Sector:

Transport, Airport

Name of Agreement:

PPP Agreement for Management and Operation of an Airport 

Type of Agreement:

Model Agreement  for a Public Private Partnership (PPP) involving the management  and operation of a single runway small scale airport.

Region (if known):

Sub-Saharan Africa

Year of Agreement/ Draft:

2008

Principal Author(s) (firm and contact person):

Unknown

Annotated by:

Robert Phillips

Purpose and Context:

The Agreement sets out how the existing airport business may be sold to the Private Party for use in connection with the purposes of the PPP Agreement and the responsibilities of the two parties.

Circumstances where this contract may be appropriate:

Where there is a smaller airport and it would be more appropriate for it to be run by an experienced operator rather than by a public sector entity where an airport would be an adjunct to its principal function. The PPP Agreement is based on the existence of comprehensive aviation legislation and regulation.

Drafted for common law/ civil law jurisdiction:

Civil Law

Main Features:

The Concession is for the management and operation of a single runway airport. While the airport business is being sold to the Private Party it is by no means clear what rights are actually being transferred and what the land-usage rights granted are.

Oversight mechanism: There are a number of facets to oversight: there is the Civil Aviation Authority and the Airports Operations Manual which has to comply with the Civil Aviation Regulations. There is the oversight authority of the Contracting Authority both as a statutory entity (it is a statutory body with powers conferred by two statutes) and as a counter-party to the PPP Agreement. There are then the Responsible Authorities.

Term: A Project Term of 10 years from the Operations Commencement Date.

Fees: There is the purchase price for the Business and then a PPP Fee which is based on turnover but with a minimum payment and then a variable amount.

The base services the Private Party is obligated to carry out during the concession period are set out in Clause 5 and Schedule 3. The Private Party is supposed to upgrade the premises before the Operations Commencement Date but the agreement is quite light on the detail as to when the premises are made available for this to be done and how these works will be carried out. However they will need to be sufficient to enable the airport to achieve either a category 4 or category 5 status from its existing category 2.

Scheduled airline passenger services that the Concessionaire is required to procure must create a minimum of 1260 seats per week. The period for landing and take-offs by scheduled airline is limited to 3 hours per day around the middle of the day and for charter aircraft is limited to 6 hours starting not before 9:00 am. The maximum number of scheduled airline landings is 21 flights per week and not more than 5 per day with a similar number of take-offs. There is not a ramp up period to allow the minimum to be achieved which given the circumstances might explain why the Project Agreement has not been executed.

The responsibility of the Private Party with regard to liability and insurance matters relating to loss or damage to property and third part damage including injury to persons is set out at Clauses 19 and 20. The Agreement does not deal with what happens if the insurance is not available at all or on reasonably commercial terms including at reasonable rates of premium.
The Private Party is required to obtain all necessary licenses pursuant to Clause 5.3.2

Retained obligations of the Contracting Authority: the Contracting Authority retains obligation to maintain the fences and to remove wild animals from the airport as well as maintaining certain designated areas. The Contracting Authority agrees not to grant similar rights, within a designated area, to third parties to operate an airport nor to operate one itself The Contracting Authority and the Private Party also agree to enter into separate arrangements so that existing residential accommodation held by the Contracting Authority can be rented for the use by airport personnel.

Under Clause 44.9 in Schedule 1 the Private Party is to bear utility charges but there is a standby generator owned by the Air Force of which the Private Party is to have use. It is not immediately apparent what other rights the Air Force have.

Other than in respect of the runway, which has been the subject matter of a separate report, no warranty on the physical condition of the airport property is given. It is by no means clear what happens if that report is inaccurate (Clause 10.3)

The condition of the property returned, under Clause 18.7.4, at the end of the Term must be the same as at the beginning of the Term which may be slightly unrealistic after 10 years use and further the Private Party will acquire New Project Assets either just before or during the period of the Term and in the latter case they will not be in existence at the beginning of the Term.

The provisions relating to compensation on termination are a little confusing. Under Clause 18.7.1 the Contracting Authority has the right but not the obligation to buy back the Business including the Sale Assets (those purchased from the Contracting Authority by the Private Party) and the New Project Assets. On termination where there is default by the Contracting Authority there is an obligation to purchase the Sale Assets and the New Project Assets but not the whole Business. The value is book value and therefore there is a risk that the equity providers will not be fully compensated for breach by the Contracting Authority. The position is made worse as under Clause 30.1.2 there is a requirement that such rights which the Private Party may have over the Airport, the Sale Assets, the New Project Assets and other (sic) immovable property shall cease.

Similar concerns arise in relation to Force Majeure as Clause 23.2 is silent as to what happens if there is termination for Force Majeure as there is no obligation on the Contracting Authority to buy the assets and yet the Private Party must deliver them up under Clause 30.1.2. A further issue is that there is no protection for changes in law, tax or the occurrence of an event of political force majeure.

The law of the host country provides for positive discrimination in favour of previously disenfranchised persons and there are mandatory requirements in Clause 15 and Schedule 5 to adhere to these.

Accounting and reporting requirements to be fulfilled by the Private Party are set out at Clause 31. There does not appear to be a requirement for an asset condition register or read only access to records kept on electronic devices.
External audit requirements to be fulfilled by Concessionaire (Part 10, Clause 51).

Termination: Early termination following winding-up or insolvency of the Private Party or continuing default. Of greater concern is the right for the Contracting Authority to terminate without cause and to only pay book value of Sale Assets and New Project Assets so equity providers may not be compensated for building up the Business.

Dispute resolution: Disputes to be settled amicably with identified representatives of the parties nominated. Only if that fails can the matter be referred to litigation (Clause 29). However if dispute referred then parties must continue to perform their obligations and one could envisage circumstances where the Private Party would financially hemorrhage.  

Possible additional provisions that it might be appropriate to include:

Clarity as to ownership rights. Laws on insolvency and the taking of security by lenders may cut across what the Contracting Authority wants to achieve which is the ability to continue using the assets for Airport Services. So far as procuring Scheduled flights this should be all reasonable commercial endeavours clause with a lead up period rather than an absolute obligation which could only be met by an airline being a major player in the Private Party.

Provisions that may not be advisable to replicate/ may need further thought:

Linked into ownership rights is the question of compensation on termination, differentiating between Private Party Default, Contracting Party’s Default and ermination on Notice and Force Majeure.

Provisions of wider general use:

Contractual, the Oversight Regime, Environmental issues.

Experience Since Coming Into Force (including any amendments)/ if draft form, whether it has been applied:

The Contracting Authority has been unable to let the PPP Agreement yet (Reported to Parliament May 2011)

Tracking Number:

Ref #: skukuza_airport_PPPAgreement_final