Summary Report

CROATIA

Overview

Croatia has further advanced its high compliant legislative framework for concession and non-concession PPPs by introducing a set of amendments to the Concession Act in July 2017 and the Public Procurement Act in January 2017.

The Public Private Partnership Act (2014) (the “PPP Act”), which has already been tested in practice, serves as a solid instrument for developing PPPs and has no material flaws. The PPP Act is in line with the EU legislation and it regulates both contractual and institutional PPPs. It also permits the choice between a government-pays agreement (PFI) and a BOT, allowing the private partner to perform a commercial activity and directly charge tariffs or fees to the end users. However, a BOT model must be expressly agreed upon.

PPP projects can only be proposed by a public partner. The Agency for Investment and Competitiveness (the “Agency”) acts as an approval body for all PPP proposals and draft contracts. It also plays a supervisory role for all sectors. The Agency with the prior consent of the Ministry of Finance approves the PPP project according to a set of predefined criteria.

The PPP Act does not regulate the selection of a private partner. The selection procedure is governed by the Public Procurement Act. The Public Procurement Act (2017) implements Directive 2014/24/EU and Directive 2014/25/EU, as subsequently amended by Regulation (EU) 2015/2170 and 2015/2171 of November 2015.

The PPP Act prescribes the mandatory content of a PPP contract, but the parties are given great discretion regarding its content. The PPP contract may only be amended with the prior approval of the Agency. If the amendments are material, they will be considered to constitute a new contract for which the public partner is obliged to initiate a new PPP proposal.

The PPP Act interrelates with the Concession Act when, for the purpose of a PPP project implementation, a concession is granted.

Concessions

The Concession Act (the “Concession Act“) was amended in July 2017 and is now aligned with Directive 2014/23/EU on the award of concession contracts. It has not yet been tested in practice. It applies to service concessions, works concessions and concessions for the economic use of the common good. Positive innovations include the concept of “reserved concession” as well as a definition of sectors in which concessions with a strategic interest for Croatia can be awarded.

Procedures and project models

The Concession Act sets out two different award procedures depending on the type of concession and its value, following the EU value threshold. It also extends the number of cases in which the concession contract can be amended without a new award procedure being triggered. The Public Procurement Act applies as secondary legislation for all procedural (award) matters not governed by the Concession Act.

The Concession Act also allows a variety of concession models, including the BOT and PFI model. With regards to concessions for works or services, the Concession Law prescribes the possibility for the remuneration of the private party to consist in the right to exploit the works/services, as a standalone right, or together with the right to payment by the contracting authority.

Private Party Selection

The contracting authority selects the most favourable tender according to predefined criteria. Prior to the commencement of the concession award procedure, the contracting authority must conduct the concession feasibility study regarding the public interest, environmental protection and financial impacts of the planned concession. The Concession Act also allows unsolicited proposals, which are treated as “concessions upon request”, but only in exceptional, prescribed circumstances.

Securities and government support

Financial institutions may establish security interests over the concessionaire’s rights only with the prior consent of the contracting authority.

The Concession Act provides for the possibility of a direct agreement, in the form of additional or tie-in contracts, concluded between the contracting authority and third parties (financial institutions). It also provides for step-in rights in the concession contract. The concession may be transferred to the financial institutions in the event of a breach. The financial institutions may be further authorised to transfer the contract to a third party.

Regarding dispute resolution, disputes arising from the award procedure are resolved in accordance with the rules governing public procurement, while administrative courts are competent for disputes arising from the concession contract. Parties may agree on arbitration, but within the prescribed limitations: the place of the arbitration must be Croatia, the governing law must be Croatian law, and the language of the proceedings must be Croatian.

Bankability

Even though the new Concession Act of 2017 is entirely aligned with the EU legislation, it faced some criticism from investors during the process of its adoption, especially regarding the newly introduced concept of an administrative contract. Firstly, a public partner in such contracts can unilaterally terminate the contract, while the private party has no such right. Secondly, a public partner in such contracts can declare an event of breach and at the same time unilaterally determine the amount of any damage incurred, while the private party may enforce its rights only through an opposition or administrative dispute run before the Administrative Court.

As far as the protection of financial institutions is concerned, the Concession Act does not govern the concessions financed by international organisations or international financial institutions, in which case the rules established by such organisations or institutions apply. If a concession is mainly co-financed by such an organisation or an institution, the parties have discretion to agree on the applicable procedure. This represents a step forward in comparison to the Concession Law (2012), especially in terms of attracting foreign investments.

Experience

Croatia is successfully implementing the Zagreb Airport PPP project, which has now been running for 4 years. This speaks in favour of high efficiency indicators. Other PPP projects have mostly been contracted in the non-merchant and transport sector, some of which are: Koprivnica School, Arena Split, Sport Facility in Varaždin, Bus Terminal Osijek.

There are 12 approved and to be contracted projects, mostly in the public lighting and non-merchant sector, and 8 announced projects, mostly in the non-merchant sector.

Outlook

Croatia has good prospects to develop PPPs significantly in the next 10 years, however it should utilise its advanced legal framework more. The lack of a real strategy or policy in combination with the absence of political will appears to be a major obstacle to further development. Both the general public and civil servants should be educated about the main features of PPPs. This would contribute to PPPs gaining a better reputation and addressing the associated concerns.