FAS RUSSIA ISSUED WARNINGS TO HEAD OF KIROV AUTHORITY AND OF MUNICIPAL ECONOMY DEPARTMENT

Statements by government officials that show the intentions of the municipality to refuse concession agreements for water supply and drainage facilities can lead to violating the Law “On Protection of Competition”

For instance, the web-site of the “Komsomolskaya Pravda” newspaper published information where Head of Kirov Authority says: “Even if I strongly wanted, I would not be able to sign a concession agreement with them [“Kirov Utility Systems” JSC] simply because the property that belongs to the treasury is not duly prepared and the registration procedures are not completed. This work can take one year, eighteen months, two years”.

The Antimonopoly Service states that according to the law, non-registered immovable property on the municipal treasury does not prevent concession agreements*.

Head of FAS Department for Regulating the Housing-and-Utility Sector, Alexei Matyukhin pointed out: “Disseminating such information can mislead potential investors that it is not possible to enter into concession agreements  for water supply and drainage facilities in Kirov prior to official property registration”.

In other sources of information, Head of Kirov Authority informs that “the main obstacle is that the property does not belong to the treasury and is under economic management of “Vodocanal” Municipal Unitary Enterprises, so it is illegal to transfer it to concessions”.

FAS emphasizes that the Law on concession agreements** allows transferring facilities, particularly, owned by unitary enterprises, in concession.

Head of Kirov Municipal Economy Department emphasizes that “now concession is impossible. The concession offer does not conform to the water supply and drainage scheme <…>”, and “drafting a concession agreement concerns such a huge property portfolio, and cannot be done unilaterally at all on such a serious issue, vital for Kirov. It includes at least three participants: the local self-government body, the Kirov Regional Government and the resource supplier. The private investor certainly can apply unilaterally, but it’s highly unlikely that the document will be of the necessary quality”.

The Law on concession agreements specifies the negotiations procedure to coordinate conditions acceptable for all participants ***.

Also, within 30 days upon receiving a proposal regarding a concession agreement, municipalities must make a decision, for example about a possibility to transfer the facilities in concession on other conditions ****.

Based on these facts, FAS issued warnings to municipal officials because the expected actions may lead to breaching the Law “On Protection of Competition”.

Deputy Head of FAS, Vitaly Korolev emphasized:  “The positions of Kirov officials can have an adverse effect on competition in Kirov. The National Competition Development Plan outlined important goals: decreasing violations of the antimonopoly law by the authorities and increasing the share of productive resource supply by private companies. Transferring public sector facilities to investors will help achieve the goals and attract additional sources for developing the infrastructure of municipal housing-and-utility sector. Concessioners should be chosen strictly in line with the law and on the competitive basis”.

Reference:

* Part 5 Article 39 of the Law on concession agreements

** Part 2 Article 39 of the Law on concession agreements

*** Part 4.8 Article 37 of the Law on concession agreements

**** Part 4.4 Article 37 of the Law on concession agreements

One of the expected outcome of developing competition in the housing-and-utility sector, particularly, heating supply, water supply and water drainage, in the course of fulfilling 2018 - 2020 National Competition Development Plan in the Russian Federation, approved by No. 618 Order of the President of the Russian Federation of 27.12.2018 (the National Plan), is to decrease the share of productive resources supply by state and municipal unitary enterprises in the total volume of such resources sold in a region (subject) of Russia, to the following targets (provided that the share of productive supply of resources by state and municipal unitary enterprises, enterprises in the total volume of such resources sold in a region (subject) of Russia, in comparison with 2016 in the subjects of the Russian Federation, where the targets of the first and subsequent years were already achieved at the moment of approving the National Plan):

- water supply - to 20 % in 2019 and to 10 % in 2020;

- water drainage - to 20 % in 2019 and to 10 % in 2020.