AquaFed THE INTERNATIONAL FEDERATION OF PRIVATE WATER OPERATORS

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1 Brussels Office Paris Office 6, rond point Schuman box 5 54, avenue Hoche B1040 Brussels Belgium F75008 Paris France Tel: Tel: Fax: Fax: European Commission Internal Market and Services DG, Unit C3 - Formulation and enforcement of public procurement law III 1049 Brussels Consultation on the modernisation of EU public procurement policy Brussels, 18 April 2011 Dear Madam, dear Sir, As part of the wide consultation that the Commission has launched on the modernisation of EU public procurement policy, we would like to submit a few contributing remarks and answers to some of the questions formulated in the Green Paper made available on line on your web site. AquaFed is the International Federation of Private Water Operators. Open to private companies and associations of companies of all sizes and from all countries, our organisation aims to contribute to solving water challenges by making Private Sector know-how and experience of water and wastewater services available to the international community. It brings together worldwide more than 300 water companies that serve hundreds of millions of people in urban and rural areas in 40 countries, including a strong foothold across the European Union. We are registered in the European Commission register of Interest Representatives under the Identification number: Members of our Federation participate actively in the improvement of water and sanitation services across Member States of the European Union. According to our estimate more than 170 million Europeans (more than 33% of the European Union population) receive drinking water and/or wastewater services that are at least partly operated by private or public-private companies (companies with private owners/shareholders acting under private law). Our organisation has contributed to E3PO s answers to the questions formulated in the Green Book. In complement, we would like to post to you the following remarks that address specifically the issue of Public-Public Cooperation (Green Paper chapter 2.3, questions 30 to 33) We believe necessary that Public-Public Cooperation is only used to mean horizontal organisational cooperation between public authorities and should not be expanded to procurement activities. The current dividing line between organisational and procurement activities of public authorities should be maintained. We also believe that it should be made clear that strict conditions are to be satisfied to allow public entities to benefit from the in-house exemption from EU public procurement rules. We hope that the current work of your Directorate will contribute to bringing the necessary clarity on these matters. Best regards, Gerard Payen President Attachment:1 AquaFed, The International Federation of Private Water Operators Association legalised on April 9, 2005, SIREN European Commission Register

2 Brussels Office Paris Office 6, rond point Schuman box 5 54, avenue Hoche B1040 Brussels Belgium F75008 Paris France Tel: Tel: Fax: Fax: Brussels, April 18, 2011 Register ID: ANSWERS BY AQUAFED TO CHAPTER 2.3 (QUESTIONS 30 TO 33) OF GREEN BOOK ON MODERNISATION OF EU PUBLIC PROCUREMENT POLICY 1 PPC Public-Public Cooperation Contents 1. Green Book Questions on Public-Public Cooperation (ch. 2.3) Organising authorities and operators Avoiding any discriminatory approach Q30, Q31, Q Public-Public Cooperation: The right of self-organization of Public authorities Public procurement: the in-house exemption (Q32) Requirement of a contract between contracting authorities further to publicity The similarity of the control should be effective and not theoretical Limited market orientation Green Book Questions on Public-Public Cooperation (ch. 2.3) 30. In the light of the above, do you consider it useful to establish legislative rules at EU level regarding the scope and criteria for public-public cooperation? 31. Would you agree that a concept with certain common criteria for exempted forms of public-public cooperation should be developed? What would in your view be the important elements of such a concept? 32. Or would you prefer specific rules for different forms of cooperation, following the caselaw of the ECJ (e.g. in-house and horizontal cooperation)? If so, please explain why and which rules they should be. 33. Should EU rules also cover transfers of competences? Please explain the reasons why. 1 AquaFed_PublicPublicCooperation_GreenPaper_Pc_ doc 1 / 7

3 2. Organising authorities and operators The members of our Federation deliver public services (water supply, sewerage) where and when mandated by public authorities. As private water operators we would like to comment the chapter 2.3 of the Green Book and answer to questions 30 to 33 from the perspective of the water supply and sewerage services sector [the Water Services Sector]. The delivery of public services encompasses two main functions, the task of organising authority and the task of operator in charge of the service delivery. Any public service delivered to European citizens involves these two functions of organizing authority and operator, should they be accomplished by different entities or by the same one, and each of these function is driven by very specific features and follows different legitimacy considerations. This distinction between the functions of organizing authorities and operators is recognized internationally, in particular in the norm ISO 2451x 2 of the International Standard Organisation and in the guidelines on access to basic services for all 3 that UN-Habitat has adopted in In the framework of the EU public procurement Directives 2004/18 and 2004/17 the contracts between water or sewerage organising authorities and operators are contracts between contracting authorities and economic operators. Since the matters discussed in the Green Paper are broader than the application of the public procurement directives, the concepts of organising authorities and operators are useful to discuss how these matters apply to the Water Services Sector. 3. Avoiding any discriminatory approach Q30, Q31, Q32 The Public-Public Cooperation (PPC) concept should not be extended from its previous meaning of cooperation between public authorities to a broader meaning that would include public procurement of services by public entities. We strongly recommend that Public-Public Cooperation to be a wording whose EU use is to be restricted to the horizontal organisational cooperation between public authorities that decide to organize themselves together. With this view, we do not think that the questions 30 and 31 remain relevant in the discussion of potential improvement of EU public procurement rules. 2 The ISO 2451x norm uses the wording Responsible body and Operator 3 The International guidelines on access to basic services for all adopted by the Governing Council of the United Nations Human Settlements Programme (32nd session, April 2009, HSP/GC/22/2/Add.6) distinguish governments and authorities from service providers and set up the following principle: Principle: Since national Governments, local authorities, public or private service providers and civil society organizations share responsibility for the delivery of basic services to all there is a need to negotiate and formalize partnerships among them, taking into account their respective responsibilities and interests. Accordingly, partnerships should be encouraged and facilitated through appropriate legal and regulatory frameworks, including clear results-oriented contracts and monitoring mechanisms. AquaFed_PublicPublicCooperation_GreenPaper_Pc_ doc 2 / 7

4 Therefore, the two above-mentioned forms of agreements between public authorities and other public entities, i.e. horizontal cooperation and public procurement, are two distinct domains with essential differences in EU law, different scopes, goals, characteristics and legal constraints. They should continue to be regulated through different EU rules when such rules are appropriate (Q32). PPC was defined in 2010 in the EU Parliament Ruhle report 4 as cooperation between public authorities. This cooperation is renamed as horizontal cooperation in the Green Paper and is related to the right/freedom of self-organisation of governments. Quite surprisingly, the Green Paper proposes an extension of this PPC concept to agreements between public authorities and public operating entities that are not authorities, to perform a remunerated service. The Green Paper names it vertical cooperation. Setting up such contracts between public authorities and public operators is a procurement activity which is potentially governed by the EU public procurement directives, under the principles of fair and open competition and along with some specific exceptions. Up to now these two different categories of horizontal and vertical agreements have been kept separate in European law. Combining these two categories of agreements between public entities into a single concept would bring unnecessary complexity, negate their essential differences and might even create legal uncertainties. No useful commonality. Indeed, these two types of agreements have different scopes (organisation vs service provision). Their only common characteristic is that both involve signed agreements between public authorities and public sector entities. This common element does not bring value in organising public procurement in the European Union since horizontal cooperation should not be a procurement activity while procurement of services from a public sector entity is governed by the same rules as for private sector entities except in the in-house case that does not apply to all public sector entities but only to some of them. Essential differences. In the principles of the European Union there is a clear distinction between the domain of internal organisation of governments/public authorities that is not ruled by the EU and the domain of economic activities that is organised by the EU through a competitive framework in its internal market. Therefore, there is an essential difference between organising public authorities which falls outside the scope of public procurement rules and allocating the task to deliver a public service to an operator even in the case of a public operator. These are two separate types of action: this is recognised by the Green Paper that says: In essence, a dividing line has to be drawn between arrangements among contracting authorities to perform their tasks covered by their right of self organisation on the one hand and procurement activities which should benefit from of open competition among economic operators on the other hand. Artificial linkage. Aggregating horizontal cooperation with procurement activities in a single concept does not clarify any of these areas. It would be an artificial linkage and might even create dangerous ambiguities, The Questions 30 and 31 provide an example when they consider the potential identification of common criteria for exemptions that would apply simultaneously to horizontal public-public cooperation and to public procurement of services. 4 A7-0151/ EU Parlaiment, report on new developments in public procurement (2009/2175(INI)), Heide Ruhle AquaFed_PublicPublicCooperation_GreenPaper_Pc_ doc 3 / 7

5 Introducing such common criteria in European law might lead ultimately to different rules for public and private sectors with the risk of creating discrimination between economic actors in contradiction with the Treaty. Besides, the practical limits between the public and the private sectors are more and more blurred. In the water sector there are many operators that are jointly owned by public and private entities. Therefore, to avoid any misinterpretation and any risk of discrimination and to respect the essential differences between the two above-mentioned forms of agreements we strongly recommend that Public-Public Cooperation is a wording that is only used for the horizontal cooperation between public authorities that decide to organize themselves together or to share some joint organisation. If, as suggested, the PPC concept stays with its previous meaning the questions 30 and 31 are no longer relevant since there is no value in identifying common criteria for completely different domains.. Therefore, the two above-mentioned forms of agreements between public authorities and other public entities, i.e. horizontal cooperation and public procurement, are two distinct domains with essential differences in EU law, different scopes, goals, characteristics and legal constraints. They should continue to be regulated through different EU rules when such rules are appropriate (Q32). 4. Public-Public Cooperation: The right of self-organization of Public authorities Public authorities have the freedom to organize themselves to perform their duties. The setting-up of common organisations should be considered as Public-Public Cooperation. However, the use of a common entity by one shareholder to perform a task against remuneration or the remuneration by one public authority of another public authority to perform a task is not an organizational task but a procurement activity that should not be considered as PPC Public authorities have some leeway to establish relations between themselves in order to discharge their public responsibilities as organising authorities of public services. A key responsibility of an organising authority is to set up an adequate organisation to ensure an activity like the delivery of public services to be effectively and appropriately delivered. Organisational set-ups include in particular the following actions: Deciding whether or not the activity is in the remit of a public authority, Determining the public authority that will be in charge of discharging the activity. This may result in a transfer of competence to another public authority. Deciding whether to undertake the activity itself with its own means or to rely on external providers (third parties), Deciding the ownership of the related infrastructure Organising the monitoring of the delivery of the activity. Under the EU legal framework, public authorities are free to organise themselves as they deem appropriate AquaFed_PublicPublicCooperation_GreenPaper_Pc_ doc 4 / 7

6 When several organising authorities decide to build a common organisational structure or to share a common infrastructure to ensure an activity like the delivery of public services the organisational agreements are generally out of the scope of the competitive framework established by EU public procurement rules. This is for example the case of transfers of competence to another public authority, of the setting-up of a joint public body or of the sharing of an infrastructure (like in the Hamburg case law (ECJ, C-480/06). On the contrary, the performance of a task against remuneration by a joint public body through a contract with an organising authority that is one of its shareholders or the performance of a task against remuneration by a public authority through an agreement with another public authority should not be considered as horizontal PPC since for the public contracting authority these are not organisational activities but public procurement activities. 5. Public procurement: the in-house exemption (Q32) Q32. The exceptional use of the in-house exemption from public procurement rules must be limited in order to respect the interest of EU citizens in benefiting the most from open and fair competition. Should EU Rules be adopted to clarify conditions for the use of this exemption and restrain potentially-abusive uses, these rules should include: a) proper advertisement and public notice before contract signing between a public authority and a public operator; b) effective and not theoretical control; c) absence of market orientation. These rules should recognise that a collective control cannot be as effective as for an internal department and cannot be deemed to meet the similar control criteria. The in-house exemption should be limited to public operators that are not market-oriented and by consequence only operate tasks that are under the responsibility of their controlling authority. In particular, in the case of a public authority that is competent on a specific territory, this would mean that the in-house entity should not have activities outside of this territory. Awarding the performance of a remunerated task against to another entity is a procurement activity. Procurement activities by public entities are generally regulated by the EU public procurement rules (Directives 2004/17 and 2004/18). As reminded by the Green Paper, the in-house exemption covers some of the contracts awarded by a public authority to a publicly owned entity. These contracts are not considered to be governed by EU public procurement rules if the awarded entity is being controlled by the contracting authorities in a similar way to that in which they control their own departments, and if it conducts an essential part of its activities with the contracting authorities. While this exemption from the principle of fair and open competition within the EU internal market is legitimate in some cases, the absence of legal framework leaves way to extensive and sometimes abusive use of this in-house exemption which may be not in the interest of EU citizens. The evolving case-law of the ECJ has resulted in quite a complex picture of possible exceptions to public-procurement rules. This does not simplify the task of public decision-makers and makes difficult the control of the legitimacy of the use of the in-house exemption. It creates unnecessary obstacles to the internal market and this is detrimental to AquaFed_PublicPublicCooperation_GreenPaper_Pc_ doc 5 / 7

7 EU citizens. Should a legal initiative be taken to establish clearer rules for the restrictive use of the in-house exemption we believe that these rules should include the following conditions for an in-house agreement to be exempted from the application of public procurement rules and to escape from fair and open competition: 5.1. Requirement of a contract between contracting authorities further to publicity The agreement should be made between two publicly-controlled entities These public entities are subject to the public procurement obligations of directives 2004/17 or 2004/18 for their own procurement activities. As the agreement is for a remunerated task the signature of a contract between the two entities should be made compulsory Advertisement should be organised in advance through public notice in such a way that a third party may be in a position to potentially challenge the use of the exemption if the necessary conditions are not satisfied The similarity of the control should be effective and not theoretical The condition of similar control has been set up by the Teckal case-law. In essence this condition means that the awarding authority controls the activities of the awardee in a way that is similar to that in which it controls its own departments. Recent case-law has admitted that a collective control can be a similar control (Coditel- Brabant). To the extreme this would mean that a public authority owning just 1% of a privately-organised company would be considered as controlling it in a similar way to one internal department if the other shares are owned by other public authorities. This is very far from our understanding of an effective control and should be revised. Control can only be effective and similar if the authority gets at least as much information as with an internal department and has full capacity to drive and sanction the management and pilot the strategy. With only 1% of the shares this cannot happen (except in very exceptional set-ups including golden shares and sleeping partners who, by essence, do not exercise any effective control). In our view, the similar control criterion should be restrained to cases where the contracting authority benefits from an effective control on the operator (similar to its controls on its own internal departments). In the case of collective control this may be the case for at most one controlling authority and usually not for the minority shareholders. However, even in this case, the governance rules of entities established jointly by public authorities usually do not allow that one partner gets full power on the strategy the staffing and the organisation of the joint body. Therefore, in most cases a joint collective control cannot put any public authority in a controlling position which is as effective as for one of its own departments. Quite surprisingly, the Green Paper considers the potential use of the "similar control" criterion for the award of contracts from the controlled entity to the mother(s) or to an inhouse sister (i.e. an entity controlled by the same mother). This would be an abusive use of the in-house exemption since by nature a daughter organisation is never supposed to control her mother and an organisation cannot control a sister organisation. This further illustrates the potentially pervasive use of the similar control criterion in the absence of a clearer legal framework. To avoid any abusive and detrimental use, the conditions for the similar control criteria should be clarified and significantly reinforced. They should restrict the use of the in-house exemption to public entities that are effectively controlled by the contracting authority with full and clear direct power on its strategy, staffing, and internal organisation as it would be AquaFed_PublicPublicCooperation_GreenPaper_Pc_ doc 6 / 7

8 the case for an internal department. In particular, except in very specific conditions, a collective control should not be considered as a similar control Limited market orientation ECJ case-law provides another condition for the in-house exemption. This is about the limited market orientation of the public entities. The Green Paper reminds that marketoriented publicly-controlled entities are active on the market in direct competition with private operators, pursuing the same or similar commercial objectives and using the same instruments. Cooperation which is exempt from the procurement rules and aimed at fulfilling a public task should in principle not include such entities. It also reminds that in-house providers with a market orientation might also give rise to competition and State aid concerns. We fully share this view. An in-house entity should not benefit from its exceptional status to compete on markets with the risks of limiting market opening and fair competition not being ensured. It is only if a controlled public entity does not engage in competitive markets that it may benefit from the in-house exemption for contracting with its controlling public authority. The in-house exemption should be limited to public operators that are not market-oriented and by consequence only operate tasks that are under the responsibility of their controlling authority. In particular, in the case of a public authority that is competent on a specific territory, this would mean that the in-house entity should not have activities outside of this territory. AquaFed_PublicPublicCooperation_GreenPaper_Pc_ doc 7 / 7