Administrative concession

economic-dictionary

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 assigns to a person the powers of private use of a property in the public domain or the management of a public service within a specified period under certain conditions."

Thanks to this administrative act, which is materialized through a contract, the rights over a good or service that were fully reserved to one person (the State), can now be used by several companies for a certain time and price; in order to organize, maintain and develop the activities or obligations previously established.

Types of administrative concession

Two main types of administrative concessions can be distinguished:

  • Concession on collective patrimony: For example, yield a part of the road for a restaurant to establish a terrace.
  • Concession of the provision of a public service: For example, the business operation of public buses.

In some countries the concession of public works is also distinguished (for example, the construction of a road with tolls).

Benefits of administrative concessions

  • The governments that grant it, collect revenue by "selling" or giving the administrative concessions to private initiatives.
  • When specialized companies win these concessions, public services increase their efficiency and value considerably. This is because most of the time, the government does not have the necessary resources to carry out the activity with the same efficiency.
  • The entities that grant the concession do not lose the right to the good or service, and can withdraw it in the event that the counterpart does not comply with its obligation.

Examples of Administrative Concession

Examples of goods or rights in the public domain granted as a concession to a private company:

  • Oil exploration: Public land and subsoil are granted to private companies (for an annual price or for results) for the extraction of oil.
  • Highways: In this case, public land is granted for the construction of highways. Some companies choose (at the end of the construction and for a certain time) to collect a percentage of the profits that the toll booths will obtain.
  • Energy: Public hydrological assets (hydroelectric dams, for example) granted for the production of electrical energy.

Tags:  Commerce banking Argentina 

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