ABSTRACT
While public service, which can be defined as operations conducted by public entities or by private legal persons under the observation of such public entities for public interest, is in principle delivered by the administration, according to the needs and discretion of such administration, it can also be delivered by private legal persons. Private legal persons volunteer to deliver such services because, among other reasons, they will enjoy privileges, and own capital and profit of the projects for a long time. At this point, if the fulfillment of a duty which is considered as public service is transferred to a private entrepreneur via an administrative contract, it can be said that public service is governed through the concession method1. Despite the lack of broad regulations on the transfer of public services to private entrepreneurs via concession agreements throughout the legislations, this article will examine the characteristics and scope of concession agreements, the rights and obligations of the parties, the termination of agreements and consequences of such termination, including judicial review.
I. INTRODUCTION
Even though public services, which by their very nature need to reach large masses, must be provided by the government as a basic rule, it is common around the world, in the developing countries in particular, for some of the public services to be transferred to the private sector2. With the occurrence of free market economy and the development of the international investment network, the investment perception of private sector has reflected on the public service. Since the system of global competition was adopted in Turkey, the private sector’s role in the public service has increased in order to carry government to a ‘regulator’ position3. In Turkey, the outsourcing of bridges, airports, power plants for renewable energy and other infrastructure services to the private legal persons via concession method (buildoperate-transfer) has increased since the mid twentieth century. Hence, while entrepreneurs have the opportunity to make high profits by benefitting from the privileges, the government ensures that the public services are delivered while avoiding reeling under significant financial obligations. Consequently, this method protects the benefits of both parties creating a win-win situation.
In contrary to the conventional method, whereby the entire public services are delivered by the government, it is known that a concession method is more advantageous in many aspects. Moreover, legal characteristics, legal positions of the parties involved and their rights and obligations as well as the consequences of breaches are among the crucial issues which need to be addressed. For the purpose of setting forth such crucial issues, in this article, a concession agreement will be defined, parties’ rights and authorizations will be explained and ways of termination of the agreement will be stated. Furthermore the situation of properties after the termination and lastly, the method of dispute resolution in concession will be covered.
II. THE DEFINITION AND CHARACTERISTICS OF CONCESSION AGREEMENTS
A. Definition of a Concession Agreement
Concession is “the method through which a public service is established and/or delivered by a person who is entitled to or responsible for the said service’s profits, losses and expenses, as a result of an agreement between the administration and a private person4. In concession agreements which transfer a public service to a private person, the administration is the concession giver, whereas the private person taking over the service is the concession owner or the concessionaire5. All capital, expenditure and earnings, damages and losses arising from the public service undertaken by a private person belong to that person, in return for delivering the service in compliance with conditions and for power and benefits determined by the administration6.
Although there is no clear consensus regarding the definition of the term ‘public service’, which is subject to concession agreement, the Constitutional Court,- in its Decision E: 1994/43 K:1994/42-2- defines it as follows: “Public services, in its broadest sense, are the continuous and regular activities offered to the public by or under the supervision of the state or other public legal persons in order to meet general and common needs and to protect public welfare or profit.” Therefore, it is understood that public service consists of a number of cumulative factors.
B. Distinguishing Features
Concession agreements have various distinguishing features, such as:
(i) Concession agreements are considered as administrative contracts and therefore they are not subject to private law.
(ii) The subject of the concession agreements is the establishment and/or operation of a public service.
(iii) The service is financed by the amount collected from those who avail themselves of the service which is calculated in accordance with a price list determined by the legislation7.
(iv) The operation of the service is for the concessionaire’s profit and loss. The capital needed for delivering the service must come from the concessionaire8.
C. Legal Character of a Concession Agreement
Concession agreements are basically comprised of two sections namely; agreement and specifications. While the agreement section contains the rights and obligations of both parties, the specifications section is drafted unilaterally by the administration, in other words this section is non-negotiable. Therefore, concession agreements contain both contractual and regulatory provisions as a whole, which makes them legally ‘mixed operations’9.
III. THE RIGHTS, POWERS AND OBLIGATIONS OF PARTIES
In concession agreements, as in all administrative contracts, the administration has more power and privilege compared to a private person10. The administration, which is the concession giver party, is liable to act in compliance with the terms of the contract and not to destabilize the financial balance of the concessionaire, who is a private person11. The concessionaire, on the other hand, is liable to perform the public service in accordance with the conditions and principles set by the agreement and the specifications, and to accept the scrutiny of the administration exercising its powers or the sanctions imposed by the administration’s unilateral amendments to the contract12. As an exception to the condition that the service must be performed personally, the concessionaire may sub-contract the work with the administration’s permission, if the work requires the use of sub-contractors13.
A. Rights and Obligations in Concession Agreements
In concession agreements, the concessionaire has rights while the concession giver has powers14. The underlying reason for this is the fact that the concession giver is a public administrative body which is a superior entity whereas the concession owner is a private legal person with a lower position15.
1. The Concession Giver’s Powers
In this bilateral relationship which is not between equals, the administration must regulate the concession owner. The administration may make unilateral amendments if needed and if the appropriate conditions exist, and it may impose sanctions in the event that the concession owner is guilty of misconduct16.
a. The power to inspect
The administration has the powers such as checking if the service is operated continuously and regularly, and whether the concessionaire is acting in accordance with the conditions imposed by the contract’s specifications. The transfer of a public service to a private person by the administration does not completely set aside the administration’s duty to deliver the service. The administration’s power to regulate also functions as an obligation17.
b. The power to unilaterally amend the contract
The private legal person has to adjust the public service according to contemporary developments or changes due to social, economic, technical or similar reasons. However, if the concession owner does not take into account the variability of public services, then the administration itself has the power to make unilateral amendments as needed18.
i. The need for unilateral amendments
At the stage where public services are delivered by private legal persons, changes will occur in time on the operation of the administration or the characteristics of the public service. As a result, it becomes necessary to modify the manner in which the service is provided. Indeed, the administration is responsible for ensuring that the service is operated properly according to current conditions, continuously and equally (among those who are subjects of the service)19.
ii. The conditions for making unilateral amendments
The administration cannot exercise this power arbitrarily and absolutely. First of all, there need to be a new situation or need20. Even in such a case, the amendments made by the administration must be restricted and measured, without causing the concession owner to lose its financial advantages21 or disturbing its work activities22.
c. The power to impose sanctions
If the concession owner violates its obligations arising from the concession agreement due to its own actions (e.g. if he does not ensure the continuity of the services or delivers it in a disagreeable or incomplete manner), the administration has the power to impose sanctions23.
i. Features of the sanctions
It is accepted that the administration inherently has the power to impose sanctions by virtue of the work’s nature, even if it is not stipulated in the agreement. The main purpose behind this power is not only to remedy the damages caused by the private legal person’s faulty acts, but also to provide the relevant public service as needed24.
ii. Types of sanctions
If a sanction needs to be imposed, three main types of sanctions may be considered: Monetary sanctions; temporary confiscation, and termination. temporary confiscation, and termination25.
• Monetary sanctions: As a result of concessionaire’s misdemeanor, the fines to be paid as determined in the legislation or the contract26.
• Temporary confiscation: If the concession owner does not deliver the service at all or as required, the administration confiscates the business and operates it in the name of the private legal person, on that person’s account (profit and loss).
• Termination: The concession agreement may be terminated due to a gross misdemeanor. However this sanction is not accepted in public service concession agreements. It is possible for the administration to unilaterally terminate the contract only if the concession owner gave the administration the right to do so27.
2. The Rights of a Concession Owner
A private legal person has rights in a concession relationship for the purpose of protecting the motive of entering into a contract and its outcomes.
a. Right to demand financial balance protection
i. In general
The concession owner has the right to demand preservation of its financial balance against the amendments to the concession agreement by the administration based on its power to make unilateral amendments, or as a result of unanticipated cost increases28. Disturbances to the concession owner’s financial balance would disrupt the public service and this offends the principles such as continuity in public service and administration’s obligation to serve public interest in its actions29.
ii. The principle of fait du prince
If the administration unilaterally amends the concession agreement for providing public service and such amendments damage the concession owner party, the administration is to pay damages to the concession owner. In Turkish Administrative Law, the rules governing this are prescribed by the principle of fait du prince30.
iii. The principle of unpredictability
In the event that the concession owner’s financial balance is completely destroyed due to an unpredictable and extraordinary event without either party’s fault, the concession owner may claim damages against the administration31. The damage to the financial balance, as stated above, must be to such an extent that the continuity of the public service will be damaged.
b. The right to demand respect for the advantages provided
The administration, as a result of its contractual relationship with the private legal person, commits to provide certain financial and monopolistic privileges to the concession owner. This means that in principle, the administration, by acting unilaterally, shall not cease to provide such privileges. The concession owner may demand that such obligations are fulfilled and the administration respects these privileges pursuant to the contractual relationship between them32.
c. The right to demand consideration
The concession owner’s purpose behind signing the concession agreement with the administration is to make profit. The administration determines a price taking into account the concession owner’s profit, and that price is paid to the concession owner by those who avail themselves of the public service33. The legal character of the price paid in return for public services provided through concession is disputed. In one view, such prices are a form of taxation whereas in an alternative view, the price can be called a “fee”, since the price for commercial and industrial public services is called a “fee (costs+profits)” as well34.
d. Right to litigate
If the administration fails to respect the concession owner’s rights, or the concession owner’s financial balance is disturbed due to various reasons, the concession owner may bring a full remedy action against the administration before the administrative court35. Arbitration is also an option if it is stipulated in the administrative contracts36.
IV. TERMINATION OF THE CONCESSION AGREEMENT AND THE DISTRIBUTION OF PROPERTY
Concession agreements, like any other agreement, get terminated if certain events occur and such termination also has consequences.
A. Events Leading to Termination
The concession agreement may be terminated if it reaches its expiration date, if the concession is dropped, if the contract is annulled for the public good, by way of a contractual repurchase or a mutual agreement.
1. Expiration
The most common way for a concession agreement to terminate is when it reaches its expiration date, in other words when it comes to an end. The parties may agree upon renewing the contract, and if the same conditions apply, then the previous concession owner is entitled to a right of first refusal37.
2. Cancellation of the Concession
As explained above, in the event of a gross misdemeanor of the concession owner, the administration may decide to cancel the concession unilaterally if such a right was stipulated in the agreement. If such a right is not mentioned in the agreement, the administration may only apply to the court for the cancellation of the concession38.
3. Abolishment in Public Interest
Even if the concession owner is not guilty of a faulty act, the concession giving administration may unilaterally terminate the contract if, from the administration’s point of view, the contract needs to be terminated for the public interest. If the concession owner has no fault in this termination, the administration must remedy the losses experienced by the concession owner as a result of the termination or the profits it would have made if the concession had not been terminated. Just like the termination may occur by the administration based on public interest, similarly, the legislature may terminate the contract by way of an act of Parliament39.
4. Contractual Repurchase
This method is named ‘rachat’ in French Law. Although some argue that this method can be divided into two, namely forced repurchase and contractual repurchase, it is accepted that forced repurchase is essentially an annulment for the public interest. Contractual purchase, on the other hand, involves the concession giving administration taking over the public service from the concession owning private legal person in exchange for the compensation, before the expiration date of the contract. The reason that this method is considered to be contractual despite its unilateral nature is the fact that such a termination is stipulated in the relevant contract40.
5. Annulment by Mutual Agreement
Unlike the abovementioned methods, annulment by mutual agreement is a bilateral operation. As the concession agreement is construed on the parties’ wills, it can be terminated amicably. In such a case, the parties’ present and future rights and debts are also mutually agreed upon41.
B. The Distribution of Property
In the aftermath of a termination, an important issue is what happens to the properties used in the operation of the public service. The solution is to distribute the property between both parties, in accordance with the method stipulated in the concession specifications. The property is divided into three categories: returning property, purchased property, and private property42.
1. Returning Property
It is the property that returns to the possession of the administration free of charge and compulsorily, pursuant to the regulations contained in the concession specifications43.
2. Purchased Property
Again, according to the concession agreement, it is the property purchased by the administration in the event of termination, with a price that was pre-determined or is to be determined. It shall be known that if the administration chooses to purchase the property by this method with an appropriate price, then the private legal person has no authority to oppose the transaction44.
3. Private Property
This category covers property which does not fit into the two categories listed above. Private property belongs to the private legal person, and it may include additional equipment separate from the service. Although such property may also be purchased by the administration, both parties need to consent to the transaction as in all acts in private law. Therefore, the private legal person may resist selling the private property, unlike the aforementioned purchased property45.
V. RULES FOR LITIGATION IN CONCESSION AGREEMENTS
One of the most substantial issues is the location and method for the litigation process in the event of a dispute, arising from a concession agreement. The contract’s character acts as guidance in this matter.
A. Judiciary
As mentioned above, concession agreements are administrative contracts. Therefore disputes arising from concession agreements are subject to the Article 2/1-c in the Code of Administrative Procedure (“CAP”) numbered 2577. As a matter of fact, the Article stipulates that all disputes originating from administrative contracts signed for carrying the public services out, are administrative proceedings within the scope of the administrative courts’ duty, unless arbitration is stipulated in the contract46. It is worth mentioning that the lawsuits involving the concession owner’s own personnel, industrial and commercial public services, and those between the concession owner and the service users are within the jurisdiction of civil courts due to a relationship with a private legal person. However, the lawsuits brought by the service users against the concession agreement’s regulatory provisions are within the jurisdiction of administrative courts47.
B. The Appointed Court
According to the Art. 5/1-c of the Establishment and Duties of the Regional Administrative, Administrative and Tax Courts Act, if arbitration is not stipulated in the administrative contract, then administrative courts are responsible for solving the disputes arising from the relevant contracts.
C. Court of Competent Jurisdiction
The Art. 32 of the CAP stipulates that the court of competent jurisdiction is the administrative court located where the relevant administrative agency which conducted the administrative work at issue or the administrative contract is located, if not mentioned otherwise in the CAP or other special statutes.
The Art. 24/1 of the Council of State Act No 2575 sets forth that the Council of State as the court of first instance adjudicates on the lawsuits arising from concession specification and agreements relating to public services, if arbitration was not stipulated in the contract. According to the relevant Article 25, the Council of State may also act as an appellate court in such lawsuits arising from concession specification and agreements.
D. The Judgment of the Court
The administrative court may decide regarding the dispute arising from the concession agreement on the following:
(i) Damages for the losses caused by the administration’s actions
(ii) Damages for losses caused by unpredictable events.
(iii) Invalidation of the contract’s provisions those of which are contrary to law
(iv) Termination of the contract
(v) The presence of a force majeure48.
E. Arbitration
The Article 125 of the Constitution allows dispute resolution by way of arbitration. According to this article, it can be stipulated in concession specifications and agreements relating to public services that disputes arising from the contract can be subject to national or international arbitration. According to the Article 1 of the International Arbitration Act, only disputes with a foreign element can be subject to international arbitration49.
VI. CONCLUSION
The transfer of public services which are provided by government to an entrepreneur who focuses on profit and privileges is in favor of both parties. In this legal relationship, administration has the authority to inspect and impose sanctions while concession owner has right to demand its financial balance to be protected and to take legal actions if needed.
As other legal relationships, concession agreement expires or gets terminated for several reasons such as termination for the public interest. In the event of termination, some of the properties are transferred to the administration while some of them belong to the private legal person. In the event of any disputes between the parties, it is possible to initiate a legal proceeding by following the rules of procedure peculiar to administrative law. It is advised to note that, disputes can be resolved through arbitration, if parties entered into an arbitration agreement.
In recent years, when the projects that are carried out by the method of build – operate – transfer are taken into consideration, the importance of concession agreements, which is one of the public – private partnership types, will be perceived better. As a result of the point that is reached by leaving the system in which all the public services are delivered by government, concession agreements will preserve its feature of being one of the most important ways chosen for the purpose of providing public services continuously and effectively in near future.
BIBLIOGRAPHY
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FOOTNOTE
1 Decision of the 1st Chamber of the Council of State numbered 1992 / 232.
2 Uğur Emek, “Türkiye’de Altyapı Hizmetlerinin Özel Sektöre Gördürülmesi: Neden, Ne Zaman, Nasıl?”, iktisat İşletme ve Finans, V.24, N.284, Ankara, 2009, p. 10.
3 Hüsniye Akıllı, “Kamu Hizmeti İmtiyazından Yapİşlet-Devret Yöntemine: Yasal Serüven”, Sayıştay Dergisi, N. 89, April-June 2013, p. 92, http://www. sayistay.gov.tr/dergi/icerik/der89m4.pdf, Last Access: 06.11.2016.
4 Kemal Gözler, İdare Hukuku V.2, Bursa, 2009, p. 402.
5 Metin Günday, İdare Hukuku, İmaj Yayıncılık, p. 305.
6 Ali Rıza Yücel, “İdari Sözleşmeler ve İmtiyaz Sözleşmeleri” Türkiye Mühendislik Haberleri, N.439-440 – 2005/5-6, p. 74, http://antalya.imo. org.tr/resimler/dosya_ekler/c2d2a916d92ae2b_ ek.pdf?dergi=156, Last Access: 06.11.2016.
7 However, nowadays it seems that this distinguishing feature has lost its importance due to the grant of the right to concession owner to determine the tariff by itself.
8 Gözler, p. 418-19.
9 Gözler, p. 425.
10 Lütfi Duran, İdare Hukuku Ders Notları, Istanbul, 1982, p. 439.
11 Gözler, p. 437.
12 Mehmet Güven, “İdari Sözleşmelerin Uygulanmasında Tarafların Hak, Yetki ve Yükümlülükleri”, Ankara Barosu Dergisi, N. 1996/3, Ankara 1996, p. 395, http://www.ankarabarosu.org.tr/siteler/ ankarabarosu/tekmakale/1996-3/7.pdf, Last Access: 06.11.2016.
13 Güven, p. 396.
14 Gözler, p. 432.
15 Turgut Tan, “İdari Sözleşme Kuramına İlişkin Gözlemler”, AÜHFD, Ankara 1995, p. 294, http:// dergiler.ankara.edu.tr/dergiler/42/473/5475.pdf, Last Access: 06.11.2016.
16 Gözler, p. 437-439.
17 Gözler, p. 437.
18 Gözler, p. 438.
19 Yasin Sezer, ‘İdarenin Sözleşmelerde Tek Taraflı Değişiklik Yapma Yetkisi’, AÜEHFD, CVIII, S.1-2, 2004, p. 170, http://eski.erzincan.edu.tr/birim/HukukDergi/ makale/2004_VIII_7.pdf, Last Access: 06.11.2016.
20 Sezer, p. 170.
21 Gözler, p. 438.
22 Gözler. p. 171.
23 Ismet Giritli/Pertev Bilgen Tayfun Akgüner, İdare Hukuku, Istanbul 2008, p. 1049.
24 Giritli/Bilgen/Akgüner, p. 1049.
25 Giritli/Bilgen/Akgüner, p. 1050; Gözler, p.439.
26 Public Procurement Act numbered 2886, Art. 62.
27 Giritli/Bilgen/Akgüner, p. 1050; Gözler, p. 439.
28 T. Ayhan Beydoğan, “Türk Hukukunda İmtiyaz Sözleşmelerinin Hukuki Niteliği: 406 ve 5809 Sayılı Kanunlar Açısından Değerlendirilmesi”, Ankara Barosu Dergisi, S.2011/4, Ankara 2011, p.117, http://www.ankarabarosu.org.tr/siteler/ ankarabarosu/tekmakale/2011-4/2011-4-5.pdf, Last Access: 06.11.2016.
29 Gözler, p. 434-435.
30 Beydoğan, p. 118.
31 Beydoğan, p. 118.
32 Gözler, p. 435.
33 Beydoğan, p. 117.
34 Beydoğan, p. 117.
35 The Code of Administrative Procedure numbered 2577, Art. 13.
36 Gözler, p. 436.
37 Gözler. p. 440.
38 Gözler, p. 440.
39 Gözler, p. 440-441.
40 Gözler, p. 421-422.
41 Gözler, p. 422.
42 Gözler, p. 422.
43 Gözler, p. 422.
44 Gözler, p. 422.
45 Gözler, p. 443.
46 Gözler, p. 443.
47 Gözler, p. 443.
48 Gözler, p. 444.
49 Gözler, p. 444.
