Sector:

Transport

Name of Agreement:

The Design Construction Finance Operation and Maintenance of a toll highway, including Associated Facilities and Developments under a Concession Contract

Type of Agreement:

Concession Contract

Region (if known):

Africa

Year of Agreement/ Draft:

2006

Annotation by:

Robert Phillips (LEGPS)

Purpose and Context:

Concession arrangement for involving private sector in upgrade, extension and tolling of an existing road.  Document based on a model form prepared for the host country, to be submitted with tender documents.

Circumstances where this contract may be appropriate:

Where an existing road is to be upgraded and extended and tolled.

Main Features:

Thirty year concession.

Concession of road rights granted for grant of Associated Facilities and Developments.

Concessionaire receives income from tolls and Associated Facilities and Developments.   Agrees to pay a Concession Fee based upon share of surplus when a certain level of Shareholders’ IRR achieved.

Part of a series of both existing and proposed concessions for roads.

Concession not yet granted.

Grant of rights to Concessionaire.  In addition grant of interest in land for Developments is to be agreed when Developments identified.

Bidding document so key commercial details remain to be completed.

Concessionaire to be incorporated in host country under the requirements of Concession Contract.

Resolutive Conditions (Conditions Precedent) Bond to be issued equal in sum of [                 ].

Concessionaire required to issue Operations and Maintenance Bond and then subsequently Final Maintenance Bond during three year period before expiry of Concession.

Concessionaire required to issue Operations and Maintenance Bond and then subsequently Final Maintenance Bond during three year period before expiry of Concession.

Rights of Concessionaire in Developments to be transferred on expiry may be issue for tenants as transfer is to be free of encumbrances.         Main point however is that it is unlikely that public sector will obtain full value in relation to potential developments and might want to consider revenue/profit sharing agreement to achieve value.

Damages which Concessionaire obtains from its Contractors to be paid to Authority.         Although tender based on toll levels structure of Contract requires a lot of disclosure as to cost etc.         As Authority does not make payments to Concessionaire a bit difficult to understand why so interventionist.

Issue of overladen lorries identified.

Review of Concessionaire’s performance by Independent Engineer jointly paid by Authority and Concessionaire.         However in reality Authority is also heavily involved.         However as in most cases Lenders will be paid out either in full or to a high degree Construction risk (other than equity component) with Authority.

Site to be made available by Public Sector together with Environmental Consent but other consents to be obtained by the Concessionaire.

Archaelogical Matters – Public Sector risk both as to time and money.

Unforeseen ground and other conditions Concessionaire’s risk.         Particular concern arises as Concessionaire is expected to accept full liability for pre-existing environmental conditions.

Concessionaire has right to let Construction and other Contracts fettered as to its right to enter into Contracts with Associates other than on arm’s length terms.

Obligation as to social and related matters.

Penalties for delay in completion of the Road

Hand-back is secured by a Bond issued up to three years before expiry of Concession.

If failure in operation Authority may appoint a substituted entity in priority to the Lenders.

Compensation may be claimed for specified change in Circumstances, including change in law.

Force majeure – if event is insurable then even if insurance ceases to be available Concessionaire is to bear the cost of re-instatement.         However, right to terminate but no compensation.         Authority agrees to pay Lenders in accordance with Suretyship Agreement.         Argument that debt is not extinguished and therefore issues as to insolvent trading for directors. 

Possibility that under Suretyship Agreement Lenders would be paid less if termination though default by Concessionaire so directors face a dilemma.

On termination through default of Concessionaire Lenders are paid by Public Sector under the Suretyship Agreement either all the debt or an amount based on forecasts under the Financial Model.         Claims in damages lie against the Concessionaire under the Concession Agreement

If termination due to default of Authority then payments based on future income under the Financial Model.

Lenders have the right to nominate a Substituted Entity but after the Authority.

Some provisions of the Concession Agreement extend to Lenders but Lenders have no obligations under the Concession Agreement

Concept of single payment stream by users of a number of tolled Roads recognised.

Possible additional provisions that it might be appropriate to include:

Consider more self certification during Construction by or on behalf of the Concessionaire.

Consider stronger or more detailed hand-back provisions.