Energy firms getting hit by amended procurement law
Services, delivery or construction The amendments provide a new wording to the law, which now reads: "The law applies to public procurement for deliveries, services or construction works." This change expands the scope of the law's application. Before Jan. 10, the law covered only specific procurements, provided such procurements were financed in whole or in part from public funds. Thus, when procurements were financed only from an entity's own funds, the entity was not obligated to comply with the procurement law. But the law now obliges entities to comply with procurement provisions regardless of the origin of funds spent. It is important that the amendments have given a new meaning to the very definition of a public procurement. "Public procurement" means any services, deliveries or construction works performed by suppliers or contractors and paid for by the procurer, no matter how large the scope of such procurement is to be. Regardless of whether the procurer intends to enter into an agreement for the construction of an office building in the center of Warsaw, or a small, two-page contract, such as a legal advice contract, such contracts and agreements are public procurements if their value exceeds the equivalent of €3,000.
Utilities must comply The amendments have also expanded the group of entities covered by the procurement law. The law obligates state and municipal organizational units and their subsidiaries performing public utility tasks to comply with the law. Thus, under the current legal status, energy enterprises that are public utilities, state or municipal utilities, or their subsidiaries are obligated to apply statutory procedures when choosing their suppliers or contractors. At this point, the statutory meaning of the subsidiary should be explained. "Subsidiary" means an entity that the state or municipal utility may influence directly or indirectly by owning at least 50% of shares, the majority of votes at the shareholders meeting or the right to elect or dismiss at least half of the members of the management or supervisory boards. The great majority of Polish generators and distribution companies are currently obligated to perform public procurement according to the procedure specified in the law. The term "public utility" is very important for energy enterprises as well. The procurement law itself does not define this term, which creates problems. What the term "public utility" means and how to determine if the specific enterprise is a public utility has been very controversial in the legal doctrine. Both the Treasury Ministry and the president of the Office of Public Procurement said that activity in the field of generation and distribution of electric energy means activity in the field of public utilities. All entities engaged in this type of activity and meeting the conditions under the procurement law are obligated to comply with that law. The Treasury Ministry and the Office of Public Procurement argue that the term "public utility" is currently interpreted not only in the context of Polish law but also in the context of European Union law. Additionally, Polish law provides a definition of the term "public utility" in other acts. Under the Law on Municipal Economy (Ustawa o gospodarce komunalnej) of Dec. 20, 1996, for example, public utilities are to meet the population's needs without delay and continuously, and in particular to provide production or services related to supplying the population with electric energy, gas and thermal energy. When defining public utility tasks, one can also look to the Law on Communal Self-Government (Ustawa o samorządzie Gminnym) of March 8, 1990, which provides a sample list of issues covering a municipality's (gmina) own tasks aimed at meeting the community's collective needs, including the supply of electric energy, thermal energy and gas. In the light of aforementioned definitions as well as the energy law dated April 10, 1997, it seems that the procurement law applies to enterprises transmitting and distributing electric energy only.
Private enterprises hit The amendment dated Oct. 26, 2001 changed the procurement law in a very specific way: the majority of Polish energy enterprises must now announce tenders for almost all new procurements. It is worth noting that such obligation will affect private energy enterprises beginning Jan. 1, 2003, which is the effective date for an entirely new provision of the procurement law. The law's amended article obligates entities not otherwise excluded to comply with the procurement law if procurements performed by them are directly connected with the type of activity carried out by such entities. The law now refers to various types of activity, including the creation of permanent networks to provide public services connected with the production, transportation or distribution of drinking water, electric energy, gas, or thermal energy, or the supply of drinking water, electric energy, gas, or thermal energy to such networks, or the management of such networks. The Treasury Ministry argues that the introduction of this provision to the procurement law is connected with the wording of a Council of European Communities' Directive dated June 14, 1993, that pertains to the coordination of procurement procedures by entities operating in the sectors of water management, power generation, transportation and telecommunications. Reviewing the directive, it is easy to see that the procurement law's new article is an exact copy of the directive.
Creating additional costs Enterprises complying with the conditions under the new article will be obligated to comply with the procurement law only when the value of their procurements exceeds the equivalent of the amount of €400,000 for deliveries and services or €5 million for construction works. It should also be remembered that the provisions of the procurement law are not applicable when the procurement value is lower than the equivalent of the amount of €3,000. All other procurements need to be carried out in the statutory form that is most often in the form of a public tender. The law expands the obligation to apply public procurement procedures to all entities performing public utility tasks within the scope mentioned above, regardless of whether a given entity is state-owned or private. Thus, even energy enterprises whose shares are 100%-owned by private investors will be obligated to announce a tender for all procurements, like state and municipal enterprises now do. That means that starting Jan. 1, 2003, all the contracts directly connected with the activity carried out by such companies must be entered into with suppliers or contractors selected under the tender procedure. Such a solution is not very favorable especially from the private enterprises' point of view. It creates additional costs to be borne by the energy enterprise, prolongation of the whole procedure and the supervision by the Office of Public Procurement. It is also worth mentioning that the procurement law imposes other obligations on the procurer, such as the obligation to submit a notice of public procurement of a defined value planned for a given calendar year for publication in the "Public Procurement Bulletin" by March 31 of the calendar year. After Poland joins the EU, entities performing a procurement also will be obligated to publish a notice of the planned public procurement of values specified by the law in the Official Journal of the European Communities. Performing of each of these obligations generates extra costs to be borne by energy enterprises. However, these obligations are extremely important because a failure to comply with them may result in the annulment of the public procurement application procedure or the invalidity of the contract itself.
Granting consent When analyzing the procurement law's provisions, one should note that general supervision of compliance with the provisions of the law is exercised by the president of the Office of Public Procurement. The competencies of the procurement office include, among other things, the granting of consent to enter into contracts under the public procurement procedure for a period longer than three years (under the procurement law, contracts cannot be entered into for indefinite periods of time) or approvals for the choice of procedures other than tenders in cases determined by the procurement law. In addition, the procurement office may, at any time, demand information from the public entity performing a procurement on the course of the process of performing the public procurement and its completion and request documentation on public procurement to be made available on dates as indicated by the office's president. The above analysis leads to the conclusion that energy enterprises that are not state or municipal utilities or their subsidiaries can shape their contractual relations freely. When the procurement law becomes fully effective, these enterprises will be obligated to enter into contracts for services, deliveries or construction works directly connected with the activity they are engaged in if the value exceeds €400,000 and €5 million under the procedures as set forth in the procurement law, with all the ensuing consequences. The only way to avoid these consequences seems to be the cancellation or amendment of portions of the law before it becomes effective. All energy enterprises should hope that Parliament will change the law in this regard. Summarizing, we should consider why private energy enterprises will be obligated to comply with the procurement law. The only argument from the Treasury Ministry seems to be the adaptation of Polish law to EU law. As we all can see, such an adaptation is not always favorable for Polish enterprises.
Beata Karaś is an associate of the energy practice group at the law firm of White & Case.
