Legislative risk

Local public services

Article 23 bis of Law Decree 112/08, converted into Law 133/08, governs the award of contracts and the management of local public services of economic importance, in application of EU legislation and in order to open the sector up to greater competition, and guarantee freedom of establishment and the freedom to provide services for all economic entities interested in managing local public services. The legislation also aims to guarantee all users the right to universal and accessible local public services and an essential level of service quality.

Law Decree no. 135 of 25 September 2009 (also known as the Ronchi Decree), as amended and converted into Law no. 166 of 20 November 2009, introduces some relevant changes to Article 23 bis of Law Decree 112/2008 concerning the award of contracts for local public services and the so-called “transition period”.

The provisions contained in Article 23 bis, as amended by the approved decree, set out that the management of local public services will be ordinarily granted to mixed companies through public tenders and the in-house management (entirely with public capital) will be granted only in exceptional cases and subject to prior authorisation of the Antitrust Authority.

The ordinary method to assign local public services will be the tender and the mixed company, where the private entity (identified by means of a public procedure) should be an operating shareholder with an interest of more than 40%. The exception to the rule is, among others, the distribution of electricity and gas.

With regard to the transition period, the previous provisions contained in Article 8 of Law Decree no. 112/2008 set out the early expiry of water concessions granted without a tender as at 31 December 2010. Following the complete rewriting of the provision, the transitional regime of the awards that are not compliant with the new regulation sets out the following:

  • the termination at 31 December 2011 of in-house management contracts in force as from 22 August 2008 and of the contracts that have been directly awarded to mixed companies, where the tender selection did not take into consideration both the shareholder status and the assignment of operating tasks;
  • upon the expiry date set out in the service contract, the termination of the contracts directly awarded to mixed companies, where the tender selection took into consideration both the shareholder status and the assignment of operating tasks;
  • as regards direct contracts as at 1 October 2003 in favour of listed companies and their subsidiaries, there are two different termination options:
  • the termination upon the expiry date set out in the service contract, provided that the public interest is reduced to not more than 40% by 30 June 2013 and to not more than 30% by 31 December 2015;
  • if the conditions described in the previous point do not apply, the termination will take place – without any extension or proper resolutions by the grantor - on 30 June 2013 or 31 December 2015;
  • the termination of the contracts that are not envisaged in the previous points takes place on 31 December 2010.

In relation to the reform described above, it should be noted that by means of Order adopted on 12 January 2011, the Constitutional Court judged the referendum proposed regarding the full repeal of the contents of art. 23 bis to be admissible.

Reform implementing regulations

By means of Presidential Decree no. 168 of 7 December, the reform implementing regulations were adopted.

Said provision not only introduced, for calls for tender for the award of local public services, an obligatory pro-competition element and confirms the subjection to the internal stability pact by in-house contractors, but governs the purchase of goods and services and the hiring of staff of in-house and mixed companies, in compliance with public selection principles.

A system was also introduced regarding the incompatibility of holding roles in the contracting entity and holding roles in the service management company, in order to establish a clear distinction between the regulation/control functions and service management.

Lastly, the most significant norms of the provision in question without doubt include art. 10, which governs the transfer of assets in the event of replacement by a new operator.

This norm, despite being without prejudice to the various agreements stipulated by the parties before its entry into force, envisages that upon future expiry of the management of the local public service, or in the event of early termination, the previous operator transfers, at no cost, to the new operator the operating assets needed to provide the service, identified during the tender phase by the grantor, given the service cannot be duplicated at socially sustainable costs.

If, at the time of the termination of the management, said assets have not been fully amortised by the departing operator, the new operator is required to pay an amount – also indicated in the call for tenders – equal to the original carrying amount still not amortised, net of any public contributions directly attributable to said assets.

Process of liberalisation of the local public services market

It should be noted that the company S.A.O. owns – and does not simply manage – the landfill and the related treatment plants located in Orvieto and that, in August 2007, the Company entered into an agreement with the Area Authority that will remain in effect until the landfill is full. The agreement governs all aspects of the urban waste treatment and disposal service in said Area of Operation, as well as special waste deriving from the treatment of the above urban waste.

In light of this, and taking account of the difficulties involved in locating and constructing new waste dumps in the Umbria region, also in terms of their environmental impact, it is likely that future industrial planning procedures, which are required to form the basis of any future tenders for waste management services within the Area, will take account of the existing private sector offering and, in particular, of S.A.O., especially in light of potential expansion and improvement of the plants sited in Orvieto.

Abolition of the Area Authorities

Law no. 42 of 26 March 2010, entitled "Urgent intervention concerning local entities and regions” inserted in the 2010 Finance Act (Law 191/2009) art. 186 bis which sanctions, a year after the entry into force of this law – and so from 1 January 2011 – the abolition of regional area authorities for the management of water resources and integrated management of urban waste pursuant to articles 148 and 201 of Legislative Decree no. 152/2006. At the same time, the Regions were given the job, under law, of assigning the functions already performed by the Authorities, in compliance with the principles of subsidiarity, differentiation and suitability.

Law no. 10/2011 was published on 26 February 2011, converting Law Decree no. 225 of 29 December 2010 (also known as “mille proroghe” decree), introducing an extension of the terms set forth by legislative provisions and urgent intervention regarding tax matters and business and family support. In accordance with art. 1, paragraph 1, the term for abolition of the Area Authority has been extended until 31 March 2011. The second paragraph of said article, through one or more decrees of the Chairman of the Council of Ministers, in agreement with the Ministry of Economy and Finance, allows the aforementioned terms to be extended to 31 December 2011. In the absence of Government intervention, each action performed by the regional Area Authorities from 31 March 2011 onwards is to be considered invalid.