Sample Term Sheet
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Module 5 of the Annex in Asset Recycling.
This term sheet provides certain baseline requirements for a proposed concession-type Asset Recycling Agreement which may be initiated by Relevant Authority and sets out a framework for the terms and conditions to be set out in the agreement. These terms and conditions will be subject to further direction or discretion of the Relevant Authority initiating the relevant asset recycling transaction, in accordance with applicable regulations and guidelines in effect.
This term sheet is only an indicative term sheet and should not be used without being reviewed and revised by the transaction advisory team working on the relevant asset recycling transaction. This term sheet will have to be customized to include project-specific and sector-specific provisions during the transaction stage. Find more below, or visit the Guidelines for Implementing Asset Recycling Transactions section and Content Outline, or Download the Full Report.
Key Provision:
- Introduction
- Project
- Upfront Concession Fee
- Effective date
- Term
- Closing date
- Responsibilities of Project Company
- Responsibilities of the Initiator
- Facilities, Equipment and Plant
- [Remuneration and Payment]
- Payment Default
- Performance Security
- Insurance
- Indemnity and Liability
- Environmental Liabilities
- Project Company Remediable Event
- Project Company Non-Remediable Event
- Initiator Remediable Event
- Initiator Non-Remediable Event
- Event of Force Majeure
- Relief from Force Majeure Events
- Material Adverse Government Action
- Consequences of a Material Adverse Government Action
- Qualifying Change in Law
- Consequences of Qualifying Change in Law
- Termination
- Consequences of Termination
- Initiator Step-in
- Initiator Take Back Option
- Financing and Lender Direct Agreement
- Dispute Resolution
- Subcontracting
- Governing Law
- Language
- Waiver of Immunity
- Miscellaneous
This document has been prepared as part of the annex of the section on Guidelines in Implementing Asset Recycling in the PPP Legal Resource Center (PPPLRC) for contracts, laws and regulations. It is for general guidance purposes only and should not be used as a substitute for specific legal advice for a project. The [Asset Recycling] Agreement (the Agreement) is entered into as of [●] by and between: Note: The parties will be the Relevant Authority initiating the asset recycling concession transaction and a special purpose project company established by the winning bidder of the asset recycling transaction tender. The Project comprises: The Project shall be used for [●] and for no other purposes except as may be provided in the Agreement. Note: The foregoing description should be adjusted to align with the project description in the Business Case. The amount of [●], payable by the Project Company, or on its behalf, to the Initiator, as a condition precedent to the Effective Date of the Agreement. Note: In a traditional auction process, the winning bidder will be the bidder with the highest unconditional up-front payment. Other auction structures may, however, be selected. The transaction advisory team may recommend alterations to this structure if either (1) the project structure contemplates a series of payments being made by the Project Company to the Initiator, and/or (2) the project structure includes the purchase of goods and/or services from the Project Company by the Initiator. The date on which the Project Company and the Initiator sign a certificate stipulating that all of the following conditions precedent have been fulfilled: Note: The Effective Date is the first major milestone after the winning bidder has been appointed and should take place as soon as possible after the signing date. From the [Effective Date] [Closing Date] until the [●] anniversary of the [Effective Date] [Closing Date], subject to any extension made pursuant to the Agreement or the termination of this Agreement. Note: The transaction advisory team should recommend a duration for the concession term and whether the term should start at the effective date, closing date or some other date (such as a commissioning date). The term of the concession agreement should comply with sector specific regulations. [The date on which the Project Company and the Initiator sign a certificate stipulating that all of the following events have occurred: Note: Issuance of shares in the Project Company to the Initiator is only appropriate if the joint venture structure is recommended in the Business Case. This term sheet contemplates that the private sector will establish the Project Company and issue shares to the Initiator. Where this approach is taken, the transaction advisory team should specify the requisite percentage and characteristics of the shares. The Agreement can also provide detailed terms and conditions of the shares which must be fulfilled for this condition to be fulfilled. The Project Company's responsibilities under the Agreement shall include: Note: This section provides a starting point only and must be customised to the project's specific requirements, as set out in the Business Case. The Initiator's responsibilities under the Agreement shall include: Note: This section provides a starting point only and must be customised to the Project's specific requirements, as set out in the Business Case. Note: Hand back procedure to be determined by SOE and its transaction advisory team. Payment by the Project Company: In consideration for the concession rights afforded by the Initiator to the Project Company for the Term: Note: This section provides a starting point only and must be customised to the Project's specific requirements, as set out in the Business Case. If either party is in default in making any payment based on the Agreement, the defaulting party shall pay to the other party, interest on the unpaid amount at the late payment interest rate from the day when such amount becomes due and payable until the day such amount is paid. [●], in a form and from a bank acceptable to the Initiator, which shall be forfeited by the Project Company to the Initiator in the event that the Effective Date does not occur within the time period provided or as otherwise may be provided in the Agreement. Note: Amount and form of security / guarantee / bond to be described here. The transaction advisory team should advise on an appropriate amount and form of performance security. The Project Company, at its sole cost and expense, shall obtain and maintain the policies of insurance described in the Agreement, in the amounts, on the terms and during the period mentioned therein. Note: Insurance advice regarding minimum insurance should be sought for inclusion in the Agreement. Project Company: Initiator: The indemnity from the Initiator shall not extend to and the Project Company hereby waives any claims against the Initiator for and indemnifies the Initiator against (a) any such loss, damage, death or injury suffered by the Initiator or its employees, directors or commissioners, or (b) any such claim to the extent that it was caused by any act or omission of the Project Company or its employees, directors or commissioners, or the failure of the Project Company or any such party to take reasonable steps in mitigation thereof. [The Project Company will use GIIP in relation to the Project and will be responsible for all environmental liabilities arising out of the performance of the Project and the component under its responsibility including noise. The Agreement and dedicated annex to the Agreement will detail environmental and social requirements. Any pre-existing impact is responsibility of the Initiator (e.g. exiting contamination)] Occurrence of a material breach or default in respect of the Project Company's obligations under the Agreement (other than a Project Company Non-Remediable Event) after the relevant grace period has expired, as may be more specifically detailed in the Agreement. Occurrence of any of the following events: after a Project Company Remediable Event shall have occurred and a remedial notice has been given by the Initiator to the Project Company and the Project Company Remediable Event has not been remedied by the Project Company, or waived by the Initiator, within the time period specified in the Agreement. Occurrence of a material breach or default in respect of the Initiator's obligations under the Agreement (other than an Initiator Non-Remediable Event) after the relevant grace period has expired, as may be more specifically detailed in the Agreement. Occurrence of any of the following events: after an Initiator Remediable Event shall have occurred and a remedial notice has been given by the Initiator to the Project Company and the Project Company Remediable Event has not been remedied by the Project Company, or waived by the Initiator, within the time period specified in the Agreement. Events of Force Majeure means any event or circumstance or combination of events or circumstances: Force Majeure Events include but are not limited to the following circumstances, provided that they meet the criteria set forth above: [Note: Plague and epidemics are becoming increasingly difficult to insure and some bidders may request that these be treated as Material Adverse Government Action] general labour disturbances such as boycotts, strikes and lock-out, go-slow, occupation of factories and premises, excluding similar events which are unique to the Agreement and specific to the Project Company or to its subcontractors. If a Force Majeure Event has occurred, the Affected Party shall be entitled to relief from its obligations under the Agreement if it meets the requirements below. To obtain relief above, the Affected Party must: If the Affected Party has complied with its obligations above, then it shall be excused from the performance of its obligations under the Agreement to the extent it is prevented, hindered or delayed in such performance by reason of the Force Majeure Event. If information required under the clauses above is provided after the dates referred to in that clause, then the Affected Party shall not be entitled to any relief during the period for which the provision of information is delayed. The Affected Party shall notify the other party as soon as practicable after the Force Majeure Event ceases or no longer causes the Affected Party to be unable to comply with its obligations under the Agreement. Following such notification, the Agreement shall continue to be performed on the terms existing immediately prior to the occurrence of the Force Majeure Event. For the purposes of the Agreement, a Material Adverse Government Action means any act or omission by the Initiator or any relevant public authority, which occurs during the term of the Agreement and which (i) renders the Project Company unable to comply with all or a material part of its obligations under the Agreement; and/or (ii) has a material adverse effect on the cost or the profits arising from such compliance/performance. Material Adverse Government Action shall mean and be limited to the following circumstances, to the extent that they meet the requirements set forth above: any action or failure to act without justifiable cause by any relevant public authority If a Material Adverse Government Action occurs, the Project Company shall be excused from the performance of its obligations under the Agreement to the extent that it is prevented, hindered or delayed in the performance of such obligations by reason of the Material Adverse Government Action, and in some circumstances may be entitled to compensation under the Agreement, in each case subject to and in accordance with the provisions of the Agreement. To obtain relief and/or claim compensation, the Project Company must: If the Project Company has complied with its obligations above, then the Initiator shall: In the event that information is provided after the dates referred to above, then the Project Company shall not be entitled to any compensation or relief from its obligations under the Agreement in respect of the period for which the provision of information is delayed. If the Initiator and the Project Company cannot agree on the extent of any compensation or relief from the Project Company's obligations under the Agreement, or the Initiator disagrees that a Material Adverse Government Action has occurred, the parties shall resolve the matter in accordance with the Agreement. Qualifying Change in Law includes the following: Note: SOE may not want to provide relief for Specific and General Changes in Law and this might be an appropriate position depending on specific circumstances of the transaction. A decision on this risk allocation would need to be done on a case by case basis including with regards to the general economics of the transaction. Applicable Law mean all laws, statutes, orders, decrees, resolution, injunctions, licenses, permits, approvals, ordinance, rule, order, treaty, code or regulation as enacted, issued or promulgated by any Governmental Instrumentality including amendments, modifications, exclusions or re-enactments thereof. Change in Law means, after the date on which the successful bidder submitted its bid, any of the following events: Discriminatory Change in Law means a Change in Law, the terms of which apply expressly to: General Change in Law means a Change in Law which is not a Discriminatory Change in Law or a Specific Change in Law. Governmental Instrumentality shall mean the Government of the [●] and any ministry, department, political subdivision, instrumentality, or agency of the [●], in each case whether central, provincial or regional government level but only within the [●] and any successor to or assignee of any of the foregoing. Specific Change in Law means any Change in Law which specifically refers to the provision of services the same as or similar to the services provided in the course of the Project. If a Qualifying Change in Law occurs or is shortly to occur, then any party may, within [thirty (30) business] days starting from the day it became aware (or should have been aware) of the Qualifying Change in Law, notify the other party to express an opinion on its likely effects, giving details of its opinion of: As soon as practicable and in any event within [thirty (30) business] days after receipt of any notice from the affected party, the Initiator and the Project Company shall discuss and agree the issues referred to above and any ways in which either party can, if applicable, mitigate the effect of the Qualifying Change in Law, including, in relation to the Project Company: If the parties have followed the procedure set out above, then: In the event that the notice and relevant information are not provided within the periods referred to above, the affected party shall not be entitled to any compensation or relief from its obligations under the Agreement in respect of the period for which the provision of information is delayed. Termination due to failure to achieve Effective Date [or Closing Date] In the event that the Effective Date does not occur within the time period specified in the Agreement and such period has not been extended, the Initiator may terminate the Agreement in its sole and absolute discretion on notice to the Project Company and retain any performance security provided under the Agreement. Termination due to Project Company Non-Remediable Event or Initiator Non-Remediable Event Upon the determination that a Project Company Non-Remediable Event or an Initiator Non-Remediable Event has occurred, the following procedure shall apply: Termination due to Prolonged Force Majeure If a Force Majeure Event subsists for a continuous period of more than [180-360 calendar] days, which prevents the Project Company from complying with its obligations under the Agreement, either party may in its discretion terminate the Agreement by issuing a written termination notice to the other party which shall take effect [thirty (30) calendar] days after the receipt of the termination notice by the other party. If, at the end of this [thirty (30)]-day period, the Force Majeure Event continues, the Agreement shall be terminated, and the Project Company shall be entitled to the compensation set out in the Agreement. Termination due to Prolonged Material Adverse Governmental Action If a Material Adverse Government Action subsists for a continuous period of more than [180-360 calendar] days, which prevents the Project Company from complying with its obligations under the Agreement, either party may in its discretion terminate the Agreement by issuing a written termination notice to the other party which shall take effect [thirty (30) calendar] days after the receipt of the termination notice by the other party. If, at the end of this [thirty (30)]-day period, the Material Adverse Government Action continues, the Agreement shall be terminated, and the Project Company shall be entitled to the compensation set out under the Agreement. Termination due to a Qualifying Change in Law If a Qualifying Change in Law: either party may in its discretion terminate the Agreement by issuing a written termination notice to the other party which shall take effect [thirty (30) calendar] days after the receipt of the termination notice by the other party. If, at the end of this [thirty (30)]-day period, the Qualifying Change in Law continues, the Agreement shall be terminated, and the Project Company shall be entitled to the compensation set out under the Agreement. In the event of termination of the Agreement due to failure to achieve the [Effective Date] [or the Closing Date], the Initiator shall be entitled to payment under the terms of any performance bonds or guarantees in favour of the Initiator. In the event of termination of the Agreement due to either of an Initiator Non-Remediable Event, a Project Company Non-Remediable Event, a Force Majeure Event, a Material Adverse Government Action or a Qualifying Change in Law: the effect on any required performance bonds or guarantees in favour of the Initiator shall be provided in the Agreement. Note: In principle, the purchase price in the event of a termination due to an Initiator Non-Remediable Event, a Force Majeure Event affecting Initiator, a Material Adverse Government Action or a Qualifying Change in Law should ideally consider the concession fee less financial benefits accrued to the private section till termination. The Initiator shall have the right to step-in to the Agreement and assume some or all of the obligations of the Project Company in certain circumstances (and for so long as these circumstances are occurring), including: a serious risk of material damage to public or private property. At any time during the term of the Agreement, the Initiator has the option to take back the Project upon giving notice to the Project Company. The purchase price under the option will be the same as the purchase price paid due to an Initiator Non-Remediable Event. The Initiator shall provide all documents and other assistance as Project Company and its financiers may reasonably request in connection with any financing relating to the Project. If, following such financiers’ review, the financiers require amendments to be made to this Agreement, then the Initiator shall negotiate with Project Company in good faith with regard to such required amendments to this Agreement. The Initiator shall (i) furnish consents to assignment, certifications, representations, estoppel certificates and opinions of counsel and other closing documents and (ii) enter into a direct agreement, in each case as may be reasonably requested by Project Company and its financiers from time to time, and in a form reasonably acceptable to Project Company and its financiers in connection with such financing. For the purpose of financing relating to the Project, Project Company may assign or create a security interest over its rights, title and interest under or pursuant to this Agreement, the Project, the moveable property and intellectual property, or the revenues or any of the rights or assets of Project Company within the scope of this Agreement. Mutual Discussions: If any dispute or disagreement of any kind whatsoever (a Dispute) shall arise between the parties in connection with, or arising out of, the Agreement, or the breach, termination or validity hereof, the parties shall attempt for a period of 30 days after the receipt by one party of a written notice from the other party of the existence of the Dispute, to settle such Dispute in the first instance by mutual discussions between the parties. Referral to an independent expert: If the dispute is of a technical (e.g. operational) or financial (e.g. accounting) nature, and the parties fail to reach an agreement on such a dispute by mutual discussions within the required 30-day period, then the parties shall appoint an approved independent expert to resolve the dispute between the parties. If the expert does not render a decision within a period of 90 days from completion of the hearing, either party may terminate the appointment of the expert upon given written notice to the party and a new expert shall be appointed in accordance with the process stated above. If the Dispute is not resolved by one or more experts so appointed within a 12-month period from the occurrence of the Dispute, either party may refer the Dispute to arbitration. Arbitration: If the Dispute cannot be settled within the 30 day period provided for mutual discussions, and in the case of technical or financial matters referred to an independent expert, the Dispute is not resolved within a 12 month period, the Dispute shall finally be settled by an arbitral tribunal under the rules of the [ - international arbitration institution to be named; ICC or SIAC and a neutral arbitration seat would be appropriate]. [The Project Company may subcontract to contractors named in the Agreement. A contractor not named in the Agreement may only be appointed by the Project Company with the written approval of the Initiator.] The Agreement will be governed by and construed in accordance with the laws of the [●]. The Agreement will be prepared in [●]and English. In the event of any conflict or inconsistency between the English language version and the [●] language version of the Agreement, the English language version shall prevail save to the extent that the [●] language version is required to prevail in accordance with Applicable Law from time to time in effect. Each party will unconditionally and irrevocably: consent generally in respect of the enforcement of any judgment (or arbitral award) against it in any such proceedings to the giving of any relief or the issue of any process in connection with such proceedings including the making, enforcement or execution against it or in respect of property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such proceedings. The Agreement shall contain market standard boiler plate clauses including the following provisions:Introduction
Project
Upfront concession fee
Effective date
Term
Closing date
Responsibilities of Project Company
Responsibilities of the Initiator
Facilities, Equipment and Plant
[Remuneration and Payment]
Payment Default
Performance Security
Insurance
Indemnity and Liability
Environmental Liabilities
Project Company Remediable Event
Project Company Non-Remediable Event
Initiator Remediable Event
Initiator Non-Remediable Event
Event of Force Majeure
Relief from Force Majeure Events
Material Adverse Government Action
Consequences of a Material Adverse Government Action
Qualifying Change in Law
Consequences of Qualifying Change in Law
Termination
Consequences of Termination
Initiator Step-in
Initiator Take Back Option
Financing and Lender Direct Agreement
Dispute Resolution
Subcontracting
Governing Law
Language
Waiver of Immunity
Miscellaneous
The Guidelines have not been prepared with any specific transaction in mind and are meant to serve only as general guidance. It is therefore critical that the Guidelines be reviewed and adapted for specific transactions To find more, visit the Guidelines to Implementing Asset Recycling Transactions Section Overview and Content Outline, or Download the Full Report.
TABLE OF CONTENTS
I. GUIDELINES FOR IMPLEMENTING ASSET RECYCLING
7. Bundling and Unbundling Criteria
8. Climate Finance in Asset Recycling
9. Islamic Finance and Asset Recycling
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Additional Resources
Sector Specific Standardized PPP Agreements and Contract Clauses
Type of ResourceStandardized PPP Contracts and Contract Clause
Type of ResourcePPP Arrangements/Types of PPP Agreements
Page Specific Disclaimer*Note: Although the key features of each category are summarized, there is overlap between the categories and the name given to a particular agreement may not reflect this classic categorization. Care should also be taken to identify whether a specific classification is enshrined in the laws of the host country, as in the case of many civil law jurisdictions where there are strict definitions of "concessions" and "affermages". The sample agreements included in this section are not the full range of agreements associated with infrastructure projects. They agreements are NOT intended to be used as "models". Legal advice should be sought in the preparation and drafting of an agreement to ensure that it is appropriate and workable in the circumstances of a particular project, sector and country. Find Terms and Conditions of this website here.