Ulrich Cronauge, managing director of VKU’s water and wastewater division, warns: “White Paper on Services of General Interests or Green Paper on Public Private Partnerships – the goal is always the same: to extend and intensify the law on public procurement with a view to making tenders compulsory for all public services.”

He fears that the introduction of tender advertisements for public services endorsed in Brussels will enable large groups to buy up all water supply and wastewater disposal service licenses on a broad scale by paying a “strategic price”.

The municipality-owned water and wastewater enterprises, however, do not have the financial means to submit competitive tenders. Looking at France, Cronauge foresees an enormous concentration like in other countries where tender advertisements are common. “The organisational sovereignty of the communities would in fact be eliminated,” he says.

While the EU Commission, on account of its new formation and new elections of the EU Parliament, has recently halted its attacks on services of general interest, it now is the ECJ that rather explicitly demands that “competitive principles” be observed. Already back in Oct. 2004, a petition had been filed against Germany regarding penalty payments of nearly e 160,000 a day. Germany, it was argued, failed to obey an earlier ECJ ruling of April 2003.

At the time, Germany had been sentenced, among other things, to annul the wastewater treatment contract for the community of Bockhorn in Lower Saxony, which according to the European law on competition had been wrongfully awarded. This wastewater treatment contract had been concluded between the local authorities and an energy supplier without conducting an EU-wide tendering procedure.

The ECJ’s Advocate General considered this to be an infringement of the Public Services Directive 92/50/EEC, arguing that wastewater treatment was to be regarded as a service in keeping with article 8 and annex I A category 16 of this directive. The federal government defended its mode of conduct by stating that the contract had been rightfully awarded according to German law and that there was no legal possibility to annul the contract without running the risk of having to pay high damages.

In a decision of 14 April 2003, the ECJ had already explained that Germany could not bring this in as an excuse as meanwhile all authorities in Lower Saxony had received strict orders to award public contracts in compliance with the EU law on competition (OJ C 20/01). The contract between Bockhorn and EVU Weser-Ems AG had been concluded for a minimum period of 30 years; and the EU Commission was therefore fully right not to accept a breach of law continuing for decades to come.

In the case of wastewater disposal in Bockhorn, the local authorities were denied the freedom to delegate these services to a partner enterprise of their own choice without previously conducting an EU-wide tendering procedure; other legal disputes are concerned with the fact that the EU Commission and the ECJ are increasingly undermining intercommunal cooperation.

In mid-January 2005, it became known that the Commission, among other things, had objected to a waste incineration contract between the public cleaning enterprise Stadtreinigung Hamburg (SRH) and four adjoining regional districts. This contract between SRH on one hand and the regional districts of Harburg, Soltau-Fallingbostel, Rotenburg and Stade on the other did not comply with the EU law on public procurement.

Rather than signing this contract with SRH in 1995 without prior consultation, the district authorities would have been required to invite tenders from other EU member countries. The EU Commission holds the view that also contracts between public enterprises are governed by EU procurement law.

The spokesman for the district authorities of Harburg fears that the Commission’s vote in this legal case, which is still pending, might “wreak havoc with all forms of communal cooperation”. The Commission’s vote, he says, could generally be interpreted not only as a blow against intercommunal cooperation in the waste management sector, but also in the field of drinking water supply and wastewater disposal.

Yet another basic ECJ ruling of 11 Jan. 2005 (C 26/03) has rocked the foundations of water management and, after the first shock, tempted many high-ranking lawyers to gaze into the crystal ball. What consequences this ruling will have for public-sector water management still remains pretty unclear. What’s it all about? In 2001, the town authorities of Halle an der Saale had commissioned Recyclingpark Lochau GmbH (RPL) to build a waste incineration plant.

The town authorities hold a 75.1 % interest in RPL, which belongs to the public utilities Stadtwerke Halle GmbH. RWE Umwelt Sachsen Anhalt GmbH holds the remaining 24.9 % interest in RPL. The point was that the town authorities had awarded the contract for building the waste incinerator to their public-sector subsidiary!

The ECJ, by referring to Directives 2004/17/EC and 2004/ 18/EC, came up with such a clear decision that all observers were completely taken by surprise. The ruling was generally regarded as a true “bombshell”. The ECJ judges held the view that the local authorities were only allowed to award a contract to a public-sector subsidiary without organising an EU-wide tendering procedure if the latter was 100 % owned by the local government.

The ECJ states that as soon as a public-sector subsidiary is partly owned by a private enterprise, it is to be assumed that the interests of such a public private partnership/PPP are no longer clearly communal. This implies that public-sector subsidiaries, even though only a small fraction of them is privately owned, have to be treated like any other competitive tenderer!

This gave rise to heated debates in numerous workshops and seminars and one could hear phrases like “the air is getting thinner” and “there is a crisis ahead”. Some held the view that for towns and cities wanting to have certain services performed by their own public-sector enterprises “recommunalisation” was the only option, and that PPP was more or less a dead issue. But since governmental budgets were (allegedly) too tight to allow such recommunalisation, everything would boil down to a complete buy-out of public interests in PPP models.

Says Martin Uekmann, head of the legal department of the public utilities of Bielefeld, in an interview in ZfK: “Many public-service enterprises have partly become privatised on condition that public-sector influence persists. The ECJ’s adjudication is diametrically opposed to this. If public enterprises in a competitive market are deprived of the possibility to do business with their own majority shareholders, this will increasingly lead to a buy-out of public interests and to the formation of oligopolistic market structures.”

While industry experts were still pondering over the “Halle ruling” and its likely consequences, the ECJ got itself ready for the next blow. In its judgement of 13 Oct. 2005, the ECJ adopted an even stricter legal attitude towards PPP. In judging whether an EU-wide tendering procedure could be dispensed with, the important criterion is not the fact that a subsidiary is 100 % owned by the local authorities; the subsidiary must in fact be under the exclusive control of the authorities.

In the case of Parking Brixen AG – dealing with the construction and operation of carparks in South Tyrol – the ECJ could not see this requirement to be fulfilled. Local authorities seeking to delegate services to their subsidiaries without inviting tenders are therefore finding it increasingly difficult to do so.

The ECJ rulings do not only block out the heavily propagated PPP models of recent years. The spin-off of public-sector water and wastewater enterprises into public limited companies (AG) 100 % owned by the local authorities is also becoming increasingly questionable.

And thanks to the Halle ruling, local authorities wanting to remain in control can forget about PPP models anyway. But even outsourcing services of general interest to public limited companies might prove a risky undertaking. The only safe players are local authorities that continue to provide water supply and wastewater disposal services as a publicly owned and operated enterprise.
(Source: aqua press Int. 4/2005, Mag. Nikolaus Geiler)