The administrative concession is the authorization granted by a public sector entity to a private initiative, in order to exploit a good or service.
A more rigorous definition is: “Legal business by which the Administration grants to a person powers of private use of a public domain membership or the management of a public service within a certain period of time under certain conditions.”
Thanks to this administrative act, which is materialized through a contract, the rights to a good or service that were totally reserved for one person (the State), can now be taken advantage of by several companies during a certain time and price; in order to organize, maintain and develop the activities or obligations previously established.
Types of administrative concession
Two major types of administrative concessions can be distinguished:
- Concession on collective heritage: for example, yield a part of the way for a restaurant to establish a terrace.
- Granting of the provision of a public service: for example the business exploitation of public buses.
In some countries, the concession of public works is also distinguished (for example, the construction of a toll road).
Benefits of administrative concessions
- The governments that grant it raise revenues by “selling” or giving administrative concessions to private initiatives.
- When specialized companies obtain these concessions, public services significantly increase their efficiency and value. This is because most of the time, the government does not have the necessary resources to carry out the activity with the same efficiency.
- Entities granting the concession do not lose the right over the good or service, and can withdraw it in case the counterparty does not fulfill its obligation.
Examples of Administrative Concession
Examples of goods or public domain rights granted as a concession to a private company:
- Oil holdings:Public land and subsoil are granted to private companies (for an annual price or for results) for oil extraction.
- Motorways:In this case, public land is granted for the construction of motorway roads. Some companies choose (at the end of construction and for a certain time) to charge a percentage of the profits that toll booths will obtain.
- Energy:Public hydrological goods (hydroelectric dams, for example) granted for the production of electrical energy.