Acquiring the Right to Engage in the Activity of Electricity Generation and Concessions Granting Procedure in Serbia

ACQUIRING THE RIGHT TO ENGAGE IN THE ACTIVITY OF ELECTRICITY GENERATION (*92)

There are several methods of acquiring the right to engage in the activity of electricity generation. These methods are regulated in the Law on Public Companies and Performing Activities of Public Interest.

The first way is to make a capital investment in an economic operator already entitled to engage in such an activity.

The second way is to acquire the right to engage in the activities of electricity generation in the facility, over which an interested party either has the ownership right or is already using the facility to engage in such activities. This right shall be acquired by signing an assignment agreement with the Government of the Republic of Serbia for the activity of electricity generation.

The Law on Public Companies and Activities of Public Interest stipulates the obligation of a public company and any other economic operator utilizing the goods of public interest (waters and watercourses included) to pay a fee for utilization of such goods.

It should be pointed out that, for engaging in the activity of electricity generation, in addition to acquiring the right to engage in such an activity as an activity of public interest, it is also necessary to acquire the license to engage in this activity, as an energy-related activity. The license for engaging in the electricity-related activities is issued by the Energy Agency.

Investing in a Public Company Generating Electricity

Entrusting the Engagement in Activities of Public Interest

Any third party may engage in the activity of electricity generation, provided such a party has fulfilled the required preconditions and signed an agreement with the Government on assignment of the activity of electricity generation as an activity of public interest to such entity (hereinafter referred to as: the Assignment Agreement). The procedure for conclusion of the assignment agreement shall be administered by the Ministry of Mining and Energy.

Unlike the procedure for granting concessions, this procedure is not legally regulated in sufficient detail.

The necessary requirements that any party interested in concluding the assignment agreement should meet are: 1) Adequate technical prerequisites (proprietary rights or the right to use a power plant constructed in compliance with the law, technical, and other regulations); 2) Staff capacity (the employees working at the power plant shall have the necessary qualifications and other prescribed skills); 3) Occupational safety measures in place; 4) Implementation of prescribed requirements and methods of protection and improvement of the environment.

The Assignment Agreement shall include the following provisions concerning: 1) Work and business operation of the economic operator entrusted with subject activity; 2) Rights and obligations regarding the utilization of state-owned assets for pursuit of activities of public interest, in line with the Law; 3) The economic operator’s obligation to provide the conditions for uninterrupted, regular, and high-quality satisfying of the needs of the users of such products and services; 4) Mutual rights and obligations of the contracting parties in situations when economic or other conditions for pursuit of activities of public interest are not provided; 5) Mutual rights and obligations in case of a disruption in business operation of the economic operator; 6) Other rights and obligations and issues of relevance for serving and protection of public interest.

For the purpose of monitoring and control of the pursuit of activities of electricity generation, the following bylaws/documents of the economic operator, with which the Government has concluded the assignment agreement, shall be subject to its approval: 1) The Articles of Association; 2) Tariff (pricing policy, tariff system, etc.); 3) Any other decisions in accordance with regulations and the concluded assignment agreement.

It is important to highlight the characteristics of the Assignment Agreement: 1) There is no provision in the Law for a tendering procedure; 2) The Law does not stipulate the obligation to specify the location for engaging in the activity of electricity generation (unless the Agreement refers to a concrete facility); 3) The Law does not stipulate a maximum duration of engaging in the activity of public interest (if it is not defined in the Agreement); 4) The Law does not stipulate the scope of engagement in such an activity; 5) The Law does not stipulate the obligation to pay any fee for engagement in an activity of public interest.

Until this text has been submitted, the Ministry of Mining and Energy has not entered into a single procedure of negotiating an assignment agreement for electricity generation from renewable sources. (*96)

CONCESSIONS

Concessions represent a form of granting and of exercising the right to construct, maintain, and utilize power plants for the purpose of electricity generation, or for the purpose of reconstruction, modernization, maintenance, and utilization of such facilities.

Concessions may also be granted for engaging in the activities of electricity generation on the already constructed power plants.

It should be pointed out that, in this way, the concession may be granted: 1) For construction of a power plant and engaging in the activity of electricity generation, and 2) Solely for pursuit of the activity of electricity generation within an already constructed power plant.

The procedure for granting a concession and modalities of exercising the concession rights are precisely regulated in the Law on Concessions. A concession agreement shall form the legal ground for the concession. The procedure for concluding such an agreement is much more detailed than the procedure for conclusion of the assignment agreement, thus providing better legal security. On the other hand, in view of the prescribed deadlines and stages, the concession granting procedure may take much longer than the one for entrusting the pursuit of activities of public interest by means of the assignment agreement.

A concession may be granted for maximum 30 years.

It is prescribed that the regulation of the requirements and the procedure for concession granting shall be based on the principles of equal and fair treatment of all participants in the procedure for concession granting and selection of the concessionaire, free market competition, and autonomy of will of the contracting parties.

Concession Granting Procedure

The proposal for granting a concession shall be submitted to the Government by the Ministry of Mining and Energy. The proposal for concession granting may also be submitted by a local self-government unit for the facilities within its own territory. The initiative for granting a concession may also be submitted by any interested person.

The proposal for granting a concession shall particularly include the following: 1) The subject matter of the concession; 2) Assessment of its feasibility and the amount of the investment; 3) Tentative duration of the concession period; 4) Basic requirements for implementation of the concession; 5) Proposed amount of the fee; 6) Purpose of exploiting the subject matter of the concession; 7) And when the proposal is submitted by an interested party, the data on that party as well (name of the company, personal name, evidence of registration).

If the subject matter of a concession is the construction, maintenance, and operation of a power plant of a strategic importance for the Republic of Serbia or to which international importance is attached, the Government shall submit the proposal for granting the concession involved to the National Assembly of the Republic of Serbia.

Based on the position of the Government (and/or of the National Assembly) on the intention to grant a concession and based on economic, financial, social, and other indicators, the Ministry of Mining and Energy shall draw up a proposal for issuance of a concession deed, which it shall submit to the Government.

The proposal for issuance of the concession deed shall include the following: 1) The subject matter of the concession; 2) Reasons for granting the concession; 3) Data on the impact of the concessionary business on the environment, infrastructure, and other industries, as well as on the efficiency of technical and technological systems operation; 4) Minimum technical, financial, and experience-related requirements that must be met by prospective concessionaires in order to be allowed to participate in the procedure of concessionaire selection and negotiation; 5) Duration of the concession period, including a reasoning therefore; 6) Data on the necessary financial and other resources and the time schedule of their employment; 7) The method of payment, issuing guarantees, and other security instruments for the performance of concessionary duties; 8) Rights and obligations of the concessionaire in relation to the users of services constituting the subject matter of the concession and matters related to the filing of complaints by such users; 9) Matters related to the requirements for and ways of exercising supervision; 10) Fees and general conditions of using the goods and conducting business; 11) Estimated number of workplaces and skilled manpower in connection with implementation of the concession, if this is a proposed element of the concession deed.

The concession deed shall be adopted by the Government and published in the Official Gazette of the Republic of Serbia.

The concession deed shall include the following: 1) The subject matter of the concession and designation of the area in which the concessionary business is to be conducted; 2) Duration of the concession period; 3) Main elements of the invitation for tenders, information, and instructions relating to the tender dossier; 4) Requirements to be fulfilled by a concessionaire; 5) Award criteria for selecting the best tender; 6) Conditions for and the manner of conducting the concessionary business (conditions and manner of providing services to the users, etc.); 7) Requirements concerning the environmental protection, safety at work and health protection of the concessionaire’s employees; 8) Type and amount of the guarantee or other securities for the implementation of the concession; 9) Method of setting the concession fee; 10) Other elements of importance for regulation of mutual rights and obligations of the concessionaire and the concedent. If the subject matter of a concession is the reconstruction, remodeling or repair of the existing facilities, the concession deed shall also contain the estimated amount of the investment, which is established with respect to the value of the facilities, the reconstruction, remodeling or repair of which shall constitute the subject matter of concession.

A concession shall be granted on the basis of the results of a public tendering procedure completed beforehand. The public invitation for tenders shall be published according to the specified procedure.

A public tendering procedure shall be conducted by a tender committee formed by the Minister of Mining and Energy, which shall also include one member appointed by the National Assembly of the Republic of Serbia.

The Government shall bring the decision designating the concessionaire, upon receipt of the Tender Committee’s report on the completed public tendering procedure.

The proceeds from the concession fee shall be regarded as the revenue of the Republic of Serbia and shall be remitted to the deposit budget account of the Republic. In case the concession is granted in the territory of the Autonomous Province, 30% of such proceeds shall be allocated for financing the development and the infrastructure of the Autonomous Province. When a concession is granted in the territory of a local self-government unit, 5% of proceeds from the concession fee shall be remitted for financing the development and infrastructure of the unit of local self-government in the territory of which the concession business is conducted.

Concession Agreement

The concession agreement shall regulate mutual rights and obligations between the State, as the concedent, and the concessionaire. The agreement shall regulate the time, place, and method of exploitation of a concession and obligation to pay the concession fee.

The concession agreement shall be concluded between the Government for and on behalf of the Republic of Serbia and the concessionaire, in accordance with the Law on Concessions and the concession deed. If a concession is granted to a number of parties, the concession agreement shall be signed by each of the concessionaires, or by a person authorized by such concessionaires, upon presenting a special power of attorney.

A Concession Agreement shall include provisions on: 1) The parties to the agreement, the subject matter of the concession, including the description of the facilities, equipment, and plants; 2) Duration of the concession period and conditions under which such term may be extended, and the duration of preparatory operations; 3) Manner and deadlines for securing the funds for financing the concession business (financial plan) and the time schedule of their employment, the amounts and manner of securing the guarantees for fulfillment of the concessionary obligations; 4) The requirements for conducting the concessionary business; 5) ) The product and service standards, technology transfer; 6) The criteria for setting the end-user price/tariffs for products and services; 7) ) The concession fee (the amount, deadlines, conditions, and the method of payment); 8) The rights and obligations concerning the undertaking of general safety measures, health and environmental protection, as well as liability for damage resulting from jeopardizing general safety and protection of the environment; 9) The right to transfer the concession; 10) The time and manner of handing over the immovables, facilities, equipment or plants and the condition in which they must be handed over; 11) The conditions for making amendments or termination of the Agreement and the consequences thereof, changedcircumstances, and force majeure; 12) Manner of settling the disputes and enforcement of the applicable law; 13) Such other provisions that may be mutually agreed upon between the contracting parties. The agreement shall also stipulate the way of exchanging notifications on the performance of the agreement, the manner of supervising such performance, and of the exercising of the rights and obligations of the contracting parties.

Based on the concession agreement and in keeping with it, the Concedent and the concessionaire may conclude a special contract with banks and other financial institutions, regulating in greater detail the financing of the concession as stipulated in the concession agreement.

The concession fee shall be set subject to the type, quality, category, quantity, use, and market price of the respective natural resource or goods in general use, respectively subject to the line of business, market operating conditions, duration of concession period, assessed risk, and expected profit.

If concession granting requires expropriation and/or construction land development, costs of such expropriation and/or construction land development shall be borne by the concessionaire, while the modalities and deadlines for payment of such costs shall be stipulated in the concession agreement.

Obligation to Establish a Concessionary Enterprise

The concessionaire shall undertake to assign all the rights and obligations resulting from the concession agreement to a separate concessionary enterprise.

The concessionary enterprise shall always be organized as a for-profit corporation (either a joint stock or a limited liability company) performing the concession agreement.

Since the Law on Concessions does not include any provisions stipulating possible transfer of stocks or shares of the concessionary enterprise to a third party, consequently, the conclusion may be drawn that such transactions are neither prohibited nor conditioned by it.

Changes of the seat and status changes of the concessionary enterprise shall be subject to approval by the founder.

The concessionary enterprise shall also obtain the license for pursuit of the activities of electricity generation.

Reassignment of Concession

A concession shall only be assigned by means of a contract and upon mandatory approval granted by the concedent. Otherwise such a contract shall be deemed null and void.

After the rights and obligations from the concession agreement have been assigned to the concessionary enterprise, only the concessionary enterprise shall have the right to reassign all the rights and obligations to a third party through a contract, upon approval granted by the concedent.

(*92) Once an energy entity obtains a license for electricity generation, the power producer should contact the Ministry of Agriculture, Forestry and Water Resources or the Secretariat for Agriculture, Water Resources and Forestry (if the entity’s seat is in the territory of the Autonomous Province of Vojvodina) with a request to define the amount of compensation for utilization of surface, ground and mineral waters and to calculate the water utilization fee. This fee is defined only for a public utility enterprise supplying electricity. After acquiring the right to engage in the activity of electricity generation, the energy entity generating electricity in a power plant shall apply to the Ministry of Agriculture, Forestry and Water Management, or to the Secretariat of Agriculture, Water Management and Forestry (if it is located in the territory of the Autonomous Province of Vojvodina) to establish the fee for the use of surface, ground, and mineral waters, in order to calculate the fee for the use of water. This fee has been established only for a public utility company for electricity supply.

(*93) The Law on Assets Owned by the Republic of Serbia (Official Gazette of the RoS, Nos. 53/95, 3/96, 54/96, and 32/97).

(*94) Investment in an affiliated company shall be made in compliance with the Company Law (Official Gazette of the RoS, No. 125/04).

(*95) A public company’s approval of the decision on pricing policy or tariffs proposed by its affiliated company is considered preliminary only since, according to the Energy Law, the final approval of the electricity tariffs or prices of services for tariff buyers is granted by the Government.

(*96) The Ministry of Mining and Energy has signed assignment agreements in the field of natural gas distribution with the economic operators none of which is a public company, after they had obtained the relevant licenses for engaging in such activities.

NOTE: Complete text is taken from the document-guide for investors Construction of Wind Farms and Electricity Generation from Wind Energy in the Republic of Serbia, of which authors are Branislava Lepotic Kovacevic, PhD Law, and Bojan Lazarevic, BSc El. Eng.