SUEZ ENVIRONNEMENT
1 RUE D’ASTORG
75008 PARIS, FRANCE
TEL +33 (0)1 58 18 43 05
FAX +33 (0)1 58 18 51 68
WWW.SUEZ-ENVIRONNEMENT.COM
Mrs Joanna SZYCHOWSKA COMMISSION EUROPEENNE
Direction Générale Marché
Intérieur et Services
1049 Bruxelles
BELGIQUE
Paris, 11th May 2010
RE : Fair and open procurement rules for Services of General Interest
Dear Madam,
As a follow up of our discussion in your offices on 3 December 2009, I am
pleased to forward you two memos prepared by Suez Environnement.
The first one (appendix 1) focuses on the issue of
fair competition between
management models for Services of General Interest : “in house” provision, and
outsourcing to an external operator (PPP).
In the sectors in which Suez Environnement is active (water, wastewater,
solid waste management) we can see many cases of economic distortions
between these two models, which skew the decisions of the publics officials
and affect their freedom of choice.
Specific examples are reported in our memo, mostly related to unequal
taxation, unfair conditions of access to public subsidies, or abuse of “in
house” status.
The second memo deals with the procurement of
concession contracts.
You invited us to express our views about the appropriateness of the
existing awarding procedures for public works or services contracts, in case
they should be applied to concessions.
In summary, we think that the contracting public authorities should keep
the freedom to choose the procedure they feel most appropriate on a case
by case basis, taking into account :
The nature and level of risk transferred to the private operator,
The duration of the contract, and the level of uncertainty about the
future evolution of its economic drivers (the unpredictability of the
economic equilibrium of the contract may more or less significant),
The level of complexity of the project and the nature of this
complexity (projects with high technical complexity may be awarded
in a different manner than projects with managerial complexity),
The existing legal frameworks and practices in Member States.
While the procurement process should be adjusted to the specificity of the
projects, it should be described precisely in the tender documents so as to
provide full information to the bidders from other member states who may
not be familiar with national practices.
In our opinion, in the short term the Commission should take initiative on
publicity of tenders. So far, there is a legal vacuum on this matter for
service concessions, which creates legal uncertainty. The rules applicable to
works concessions (articles 58 of directive 2004/18/EC) should also be
suitable for service concessions.
We would be pleased to continue this discussion with you and your team in the
upcoming weeks . Our contact persons for this matter are Jacques Labre , vice
president European Affairs (
xxxxxxx.xxxxx@xxxxxxxx.xxx) , and Florence
Mourey, our representative in Brussels
(xxxxxxxx.xxxxxx@xxxxxxx.xxx) .
Yours sincerely,
Bernard Guirkinger
Senior Executive Vice President
link to page 3
SUEZ ENVIRONNEMENT
DEPARTMENT OF INSTITUTIONAL RELATIONS
& EU PUBLIC AFFAIRS
1 RUE D’ASTORG
75008 PARIS, FRANCE
TEL +33 (0)1 58 18 50 00
FAX +33 (0)1 58 18 50 50
WWW.SUEZ-ENVIRONNEMENT.COM
Appendix 1
Towards a true freedom of choice by public authorities
in the way they manage local public services
Analysis and proposals by SUEZ ENVIRONNEMENT
April 2010
EXECUTIVE SUMMARY
In its November 2009 Communication on PPPs and recovery, the European Commission declares
that it is « urgent and important to look at new ways to support the development of PPPs ».
SUEZ
ENVIRONNENT believes that the key to supporting the development of PPPs in Europe is
to allow local governments to freely decide which management model is best suited to the
public services for which they are responsible.
Maintaining a fair competition between management models is crucial
The benefits of PPPs in “promoting efficiency in public services” have recently been
underlined by the Commission
1.
Competition between the two models creates a mutual incentive to improving efficiency
and service quality, to the benefit of all consumers.
Unfair competition between public and private operators of services of general interest
means unequal treatment of the users served by different types of operators. For
example, all other things being equal, VAT exemptions for public entities lead to a
situation where the users of services managed by private operators pay higher tariffs.
Many distortions of competition between public and private operators remain in the
current legal framework of Member States
Unequal taxation, notably as regards VAT
Unfair allocation of national / local subsidies
Discriminatory national rules regarding the access to EU funds
Lack of knowledge and practice of public procurement procedures
Attempts by in-house operators to try and circumvent competition with the private
sector
The European Commission should take action to ensure fair competition
In the field of VAT, action at the EU level is necessary.
In the other areas, the European Commission should encourage Member States
towards more fairness in the access of private operators to the market of local public
service provision.
Direct contract awards should be subject to the scrutiny of competition authorities.
1 COM(2009) 615 final “Mobilising private and public investment for recovery and long term structural change:
developing Public Private Partnerships”
1
link to page 4 link to page 4
Maintaining a fair competition between management models is crucial The European Commission has repeatedly declared its
neutrality with regard to the way
national or local public authorities decide to manage services of general interest, as in its
November 2007 Communication
2, where the Commission states “Public authorities can decide to
carry out the services themselves or they can decide to entrust them to other entities, which can
be public or private, and can act either for-profit or not for-profit”.
SUEZ ENVIRONNEMENT - a key actor in the water and waste services in Europe - is of the view
that it is now time for the Commission to go further than simply declaring its neutrality, and to
ensure that responsible public authorities can actually make a free and non-biased
choice regarding the way they manage local public services.
Imposing open and fair competition between private operators is fine but not enough.
Maintaining
a fair competition between management models is also crucial as:
The benefits of PPPs in “promoting efficiency in public services” have recently been
underlined by the Commission
3.
Competition between the two models creates a mutual incentive to improving efficiency
and service quality, to the benefit of all consumers.
Unfair competition between public and private operators of services of general interest
means
unequal treatment of the users served by different types of operators.
For example, all other things being equal, VAT exemptions for public entities lead to a
situation where the users of services managed by private operators pay higher tariffs.
Unfortunately,
many distortions of competition between public and private operators
remain in the current legal framework of Member States. They lead to a bias towards direct
public management, and thus undermine the efficiency of public services.
Many distortions of competition between public and private operators
remain in the current legal framework of Member States
1. Unequal taxation
The main source of unequal treatment between public and private operators as
regards taxation lies in the VAT rules applied to the public sector. Pursuant to art. 13 of
Directive 1006/223/EC on the common system of value added tax, activities of public bodies are
out of the scope of the VAT Directive when public bodies engage in these actions as public
authorities, provided that this does not lead to “significant distortions of competition”. For activities
not already identified as such in annex I of the Directive, it is the responsibility of the Member
States to identify cases where distortions of competition are such that public bodies should be
regarded as taxable persons.
While the supply of water is listed in this annex, waste and wastewater management are not. This
does not make sense, as the waste sector, just like the water sector, is an area where private
undertakings are actively involved, and where the non-taxation of public operators leads to
significant distortions of competition. One could even say that distortions of competition through
differentiated VAT treatment are even greater in the waste management sector. Indeed, distortions
of competition are greater in the case of labor-intensive services, and also in periods without
significant investment programmes.
We estimate that distortions of competition through unequal VAT treatment amount to:
- 6% of total service costs in the wastewater sector (labor costs representing about 30% of
total costs)
- up to 14% of total service costs in the domestic waste collection sector (labor costs
representing about 70% of total costs)
2 COM(2007) 725 final “Services of general interest, including social services of general interest: a new
European commitment”,
3 COM(2009) 615 final “Mobilising private and public investment for recovery and long term structural change:
developing Public Private Partnerships”
2
link to page 5
As it was very well explained in the specifications attached to the invitation to tender for the
provision of a study on VAT rules applied to the public sector and the exemptions in the public
interest
4, “The exempt and non-taxable status applicable to public bodies creates an incentive to
self-supply inputs since, through self-supply, non-deductible VAT can be avoided. This results in a
bias towards in-house supplies of goods and services and use of own employee labor. This bias can
create
inefficiencies in the production and delivery of services by the public sector.
Spending decisions are often based on VAT rather than on real economic factors.”
This has been observed notably in the German waste management sector, where many
municipalities have in the recent years decided to establish their own waste management
companies, or to switch from private to public law status in order to take advantage of the VAT
exemption:
- Bergkamen:
In May 2005, the town council decided to municipalize waste disposal, which had been
outsourced to private companies since 1966. This decision followed the results of a study carried
out by Ernst & Young, which concluded – among other things- that the VAT exemption would
contribute to saving costs.
- Rhein-Hunsrueck district:
In January 2006, it was decided to municipalize waste disposal, which had previously been
outsourced to private companies. This decision followed a comparative analysis carried out by the
district itself of the fees charged by a private company and by an in-house operator. The costs
analysis identified potential costs savings of 1 million euros per year – ascribed to the VAT
exemption – if waste disposal services were carried out by a municipal company.
- Lueneburg:
GfA Lueneburg, a publicly owned company operating under private law, currently carries
out waste management services. The municipality is considering changing the status of the
company to a public law one, notably in order to benefit from the VAT exemption.
- Luebeck:
Waste management services are currently carried out by Stadtreinigung Luebeck GmbH
(SRL), a PPP operating under private law, 49 % of the shares being held by a private waste
company. The city council decided on April 1, 2010 to transfuse SRL into the public entity
Entsorgungsbetriebe Luebeck (EBL) with retrospective effect as of January 1, 2010, as then
operating under public law entirely.
While the VAT case is the most emblematic as it is common to several Member
States, several other examples of distortions of competition through national taxes exist.
In France for example, public operators will continue to be exempted from the new “Contribution
Economique Territoriale” (a local tax, which is to replace the “Taxe Professionnelle”). The burden of
this tax for Lyonnaise des Eaux France is estimated at around 15 million euros per year.
2. Unfair allocation of national / local subsidies
In several countries of the EU, national and local authorities favor public
operators in the access to public subsidies.
An emblematic example of such distortions of competition in France is the repeated attempt by the
Département des Landes - a local authority - to favor direct public management when allocating
public subsidies. In 2004, it for example decided to increase by 5% the rate of subsidies allocated
to water and wastewater works when municipalities directly managed these services, and to
decrease this rate by 5% for the same type of works carried out by municipalities delegating their
management.
4 Invitation to tender n°TAXUD/2009/AO-03
3
link to page 6
The 2006 water act offered a welcomed clarification on the allocation of public subsidies, by clearly
stating that “public subsidies allocated to local authorities responsible for water and sanitation
shall not be adjusted depending on the management model”. The Département des Landes
however decided to overlook this piece of regulation and to cut off any subsidies allocated to
municipalities having delegated the management of water and wastewater services.
3. Discriminatory national rules on access to EU funds
In the spirit of the general provision on structural funds
5, no difference is made between
public and private operators in the access to EU funding.
What matters is the nature of the
project, not the nature of the operator: the “beneficiary” can be “an operator, body or firm,
whether public or private, responsible for initiating or initiating and implementing operations”.
It is however the responsibility of the Member States to set eligibility rules in their Operational
Programmes, and some take advantage of this concern for subsidiarity to introduce
restrictions
on the access of Public-Private Partnerships to EU grants such as the ERDF or the
cohesion funds.
The Czech Environmental Operational Programme for 2007-2013 seeks to ensure that existing
operational contracts (tendered and negotiated before the accession of the Czech Republic to the
EU) achieve a better balance between the interests of the public and consumers and the private
interests. The eligibility to Community financial assistance is thus subject to adaptation of the
contracts with regards to performance criteria and tariff formula. What is more, the rate of
subsidies to which projects can claim decreases with the length of the contract. This concern for an
increased competition of existing operational contracts is clearly legitimate. However, it is very
unfortunate that this rules should only apply to contractual models where private capital is
dominant. There is no reason why joint ventures where public capital is dominant should not abide
by the same rules.
The Romanian Environmental Operational Programme for 2007-2013 provides that Regional
Operating Companies – newly created public entities, which are to be directly awarded the
concession contract from the corresponding intermunicipal authorities – will be the only entities
eligible to EU funding in the water sector. This means that EU funding will only benefit to users of
water services operated by these public entities.
In this regard, the November 2009 Communication from the Commission on “Mobilising
public and private investment for recovery and long-term structural change: developing Public
Private Partnerships” has given us hope that this situation could change. It indeed states: “a level
playing field between public and private management of public infrastructure and services in the
allocation of EU funding to investment projects should be guaranteed. To this end, rules and
practices should be reviewed in order to ensure that there is no discrimination in the allocation of
funds for investments projects in which the private sector participates.”
4. Lack of knowledge and practice of public procurement procedures
Public procurement rules are often complex and can certainly discourage local authorities,
which sometimes
lack the necessary expertise and human resources, from engaging into
outsourcing. Indeed, though PPPs bring many benefits to the delivery of public services, they
require significant resources at the bidding stage to design financial and contractual arrangements,
as well as long-term political commitment.
We very much welcome the
several actions announced in the November 2009
Communication in this area of improvement of information, expertise and know-how, and would
be happy to contribute to this effort.
5 Council Regulation n°1083/2006 laying down general provisions on the European Regional Development
Fund, the European Social Fund and the Cohesion Fund.
4
link to page 7
5. Attempts by in-house operators to try and circumvent competition with the
private sector
The above-mentioned distortions of competition are sometimes amplified by attempts to try
and circumvent competition with the private sector from the part of in-house operators. These
attempts have lately taken the form of:
Abuse of in-house status to avoid tendering: public authorities sometimes choose
an in-house construction while they do not meet the requirements set by the ECJ in
order to avoid tendering.
An emblematic example of such an abuse of in-house status to avoid tendering in France is the
“Piémont de Barr” case law
6. The inter-municipal entity “Piémont de Barr” decided in 1997 to
award the management of the water and wastewater service on its territory to a public water
operator (SDEA) set up by another local authority (département du Bas-Rhin) without any prior
tendering. The Piémont de Barr authority did not intend to transfer its competence on water and
wastewater to SDEA, but simply decided to outsource the operation to SDEA against payment.
The resolution of this legal argument can be seen as an example of good practice: the highest
administrative court ruled that since it involved payment, the contract should be subject to
publicity and tender.
Involvement of in-house operators in tenders resulting in economic dumping:
in-house operators bidding for contracts outside of their original territory or mandate
and offering prices below the market level thanks to their protected home markets.
In Germany as well as in Sweden, the collection of household waste is qualified as a municipal
public service, while the collection of commercial waste is not and should be open to free
competition. However, many in-house operators set up for municipal waste management unfairly
compete with private operators in the area of commercial waste management. They offer lower
prices in a non-transparent way, taking advantage of their monopoly on the municipal waste
management segment.
In Sweden, the new Competition Act might help in putting an end to such unfair competition. Its
section on
Anti-competitive sales activities by public entities provides that “a certain conduct by the
State, a municipality or a county council (…) may be prohibited through an injunction if such
conduct distorts, by object of effect, the conditions for effective competition in the market, or
impedes the occurrence or the development of such competition”. Several cases are currently
being examined.
Qualifying water services as “non economic services of general interest”,
which entails the risk of circumventing the guidelines on State aid in favor of public
operators.
The European Commission should take action to ensure fair competition
In the field of VAT, action at the EU level is necessary to ensure that not only the supply of
water, but also waste and wastewater management are identified as activities where public
operators should be subject to VAT since their non-taxation would lead to significant distortions of
competition.
In the other areas, the European Commission should encourage Member States towards
more fairness in the treatment of public and private operators. The European Commission
6 CE, 20 main 1998, « Piémont de Barr »
5
link to page 8
has already declared its intention to do so as regards the allocation of EU funds
7. The several
actions announced to improve the information, expertise and know-how about PPPs are also an
interesting way forward. We however call on the European Commission to be mindful of the
increasing attempts by public authorities to try and circumvent competition with the private sector,
as explained above.
Direct contract awards should be an exception, but remain the rule in the area of public
service in some Member States. We strongly suggest that the Commission undertakes a
close
review of these procedures.
7 COM(2009) 615 final “Mobilising private and public investment for recovery and long term structural change:
developing Public Private Partnerships”
6
APPENDIX 2 : AWARDING CONCESSION CONTRACTS
ASSESSMENT OF EXISTING PROCEDURES DESIGNED FOR PUBLIC CONTRACTS
Awarding procedure Appropriateness for concession contacts
Possible field of use for concessions
Open procedure
® Straightforward procedure
Not appropriate.
- Risk of high economic cost (investment in preparation of
numerous unsuccessful bids)
- Rigid terms of reference
⇒
No room for creative proposals from the bidders
Restricted procedure
® Allows for a selection of capable bidders
Not appropriate (except maybe for small and repetitive
-
contracts with clear risk allocation)
Little room for creativity : submission of variants may be
authorised, but in this case the “most economically.
advantageous tender” may be difficult to identify
- No room for adaptation of the proposals once the bids are open
Competitive dialogue
® Allows for creative proposals by the bidders
Suitable for cases where complexity lies in technological
-
aspects and the public client is unable to express his needs in
Risk of costly, open ended process for the bidders
a detailed manner
- Protection of intellectual property of the bidders not fully Inappropriate where complexity lies in management/
operation.
guaranteed :
-
Risk of leakage from one bidder to another one
-
Risk of appropriation of the bidders’ ideas by the public
client, in the case of abortion of the process and decision to
manage the project “in house”.
Negotiated procedure
® Allows for creative proposals by the bidders
Suitable when the client is able to express his needs, but
(with prior publication
complexity lies in operation/management, and/or uncertainty
of contract notice ,
® Allows for an in depth discussion on organisational matters and on the future evolution of key drivers .
and results oriented
their effect on price after the bids are opened.
Procedure for concession award should include :
terms of reference)
-
-
Publication of contract notice at EU level above a
Risk of open ended process for the bidders
given threshold.
- Level of discretion for the decision maker is more important,
-
Prequalification phase: same as restricted procedure
requiring specific rules to preserve fair and equal treatment of the
-
Assessment of bids and recommendations to start
negotiation with one or a few bidders by an evaluation
bidders.
committee reporting to the executive of the public
authority .
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