Policy paper on granting concessions in Bosnia and Herzegovina
POLICY PAPER ON GRANTING CONCESSIONS IN BOSNIA AND HERZEGOVINA

Introduction

A concession in essence constitutes the granting of a right to use certain natural resources or public goods, which the state authorities awarded to a domestic or foreign entity (under the laws in Bosnia and Herzegovina – a legal entity) under certain conditions and for a certain period of time.

Concessions as a form of investment had already existed in the times of the Ancient Roman Empire, while the granting of concessions has become very important and ever more present with the establishment and the development of modern capitalist economic system. Among the most demanding projects, technically and financially, that were implemented through concessions granting were the Tunnel under the English Channel, the Suez Canal, the Panama Canal, a network of highways in Spain, etc.

Modern processes of globalization and internationalization of domestic economies, as well as creating preconditions for the strengthening of the trends of regional integrations and economic integration into the European Union have made the need for massive capital infrastructure investments ever more pronounced, in particular in the sphere of transportation, energy supply, communications, water management, etc. It is evident that the implementation of such projects requires major investment resources, which most countries do not have, in particular those less developed or those undergoing a transition process. This is why these countries expressively need to engage foreign capital in order to implement the goals and the interests mentioned.
Granting concessions is one of particularly favorable forms of engaging private foreign and domestic capital in order to finance the investments in the sphere of exploiting natural resources or constructing infrastructure facilities and other public goods in general use.
With this goal in mind, the laws on concessions were passed in Bosnia and Herzegovina at the entity and state levels. The laws have been fully harmonized with one another and they establish the conditions under which concessions may be granted to domestic and foreign legal entities for providing infrastructure and services, financing, designing, constructing, maintaining and the operation of such infrastructure and the accompanying facilities and devices thereto, as well as for exploiting of natural resources.

The Laws regulating the issue of concessions in BiH are:
- The Law on Concessions of BiH (Official Gazette of BiH, no. 32/02)
- The Law on Concessions of the Federation of BiH (Official Gazette of FBiH, no. 40/02)
- The Law on Concessions of RS (Official Gazette of RS, no. 25/02) and
- Cantonal Laws on Concessions.

Given that granting concessions varies from one economic sector and public activity to another, due to a series of specific features characteristic of each such sector, there is the need to define the granting of concessions not only in the said laws, but also in the laws for individual sectors (waters, forests, roads, rail traffic, postal traffic and telecommunications, energy supply, mining,…) and public activities that might be subject to concessions.
In this light, it is necessary to speed up the procedure of passing the laws at the state level that stipulate certain sectors, while amendments should be made to the existing entity laws which do not touch upon the subject, in order to regulate the issue of concessions for any such sector.

The Law on Concessions of BiH has bound the Commission for Concessions to draft the “Policy Paper on Granting Concessions” and submit it for adoption to the Council of Ministers of BiH and the Parliamentary Assembly of BiH, bearing in mind the division of competencies in this area.

This Paper, as well as entity Policy Papers on Granting Concessions have been fully harmonized with one another, as well as with the laws in that area; their goal is to contribute to the creation of the best climate attainable in order to attract and induce more efficient investment of private foreign and domestic capital into certain economic capacities or into development of certain services.


I. General Strategy and Subject of Granting of Concessions

The adopting of the Law on Concessions of BiH, the Law on Concessions of FBiH and the Law on Concessions of RS indicates that there is a clear determination to foster the development of the infrastructure, rendering of services and exploiting natural resources by financing them through the granting of concessions.

Lacking its own sources of financing, while respecting its fundamental goal to change the ownership and develop itself on market principles, Bosnia and Herzegovina wishes to stimulate privatization processes and foreign direct investments by introducing the granting of concessions in the sectors which cannot be subject to privatization. This even more so when it comes to the financing of ambitious development programs and investing into massive infrastructure capacities and other public facilities, particularly those which constitute the basis for a successful integration of Bosnia and Herzegovina in the existing regional and European economic integration processes.

Bosnia and Herzegovina has become part of international and regional planning and development projects in the sectors of transport, passenger and communications infrastructure, energy supply and tourism potential, which gives additional incentives to the granting of concessions in these areas.

Bosnia and Herzegovina has an abundance of economically significant natural resources; constructed therein and planned for construction is a series of infrastructure and energy supply facilities; privatization of a large number of economic facilities that exploit natural resources and give a major contribution to its development has been completed.

Given the previous exploitation of these potentials and realistic perspectives for their development, there is the need to further explore, construct, exploit and use them applying modern achievements of the science, techniques and technology and their rational management in accordance with the international standards.

Pursuant to the Laws adopted, subject of concessions in Bosnia and Herzegovina may be:

Construction and/or subsequent construction and use, or only use of:
- Highways, major roads, roads and accompanying infrastructure facilities, railroads, water channels, ports and airports;
- Use of waterways and other water surfaces;
- Construction of facilities for energy supply;
- Construction and use, or use of hydro-power accumulations;
- Exploring and/or use of energy and other mineral raw materials;
- Exploring and/or use of crude oil and natural gas;
- Use of construction land;
- Use of forests and forest land;
- Hunting and fishing;
- Construction, use and management of pipeline transport of oil and gas and their storage in pipelines and terminals;
- Services in the communications sector;
- Hazardous games;
- Passenger and cargo rail transportation;
- Public line-transport of persons;
- Use of healing thermal and mineral waters;
- Exploring and/or use of non-metal mineral raw materials, including all secondary mineral raw materials established under a special law;
- Hydro-melioration systems and systems for extracting materials from running waters and water surfaces;
- Use of agricultural land;
- Hotels and other tourism facilities;
- Spaces and facilities of economic and architectural heritage.
- Other resources within the meaning of Article 1, paragraph 2 of the Law on Concessions of BiH


II.Investment Climate and Legal and Institutional Framework

To attract foreign or engage domestic capital, favorable business conditions, i.e. favorable investment climate for foreign and domestic investors must be created.
Improving the investment climate implies all the measures to be taken and implemented by the executive and legislative authorities aiming at the stabilization of the comprehensive political and economic situation in the country.
Any serious study on the investment possibilities should take into consideration the assessment of the investment climate. Criteria for such an assessment come down to the political and economic risks, and they include:
- Political, legal and social security;
- Stable business conditions, i.e. predictability of economic trends with a high degree of certainty;
- A positive attitude of the authorities and the citizens towards foreign and domestic private investments;
- Favorable foreign trade, customs and foreign exchange treatment of investments, as well as the return on investments and profit;
- If possible, previous investments into infrastructure (energy supply, water, communications);
- The existence of reliable and trained labor;
- A competitive approach to raw materials and other domestic sources;
- The understanding for the interests of private investors with regard to cost effectiveness and profit.

The most important conditions that constitute the essence of the investment climate are political and economic stability in the country and its surroundings, but also the compatibility of the legal and economic systems with those in the countries with market economies and in the members of the European Union. Foreign, as well as domestic, investors shall not engage into any serious project without this assessment. The fact is that the investment climate in Bosnia and Herzegovina keeps getting better from one year to the next and ever more favorable business conditions for foreign and domestic investments are created.

According to the assessment of distinguished international institutions dealing with this issue, Bosnia and Herzegovina is categorized as a country which has improved the business climate compared to the previous period. Thus, according to the assessment of the European Bank for Reconstruction and Development (EBRD), presented in the Report of the Project of Concession Assessment  of August of 2005, the existing Law on Concessions of BiH has been assessed, in terms of its harmonization with the existing international standards  in this sphere, as “harmonized to a medium extent”. According to the same Report, the obligation to issue a policy paper on equal treatment of the private sector and the possibility to grant concessions to domestic and foreign legal entities under equal conditions have been positively assessed.

Thus, by making radical reforms, by adopting and passing strategic documents, laws and regulations, the business environment in Bosnia and Herzegovina has been significantly improved, and better conditions for foreign and domestic investments created; but there are still many issues to be resolved in order to further improve the business climate. This, first of all, refers to the adopting of the international standards and the developed practice of investing into concession projects through the participation of the private sector (PSP – the Private Sector Participation) and public private partnership (PPP – the Public Private Partnership), as well as the recommendations and guidelines of the EU in the field of concession investments.

The Constitution of BiH, the Constitutions of RS and the FBIH, as well as the Statute of the Brčko District of BiH guarantee the protection of private capital and ownership, market economy, as well as the protection of foreign direct investments in terms of dispossessions or limitations, freedom to conduct economic and other activities, protection from any form of discrimination as well as other rights and freedoms.
The Law on Policy of Foreign Direct Investments in BiH regulates basic policies and principles of participation of foreign investors in BH economy: Based on this Law, harmonized laws on foreign investments in RS and the FBiH have been passed, promoting open, free and marked oriented economic policy, protecting foreign investments from any form of discrimination, giving certain customs privileges, protecting the right of a foreign investor to a free transfer of profit abroad, providing the foreign investors with the same ownership rights over the real estate as enjoyed by domestic entities, as well as other forms of freedoms and rights in investing.
Beside the above mentioned, by passing the Law on Concessions of BiH, as well as entity laws on concession, the legal and institutional framework for foreign and domestic concession investments has been completed.


III.Natural and Social Resources – Basis for Concession Investments

The natural resources in Bosnia and Herzegovina constitute good basis for concession investments, which can become one of major footholds in the deciding on the paths of future economic development.
When it comes to the countries in transition, with undeveloped economy and infrastructure, much like Bosnia and Herzegovina, significant foreign investments are the necessary precondition for economic progress.

Based on previous research, collected data and current assessments, it is clear that at disposal in Bosnia and Herzegovina are major natural and social resources:
- Reserves of coal are estimated at 3.9 billion tons, which constitute 93% of the total energy potential of BiH, and they are still not fully explored.
There are certain assessments which indicate the possibility to find major reserves of pit coal.
- Metal mineral raw materials come in many forms; it is assessed that the reserves of iron ore amount to 718 million tons, of bauxite 86 million tons, of lead and zinc 60 million tons.
- Non-metal minerals: rock salt and profilit with reserves assessed at about 14.5 million tons.
- Water is a very abundant natural resource and it is used as:
Hydro-potential of rapid mountainous as well as very abundant valley rivers (it is assessed at 4300 MW of electricity, whose capacity is used at about 50%); spring, very clean, good quality drinkable water, which can easily be marketed; thermal and mineral water at various locations, with more than 220 various springs, good for spa treatments, which have not yet been sufficiently explored.
- Oil fields have not been sufficiently explored and oil was found in traces at several locations.
- Forests extend over the surface of 2.7 million hectares, which constitute about 52% of the total surface of BiH.
- Wind, as a natural resource for production of electricity, in particular in mountainous areas.
- Agricultural land in BiH constitutes 1.5 million hectares and it is favorable for growing cereal crops and forage crops; a special advantage is that it is not contaminated with pesticides and thus it is interesting for production of healthy food.
- Tourism potential of BiH is very diverse. Bosnia and Herzegovina has exceptional natural beauties, favorable climate conditions and rich cultural and historical heritage. Bosnia and Herzegovina has Olympic size mountains with a developed infrastructure for winter sports, preserved and still insufficiently used mountainous areas for extreme sports, hunting and fishing, rafting and white water rafting, naturally preserved and uncontaminated mountain rivers and lakes, sea beaches, spa facilities, as well as important cultural, historical and religious facilities.
- Infrastructure and transport communications in Bosnia and Herzegovina have not been sufficiently developed, thus providing the possibility for intense development, which is a must, in particular due to its geographic position on important transport and communication routes in South-Eastern Europe.
Bosnia and Herzegovina disposes with some 22,600 km of road network (3,788 km of major roads, 995 km of the so-called European roads and only some 20 km of highways), 1,031 km of rail tracks and 330 km of navigational route on the river Sava.
Bosnia and Herzegovina does not have sea ports, but it does have two river ports on Sava.

Resources must certainly be managed and disposed with in a rational and efficient manner, by using modern technological achievements and knowledge, in order to achieve most favorable economic results.
The human potential and social infrastructure (education, health care, social institutions for care and aid to certain categories of the population, etc.) also create the basis for concession investments that can contribute to a faster development of the society.  

Concession investments can be given the following priorities, with the purpose of a better and more efficient development:
1    The use of waters as renewable energy resource for the construction of hydroelectric facilities as well as for commercial, tourism, health and other purposes.

2    The use of mineral raw materials: iron, bauxite, coal, salt and various minerals for the needs of construction industry. There already exist significant constructed capacities for the extraction and processing, and the development of the country should be intensified based on those.

3    The use of agricultural land, as well as agriculture should be one of the priorities in the development. This would at the same time create the basis for the development of various possibilities in the processing industry, employment, etc.

4    The use of tourism potentials for the development of various and rich offer in tourism, as well as sports and recreation.

5    The use of the existing facilities, as well as the construction of new ones in the field of transport and communications infrastructure.

IV.Development Projects of Bosnia and Herzegovina as Part of the European Integration Process and Perspectives for Concession Investments

In the coming period, Bosnia and Herzegovina shall be faced with great challenges with regard to public investments. The granting of concessions as a form of investment of private capital shall certainly find its place among these investments.

Bosnia and Herzegovina is undergoing a process of European and Atlantic integrations, which, inter alia, impose the need to fulfill certain international obligations deriving from international agreements, conventions, EC directives, regional and bilateral cooperation with the neighboring countries, as well as to harmonize and adapt the development and planning goals to the needs and orientation of the European Union and the international community as a whole.

Bosnia and Herzegovina has taken upon itself the obligations and the responsibility to implement long-term development and planning projects that will be harmonized with the general strategy of the international community and the region it is part of.

The European Union has defined the policy of development of the Trans-European network for transportation, energy supply and communications (TEN)  and in subsequent decisions (1692/96/EC, 1346/2001/EC) it has set forth the goals and priorities in the integration of domestic transport networks into a single Trans-European Network. With the 1997 Helsinki Declaration, Bosnia and Herzegovina has joined the Pan-European Transport Network by extending the transport Corridor V with an axe c, which goes from the port of Ploče through Bosnia and Herzegovina to Budapest and joins the Pan-European Corridor V.

The Kyoto Protocol defines the basic principles of environmental protection and establishes the policy of future development that will respect the defined principles and generally accepted standards. These standards shall also apply to the investments to be made in the future and to the adapting of already constructed infrastructure to those standards.

Through the programs of CARDS (Community Assistance for Reconstruction, Development and Stabilization- EC 2666/2000), the Stability Pact and through regional initiatives (CEI, Adriatic-Ionic Initiative, SEECP), the EU wishes to provide support to the countries of South-Eastern Europe and enable access to the international financial funds, in order to implement their development programs in accordance with the goals and directives set by the EU. Bosnia and Herzegovina has taken active participation in this process and it is expecting financial support and access to development financial funds through grants and favorable credit arrangements. However, the scope of the investments planned, according to the studies made to date, shall certainly require the involvement of the private capital by granting of concessions.

Bosnia and Herzegovina has also initiated through bilateral relations with the neighboring countries quite a few joint activities in the sectors of water management, protection of river basins and energy supply. All of these things point to a major need to also engage the private capital in these investments by granting of concessions. Particularly pronounced needs are in the sectors of road and rail traffic, energy supply, pipeline transport, river transport, sectors of telecommunications, tourism, environmental protection, etc. Bosnia and Herzegovina has an important position in the transport and communications system of the South and Central Europe. Through the region of South-Eastern Europe cross six of ten Pan-European Corridors. According to the Regional Balkan Infrastructure Study – REBIS (EC - CARDS Program, 2003), Bosnia and Herzegovina, with the branch of the V c Corridor and routes 2a towards the North-West (Zenica-Banja Luka, Gradiška), 2b towards the South-East (Sarajevo–Foča-Podgorica) and 3 towards the East (Sarajevo-Višegrad-Užice) joins the Pan-European Corridors V, VIII and X, and down the river Sava it joins the Pan-European Corridor VII going along the Danube.  

For the construction of this infrastructure, which involves a road transport network, a railroad network, navigation on the Sava, ports as well as the accompanying facilities and supra-structure under the standards accepted by the EU, Bosnia and Herzegovina shall need major financial resources. From the aspect of concessions and private investments, financing such projects is very demanding, as the period of the return on the funds is generally very long, with risks relating to the predicting of traffic flows. This is why beside the BOT (Build-Operate-Transfer) Model, good for such financing is also the Model of the so-called Public Private Partnership (PPP  - the Public Private Partnership).

Basic characteristics of the current state of the transport and communications systems are as follows:

- As for the rail traffic, Bosnia and Herzegovina disposes with a total of 1,031 km of rail tracks. This traffic system has suffered major war damages in the period from 1992 till 1995, in the total value of several million dollars. To date, this system has been technically and organization-wise insufficiently reconstructed. Basic orientations that would take the railroads of Bosnia and Herzegovina to the Pan-European Rail Network are certainly the Pan-European Corridor V c (Šamac-Doboj-Sarajevo-Čapljina-Ploče); the Parallel 10 (Transversal Rail Line of Zvornik-Tuzla-Doboj-Banjaluka-Novi Grad, Republic of Croatia); the Route North-South (Dobrljin-Novi Grad-Bihać-Martin Brod-Knin, Republic of Croatia) and the rail Banovići-Tuzla-Brčko.

- As for the road traffic, Bosnia and Herzegovina disposes with some 22,600 km of categorized roads; however, it has merely some 20 km of modern highways, which urgently requires an accelerated work on the defining of the routes, the programming of the development and the identifying of prospective partners (concessionaires) for the funding and the construction of this network. In this view, the priority is the construction of the Corridor Vc, on the route Adriatic Sea-Sarajevo-Republic of Croatia-Hungary, as well as the routes 2a: Zenica-Banja Luka-Gradiška, 2b: Sarajevo-Foča-Podgorica and 3: Sarajevo-Višegrad-Užice.

- As for the air traffic, Bosnia and Herzegovina disposes with equipped and active airports in Sarajevo (with an annual transport of some 300,000 passengers), Tuzla (with some 15,000), Mostar (with some 15,000) and Banja Luka (with some 40,000). However, the situation with regard to the transport capacities is not even close to satisfactory. The interest for the use of air transport in Bosnia and Herzegovina is evident; therefore it is expected to see in the coming period a constant increase in the volume of the transport, the level and the quality of transport services and the degree of safety. According to the prospects dealt with in the Study of Transport Master Plan in BiH (JICA 2001), the number of passengers in the year 2020 in Bosnia and Herzegovina could be approximately 1 million and 250 thousand, of which the airport in Banja Luka would have about 250 thousand, in Mostar 150 thousand, in Tuzla 150 thousand and in Sarajevo about 700 thousand. In the long run, one can expect major investments in these capacities in order to satisfy the needs in the coming period, which opens the doors for private investments through concessions. The Strategy of Development of the system for Managing Air Traffic in Bosnia and Herzegovina was adopted in the end of 2005.

- The river and sea traffic in Bosnia and Herzegovina takes place through the port of Ploče in the Republic of Croatia and along the river Sava on its way through BiH. This traffic is used almost exclusively for transportation in the complex of basic raw materials, mining, energy supply and chemicals. The river Sava has been given the status of international importance, and as a navigational route it is directly connected to the Pan-European Corridor VII – the river Danube. On the river Sava are two important river ports (Brčko and Šamac) with already constructed reloading capacities. The Agreement on Sava and the Danube Convention create major opportunities for investing in the infrastructure on this navigational route.  

- Postal and telecommunications traffic in Bosnia and Herzegovina nowadays provides a satisfactory volume of services. Beside the traditional postal traffic and telecommunications, in use are quick mail, mobile phoning, satellite communication means and the internet. Still, ahead is considerable work on the programming and connecting these systems within Bosnia and Herzegovina, which is still disunited. The dynamics of the reconstruction and the development of this form of traffic through the granting of concessions and the competition shall enable the achieving of the European and international standards.
Electronic media require the modernization of the relaying networks of radio and TV signals, the digitalization of the systems and the improving of the infrastructure, which will open quite a few doors to the concession investments in this sector.  

As for the energy supply sector, in accordance with the Directives of the EU pertaining to this sector and the Contract of Energy Charter which was signed by the countries of the South-Eastern Europe with the EU, Bosnia and Herzegovina has started drafting the Strategy of Energy Supply, which encompasses the planning of the development of this sector through 2030.
Bosnia and Herzegovina has taken on the obligation to follow European and international trends in the energy supply and thus become part of the system of the European supply and demand. This shall require long term reform processes, deregulation and liberalization of the energy supply in Bosnia and Herzegovina, which has already started in the electricity supply sector and it shall extend to include other energy supply sectors.

The basic characteristic of the energy supply sector is insufficient exploration of the reserves and the potential by structure (fossil fuels- coal, oil, natural gas, renewable energy sources- hydropower, geothermal energy, wind power, solar power, biomass energy, etc.) and insufficient development of the capacities with regard to the production, transfer, distribution, transport, storing and transit through Bosnia and Herzegovina.

Bosnia and Herzegovina uses the hydro potential with some 2100 MW, while its potential capacity amounts to 4300 MW, which means that less than 50% of the hydro potential is used. Bosnia and Herzegovina does not have a developed network of pipeline transport. A pipeline has been constructed to transport gas from Zvornik to Sarajevo and Zenica.        

The regional market for natural gas, whose study is financed by the World Bank, shall open up the possibilities for the inclusion of Bosnia and Herzegovina into the Western-Balkan Corridor for transferring gas from Greece towards Slovenia and Austria, which would greatly contribute to the overall stabilization of the energy supply sector.  

Since planned is the construction of a regional pipeline from the north towards the south, one can safely say that the construction of this network shall require major investments, which opens the possibilities for concessions in this sphere.


V
Social and Economic Goals of Concession Investments

The functioning of the BH economy in recent years is characterized by the state of general stagnation, with unfavorable trends in the flows of most important economic indications, such as, for example:

- Unfavorable – low Gross Domestic Product;
- High rate of unemployment;
- Low degree of use of manufacturing capacities;
- Deficit in foreign trade, etc.

Overcoming such a situation and creating the preconditions for a more efficient inclusion of bh economy into current processes of international globalization and a successful integration of the country into the European Union shall be possible only with major investments into the building of new and reconstructing of the existing manufacturing and infrastructural capacities, and, based upon those, by the strengthening of competitive capabilities of the domestic economy on the international market. However, our own accumulation and other domestic sources of financing aiming at the achieving of more favorable trends in the functioning and the development of bh economy do not suffice; therefore it is necessary to create the preconditions for a successful attracting and investing of foreign capital into the domestic economy.

Given that the granting of concessions is one of particularly favorable forms of investing foreign capital into a domestic economy, it is expected that the granting of concessions in Bosnia and Herzegovina shall lead to:

1.    An increase in the Gross Domestic Product - concessions investments, as a rule, regard rather big investment projects, which lead to a rather significant increase in the Gross Domestic Product;

2.    An increase in the level of employment – which is achieved through new investments, whose realization implies the employment of new labor;

3.    A more rational use of renewable and in particular non-renewable natural resources. In the practice to date, it is often the case that natural resources are used in the manner which is not sufficiently efficient or controlled, all in the name of general social development and progress of the country;

4.    A transfer of modern technologies and the know-how - concession investments are realized, as a rule, with the application of the latest technical and technological achievements, enabling thereby a successful transfer of technologies and the know-how;

5.    An increase in exports and access to new markets – in particular when concession investments are made in economic activities whose products can successfully be marketed in foreign markets, as well as when conditions are created for a better connection of domestic enterprises with the neighboring countries;

6.    A substitute for and/or reduction in imports – which is in particular the case when a concession is realized in the manufacturing of goods which are not sufficiently present on the domestic market;

7.    A stabilization of the public sector – which can be seen through the increase in fiscal and quasi fiscal revenues and which is a logical consequence or result of any concession investment;

8.    Introducing and strengthening of competition – with new investments, in particular the investments into production capacities, new subjects of offer emerge, which contribute to the strengthening of the competition on the domestic market;

9.    An increase in the quality and the assortment of products and services – by introducing modern technologies, with the modernization of the production capacities, as well as the strengthening of the competition on the market, concession investments significantly contribute to the increase in the quality and the increase in the assortment of products and services;

10.    An increase in the credit rating of the country with international development and financial institutions. Not only they contribute to the stabilization of the public sector (the budget) by increasing fiscal and other revenues or simply by involving direct investing of foreign capital into the domestic economy, concession investments indirectly contribute to the improving of the credit and financial rating of a country;

11.    An engagement of domestic production capacities, more specifically through the engagement of certain production and service rendering entities and the purchase of raw materials and other goods on the domestic markets;

12.    An increase in operational efficiency of the role of the management in the business operations – which is particularly important under modern conditions of doing business on the international market, whereby the role of the management becomes increasingly important;

13.    The introduction of the international standards in the business operations using the models of the developed countries – which also can be seen as one of imperative preconditions for a successful breakthrough on the international market.

Beside the above mentioned, through the granting of concessions it is possible to achieve also other goals and interests of the economic development of the country and its overall social progress.


VI
General Principles of Concessions Granting Policy

Decisions as to the type, subject and the scope of concessions that are in the competence of Bosnia and Herzegovina are made by the Council of Ministers of BiH and confirmed by the Parliamentary Assembly of BiH. Decisions on the type, subject and the scope of concessions which are in the competence of the entities are made by the entity governments.

The Commission on Concessions of BiH performs its competencies in the capacity of the Commission for Granting Concessions of BiH or in the capacity of the Joint Commission on Concessions. In case of joint competence of BiH and/or FBiH and/or RS and/or Brčko District of BiH in granting concessions, the competent bodies come to terms with regard to the conditions and the type of the concession granting. Any disputes that might arise with regard to the awarding of concessions between BiH and/or FBiH and/or RS and/or Brčko District of BiH are resolved by the Joint Commission on Concessions.

For those reasons, this paper in certain parts touches upon the policy of concessions, sectors and the goods independently from the competence for their awarding.

When granting a concession in Bosnia and Herzegovina, the following general principles shall apply:

1. Transparency and non-discrimination of participants in the procedure, in accordance with the Law on Concessions of BiH, which shall be achieved by:
- making the rules and information pertaining to the process of granting of concessions available to all interested participants;
- granting the concession under equal terms to both domestic and foreign legal entities by announcing a public invitation, i.e. a tender, which must contain: project description, definition of economic and legal conditions and requirements applicable to the project, principles and methods of calculation of concession fees, the amount of the concession fee and duty stamps for taking part in the tender, list of assets and property to be made available to the concessionaire, criteria pertaining to evaluation of tenders and granting of the concession, deadline for submitting of tenders, draft contract of concession, tax incentives attached to the project (if any), list of necessary permits, licenses or other authorizations, as well as other information requested by the Commission on Concessions.

2. Optimal use of natural resources, goods in general use and infrastructure facilities, by applying the highest international standards for the management of those resources, taking into account the following:
- by granting a concession, the most favorable financial and economic effects for Bosnia and Herzegovina should be achieved;
- the parameters of sustainable development should be met;  
- direct or indirect economic benefit for BiH should be achieved.

3. Establishing legal frameworks for the existing users of concession goods – the legal entities, defined by the Law on Concessions, which in their business activity use natural resources, goods in general use or perform a business activity of general interest in accordance with the Law on Concessions.

4. Granting under the BOT Model of concessions for the infrastructure and other important sectors which imply construction, reconstruction and financing of the entire facility, device or plant, its use and its handover to BiH upon the expiry of the period of duration of the contract. Beside the BOT Model, in the financing of projects requiring a long period of return on the funds and major risks in predictions, also combined financing can be used, the so-called Public Private Partnership (PPP - Public Private Partnership), which implies a joint investment and joint risk of the public sector and private capital.

5. Any concession project to be granted must have a feasibility study made. The feasibility study is drafted by the conceding party and in case of unsolicited proposals it can be required from the concessionaire.
The study is a project on the degree of technical, technological, legal and economic feasibility of the concession, examining the natural conditions, urban and technical capabilities and limitations, permits, approvals, consents, the impact of the activity on the lives and health of the people, as well as the assessment of risks of the concession project.
The study should prove that the concession project is self-sustainable, that it brings profit to BiH, that it falls within the objectives set in this paper and in which manner it affects the rendering of services to the beneficiaries and the fees collected from them.

6. Giving priorities in granting of concessions in the sectors that will:

- contribute to the satisfying of public needs in a certain sector or environment;
- increase and stimulate export and reduce the foreign trade deficit;
- engage domestic resources and labor;
- encourage the development of undeveloped and poor areas;
- contribute to a more balanced regional development of BiH and more balanced use of natural resources;
- activate the processing capacities by exploiting natural resources that are in abundance in Bosnia and Herzegovina, foster competition on the domestic market and the quality of services rendered to the population.

7. Providing support to concessional projects which can take the form of:

- political and administrative support;
- support through customs and tax incentives in accordance with the laws;
- support in the regulation of the relations under the property law;
- bearing joint unpredicted risks;
- other forms of support depending on the requirements of the concessional project.

8. Protecting from negative impacts of concessional projects on the living environment shall be ensured by drafting a special study which will in each concrete case provide an answer to all these impacts and the measures for their reduction under the prescribed frameworks.

9. Granting of concessions shall aim at the strengthening of competition on the market while preventing a monopoly status on the part of the concessionaire in certain economic sectors.
 
10. Concession fee and the method of its determination is the subject of the contract of concession, pursuant to the principles established and the methods of calculation contained in the public tender. The contract defines the amount, the method and the deadlines of payment of the concession fee, while the criteria for determination of the concession fee is the type, the quality, i.e. the category, quantity, purpose and market price of the good of general interest. For conducting certain business activities, the criteria are established depending on the market conditions for business operations, the period of duration of the concession, risks and expected profit.
If it is assessed that the concession fee is not of primary importance for a certain concession project which is of interest for BiH, the amount of the fee can be reduced, i.e. merely symbolic.
Criteria for establishing the concession fee shall be established by a special Book of Rules on Determining Concession Fee.

11. Assessment and defining of public interest includes economic, political, sociological and general justification for granting a concession and it is related to the term of a public good. The assessment of the existence of public interest is made by the conceding party, especially in cases of unsolicited proposal to be granted a concession.

12. Protection of goods which are not subject to the concession and of archeological items which the concessionaire finds in the course of the works on the area subject to concession shall be defined by the provisions of the contract, based on positive legal regulations and valid decisions of the Council of Ministers of BiH and the Commission for Preservation of National Monuments.

13. The contract of concession, after the implementation of the legally prescribed procedure and with the consent of the Commission, is signed by the competent minister. The contract may not be concluded for a term exceeding 30 years, however, if there exist special circumstances which require investments requiring a longer term, the contract period may be extended, but it may not exceed 50 years. The contract may be renewed for a term not exceeding the half of the original term. The contents of the contract of concession are defined by the Law on Concessions of BiH and it must include:

- the contents and the scope of the concession;
- rights and obligations of the contracting parties, including the obligation to provide reliable services to customers at the lowest price, given the circumstances;
- the actions necessary to be taken in order to obtain the authorization to conduct the activities in accordance with the contract of concession;
- the terms of investment;
- facilities and use of land;
- resources and property given at disposal by the Council of Ministers of BiH, entity governments or the Government of the Brčko District of BiH;
- terms for renewal of the contract;
- sanctions and fees if a contracting party fails to fulfill its obligations;
- termination of the contract and the procedure in case of a contract termination prior to the expiry date set by the contract;
- modalities of dispute settlement, including international arbitration, if agreed so by the parties;
- measures for facilitation of the project financing;
- determining and harmonizing of tariffs or prices;
- the amount of fees for the concession;
- description of the events that are considered force majeure;
- other elements relevant to the subject of the contract.
 
14. The method and the date of the handover of the facilities after the expiry of the contract is defined by the contract, with the obligation of the concessionaire to handover the facilities, devices and plants in the state in which it is possible to continue their use and functioning in an undisturbed manner.

15. The supervision, control and monitoring of the entirety of the activities of the concessionaire over the term of the contract of concession shall be done by the Commission on Concessions of BiH.

16. The Commission on Concessions of BiH shall establish the register of all concession contracts approved in Bosnia and Herzegovina. The register shall be established on the basis of the records of entity and cantonal commissions on concessions and the Commission on Concessions of BiH, while the method of keeping the register shall be prescribed by a special book of rules on the register of contracts of concessions in Bosnia and Herzegovina.  

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Competent for the monitoring of the execution of the Policy Paper on Granting of Concessions in BiH, as well as for the submitting of annual reports to the Council of Ministers of BiH, in accordance with the Law, is the Commission on Concessions of BiH.

Pursuant to Article 17, paragraphs 1 and 2 of the Law on Concessions of BiH (Official Gazette of BiH, no. 32/02 and 56/04), this paper was drafted by the Commission on Concessions of BiH and it was adopted at the 109th session of the Council of Ministers of BiH held on 21 February 2006 and at the 61st session of the House of Peoples of the Parliamentary Assembly of BiH held on 27 July 2006.

The Paper shall be published in the Official Gazette of BiH.