Approval of Royal Decree Law 26/2020, of 7 July, on economic recovery measures to deal with the impact of COVID-19 in the areas of transport and housing, (hereinafter the “Royal Decree Law”)

Written on 21 Jul 2020

On 7 July 2020, the Government approved a series of economic recovery measures to deal with the impact of COVID-19 by means of Royal Decree-Law 26/2020, and has introduced amendments to Royal Decree-Law 8/2020, of 17 March, on urgent extraordinary measures to deal with the economic and social impact of COVID-19, in the areas of air, sea, rail and road transport and housing. We highlight the regulation of economic rebalancing in road concession contracts awarded by the State and in the management of regular public passenger transport services by road for general use.

The introduction of Section 2 of Chapter V of the Royal Decree-Law, made up of articles 24 and 25 which deal with measures relating to road concession contracts and the management of public regular passenger transport services is carried out under article 149.1.18 of the Constitution, which establishes the basic legislation on contracts and administrative concessions as falling within the exclusive competence of the State.

The section develops the provisions of Article 34 of Royal Decree Law 8/2020, of 17 March, on urgent extraordinary measures to deal with the economic and social impact of COVID-19, which recognised the right of the concessionaire to restore the economic balance of the contract by extending its initial duration to a maximum of 15 per cent or by amending its economic clauses due to the de facto situation created by COVID-19 and the measures adopted by the State, the Autonomous Communities or the local Administration to combat it.

With regard to the economic rebalancing of management contracts for regular public passenger transport services by road for general use, article 24 provides for the possibility of requesting the economic rebalancing of the contract within two months of the entry into force of the Royal Decree-Law before the Directorate General for Land Transport of the Ministry of Transport, Mobility and the Urban Agenda, which must be resolved within a maximum period of four months from that date, after which the request will be understood to have been rejected.

This request shall contain (i) the declared statistical data, (ii) the data from the CRS system for journeys and tickets issued and (iii) the operating account for the contract for the financial year 2018.

The economic rebalancing will be determined on the basis of the reduction in income, both due to the decrease in passenger demand and the increase in vehicle disinfection costs during the period of the State of Alarm, discounting the decrease in operating costs due to the reduction in journeys and labour costs with respect to those incurred in the same period of the immediately preceding year.

In addition, for those contracts in which the investment period has ended and, in any case, provided that the period of duration foreseen in the contract plus one year of extension imposed by the Administration has elapsed, the sum of the positive results of the years subsequent to the compensation must be deducted from the appropriate compensation.

With regard to the economic rebalancing of road concession contracts, the regime contained in Article 25 will necessarily displace the general rules on damages due to force majeure or on the reestablishment of economic equilibrium that may be applicable to the contract, provided that the contracting authority is requested before November 2020 and the contract meets the following three requirements:

  • It falls within the scope of Article 34 of Royal Decree Law 8/2020.
  • It has been awarded by the State.
  • The object of the concession is one of the following: (i) construction, maintenance and operation of toll motorways, (ii) maintenance and operation of first generation highways, and (iii) service areas of the State Road Network.

In addition, it will be a requirement of the right to rebalance that the gross operating margin of the contract (difference between income and expenses caused by the exploitation or concession activities, not including amortizations, provisions, investment or financing expenses and income, moratoriums and condonations, nor the salaries of the workers included in ERTEs) has not been positive during the validity of the State of Alarm.

In relation to the amount to be compensated to the concessionaire, this will be the lesser of (i) the amount necessary for the gross operating margin during said period to reach zero, and (ii) the difference between the gross operating margin during the validity of the State of Alarm and that which was caused in the same period of the previous year; and will consist of the extension of the duration of the concession, without this being able to exceed the validity of the State of Alarm.

The rebalancing regulation introduced by the Royal Decree-Law, which displaces the application of general public sector contract regulations only with respect to rebalancing due to the impact of COVID-19 (it does not imply a modification of the rebalancing regime applicable to contracts in general), has been rejected by the National Construction Confederation, since, in the words of the Confederation, it could lead to the retroactive abolition of the rights of dealers and the infringement of the very purpose of the Royal Decree-Law, which is to "provide liquidity to companies in the sector in order to deal with short-term financial disruptions linked to the coronavirus crisis".

Despite the controversial rebalancing regime, it should be noted that the interpretation of the concept of "impossibility of performance of the contract", which is the basic premise for requesting economic rebalancing under Article 34 of Royal Decree Law 8/2020, is broader than the one held by the State Attorney's Office in its Report of 2 April 2020, on the interpretation and application of Article 34 of Royal Decree Law 8/2020, according to which it was not impossible to execute the contract if the motorway or expressway maintained the conditions that allowed it to remain open to vehicle traffic and this continued to be legally permitted, therefore, in their opinion, the reduction in the number of vehicles travelling on these roads, together with the consequent drop in revenue, did not give any right to the economic rebalancing of the concession. The State Attorney's Office understands that this reduction in vehicles and income would not be comparable to “force majeure”, “unforeseeable circumstances” or “factum principis” (“actions of the granting public administration, due to their obligatory nature for the concessionaire, directly determine the substantial breakdown of the economy of the contract”) for the purpose of, respectively, protecting a rebalancing of the works contract based on the general rules applicable to the concession contract (for example, the current 270.2 of the LCSP).

For further information on the new regulation contained in the Royal Decree Law and its possible repercussions, please do not hesitate to contact one of our experts mentioned below or your usual contact at Osborne Clarke.