13 April 2025

Concession Agreements with Foreign Investors in Russia: Legal Framework

April 13, 2025

BRACE Law Firm ©

The issues of attracting private capital to invest in social and infrastructure projects, which typically receive funding from the state budget, are a central focus in most developed countries. When implementing state projects involving private business, the parties enter into partnership relations commonly referred to as public-private partnerships.

Concession in World Practice

International practice applies various forms of public-private partnerships. The most popular of these is the concession, which represents a system of relations between a public legal entity (state, region, municipality) — the so-called "Grantor" — and a representative of the private sector (legal entity or individual) — the "Concessionaire", in connection with granting the latter rights to possess, use, and limitedly dispose of state (municipal) property and/or rights to carry out certain types of public activities. [1]

Despite its widespread use, no international document regulates the concept and types of concession agreements or the procedure for their conclusion. Since the state is one of the parties to a concession agreement, national laws provide the legal regulation.

Meanwhile, various models of concession agreements exist in international practice:

BOT (Build – Operate – Transfer) – the Concessionaire carries out the construction and operation of the facility (typically under ownership rights) for a set term, after which the facility is transferred to the public partner;
BTO (Build – Transfer – Operate) – the private partner builds the facility, which is transferred to the Grantor's ownership immediately upon completion of construction, after which the object of the agreement is transferred to the Concessionaire for operation;
BOO (Build – Own – Operate) – the private partner builds the facility and carries out subsequent operation, owning the facility under ownership rights that are not limited in time;
BOOT (Build – Own – Operate – Transfer) – the Concessionaire possesses and uses the built facility under private ownership rights for a specific term, after which the object transitions to state (municipal) ownership;
BBO (Buy – Build – Operate) – a form of sale that includes the restoration or expansion of an existing facility. The public partner sells the facility to a private partner, and the latter implements the necessary improvements for more efficient management of the facility. [2]

Experts also distinguish the Brownfield contract, which involves activities to expand, modernize, or restore an infrastructure facility without construction. Under a Lease contract, the state builds the infrastructure facility without the tenant's participation. The tenant's responsibility includes maintaining the facility; furthermore, the tenant receives fees from the facility's users and transfers a portion to the state to compensate for the investments made. Under a Service contract, the state transfers a finished infrastructure facility to the Concessionaire for management and maintenance, while the Concessionaire does not make any investments.[3]

Legal literature distinguishes between "English" and "French" concession schemes. A high level of independence for the Concessionaire during the creation and operation of the concession object characterizes the "English" concession scheme. Private law principles apply to the parties' relations; however, the state regulates the tariffs at which the Concessionaire provides services to the population and monitors the Concessionaire's performance of its obligations under the concession agreement. Under the "French" concession scheme, public law principles prevail in regulating concession relations, with mandatory compliance with the principle of equality of the property interests of the Concessionaire and the Grantor. In this scheme, the concession agreement is viewed as an administrative or public contract. Many civil law countries have adopted this scheme, particularly Germany, Belgium, Switzerland, Spain, Portugal, Greece, and Italy, as well as countries with mixed legal systems, such as Argentina and Venezuela. [4]

In China, the Administrative Measures on Concession of Infrastructure and Public Utilities Projects (the "Measures") came into force in June 2015.

Article 1 states that the purpose of the Measures is to stimulate the participation of social capital in the construction and operation of basic infrastructure and public services, to improve the quality of public services, to protect the rights and legitimate interests of concessionaires, and to ensure public interests, national security, and continuous socio-economic development.[5]

Article 3 of the Measures provides the following definition of a concession agreement: an agreement concluded with a legal entity (including a foreign one) selected on a competitive basis, based on risk distribution, and establishing the rights and obligations of the parties, under which the concessionaire undertakes to carry out financing, construction, and operation of infrastructure and provide public services, and is entitled to receive profit from this activity by producing products or providing public services for the population. The Measures do not establish a closed list of agreement objects; they include objects in the energy, transport, water use, environmental protection, and utilities sectors, among others. Article 6 of the Measures determines a maximum concession agreement term of 30 years; however, an exception is provided for large-scale projects with long payback periods. The agreement term is determined based on the specifics of the object (for example, based on the need for a particular public service or product), payback, and other factors. [6]

General principles of contract law apply to the regulation of concession agreements in the USA, as they do for the regulation of ordinary contracts between private individuals. However, because these public contracts have special significance for the state (regarding the concession, this agreement concerns infrastructure objects or public activities that are particularly important for the state's population), exceptions exist within the general principles of contract law. For instance, the law provides for a special procedure for concluding the contract (government contracts are concluded through a tender), restrictions on the "freedom of contract" principle (for example, the Grantor may include any condition in the concession agreement), and the right of the sovereign authority to unilaterally change or terminate the contract if the public interest so requires in cases provided by law or the contract, provided that the counterparty receives compensation. [7]

While international legal regulation of concession agreements is absent, a procedure for settling disputes exists. Thus, the Washington Convention of 1965 on the Settlement of Investment Disputes between States and Nationals of Other States (the "Convention") regulates the mechanism for resolving investment disputes through international investment arbitration. The International Centre for Settlement of Investment Disputes (ICSID) was established in accordance with the Convention. The Convention was opened for signature on March 18, 1965, and entered into force on October 14, 1966, after its ratification by twenty states. Only member states of the International Bank for Reconstruction and Development (the "IBRD") and parties to the Statute of the International Court of Justice may be participants in the Convention if 2/3 of the members of the ICSID Administrative Council vote to invite them to sign (Article 67 of the Convention). Russia, being an IBRD member, signed the Convention but has not ratified it at this time.

The Convention is of a framework nature, and its preamble indicates that ratification, accession, or approval of the Convention does not mean consent to submit any specific dispute to ICSID.

Another convention aimed at protecting investor rights is the Seoul Convention Establishing the Multilateral Investment Guarantee Agency (the "MIGA"), signed on October 11, 1985, in Seoul.

Currently, 181 states are participants in MIGA. MIGA carries out insurance activities for investors, guaranteeing them the protection of deposits and compensation in the event of losses incurred by the investor. MIGA enters into a private law contract directly with the investor and undertakes to pay the investor a certain insurance sum depending on the losses suffered. In turn, the right to bring claims against the corresponding state that violated its obligations to the investor, with whom a bilateral international treaty on investment capital was concluded, passes to the Agency by way of subrogation. As a result, the dispute shifts from the sphere of private law regulation to the sphere of international law. The dispute arises not between states, but between the host state where the investments are directed and an international organization. It should be noted that this method of resolving investment disputes significantly reduces the risk of interstate conflicts. [8]

Legal Regulation of Concession Agreements in Russia

In accordance with Article 6 of Federal Law No. 160-FZ dated July 9, 1999, On Foreign Investments in the Russian Federation, a foreign investor has the right to carry out investments in the territory of the RF in any forms not prohibited by legislation.

In Russia, the main regulator of relations between business and the state in the field of concessions is Federal Law No. 115-FZ dated July 21, 2005, On Concession Agreements (the "Concession Law").

The Concession Law regulates relations arising in connection with the preparation, conclusion, performance, and termination of concession agreements. The Concession Law defines the list of concession agreement objects and the specifics of transferring certain types of property into a concession, establishes the main rights and obligations of the parties, and specifies the terms that are mandatory for inclusion in concession agreements. The Law establishes guarantees for the rights and legitimate interests of the parties to the concession agreement and provides detailed regulation for the procedure of concluding, changing, and terminating concession agreements, especially regarding the adoption of the decision to conclude a concession agreement and the conduct of tender procedures.

The Concession Law provides for a single contractual model of a concession agreement, under which the Concessionaire carries out the construction and (or) reconstruction of the agreement object, which is owned by the Grantor or subject to transfer to the Grantor's ownership after construction (reconstruction), with subsequent operation of the said object by the Concessionaire under the right of possession and use.

According to Article 3 of the Concession Law, under a concession agreement, one party (the Concessionaire) undertakes at its own expense to create and (or) reconstruct property specified by that agreement (immovable property or immovable and movable property technologically connected to each other and intended for the activities provided for by the concession agreement), the ownership rights to which belong or will belong to the other party (the Grantor), and to carry out activities using (operating) the concession agreement object, while the Grantor undertakes to provide the Concessionaire with the rights of possession and use of the concession agreement object for the term established by that agreement to carry out the specified activities.

Changing the designated purpose of a reconstructed concession agreement object defined by the decision to conclude the concession agreement is not permitted. The Concessionaire is not permitted to pledge the concession agreement object or alienate it.

Products and income received by the Concessionaire as a result of carrying out the activities provided for by the concession agreement are the property of the Concessionaire, unless the concession agreement establishes otherwise.

The Concessionaire also bears the risk of accidental loss or accidental damage to the concession agreement object from the moment of its transfer, unless the concession agreement establishes otherwise. The concession agreement may impose an obligation on the Concessionaire to carry out insurance of the risk of accidental loss and (or) accidental damage to the concession agreement object at its own expense.

Can a Foreign Investor or a Company with Foreign Participation be a Party to a Concession Agreement?

In accordance with Article 5 of the Concession Law, the parties to a concession agreement are the Grantor, representing the state, its subjects, and municipal formations. The Grantor is the Russian Federation, on whose behalf the Government or a federal executive body authorized by it acts; or a subject of the Russian Federation, on whose behalf the state authority of the subject of the RF acts; or a municipal formation, on whose behalf the local government body acts.

Article 124 of the Civil Code clearly defines the status of the state as a subject of civil law. Thus, the RF, the subjects of the RF, as well as urban and rural settlements and other municipal formations participate in relations regulated by civil legislation on equal terms with other participants — citizens and legal entities. By entering into a concession agreement, the state is effectively equated to a legal entity in all aspects. In case of necessity, it may resolve its issues through judicial proceedings as a plaintiff or defendant.

A state participating in concession relations is obligated to adhere to the rules it has established itself, based on the essence of these relations.[9]

The state is limited in using its sovereign powers and cannot change the norms of concession legislation at its own discretion. The limitation of the state's rights is linked to its real interest in the effective implementation of concession mechanisms, which, in turn, leads to an increase in the flow of investment into the sectors provided for by legislation.[10]

The Concessionaire is an individual entrepreneur, a Russian or foreign legal entity, or two or more of the specified legal entities acting without forming a legal entity under a simple partnership agreement (joint activity agreement) (Article 5 of the Concession Law).

Article 4 of Federal Law No. 160-FZ dated July 9, 1999, On Foreign Investments in the Russian Federation (the "Foreign Investment Law"), provides that the legal regime for the activities of foreign investors and the use of profit derived from investments cannot be less favorable than the legal regime for activities and the use of profit derived from investments provided to Russian investors. Restrictive exceptions for foreign investors may be established by federal laws only to the extent necessary to protect the foundations of the constitutional order, morality, health, rights, and legitimate interests of other persons, and to ensure the defense of the country and the security of the state.

A foreign investor has the right to carry out investments in the territory of the Russian Federation in any forms not prohibited by the legislation of the Russian Federation (Article 6 of the Foreign Investment Law).

Subsidiaries and affiliates of a commercial organization with foreign investments do not enjoy the legal protection, guarantees, and benefits established by this Federal Law when they carry out entrepreneurial activities in the territory of the Russian Federation.

A foreign investor or a commercial organization with foreign investments created in the territory of Russia, in which a foreign investor (foreign investors) owns (own) at least 10% of the share or contribution in the authorized (pooled) capital of the said organization, enjoys full legal protection, guarantees, and benefits established by this Federal Law when they carry out reinvestment.

According to Article 5 of the Foreign Investment Law, a foreign investor in the territory of the Russian Federation is provided with full and unconditional protection of rights and interests. A foreign investor has the right to compensation for losses caused to it as a result of unlawful actions (inaction) of state bodies, local government bodies, or officials of these bodies, in accordance with the civil legislation of the Russian Federation.

Concessionaires, including Concessionaires that are foreign legal entities, are guaranteed equal rights provided for by Russian legislation and a legal regime for activities that excludes the application of measures of a discriminatory nature and other measures preventing Concessionaires from freely disposing of investments and the products and income received as a result of carrying out the activities provided for by the concession agreement (Article 19 of the Concession Law).

The Concessionaire must meet the following requirements (Paragraph 1.9 of Article 5 of the Concession Law):

Non-conduct of liquidation of the legal entity or the absence of a decision to terminate the individual's activity as an individual entrepreneur;
Absence of initiated insolvency (bankruptcy) proceedings in accordance with the legislation on insolvency (bankruptcy);
Non-suspension of the activities of the legal entity or individual entrepreneur in the manner established by the Code of Administrative Offenses of the Russian Federation;
Absence of registration of the legal entity in a state or territory that provides a preferential tax regime and does not provide for the disclosure and provision of information during financial operations (offshore zones), the list of which is approved by the Ministry of Finance of Russia.

It should be noted that foreign investors (foreign individuals and (or) foreign legal entities), and organizations whose decisions directly or indirectly may be determined by foreign individuals and (or) foreign legal entities, foreign states, or their bodies cannot act as Concessionaires if the objects of the concession agreements are:

Buildings, structures, and installations intended for the stockpiling, storage, and repair of the property of the Russian Armed Forces, or the production and engineering infrastructure objects of such buildings, structures, and installations (Paragraph 1.4 of Article 5 of the Concession Law);
Computer programs, databases, information systems (including state information systems), and (or) websites in the "Internet" information and telecommunications network or other information and telecommunications networks, which include such computer programs and (or) databases, or the aggregate of specified objects, or information technology objects and property technologically connected to one or more such objects and intended to ensure their functioning or the performance of other activities provided for by the concession agreement (Paragraph 1.6 of Article 5 of the Concession Law).

Furthermore, if a concession agreement is concluded regarding a transport infrastructure object and technologically connected transport vehicles ensuring activities related to passenger transport by public transport (except for the metro), foreign investors, Russian legal entities whose decisions directly or indirectly may be determined by foreign individuals, foreign legal entities, foreign states, or their bodies, and other foreign investors cannot be the Concessionaire under such a concession agreement (Paragraph 1.6 of Article 5 of the Concession Law). At the same time, this provision does not extend to states that are members of the Eurasian Economic Union.

Under a concession agreement whose object is heat supply objects, centralized hot water supply systems, cold water supply and (or) sewerage systems, or individual objects of such systems, a foreign legal entity not having an accredited branch or representative office in the territory of Russia, or two or more legal entities acting under a simple partnership agreement (joint activity agreement) that include such foreign legal entities, cannot be the Concessionaire (Article 40 of the Concession Law).

A refusal to accredit a branch (representative office) of a foreign legal entity whose purpose of creation and (or) activity is of a commercial nature may be recognized by a court as unlawful if such refusal violates the right of the foreign investor to carry out activities guaranteed by the Foreign Investment Law. [11]

Procedure for Concluding a Concession Agreement

A tender for the right to conclude a concession agreement may be open (applications for participation in the tender may be submitted by any persons) or closed (applications for participation in the tender may be submitted by persons to whom invitations to participate in such a tender have been sent in accordance with the decision to conclude a concession agreement).

Since March 1, 2024, an open tender may be conducted in electronic form on an electronic platform determined by the Grantor for conducting the tender in electronic form. Since January 1, 2026, the conduct of an open tender will be carried out exclusively in electronic form.

A closed tender is conducted if the concession agreement is concluded regarding a concession agreement object about which information constitutes a state secret, as well as a concession agreement object having strategic importance for ensuring the defense capability and security of the state. The Grantor, the tender commission, and the tender participants must comply with the requirements of RF legislation on state secrets when conducting a closed tender. Information classified as a state secret is not subject to publication in the mass media, placement in the "Internet" information and telecommunications network, or inclusion in the message about conducting the tender sent to persons in accordance with the decision to conclude the concession agreement.

Concluding a concession agreement within a tender consists of the following stages:

Adopting the decision to conclude a concession agreement;
Publishing the message about conducting the tender;
Submitting applications for participation in the tender;
Opening the envelopes with applications;
Preliminary selection of tender participants;
Submitting tender proposals;
Opening the envelopes with tender proposals;
Reviewing and evaluating tender proposals;
Adopting the decision to determine the tender winner;
Publishing the message about the tender results;
Concluding the concession agreement.

Tender documentation must not contain requirements for tender participants that unreasonably limit the access of any tender participant to participate in the tender and (or) create preferential participation conditions for any tender participant.

Regarding foreign investors, the law establishes specifics for submitting applications for participation in a tender for the right to conclude a concession agreement whose object is heat supply objects, centralized hot water supply systems, cold water supply and (or) sewerage systems, or individual objects of such systems (Article 48 of the Investment Law). The application for participation in the tender must contain information about the persons in whose interests the ownership of more than 25% of the applicant's shares (portions) is carried out directly or indirectly by their nominal holders, as well as about persons established in a foreign state that provides a preferential tax regime and (or) whose legislation does not provide for the disclosure and provision of information about the legal entity (offshore zones).

The decision to conclude a concession agreement establishes the tender criteria, which are used to evaluate tender proposals. These may include:

Technical criteria (technical and economic indicators of the concession agreement object, qualitative characteristics of the architectural, functional-technological, structural, or engineering-technical solution to ensure the creation and (or) reconstruction of the concession agreement object, the volume of production of goods, performance of works, or provision of services when carrying out the activities provided for by the concession agreement);
Financial-economic criteria (the size of the Grantor's financial participation, the size of the concession payment, price (tariff) caps for produced goods, performed works, or provided services, markups to such prices (tariffs) when carrying out the activities provided for by the concession agreement, and (or) long-term parameters for regulating the Concessionaire's activities, obligations assumed by the Concessionaire in cases of under-receiving planned income from the use (operation) of the concession agreement object, or the occurrence of additional expenses during the creation and (or) reconstruction of the concession agreement object or the use (operation) of the concession agreement object);
Legal criteria (deadlines for creating and (or) reconstructing the concession agreement object, the period from the date of signing the concession agreement to the date when the created and (or) reconstructed concession agreement object will meet the technical and economic indicators established by the concession agreement, the period from the date of signing the concession agreement to the date when the production of goods, performance of works, or provision of services during the activities provided for by the concession agreement will be carried out in the volume established by the concession agreement).

A tender commission is created to conduct the tender. The number of tender commission members cannot be less than 5 people. The tender commission is competent to make decisions if at least fifty percent of the total number of its members are present at the tender commission meeting, with each member having one vote. Decisions are made by a majority vote of the members who participated in the meeting. In the event of a tie, the vote of the tender commission chairperson is decisive. Minutes signed by the members who participated in the meeting record the tender commission's decisions. The tender commission has the right to involve independent experts in its work.

Applications for participation in the tender must meet the requirements established by the tender documentation and contain the documents and materials provided for by the tender documentation that confirm the applicants' compliance with the requirements for tender participants. An applicant has the right to submit only one application for participation in the tender.

The term for submitting applications for participation in the tender must be at least 30 business days from the date of publication and placement of the message about conducting the tender or from the date such a message is sent to persons in accordance with the decision to conclude the concession agreement simultaneously with the invitation to participate in the tender.

The application for participation in the tender is drafted in Russian in written arbitrary form in two copies (original and copy), each of which is verified by the applicant's signature and submitted to the tender commission in a separate sealed envelope. An inventory of the documents and materials submitted, verified by the applicant's signature, is attached to the application; the original remains with the tender commission, and the copy stays with the applicant.

An envelope with an application submitted to the tender commission after the deadline is not opened and is returned to the applicant along with the inventory, on which a note about the refusal to accept the application is made.

If fewer than 2 applications are submitted by the end of the submission period, the Grantor declares the tender void by a decision made on the day following the deadline.

At the same time, the tender commission, within 15 business days from the date the Grantor makes the decision to recognize the tender as void, reviews the tender proposal submitted by the sole tender participant. If it meets the requirements of the tender documentation, including the tender criteria, the commission makes a decision on the compliance of the tender proposal with the requirements of the tender documentation (Article 32 of the Concession Law).

A concession agreement may be concluded without conducting a tender in cases provided for by Article 37 of the Concession Law, for example, within a private initiative.

Terms of the Concession Agreement

A concession agreement is concluded through a tender for the right to conclude a concession agreement. Concession agreements must include essential terms established by the Concession Law and other federal laws and may include terms not contradicting RF legislation and the tender documentation.

The terms that the Concession Law calls essential occupy a special place in the content of the concession agreement. Article 10 of the Concession Law contains an open list of such terms:

The Concessionaire's obligations to create and (or) reconstruct the concession agreement object and comply with the deadlines for its creation and (or) reconstruction;
The Concessionaire's obligations to carry out the activities provided for by the concession agreement;
The term of the concession agreement;
The description, including technical and economic indicators, of the concession agreement object;
The term for transferring the concession agreement object to the Concessionaire;
If necessary, the procedure for providing land plots to the Concessionaire and the term for concluding lease (sublease) agreements for these land plots, and the rent amount (rent rates) or the formula for calculating the rent amount (rent rates);
The purposes and term of using (operating) the concession agreement object;
Methods for ensuring the Concessionaire's performance of its obligations under the concession agreement (providing an irrevocable bank guarantee, the Concessionaire pledging its rights under a bank account (deposit) agreement to the Grantor, carrying out insurance of the Concessionaire's liability risk for breaching obligations under the concession agreement), the amounts of security provided, and the term for which it is provided;
The size of the concession payment and the form or forms, procedure, and deadlines for its payment if the concession agreement provides for a concession payment;
The procedure for compensating the parties' expenses in case of early termination of the concession agreement;
The obligations of the Grantor and (or) the Concessionaire to prepare the territory necessary to create and (or) reconstruct the concession agreement object and (or) for the activities provided for by the concession agreement;
The volume of gross revenue received by the Concessionaire within the implementation of the concession agreement, including for each year of the concession agreement term, where the Concessionaire's sale of produced goods, performance of works, or provision of services is carried out at regulated prices (tariffs) and (or) taking into account established markups to prices (tariffs);
The stages of performing the concession agreement terms, indicating the results of performing these stages. The term for performing the specified stages cannot exceed one year;
The size and (or) the procedure for determining the size and the conditions of the Grantor's financial participation—in the event that the concession agreement provides for the Grantor's financial participation;
Other terms.

The Government of the RF approves model concession agreements, which may be used when concluding concession agreements.

Currently, the Russian Government has approved the following forms of model concession agreements:

Regarding highways and engineering structures of transport infrastructure, including bridges, overpasses, tunnels, vehicle parking areas, vehicle checkpoints, and toll collection points for owners of heavy vehicles (RF Government Decree No. 319 dated May 27, 2006);
Regarding railway transport objects (RF Government Decree No. 744 dated December 5, 2006);
Regarding pipeline transport objects (RF Government Decree No. 672 dated November 11, 2006);
Regarding sea and river ports, hydrotechnical structures of ports, and production and engineering infrastructure objects of ports (RF Government Decree No. 745 dated December 5, 2006);
Regarding sea and river vessels, mixed (river-sea) vessels, icebreakers, hydrographic, research vessels, ferry crossings, and floating and dry docks (RF Government Decree No. 746 dated December 5, 2006);
Regarding aerodromes, buildings, and (or) structures intended for the takeoff, landing, taxiing, and parking of aircraft, as well as production and engineering infrastructure objects of airports (RF Government Decree No. 739 dated December 5, 2006);
Regarding hydrotechnical structures (RF Government Decree No. 747 dated December 5, 2006);
Regarding objects for the production, transfer, and distribution of electric and thermal energy (RF Government Decree No. 673 dated November 11, 2006);
Regarding communal infrastructure systems and other communal utility objects, including water, heat, gas, and energy supply objects, sewerage, wastewater treatment, solid municipal waste processing, utilization, neutralization, and disposal objects, lighting objects for urban and rural settlements, landscaping objects, and social service objects (RF Government Decree No. 748 dated December 5, 2006);
Regarding the metro and other public transport (RF Government Decree No. 791 dated December 22, 2006);
Regarding healthcare objects, including objects intended for sanatorium-resort treatment (RF Government Decree No. 138 dated February 14, 2009);
Regarding education objects (RF Government Decree No. 671 dated November 11, 2006);
Regarding culture, sports, public recreation, and tourism objects and other social and cultural objects (RF Government Decree No. 90 dated February 9, 2007);
Regarding transport infrastructure objects and technologically connected transport vehicles ensuring activities related to passenger transport by public transport, except for the metro (RF Government Order No. 589-r dated March 14, 2023).

The concession agreement establishes its term, taking into account the term for creating and (or) reconstructing the concession agreement object, the volume of investment, the payback period for such investment, the term for the Concessionaire to receive the gross revenue volume, and the term for performing other obligations. The term of the concession agreement may be extended by no more than five years by agreement of the parties based on a decision by the Government, the highest executive body of a subject of the Russian Federation, or the local administration. Extension of the concession agreement term where the Grantor is a subject of Russia or a municipal formation is carried out upon coordination with the Antimonopoly Authority (Article 6 of the Concession Law).

The concession agreement may provide for a payment made by the Concessionaire to the Grantor during the use (operation) of the concession agreement object. The concession agreement may provide for the payment during the entire term of use or during separate periods. The concession agreement establishes the size of the concession payment and its form, procedure, and deadlines. The concession agreement may provide for a combination of different forms of concession payment (Article 7 of the Concession Law).

The concession payment may be established in the form of:

Payments in a fixed sum made periodically or as a lump sum to the budget of the corresponding level;
A share of the products or income received by the Concessionaire as a result of the activities provided for by the concession agreement;
Transfer of property owned by the Concessionaire to the Grantor's ownership.

A concluded concession agreement may be recognized as invalid. In Case No. A19-11356/2021, the courts reached the substantiated conclusion that "the conclusion of the contested concession agreements with the company, 100% of whose shares in the authorized capital belong to the spouse of the head of the municipal formation, indicates the existence of a conflict of interest during the performance of public powers by the official". Taking the established circumstances into account, the courts rightfully recognized the contested agreements as void transactions because they were concluded in violation of the requirements of Federal Law No. 273-FZ dated December 25, 2008, On Countering Corruption.[12]

In Case No. A37-2520/2021, the courts, in rejecting the administration's arguments about the voidness of the disputed concession agreement, established that "the transaction is being properly performed by the parties; the defendant is conducting reconstruction work based on the plaintiff's technical task and investment program; the present agreement contains all essential terms provided for by current legislation". The courts also noted that the administration prepared the draft agreement and its annexes and defined the mutual obligations, the composition of the object, and the terms of performance. [13]

Procedure for Amending and Terminating the Concession Agreement

The concession agreement may be amended by agreement of the parties. Terms defined based on the decision to conclude the concession agreement and the Concessionaire's tender proposal according to the tender criteria may be amended by agreement of the parties based on a decision by the Russian Government, the state authority of a subject of Russia, or a local government body.

The Grantor is obligated to consider the Concessionaire's requirements to change the essential terms of the concession agreement if implementation becomes impossible within the established deadlines as a result of force majeure circumstances, in cases of a material change in circumstances from which the parties proceeded when concluding the agreement, and in cases where court decisions or decisions of the federal Antimonopoly Authority that have entered into legal force establish the impossibility of the Concessionaire or Grantor performing the established obligations due to decisions or actions (inaction) of state bodies, local government bodies, and (or) their officials.

The Grantor makes the decision to change the essential terms of the concession agreement within 30 calendar days after receiving the Concessionaire's requirements. If the Grantor has not made a decision, has not notified the Concessionaire of the start of consideration within the budget process, or has not provided a motivated refusal within 30 calendar days, the Concessionaire has the right to suspend the performance of the concession agreement until the Grantor makes a decision or provides a motivated refusal.

In accordance with Article 43 of the Concession Law, the consent of the Antimonopoly Authority is necessary to change the terms of a concession agreement whose object is heat supply objects, centralized hot water supply systems, cold water supply and (or) sewerage systems, or individual objects of such systems.

RF Government Decree No. 368 dated April 24, 2014, approved the Rules for the Provision of Consent by the Antimonopoly Authority to Change the Terms of a Concession Agreement (the "Rules").

Paragraph 2 of the Rules provides for grounds upon which the Antimonopoly Authority carries out the coordination of changes to concession agreement terms. These include, for example, the occurrence of force majeure circumstances or the entry into legal force of a court or federal Antimonopoly Authority decision establishing the impossibility of performance due to state or local government actions (inaction).

To coordinate the changes, the applicant (Grantor or Concessionaire) submits the documents specified in Paragraph 5 of the Rules to the Antimonopoly Authority. These include the application, the text of the proposed changes agreed upon by the Grantor and Concessionaire, the justification for the necessity of the changes with supporting materials, and other documents.

In the absence of grounds for refusal established by Paragraph 14 of the Rules (for example, the submitted documents do not confirm the occurrence of grounds for the changes), the Antimonopoly Authority may coordinate the change of concession agreement terms, provided that the applicant submits documents and materials confirming the grounds for the change and the existence of a causal link between such grounds and the declared changes.

The concession agreement terminates:

Upon expiration of the term of the concession agreement;
By agreement of the parties;
In the event of early termination based on a court decision;
In a case provided for by the concession agreement, its early termination based on a decision by the Russian Government or an authorized federal executive body, the state authority of a subject of Russia, or a local government body, if the Concessionaire's non-performance or improper performance caused harm to life or health or there is a threat of such harm.

Upon termination, the Concessionaire is obligated to transfer the concession agreement object and other property to the Grantor within the term established by the agreement. The object and other property must be in the condition established by the agreement, fit for the specified activities, and not encumbered by third-party rights.

The parties sign an acceptance act for the transfer of the object and property.

The Concessionaire's obligation to transfer the object and property to the Grantor is considered performed after the Grantor accepts the object and property and the corresponding transfer document is signed. Evasion from signing the transfer document is considered a refusal by that party to perform its obligations.

The concession agreement may be terminated based on a court decision at the request of a party in the event of a material breach of terms by the other party or a material change in circumstances.

In the event of non-performance or improper performance, the other party sends a written warning about the necessity of performing the obligation within a reasonable term. A claim for amendment or early termination may be filed in court only if the obligation was not properly performed within the specified term.

Material breaches by the Concessionaire are:

Violation of the deadlines for creating and (or) reconstructing the concession agreement object through the Concessionaire's fault;
Use (operation) of the concession agreement object for purposes not established by the agreement or violation of the procedure for use (operation);
The Concessionaire's non-performance of obligations to carry out the activities provided for by the concession agreement, leading to significant damage to the Grantor;
Cessation or suspension of activities by the Concessionaire without the Grantor's consent;
Non-performance or improper performance of obligations to provide products, works, or services to citizens and other consumers, including water, heat, gas, energy supply services, sewerage services, and public transport services.

Material breaches by the Grantor are:

Failure to perform the duty to transfer the concession agreement object to the Concessionaire within the established term;
Transfer to the Concessionaire of a concession agreement object not corresponding to the terms of the agreement (including the description, technical and economic indicators, or purpose), in the event that such non-compliance was identified within 1 year from the transfer, could not have been identified upon transfer, and occurred through the Grantor's fault;
Failure to perform the obligations assumed by the Grantor regarding its financial participation in the performance of the concession agreement.

The non-compliance of a reorganized or newly created Concessionaire with the requirements established by the Concession Law (and tender documentation, if applicable) is a ground for termination.

In the event of early termination, the Concessionaire has the right to demand compensation from the Grantor for expenses on creating and (or) reconstructing the object, except for expenses borne by the Grantor.

Civil Code provisions may also apply. The Concession Law determines that the concession agreement contains elements of various contracts. General civil legislation on contracts applies unless otherwise established by the Concession Law or the agreement itself (Part 2 of Article 3 of the Concession Law).

Judicial practice reflects a position that Chapters 27–29 of the Civil Code ("Concept and Conditions of a Contract", "Conclusion of a Contract", "Amendment and Termination of a Contract") also extend to concession agreements. [14]

This means that if the Concession Law does not regulate certain issues and the agreement itself does not contain provisions, one can be guided by the general rules of the Civil Code for terminating civil law contracts.

The parties bear property liability for non-performance. Compensation for losses and payment of penalties do not release a party from specific performance in kind.

A change of persons through assignment of a claim or transfer of debt is permitted with the Grantor's consent. The Concessionaire does not have the right to pledge its rights under the concession agreement. In the event of a change of persons, changing the technical characteristics of the object is not permitted.

Regarding agreements for heat, water supply, or sewerage, the assignment of a claim or transfer of debt to foreign individuals, legal entities, or structures without a legal entity is not permitted, nor is the transfer of rights into trust management (Article 42 of the Concession Law).

Disputes between the Grantor and Concessionaire

Disputes between the Grantor and Concessionaire are resolved in accordance with Russian legislation in the courts, arbitration courts, and arbitration tribunals of the Russian Federation (Article 17 of the Concession Law).

A foreign investor's dispute is resolved in accordance with international treaties and federal laws in court, arbitration court, or international arbitration (Article 10 of the Foreign Investment Law).

Meanwhile, when considering the possibility of resolving disputes in an arbitration tribunal, one should note the existence of contradictory law enforcement practice. For example, in Case No. A56-9227/2015, the court recognized an arbitration clause as invalid due to its contradiction with the Concession Law and refused to issue an enforcement order for an arbitration proceeding conducted according to the rules of the International Chamber of Commerce (Paris) or other ad hoc arbitration under UNCITRAL rules.[15]

In Case No. A40-93716/2017, the first-instance court concluded that disputes from concession agreements could not be considered in an arbitration tribunal because the relations are of a public law nature. However, the appellate and cassation courts disagreed, stating that the Concession Law "explicitly provides for the possibility of resolving disputes between the parties of a concession agreement (the Grantor and the Concessionaire) in arbitration tribunals. Since the parties agreed upon an arbitration clause and the plaintiff's claims arise from legal relations related to the disputed contract, the dispute is subject to consideration in the arbitration tribunal established by the parties".[16]

Concessions play an important role in attracting investors to the state's economy. The initiative to establish a partnership with private business comes from the state and is caused by difficulties in ensuring the necessary volumes, concentration, and effective use of financial resources to maintain and innovatively develop infrastructure, while private business has large free monetary resources, is more effective by its nature, and is capable of better solving these tasks under proper control.

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References

Isupova S.S. Current legal regulation of concession agreements in the RF. "Mestnoye pravo" Journal, 2024, No. 1.
Ibid.
Anarbaev E.A. Foreign experience in the implementation of concession legal regulation. "Voprosy rossiyskogo i mezhdunarodnogo prava" Journal, 2023, Volume 13, No. 6A.
Stanovaya O.V. Legal regulation of concession agreements in CIS countries. "Nauchnye forumy" Journal, 2014, No. 2 (1).
Elkibaeva L.G. Comparative legal analysis of general provisions on public-private partnership in Russia and China. "Problemy ekonomiki i yuridicheskoy praktiki" Journal, 2018, No. 1.
Ibid.
Rybkin A.E. The essence of the concession agreement in American law. "Ekonomika. Pravo. Obshchestvo" Journal, 2021, No. 2 (26).
Piskun L. The role of the Seoul Convention in the international legal regulation of foreign investments. "Okeanskiy menedzhment" Journal, 2018.
Danilov M.E., Chelysheva N.Yu. Specifics of the parties to a concession agreement. "Vestnik nauki" Journal, 2024, No. 11 (80) Volume 2.
Ibid.
Review of the practice of resolution by courts of disputes related to the protection of foreign investors, approved by the Presidium of the Supreme Court of the RF on July 12, 2017.
Resolution of the Arbitration Court of the East Siberian District dated October 6, 2022, in Case No. A19-11356/2021.
Resolution of the Arbitration Court of the Far East District dated September 27, 2022, in Case No. A37-2520/2021.
Resolution of the Arbitration Court of the Ural District dated October 14, 2020, in Case No. A47-1511/2020.
Resolution of the Arbitration Court of the North-Western District dated February 17, 2016, in Case No. A56-9227/2015.
Resolution of the Arbitration Court of the Moscow District dated May 3, 2018, in Case No. A40-93716/2017.