Peripeteia of Concession and Problems of Legal definition

Abstract

Despite the interesting history of the concession, the existence of official and private legal international foundations and scientific works for the creation of concession legislation, in the legislation of Georgia, it was not possible to determine the academic definition of concession as a legal institution. The nature of the concession agreement was not understood and distinguished, that is, a concession is a transfer of the right, not the property, however, a concession agreement is the way of its realization, that triggers problems of practice regarding assignment to a certain legal sphere, legal regulation, court jurisdiction, selection of law, etc. As the "Foreign element" participates in international private legal relations, state and foreign investor appear as parties in concession relations. For them, favorable situation, protective legal regime and predictable environment are the main factors. Accordingly, the development of concession legislation is of essential importance for the economy of Georgia. In addition to the legal purpose, the concession has an important social function and should ensure the inclusion of the private sector in the economic life and development of the country. In order to refine the legislation, the areas of application should be studied, problems, peculiarities, realities should be identified and it should be calculated what results will be achieved if the relevant legal norms are implemented. Refinement of the concession legislation is directly related to the creation of an investment environment in Georgia. Attracting investments, investors guarantees and efficient use of the countrys resources is a very urgent issue in terms of economic development, job creation and increase of state revenues.

Keywords: concession, term, definition, definition, investment

Introduction

Many countries of the modern world faced the need for legal regulation of public and private partnerships. Most of the new laws apply to all types of public-private partnerships. Concession, as one of the forms of such partnership, requires legislative regularity. In particular, the legal nature of the concession has already been analyzed in the science of law, which should be followed by a legal definition reflecting the real immanence of the concession in the legislation of Georgia. The definitions presented in the repealed 1994 and current 2018 laws regarding the concession are completely misleading from the legal content of the concession and its academic definition should be established.

Chapter I

The issues of public-private partnership are known from the time of ancient Iran, Greece and Rome before BC, the development of which continued in medieval France, Holland, Spain and England, which was represented by the transfer of the right of tax collection by the state to a private person.

In all states of ancient Greece, the collection of taxes was carried out by private individuals, and in Rome, a trade, an auction in the modern sense, was held to give the right to collect taxes.[1]

The history of Georgia has not ignored the concession relations, and it is known from the first documentary sources that in the 40s of the 18th century, King Erekle II concluded a concession agreement with the Greek "Madanshiki" for the purpose of reviving the ore production, which was related to the processing of copper and gold-silver deposits. King Erekle invited a group of Greek "madanshiks" from Turkey, who began working on a silver deposit in the vicinity of the Akhtali monastery. In 1763, mining production was widely developed. The description of the business deal between the king and the arrived Greek masters is interesting, which is nothing more than the first written Georgian concession agreement. The king was considered the owner of production.

Similar forms of partnership between the state and the private sector can be found in the cases of dye production and the management of the King's Mint. A glass factory, a salt factory, an earthenware manufacturer, and other small enterprises were given to manage.[2]

An event reflecting the active concession relations in Georgia was the "Chiatura Black Stone Concession Agreement", signed on June 12, 1925 for a period of 20 years, between the Union Concession Committee of the Soviet Union and the famous American industrialist William Averell Harriman.

The story of this agreement ended with the discussion of the dispute in the New York arbitration court, where the interests of the Soviet Union were defended by the famous Georgian lawyer, professor of Tbilisi State University Luarsab Andronikashvili.[3]

At the end of the 20th century, a new impetus was given to the development of concession relations, and discussions about the legal nature of the concession became active in the sphere of lawyers, which was significantly influenced by free international relations and investment activities.

Chapter II

In the modern world, several main forms of public-private partnership have been identified: private finance initiative (PFI); Institutional Public-Private Partnership (IPPP) and concession (concessio).

A Private Finance Initiative (PFI) contract is mainly used for relatively small projects. Unlike large concession projects, it provides the possibility of financing non-commercial projects in its field of application. The content of the PFI agreement is to carry out activities on behalf of the state in sectors such as schools, hospitals, prisons, public buildings, public facilities and non-profit services, without the delegation of state rights.

The form of Institutional Public-Private Partnership (IPPP) is a collaboration between the state and the private sector that provides for the creation of mixed capital. Its purpose is the execution of state contracts and the implementation of concessions. The contribution consists of different types of assets and the implementation of the contracts is carried out with the active supervision and participation of the representative of the state.

The European Commission has published "Guidelines for the Organization of Institutional Public-Private Partnerships", which clarifies the rules applicable to participation in public-private partnerships and increases legal certainty. It also ensures fair competition and means of selecting a private partner through a tender.[4]

A concession relationship is a form of cooperation between the state and the private sector, based on mutually beneficial contractual terms, involving the private sector for the efficient management of state property or services. Concession refers to the transfer of the right to exploit natural resources, infrastructure facilities, enterprises or equipment under certain conditions and compensation.

Concessionaires are usually powerful companies that take concessions for various facilities in economically weakly developed countries. Such companies are granted wide rights in various fields of farming, which should ensure the economic development of the country.[5]

Chapter III

The legal guidelines of the United Nations Commission on International Trade Law (UNCITRAL), the main elements of the concession legislation of the Organization for Economic Cooperation and Development (OECD) and the main principles of the European Bank for Reconstruction and Development (EBRD) on modern concession legislation are the basic documents in terms of the creation or improvement of concession legislation, which are international legal bases recognized in the world and already implemented in many countries. These documents laid the foundation for the creation of modern legislation, and they are being updated to this day.

These organizations still contribute a lot to the development of the concession as a legal institution, and I will generally touch on the above-mentioned documents created as a result of their work.

In June 2000, the United Nations Commission on International Trade Law (UNCITRAL) adopted the "Legislative Guidelines on Privately Funded Infrastructure Projects", the so-called "Legislative Guide", which will help the governments of the member countries to create favorable conditions for the financing of the legislative structure and private infrastructure projects.

UNCITRAL's "Legislative Guide" deals not only with infrastructure projects, but also with the use of natural resources and focuses on the essential features of legislation.

The main focus is on the procedure for concluding the concession agreement. In its structure, there are dozens of recommendations of the organizational nature of concluding a concession agreement, which are grouped by content.[6]

If we analyze the "Legislative Guide" from the point of view of finding and recognizing the immanence of the concession, it will appear that the concession by its legal nature implies the transfer or surrender of the right, not the property.

For example, one of the recommendations limits the permission of the concessionaire to assign the right transferred from the state to a third party without the consent of the state. Here, too, we are talking about giving up rights, not property. Also, the content of the transfer of rights and not property can be seen in the recommended rules for the operation of the infrastructural object.

A group of experts from the Organization for Economic Co-operation and Development (OECD), the Istanbul Stock Exchange (ISE) and the Network for Information Services (NIS) developed the "Core Elements" of OECD Concession Law.

It outlines the guiding principles of creating a modern law on the concession agreement in legislative language and provides comments on these principles against the background of advanced international practice, which in fact represent a model of the relevant law of the European Union legislation. They are presented in the form of legal terms that can be used in national legislation.

In the "basic elements" we are interested in the issues of harmonization of the legislation on the concession agreement and the common approach to the terminology on the concession, the analysis and judgment of which will lead us to the conclusion that the concession is the transfer of the right and not the property.

In 2005, the European Bank for Reconstruction and Development (EBRD), whose aim and purpose was to outline and promote modern principles in the countries of the Bank's operations, developed the "Core Principles for a Modern Concession Law (MCL)”.[7]

The EBRD's "Core Principles" are based on internationally recognized key standards, best practices, regional studies, sector studies and assessments, as well as the UNCITRAL Model Legal Provisions for Privately Funded Infrastructure Projects.

From the "Core Principles" of EBRD, the principles of compliance of the concession legislation with the country's legal system and individual laws are of interest to us.

It implies that the norms of the law must be consistent with the law of the country, the general structure and the special legislation, which is necessary to ensure that the separate parts of the legislation do not contradict each other, and the application of the individual acts is as clear as possible.[8]

In addition to the above-mentioned documents, there are interesting scientific works and opinions on the concession in the science of law.

Chapter IV

Concession, by its legal nature, can belong to the administrative law, private law or can be mixed.

The concession as an administrative act was considered by the Swiss-German doctrine, the followers of which believe that the concession is a manifestation of the highest right of the state, does not come from the civil sphere, and it cannot have the meaning of a contract.

The contractual theory of concession developed in France, where it was considered as an administrative contract. Since the case concerned property interests, the concession relationship was regulated by the principles of civil and public law. The concessionaire was not a public official, he was given the right to exercise public authority based on the contract.

The basis of the concession as a mixed act derives from the reasoning according to which it is a combination of an administrative act and a civil contract. The problem of such a complex approach, theory, which originated in Latvia, remains the issues of the methods of regulating the concession relationship.[9]

After the above-mentioned excursion, it will be easy to see and evaluate the current legislation in Georgia.

Chapter V

After the restoration of Georgia's independence, the creation of new legislation of the country began, the concession relations were regulated by the Law of Georgia of December 21, 1994 "On the Procedure for Granting Concessions to Foreign Countries and Companies", which determined that "a concession is a long-term lease agreement signed by the state for the purpose of foreign capital investment on the exploitation of renewable and non-renewable natural resources and other related economic activities".

The purpose of the investment was highlighted and the concession relationship was defined as a private legal nature - "lease agreement", and according to the Law of Georgia "On Licenses and Permits", the permission of the authorized administrative body was required for the conclusion of the concession agreement.

If property (natural resources) were to be transferred through a civil legal institution - in the form of a lease, then what was the need for a separate concession legislation.

A concession differs from a lease only in its characteristic features: one of the parties to the concession relationship is always the state; the concession object can only be state property; the object of the concession may be the transfer of a special right of the state to the concessionaire, and the concessionaire cannot become the owner of the transferred property. This list is not complete and it is possible to highlight other signs.

Unconditionally, the main distinguishing feature of the concession remains its public-legal motives, elements and conditions. First of all, this is a special basis for the emergence of concession litigation, which cannot be a civil transaction.

Also, one of the main features distinguishing a concession from a lease is that a governmental act (iure imperii) is required to conclude a concession agreement, and in order to enter into a lease agreement on state property, it is sufficient to show the will of the state in the form of a civil transaction (acta iure gestionis).[10]

In the case of a concession, the right is transferred, not the property, so the definition of the concession in the above-mentioned law missed its true content.

If in 1994 there was a lack of information in Georgia about the legal nature of the concession, in 2018, when developing a new law, the legal definition of the concession should have been analyzed in detail.

In addition, the appearance of specialists in private international law as a new branch of law in Georgia and their works on concessions created a more informative environment and their involvement would also help the case. Also, there are scientific works of foreign lawyers on the characterization of the concession as a legal institution.

From a theoretical point of view, the idea that a concession is a transfer of rights by the state, not property, and represents an independent legal institution, has already been established as a clear doctrine in the science of law. According to the families of law, the concession can be administrative or civil in nature, and in common law countries, where there is no division of law into private and public law, the concession and the concession agreement are also private legal relations.

          As for practice, i.e. Positive law in force on concession in Georgia.

In the recent past, the majority of countries regulated concession issues through national law, and the issue of public-private partnership in a broad sense remained in the field of the general structure of law and state policy. Then, the situation changed and new trends emerged. A number of countries have started creating new separate laws on public-private partnerships, in which concessions are presented as one form of public-private partnership.

The Law of Georgia "On Public and Private Cooperation" dated May 4, 2018 repealed the above-mentioned Law of Georgia dated December 21, 1994 "On the Procedure for Granting Concessions to Foreign Countries and Companies" and formed the definition of concession in a new way.

There was an expectation that the new law would correct the situation, but even in this case it was not possible to determine the legal definition of the true legal nature of such an important and relevant legal institution - the concession. On the contrary, it was leveled and again lost from its true content.

However, it should be noted that in the new law, the modern approaches defined for the creation and refinement of concession legislation are considered and innovations are also proposed, but the subject of our interest and discussion is the academic legislative definition of the legal nature of the concession.

The new law of 2018 presents an "updated" definition of concession, according to which it is "a public-private partnership, during which, based on the concession agreement, the concessionaire directly or indirectly receives payment from the end user or public partner and from the end user in return for the public services provided by him and within which the Concessionaire assumes significant operational risk, which includes demand risk or supply risk".

It is a positive element that the legislative record recognized the concession as one of the types of public-private cooperation and that this relationship is for the purpose of providing public services. Therefore, there is a co-operation for the private sector to act instead of the state in order to exercise mandatory public powers.

In the text of the definition, the key words defining the immanence of the concession have been turned over and it continues with the fact that it is a form of public service. Then, attention is paid to the manner of compensation for the concessionaire and the issues of taking operational risks by the concessionaire, which are the subject of the agreement and not of the legal definition of the concession.

The above legal definition states that a concession is a public-private partnership based on a contract, in the field of public services, and for these services the concessionaire receives compensation, which is very general and unclear. The General Administrative Code tells us the same thing, that an administrative contract is "a civil-legal contract concluded by an administrative body with a natural or legal person, as well as with another administrative body, for the purpose of exercising public authority." Where the line is drawn between these two situations is a matter of separate discussion. According to families of law and national legislation, the concession can be of both public and private nature.

The legal definition of the concession does not contain the main words characteristic of its legal nature, as it is presented in the Civil Code of Georgia for other legal institutions. For example, in the case of entrusting the property, the trustee transfers the property to the entrusted owner for management, in the case of a gift - the item is transferred to the property, in the case of rent - the item is transferred for use, in the case of leasing - the transfer of the property for use with the right to purchase it, in the case of lease - the temporary transfer of the property for use with the possibility of receiving fruits. Their realization in life is carried out by relevant agreements.

In the legislative space, the precise definition of the concession as a legal institution and the characterization of its legal nature remained unclear.

Chapter VI

When talking about the concession, it is very important to distinguish between the fact that the concession is a legal institution, with a specific formula regulating public relations, and the concession agreement is a means of realizing this relation in life. Confusion or identification of their contents is completely unacceptable and causes many problems.

In the definition of the new law, it is not at all clear why the definition of the concession includes such contractual terms as the manner of payment to the concessionaire and one of the obligations of the counterparty - to assume operational risks.

The separation of the legal nature of the concession and the concession agreement, in addition to the theoretical orderliness, has an essential practical meaning, because public and private legal mechanisms go through different legislative paths and the rights and obligations of the parties, legal guarantees of protection, judicial review and the possibilities of reviewing the dispute in another country are regulated differently.

The concession agreement, as a form of expressing and realizing the concession relationship, is a consensual, specific term, compensatory and bilateral agreement for the parties. It provides for the existence of the respective rights and obligations of the two parties, as well as the will of the parties to enter into the said contract. The concession agreement is essentially different from the agreements of other legal institutions.

The degree of interdependence between public and private parties - the state and the concessionaire, in concession relations is much higher than in other types of legal or contractual relations. The concession contract affects both public and private interests.[11]

Conclusion

The issue of determining the true content and legal nature of the concession remains a problem in the legislation of Georgia. Despite the second legislative change, it was not possible to understand the legal nature of the concession, to reconcile modern doctrines and concepts, which should have been directed us to the correct and legal definition in terms of academics.

In order to end the peripeteia of the concession in Georgia and to academically determine the legal definition of the concession, the legislator should take into account that the concession is the transfer of such a right, by which the concessionaire, instead of the state, must carry out the activities that derive from the exclusive, privileged and mandatory functions of the state. These are the state functions that are reflected in the theory of law, or in state law, and which the state cannot avoid. It cannot be avoided either through privatization or through private legal transactions.

The very word "concession" (concessio) is an old Latin word and means permission, concession. In the case of concession, the home state transfers to the concessionaire the right to process natural resources, operate infrastructure, manage strategic facilities or conduct other public activities, and not the corresponding property.

Concession means an act by means of which the state equips a private person with the right to participate in the implementation of some of its functions in the field of farming. In addition, the concessionaire is in a more privileged position than other participants in the economic turnover. A concession can be issued either by a unilateral act of the state or by a contract concluded with the concessionaire.

Not the property as such, but the right to use the property or the special right to use the property is transferred to the concessionaire. The subject of the concession should be the transfer of a special right of the state to the concessionaire.[12]

At the end, it should be noted that when formulating the legal definition of concession in the legislation of Georgia in a new way, the classic scheme should not be violated, according to which, first an idea arises, then it turns into a doctrine, it is shared and discussed in academic circles, followed by the recognition of the majority, it turns into a ready-made legal formula or mechanism and Finally, if necessary, the state takes the form of a law. The laws adopted in this way remain in the life of the country for a long time, they serve the regulation of public relations, the economic interests of the state and do not require frequent changes.

Bibliography

1. Sukhishvili Z., (2013), "Concession History", Journal "Business Engineering", 1 (In Georgian);


2. Group of authors, "Essays on the History of Georgia", Volume IV, Chapter XI, "Development of Economic and Social Life in Eastern Georgia, XVIII century. 40-80s" (In Georgian);


3. Zhvania V., (1960), "Chiaturi Concession and the Defeat of Harriman's Economic Diplomacy", Magazine "Drosha", No. 2 (In Georgian);


4. European Bank for Reconstruction and Development (EBRD), (2012 MAY) "EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT CONCESSION/ PPP LAWS ASSESSMENT 2011 COVER ANALYSIS REPORT FINAL REPORT MAY 2012", p. 65 <https://www.ebrd.com/downloads/legal/concessions/pppreport.pdf> [Last view: 10 September, 2022] (In English);


5. Sukhishvili, (2015), "International Private Law Aspects of Concession", Dissertation, GTU (In Georgian);


6. UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW (UNCITRAL, 2020, renewed), "Legislative Guide on Public-Private Partnerships", <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-10872_ebook_final.pdf> [Last view: 10 September, 2022] (In English);


7. European Bank for Reconstruction and Development ( EBRD), (1991) "Core Principles for a Modern Concession Law (MCL) " http://www.ebrd.com/downloads/legal/concessions/mcl.pdf , (last viewed: 10.09.2022) (In English);


8. Sukhishvili, (2014), "Basics of Creation of Concession Legislation", Journal "Intellectual", No. 27 (In Georgian);


9. Khatidze , (2022), "Public-Private partnership providing legal Means", Tbilisi, Publisher "Bona Kausa" (In Georgian);


10. Sukhishvili Z., (2014), "Legal Nature of Concession and Concessionary Contract", Journal "Intellectual", No. 27 (In Georgian);


11. Law of Georgia of December 21, 1994 "On the Procedure for Granting Concessions to Foreign Countries and Companies" (In Georgian);


12. Law of Georgia of May 4, 2018 "On Public-Private Cooperation" (In Georgian);


13. Civil Code of Georgia (In Georgian).

Footnotes

[1] Sukhishvili Z., (2013), "Concession History". Journal "Business - Engineering", No. 1.

[2] Group of authors, "Essays on the history of Georgia", Volume IV, Chapter XI, "Development of economic and social life in Eastern Georgia, XVIII century. 40-80s", p. 546.

[3] Zhvania V., (1960), "Chiatura Concession and the Defeat of Harriman's Economic Diplomacy", Journal “Drosha”, 1960. No. 2, p. 15

[4] European Bank for Reconstruction and Development (EBRD), (2012, MAY) "EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT CONCESSION/PPP LAWS ASSESSMENT 2011 COVER ANALYSIS REPORT FINAL REPORT MAY 2012", p.65, <https://www.ebrd.com/downloads/legal/concessions/pppreport.pdf>  [Last view: 10 September, 2022]

[5] Sukhishvili Z., (2015), "International private legal aspects of concession", dissertation, p. 40, GTU.

[6] UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW (UNCITRAL, 2020, renewed), “Legislative Guide on Public-Private Partnerships”, https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-10872_ebook_final.pdf, (last viewed: 10.09.2022).

[7] European Bank for Reconstruction and Development (EBRD), (1991) "Core Principles for a Modern Concession Law (MCL)", - <http://www.ebrd.com/downloads/legal/concessions/mcl.pdf>  [Last view: 10 September, 2022]

[8] Sukhishvili Z., (2014), "Basics of creation of concession legislation", Journal "Intellectual", No. 27.

[9] Z. Sukhishvili, (2015), "International private legal aspects of concession", dissertation, p. 61, GTU.

[10] Ibid., dissertation, p. 79, GTU.

[11] Khatidze G., (2022), "Public-private partnership providing legal Means", Tbilisi, "Bona Kausa" publishing.

[12] Sukhishvili Z., (2014), "Legal Nature Concession and Concessionary Contract", Journal "Intellectual", No. 27.