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Righting the Wrongs of Communism: Restitution Law Modified ……………. 1

INSIDE:

The RomanianDigest TM

N E W S

L E T T E R

INSIDE:

Romania’s New Concession Procedure ………………………. 1

ROMANIA’S NEW CONCESSION PROCEDURE

Volume 12, Issue 7 - July 2007

Introduction

The exploitation of Romania’s public property assets – oil, gas, water, other natural resources and assets specified by law – has always been of enormous interest to foreign investors. Romania’s fabled Ploiesti oil fields lured US investors to the country in the early part of the twentieth century, and the nation’s rich forests and ample minerals continue to tempt investors eager to capitalize upon Romania’s advantaged position within the European Union.

Like so much of Romania’s laws which have undergone

transformation and alterations due to EU accession, the concession procedure is now subject to new legislation, i.e., Gov e rnme n t E me rge nc y Ordinance no.54/2006 (herein below referred to as “GEO n o.54”) on con cess i on agreements regarding public property assets, and the M e t h o d o l o g i c a l No r m s regarding the application of GEO no.54, issued in February 2007 (herein below referred to as the “Norms”).

GEO no.54 only refers to c on c e s s i on a g r e em en t s regarding public property assets, while the awarding of public procurement agreements

and agreements for the concession of public works and public services is covered by the Government Emergency Ordinance no.34/2006. For a more detailed look into the provisions of the above mentioned ordinance please see The Romanian Digest Archive (http://www.hr.ro/digest_archive.htm),

article “Romania’s New Public Procurement Law” from July 2006. With regard to public services and public works which are performed in relation to the concession of public assets, the concession would not be granted based on GEO no.54, but rather on the E m e r g e n c y O r d i n a n c e no.34/2006.

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The Romanian Digest™ Volume 12, Issue 7 - July 2007

Commencing the Concession ProcedureAccording to GEO no.54, any interested individual or legal entity, irrespective of their nationality or citizenship, may be a party to a concession agreement in Romania as a concessionaire. A concession agreement is the agreement concluded in written form, with a public authority, which we will refer to as the concessor, in which that public authority transfers, for a limited period of time, to a person, called the concessionaire, the right and obligation to exploit a public property asset in return for a royalty payment.

The revised legislation in Romania grants the possibility to interested persons to submit a proposal to a concessor regarding their desire to conclude a concession agreement. The concessor is either a ministry or another specialized body of the central public administration - for assets belonging to the public property of the state - or the county councils, local councils, the General Council of Bucharest or public entities of local interest - for assets belonging to the public property of the

county, town or township.

The ability of investors to submit their own proposal to a concessor is extremely important, because investors can identify the economic potential of a public asset which has not heretofore been exploited by the state. If that is in fact the case, the interested person can, in effect, set the parameters of its own proposal for the concessor, assuming that the proposal is based upon a sound economic, financial, social and environmental basis.

If the concessor is convinced of the viability of the potential concessionaire’s proposal, or based on the concessor’s own intiative, the concessor can initiate the concession procedure and prepare an opportunity report within a 30-day period from the date when it has approved the concession proposal.

The opportunity report must be drafted in compliance with the main elements provided by GEO no.54, such as the

description and identification of the asset subject to the concession agreement; the reasons that justify the conclusion of the agreement; the minimum royalty and other similar elements. The opportunity report is extremely important within the concession process, because the grant of the concession is based on the report and leads to the approval of the concession by a government decision, a decision of the local council, county council or the General Council of Bucharest, as the case may be. Also, a “task notebook” is required to be drafted on the basis of such report, its elements being set forth in the Norms.

No matter if the procedure has started as a result of the proposal initiated by any interested person and assimilated by the concessor, or is based on the latter’s own initative, the concessor will be the only one authorized to elaborate the opportunity report. This as an essential element that establishes the proper framework for fair competition among all future potential concessionaires.

The Concession Procedure

At this stage, the investor interested in concluding a concession agreement is permitted access to all of the documentation relevant to the concession procedure. This information stage is essential for the potential future concessionaire, because the documentation afforded to the investor includes all the requests, criteria, rules and other useful information established by the concessor according to which the investor must detail its offer. The concessor has the obligation to ensure either the direct, full and unrestricted electronic access to the interested person to such documentation, or a hard copy of it, as described in GEO no.54

It is essential that the interested investor clarify all of its uncertainties regarding such documentation in due time – and, as a consequence, the concessor has the obligation to offer precise and transparent answers – prior to the investor submitting a valid offer to the concessor before the deadline.

In case there are three valid offers submitted to the concessor, then the latter will organize a tender procedure, and the winning offer of the tender will represent the basis for concluding the concession agreement.

In case three valid offers have not been submitted, the concessor must reorganize a tender. If the minimum number of valid offers has not been submitted at the second call for tender, the concessor can proceed with direct negotiations, which means that the concessor negotiates the clauses of the agreement, including the royalty payment, with one or more of the participants in the procedure for the award of the concession agreement.

The evaluation of the offers received is performed in accordance with the conditions established by the Norms. However, the main assessment criterion for awarding an agreement remains the highest royalty payment. The manner under which the royalty is to be calculated and paid is to

be established by the ministries or local authorities, as the case may be. However, there also are other criteria to be taken into account, such as: the economic and financial capacity of the investors who have made the offer; environmental protection issues; and specific conditions imposed by the nature of the asset that is the object of the concession agreement.

Both the tender and the direct negotiations procedures must be organized by the concessor in such a manner so that to respect transparency, a fundamental principle of GEO no.54. That is why the concessor has the obligation to publish the announcement regarding the tender and the direct negotiation in the Official Gazette of Romania, and also in both a national and a local journal, with at least 20 or only 10 days, respectively, prior to the date for the submission of offers.

The concessor must inform all the persons (Continued on page 3)

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The Romanian Digest™ Volume 12, Issue 7 - July 2007

As a guide for all interested investors, the Norms have included a draft concession agreement. The model agreement includes the provisions set forth in the task notebook and also the provisions on which the contracting parties have agreed, in addition to those contained in the task notebook. The concession agreement may be concluded only after 20 days from the date of the communication of the result of the tender. Failure to conclude the agreement in 20 days after the deadline may lead to penalties incurred by the party at fault. In the same manner, refusal by the winning person to conclude the agreement may result in penalties. The concession agreement expressly provides for the distinct categories of assets to be used by the concessionaire during the performance of the concession agreement such as: the assets representing the object of the concession agreement, and the assets that the concessionaire owns and which will be used by it during the execution of the concession agreement.

As a guarantee envisaged by GEO no.54, the concessionaire has the obligation to leave, in 90 days at the most from the date of the execution of the agreement, a fixed amount of money representing a quota of the amount that it is supposed to pay to the concessor for the first year of the concession agreement. It is out of this amount that the concessor may withhold the penalties or other such costs owed by the concessionaire.

Sub-concessions are forbidden, but the new provisions contain several exceptions such as concession agreements entered into with state-owned companies.

Irrespective of the concessionaire’s nationality or citizenship, the concession agreement is to be concluded for a term which may not exceed 49 years, starting from the date of its execution, and it may be extended for a period equal to the maximum of half of its initial term by the simple agreement of the parties. Keeping in mind that many such agreements are concluded with foreign investors, the new regulation provides for the possibility of executing a concession agreement in both Romanian and English or any other foreign language; however, the Romanian version prevails in case of any disagreements between the parties to the agreement.

The concessor may seek to amend the

agreement upon written notice to the concessionaire, and only for exceptional reasons based upon compelling national or local interests. If such amendment prejudices the concessionaire, then it will be entitled to fair and just compensation. Disputes that arise with regard to the allocation, conclusion, performance, amendment, or termination of the concession agreement, and those regarding the grant of damages, are to be settled according to the provisions of Law No. 554/2004 regarding administrative disputes, as subsequently amended. The competent authority in this respect is the administrative department of the tribunal from the concessor’s area. The decision of the tribunal may be appealed at the appropriate appellate court.

The Concession Agreement

who have made offers of the decision taken, in writing and by registered mail, not later than three working days from its issuance. Furthermore, the concessor has the obligation to issue an announcement regarding the award of the concession agreement and have it published within the Official Gazette within 20 days from the end of the procedures for the award of the

concession agreement.

As the protection of confidential information is a fundamental right, GEO no.54 includes special provisions obligating the concessor to protect all the confidential information which has been provided by an interested person to the extent that the disclosure of such information would prejudice the legitimate interests of that specific person,

especially with regard to commercial secrets and intellectual property issues.

Moreover, GEO no.54 includes provisions regarding the possible cancellation of the procedure regarding the awarding of the concession agreement, and rules on conflicts of interest that may arise within the concession process, to guarantee adequate transparency.

(Continued from page 2)

GEO no.54 has been drafted based on fundamental principles which are the core of European Union law, already harmonized into Romanian legislation, such as the pr in ci ples re gar din g t ra nspa ren c y, proportionality, equal treatment, non-discrimination and free competition. Upholding these principles and the principle of financial balance between the rights granted to the concessionaire and the obligations imposed on it should make this legislation very attractive to local and foreign investors. They are now able to implement the opportunities afforded by Romania with the help of the Romanian state.

The exploitation of public property assets, as envisaged by GEO no.54, is both profitable for interested investors, and represents an efficient way of developing different kinds of assets with the help of the Romanian state

that might not otherwise be exploited. The issuance of the Norms in February 2007, o f fe r i n g d e t a i l s on t h e p r op e r implementat ion of the ordinance , demonstrates the commitment of Romanian authorities to make this possible. Under these circumstances, investors should consider concessions in the development of their businesses in Romania, effectuated in a climate of rewarding economic opportunities and open competition.

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Editors Note: It is our policy not to mention our clients by name in The Romanian Digest™ or discuss their business unless it is a matter of public record and our clients approve. The information herein is correct to the best of our knowledge and belief at press time. Specific advice should be sought from us, however, before investment or

other decisions are made.

Copyright 2007 Rubin Meyer Doru & Trandafir, societate civila de avocati. All rights reserved. No part of The Romanian Digest™ may be reproduced, reused or

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