Municipal concessions in Guatemala: legal certainty to attract private investment  

Until April 8, 2024, there was uncertainty as to whether municipal public concessions had to be approved by the Congress of the Republic or whether a Municipal Council had such authority.

Through case file 219-2024, the Constitutional Court resolved the jurisdictional issue submitted by the Municipality of Guatemala and declared that municipalities have the authority to approve concessions for local public services through their Municipal Councils.

Article 253 of the Political Constitution of the Republic of Guatemala recognizes municipal autonomy, assigning to municipalities, among other functions, the responsibility to provide local public services within their jurisdiction for the fulfilment of their own purposes, as well as to issue the corresponding ordinances and regulations.

Municipal autonomy is based on the principle of administrative decentralization and allows municipalities to exercise their own powers and manage their resources. This enables more effective management of local public services and greater attention to the main needs of municipalities.

Based on the above, some municipalities have sought to attract investment to their municipalities by exploring alternatives to provide municipal public services more effectively through a private entity. However, the main challenge has been the guarantee of payment. Capital is the most cowardly thing that exists and, in the view of many investors, a concession agreement is not sufficient to guarantee payment of the investment and the expected return on it.

The first time I read case file 219-2024, in which the aforementioned jurisdictional issue was resolved, I considered it a useful tool for municipalities to seek alternatives to better provide essential public services. At the same time, it represented an opportunity for the private sector to invest and, in exchange for providing a good service, receive remuneration; in simple terms, a win-win.

However, as in any other business, the decision to invest or not depends purely on financial return. The real challenge is that, in many cases, this return is subject to political will, which places compliance at risk.

There are many opportunities in the provision of municipal public services. However, the real challenge lies in the ability to provide them with legal certainty, so that the concessionaire does not depend on goodwill or bad faith following a change in municipal government and so that its investment is not placed at risk.

Concessions must be contracts that guarantee the concessionaire the agreed remuneration in exchange for the service provided, which cannot be subject to any kind of subjective parameter. Likewise, the concessionaire must be required to provide the service in accordance with the parameters established in the contract, leaving no room for subjectivity or interpretation.

This contract is key to shielding the rights and obligations of each of the parties. It should also be considered that, when public expenditure is involved, it may also be audited by the Office of the Comptroller General of Accounts.

The purpose of this bulletin is to remind dear readers that there are many possibilities to do business in a way that benefits many Guatemalans. However, it will also be very important that, if a business is proposed based on the provision of any municipal public service, the concession is prepared by legal professionals who understand the negotiation and the nature of the service, since it is essential that the contract not be subject to subjective issues or interpretation.

The greater the legal certainty of your investment, the better it will be.

Mario Andrés Rodríguez
arodriguez@alegalis.com