from the time
where it is modified (Art. 3222).
• grantee cannot by agreement with a user depart from the general rules of
the service fixed by the act of concession or the specification (Art 3223).
• No measures of discrimination among the users of the service is lawfully
adopted by either the administrative authority or the grantee. Art.3224
• Both of the parties are entitled to demand the repayment or payment of the
unpaid amount or value of unused service. (Art 3225, Art.3226).
 Duration and Extinction of Concession
• Duration of concession is fixed by agreement or law.
• it cannot be made for more than sixty years in case of agreement. If no
agreement the duration is deemed to be made for seven years. Art 3227
• There is no precondition to extend a concession. But the extension is limited
only to seven years or any shorter period (Art.3228). Extension of concession
is presumed unless a notice of termination is given by one party to the other.
• The party who wants to terminate the concession must give a notice for
termination two years before the date of termination.
• The whole purpose is to make the service sustainable to the public. And it
gives sufficient time for the authority to arrange new agreements in this
longer period of time if the party is interested in the discontinuance of the
relationship.
• it is also possible that the relation may be disturbed before the end of the
agreed life span of the concession. This disturbance could be either that
brings the relationship to an end or that suspends the relationship
temporarily.
• Such disturbance of the relationship that results in deprivation of the grantee
of exercising the rights from the concession for a temporary period is called
sequestration.
• Incompetence or incapacity of the grantee in the absence of fault or the
ground that it appears for the administrative authority that the grantee
will not be able to operate the service (see Art 3241).
• In either of the grounds, the service under sequestration results in a
temporary deprive of the grantee to exercise the rights which he/she
gained under the concession.
• Where sequestration is closed as a result of fault of the grantee, the
service shall be managed at the expense and risk of the grantee by the
authority or a manager appointed by the authority (Art. 3242(2).
• However, if the sequestration is ordered upon other cases (no fault of the
grantee), the expenses of sequestration is carried out by the authority and
logically the risk must also be carried out by the same.
• Art. 3243
• In addition to sequestration, a concession agreement may also be brought
to an end for other grounds. The grounds for extinction of concession are:
• end of period of concession;
• Redemption of concession; and
• Loss of Rights of the grantee.
 End of Period of Concession

• when the parties have agreed a certain period, end of this period results
in the termination of the concession. Still parties may extend the duration
to a further period. Therefore, in the absence of extension of a contract of
concession it is brought to an end.
Redemption of Concession
• when the administrative authority decides to put an end to the concession
before the expiry of the period of the concession. Such decisions may be
initiated with out the grantee committing a fault (see Art. 3236).
• Nevertheless it does not mean that the administrative authorities may
terminate the concession without a justified ground. These are: for the
purpose of abolishing the service or reorganizing the public service.
3236(3
• When the authority decides to redeem the concession, the relationship
between the authority and the grantee needs to be settled. Art 3237
 Loss of Rights of the Grantee

• Loss of rights of the grantee relates to the fault he may commit.

• The grantee must have committed “a fault of special gravity”. Hence, a
graver fault will not result in the loss of the rights of the grantee. Yes, what
kind of fault is said to be grave and what is said to be special gravity is not
determined by the law under Art 3238 (1). \
• To determine whether a fault is grave or special grave could be exercised
by the authority when the concession agreement has employed it
expressly. In the absence of an express stipulation it is the power of the
court to determine. Obviously the fault relates to the performance of the
concession.
• In principle, it is the court which is empowered to determine this degree
of gravity. However, if the grantee and the authority have greed on the
right of the authority to determine this gravity by the concession the latter
will exercise this right.
• The effect is that the contract will be cancelled.
• the grantee “bear the onerous consequences of the
transactions having the object of ensuring the continuation of
the public service” (Art 3239 (2)]. This is a grave “penalty”
against a grave fault.
• Probably the principle is, there may not be any benefit he will
earn from the running of this service. Still he has to carry the
service to the benefit of the public.
• However, there is a remedy to such grantee. The concession
will be allocated on tender under the risk of the grantee.
When the concession is sold on tender the grantee will collect
the price of sale of the concession to another grantee. The
price of this sale is destined for the compensation to the
grantee.
 Effect of Termination of concession

• When the concession agreement is extinguished because of end of period of

concession it entails the winding up of the concession. Winding up of
concession is followed by liquidation to ascertain the rights and obligation
between the parties (grantee and the authority) (see Art 3229 and Art. 3237).
• But in case where the concession is extinguished because of the loss of rights
of the grantee for grave faults, there is nothing to liquidate as the grantee is
denied any rights except the price of the concession from tender.
• The specifications of the contract need to have liquidation terms. Unless the
rules under Articles 3230 down to Art 3235 will be applicable for the
liquidation process [Art.3229 (2).
• The first question to be answered is who is going to liquidate the relation
between the two parties?
• In principle there is no organ established by the law for this particular
purpose. In case of disagreement among the parties, arbitrators may be
selected by the parties. Failing to establish such arbitration organ it may be
taken to court (see Art. 3233).
• The authority will take the place of the grantee in the contract the latter
has concluded with third parties as a principal. The authority may opt
either to terminate the relation with the third party or to repudiate the
relation.
• When the authority chooses to repudiate what the grantee has concluded,
it is required to inform to the third party that it does not recognize the
contract within one month from the time being informed as to the
existence of the contract.
• Failing to inform within this period the authority is bound by the contract
• When the authority prefers to replace the grantee, the relationship
continues as if it is concluded among the two parties.
• The law (Art 3234 (2)) provides that for the grantee to be liable to the
third party for the repudiation by the authority they need to have a prior
agreement among them.