Summary Report

BOSNIA AND HERZEGOVINA

Overview

Bosnia and Herzegovina is a largely decentralised state. Bosnia and Herzegovina comprises of two autonomous entities: the Federation of Bosnia and Herzegovina, the Republika Srpska, and a region, the Brčko District, governed by a local government. In addition to that, the Federation of Bosnia and Herzegovina consists of 10 cantons.

In line with the complex constitutional structure of Bosnia and Herzegovina, the country’s legal framework for concession and non-concession PPPs is characterised by fragmentation. The laws regulating PPPs and concession operate at several levels: for Bosnia and Herzegovina at the national level, for each sub-national entity (in the Federation of Bosnia and Herzegovina and in the Republika Srpska) at the sub-national level, and at the cantonal level. All ten cantons possess their own legal frameworks, procedures and bodies. In total, there are 14 concession laws and 12 PPP Laws (i.e. non-concession PPP Laws) in force in Bosnia and Herzegovina.

There is no specific Law for non-concession PPPs at the national level, as the competencies for public service provision and the construction of public infrastructure are largely within the competence of the entities and cantons. The sub-national entity Republika Srpska has its own Law on Public Private Partnership (OG of RS, No. 59/09, 63/11). The Brčko District adopted a PPP Law in 2010 (Law on Public Private Partnership of Brčko District, OG of BD, No. 7/10). All ten cantons of the Federation of Bosnia and Herzegovina have adopted (non-concession) PPP Laws.

At the national level, the Law that governs concessions is the Law on Concessions of Bosnia and Herzegovina (OG of BiH No. 32/02, 56/04). Two autonomous entities have separate laws: the Law on Concessions of the Federation of Bosnia and Herzegovina (OG of FBiH, No. 40/02, 61/06) and the Law on Concessions of Republika Srpska (OG of RS, No. 59/13). The Brčko District also adopted the Law on Concessions (OG of BD No. 41/06, 19/07, 2/08).

The Law on Public Procurement from 2014 clearly states that non-concession and concession PPP contracts are awarded in line with the PPP/concession legislation.

Due to the very complex legal system in Bosnia and Herzegovina, the following analysis is exclusively based on the national law and the laws and regulations of the Sarajevo Canton, since Sarajevo is the capital city and largest city in Bosnia and Herzegovina.

In April 2017, the Sarajevo PPP Law (a non-concession specific law) was amended, but no material changes were introduced. These amendments deleted all references in the law to the application of public procurement procedures to PPPs in line with the aforementioned Public Procurement Act from 2014. Under the amendment, the Government adopted a decree regulating the criteria and procedure for selecting a private partner.

All the assessed laws on PPPs are modern as they explicitly prescribe principles of equal and fair treatment, free market competition, the autonomous will of the contracting parties, transparency, non-discrimination and proportionality. In this sense, they are compliant with best practices.

The laws lay down clear definitions and encompass many sectors, meaning that concession and/or non-concession PPPs are possible in all sectors. As a principle, the Law requires that private parties are selected through a competitive tender process and provides for the contracting authority to select non-concession and concession PPP projects following a preliminary economic evaluation/feasibility study. Also, the Law offers some flexibility for negotiation of the project agreements.

The rights and obligations of the parties in the event of termination are a mandatory provision of the project agreement.

Legal remedies and dispute resolution, including international arbitration are also available. Bosnia and Herzegovina is a signatory state of the Washington ICSID Convention as of 25 April 1997, and the New York Convention on recognition and enforcement of foreign arbitral awards (1958).

“Important issues for bankability such as direct agreements or step-in rights are missing”

The laws are not properly developed with regard to security instruments, including “direct agreements“ and “step-in“ rights.

The process of “stepping-in” is not explicitly regulated. However, the Law envisages that any new concessionaire must assume the rights and obligations of the former concessionaire. From this provision it is concluded that a “step-in” right in favour of a qualified new private party without initiating a new tender process is possible. However, the Sarajevo Concession Law requires other conditions to be met for such a transfer of the project agreement to another concessionaire, namely a prior approval by the Assembly of the Sarajevo Canton and that the requirements related to the investments have been met.

The Law does not provide the specific means for the public party to enter into a “direct agreement” with the lenders to arrange for concerted measures or guarantees, particularly in the event of private party default. However, the Law does not prevent such an agreement either.

Institutional Framework

Much like the legal framework, the institutional framework for concession in Bosnia and Herzegovina reflects the complex administrative structure of the country, with separate institutions at national and sub-national levels. The laws define the mechanisms and the bodies involved, but due to the complexity of the constitutional structure, the responsibilities of the institutions involved are intertwined.

Award statistics

Until now, only a limited number of PPP projects has been awarded in Bosnia and Herzegovina. Some of the projects which have been financed under the non-concession PPP model are: EFT Stanari Coal Plant and Doboj - Vukosavlje Motorway in 2012, Corridor 5c between Karuše and Poprikuše in 2013, Haemodialysis Project in 2014 and the District Heating System project in Sokolac in 2016. Concessions were granted for a hydropower plant „Vranduk“, usage of water by „OAZA“ Tešanj, „Sarajevski kiseljak“ d,d, Kiselja „Plava voda“ d.o.o. Travnik, Ciprex d.o.o. Velika Kladuša, etc. The majority of these projects are in the field of energy, transport, and social and health. However, not a single concession has been awarded at the national level.

The energy sector, in particular energy efficiency investments, health services sector, basic infrastructure, especially transport infrastructure, ecology sector, solid waste management, and the utilities sector are potentially desirable sectors for PPPs and concessions in Bosnia and Herzegovina.

The complex legal and administrative system is one of the main challenges for PPPs and concessions in Bosnia and Herzegovina. The existing laws are not fully harmonised with the EU acquis, and Bosnia and Herzegovina lacks the necessary overall harmonisation to prevent overlapping and conflicting solutions. The lack of uniformity of the legal framework in Bosnia and Herzegovina results in a lack of coordination of cross-entity and inter-entity PPP projects. Other challenges arise from the absence of a national policy, policy papers or model documentation, as well as from an underdeveloped insurance market and equity financing.

“Secondary legislation needed”

While acknowledging the deficiencies described above, the general assessment is that the existing legal framework represents a solid legal basis for implementing non-concession PPP and concession PPP projects. Where secondary i.e. implementing legislation is adopted (e.g. the Sarajevo Canton), the overall legal framework is clearer and more detailed. However, due to the lack of projects, the effectiveness of the laws cannot be fully assessed. A better transactional record is required for the actual assessment of the functionality of the Bosnia and Herzegovina legal framework for PPPs.