Author(s): Zoran Tasić / Language(s): Croatian
Issue: 172/2018
Concessions rise very sensitive political, economic and legal issues in many countries worldwide. Even defining the term ‘’concession’’ can be a complicated and not very straightforward exercise. OECD accepted definition of a concession as: “a grant to a private firm of the right to operate a defined infrastructure service and to receive revenues deriving from it. The concessionaire takes possession of the relevant assets (but ownership usually remains with the government) and uses them to provide the relevant product or service according to the terms of the contract.’’Croatian law defines concession generally as a right acquired pursuant to a concession contract subject to terms set out in the decision on concession (granted by a relevant authority) and, in respect of maritime domain, more specifically, as a right (of the Government authority) to exclude a part of maritime domain from the public use, either partly or completely, and to grant it to individuals or corporations for their commercial use subject to the relevant area planning. Buildings and other units erected on a maritime domain form its integral part.The law makes it clear that no property rights can be created on any part of maritime domain including buildings and units erected thereon. Projects developed on maritime domain often include large infrastructure projects,development of ports and marinas which require substantial financing. Banks that provide financing to such projects require organized and transparent concession laws and regulations, freedom of contract, legal protection of all parties involved (including a possibility of international arbitration). Projects of that kind are normally financed through project finance scheme which requires high level of capital and involves a substantial number of participants such as banks, contractors, investors, project managers, service suppliers, public sector, etc. Project finance scheme depends entirely on income generated by the project itself which income is the only source of repayment of financing and on ‘’the availability of reliable security instruments on the assets and cash flow of the concessionaire in favour of lenders,including ‘step-in’ rights and the possibility of government financial support or the guarantee by the contracting authority of proper fulfilment of its obligations. ’’The purpose of having security instruments (including assignment of concessionaire’s rights under the project contracts) for the concessionaire’s loan obligations, is that in the event of the concessionaire’s default the bank can ‘’step-in’’ and take full control over the project (instead of enforcing the securities) and make sure that the project is completed.That is why the project contracts, including concession contract in the first place, are of paramount importance for the banks. Normally, the security instruments on the concessionaire’s assets do not include mortgage on the project buildings and other units developed on the maritime domain. Croatian law does not allow for creation of a mortgage on maritime domain. That, however,is not an obstacle for the banks to provide financing for projects developed on maritime domain. From project finance banks’ point of view it is not necessary to change the law in order to allow creation of mortgage on maritime domain. Other security instruments created in favour of the banks providing project finance, including direct agreements, are normally sufficient for the banks to control the project.
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