The Guest Blog

Guest blog post by Pierre Sultan, in charge of the Public Law department of the law firm Heenan Paris.

Following the European Commission’s formal notice to the French State on 22 October 2015 regarding EDF’s dominant position (80%) in the French hydropower sector, France has adopted a new legal framework enshrining the opening to competition of hydroelectric concessions which would not dispel all foreign hydroelectric operators’ doubts pertaining to the tender process for the renewal of French hydroelectric concessions.

 

Long-awaited by EDF’s competitors, French government recently introduced an Ordinance[1] and a Decree[2] establishing a new legal framework dedicated to hydroelectric concessions’ renewal.

To summarize, the tender process will be organised according to two main principles, both of which may not be well perceived by foreign operators.

As set forth in Article L521-16-1 and L521-26-2 of the Energy Code, the “barycentre technique” allowing for merger of the concessions by valley will be implemented before launching a tender process. This technique, praised as it removes any entrance cost for new entrants who will no longer have to pay to the incumbents any indemnification for the early termination of their contract, may result in postponing the launch of the tender process as any consolidation shall ensure to the incumbents the right to financial stability of their contracts (i.e. the amount of provisional cash flows available for each concession, updated and calculated for all merged concessions , shall not change following the consolidation).

Recently-adopted Decree n°2016-530 provides the method of calculation of such cash flows so as to determine the new common termination date for the merged concessions. No doubt that the operators and the Commission will follow closely the implementation by the French government of these provisions.

The second principle enshrines the creation of a mix-capital entity (“société d’économie mixte hydroélectrique”) in which the capital is held jointly by the contracting entity (the French State), interested local authorities and the private partner and which is assigned a hydroelectric concession[3]. This mechanism will enable public entities to hold a 34% to 66% shareholding in the dedicated semi-public company while the private input consists, apart from the contribution of capital or other assets, in the active participation in the operation of the concession awarded to the public-private entity.

Ongoing privatization procedures of French airports demonstrates that semi-public companies remains attractive to French and foreign private operators. However, the provisions of the French Energy code expressly provides that public authorities shall hold a blocking minority within the semi-public company and due to the very sensitive nature of the energy sector in France, private operators shall very carefully assess the implications of the mixed shareholding on the operation of the concession.

Although the new legal framework clearly constitutes a step towards the opening to competition of hydroelectric concessions, tenders have yet to be launched by the French Government. In this respect, one should also keep in mind that elections will be in France in 2017 and opening hydroelectric concessions to competition may not be contemplated by all as a priority issue before that date.

However, decisive steps such as the decision to merge concessions may occur during the next few months as France, which is still under the scrutiny of the European Commission, needs to demonstrate its willingness to effectively open this field to competition.

In a very popular TV show, it has been said that winter was coming six years ago and it has yet to come. One may assume it will not be that long before a tender is launched.

[1] Ordinance n°2016-518 of 28 April 2016 which, in addition to strengthening and extending administrative control over hydroelectric facilities, notably improves the legal weaponry by extending and aggravating administrative and criminal penalties applicable to hydroelectric operators, and clarifies the provisions pertaining to older conceded facilities (especially regarding the right of way on private properties).

[2] Decree n°2016-530 of 27 April 2016.

[3] Such mechanism is based upon the Commission interpretative communication on the application of Community law on Public Procurement and Concessions to institutionalised PPP (IPPP) and on the judgment of the European Court of Justice of 15 October 2009, Acoset SpA, no C-196/08

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