Sector:

Transport; rapid bus transport system

Name of Agreement:

Concession contract for Public Mass Bus Transit System in the Transmilenio System No. 001 (19 de abril de 2000). (Actual agreement is in Spanish).

Type of Agreement:

Concession contract

Region (if known):

South America

Year of Agreement/ Draft:

2000

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

Empresa de Transporte del Tercer Milenio (Transmilenio S.A.)

http://www.transmilenio.gov.co

Annotated by:

Omar A. Martínez

Purpose and Context:

This contract relates to Phase I for the Main Routes of the Transmilenio system. The Transmilenio system was created to serve a cosmopolitan area of over 8 million people, which by the year 2000, only had individual public transportation.

The Transmilenio system is comprised of dedicated lanes for the exclusive use of the system’s buses, with boarding stations along the length of the lanes. Passengers may access the system directly or through a feeder bus system, which operates in routes that are not necessarily exclusive of the system but also shared with the general public.

Other important attributes of the system is a collection mechanism for the sale of tickets (also through a concessionaire arrangement) and a trust fund through which the funds generated through the collection mechanism are distributed among Transmilenio S.A. and the various concessionaires of the system, in accordance with each of their respective concession contracts.

Transmilenio S.A. distributes the licenses or concession for the operation of the system and the collections mechanism. Transmilenio S.A. is a public entity with shares that coordinates the entire system and is in charge of is management, organization and planning.

Phase II of the Transmilenio system was developed two years after Phase I, with a pro forma contract slightly different than this one but which also maintains the same legal structure and components of Phase I. Phase III is currently under development. It is expected that the Transmilenio system will the main axis of an integrated multi-modal transportation system, which may also include a metro train system.

Circumstances where this contract may be appropriate:

This contract is appropriate for public-private partnerships for mass transport bus systems with the use of exclusive main lanes and infrastructure and shared feeder routes. (rapid bus transit system).

Drafted for common law/ civil law jurisdiction:

Civil Law

Main Features:

Objetive: the objective of the contract is to assign a non-exclusive concession to the Licensee for public automotive terrestrial mass transport service in the city of Bogota, Colombia and its suburbs, through the Transmilenio System roads and related services at the respective bus stations which make part or will eventually make part of the Transmilenio System.

Through this contract, the Licensee receives a concession of an assigned zone of Transmilenio System infrastructure over which the Licensee commits a fleet of vehicles and the requisite technical support to operate the system.

For this, the Licensee must contribute to the system a fleet of vehicles of its own property, with particular characteristics, and commits to the operation and maintenance of such vehicles. The vehicles remain property of the Licensee and are not included in the category of goods that revert back to Transmilenio S.A. at the end of the contract.

Compensation of the Licensee: as compensation for its obligation under this contract, the Licensee has a right to receive a share on the revenues of the Transmilenio System. The share of each licensee is calculated based on the kilometers actually covered and the cost per kilometer offered by the Licensee in its proposal, adjusted for various factors reflected in the formulae to calculate the value of the share (ROTk) and the technical tariff of the system.

Penalties and Incentives: the contract provides for the imposition of fines to Licensees that default on certain obligations under the contract. The revenue from such fines is pooled in an incentive fund, used in turn to provide incentives to those Licensees with the best performance.

Term:  the contract ends when the fleet of vehicles of the Licensee has reached an average of 850,000 kilometers.

Reversion:  at the end of the term of the contract, the Licensee must revert to Transmilenio, S.A. the goods assigned to it under the concession and other goods deemed to be eligible for reversion, without the need for compensation. The following are goods eligible for reversion:

• The immovable goods given in concession and those that may have replaced or substitutes such original goods, as well as those goods that may have been incorporated by adhesion.
•  Additions and improvements that the Licensee may have incorporated to the operation lots given to it through concession.
• Documentation and manuals that the infrastructure equipment may have included.

Possible additional provisions that it might be appropriate to include:

It would be advisable to specify in the contract who has the right to exploit collateral activities within the system (profitable and/or commercial activities that may be derived as added value services or alternative commercial uses of the system, different from the strict provision of mass transport service, such as advertisement on buses and stations) and receive the revenue generated from such activities.

It would also be advisable to specify, beyond what is included in Clause 8.3, the way in which technological updates to the logistical units and other communication and control equipment will be made. This is because, in the future, with additional Licensees, it may be necessary to update or improve the communications and control systems. For this, it is important to clearly establish who may request technological updates and improvements, as well as how often such improvements may be requested and who must incur the expense for such investments.

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

The following definitions of the contract could be simplified:

• Licensor
• Licensee

The definition of “Variation of the Price of Consumable Operational Goods (Risk of)” should be clarified using defined terms of the contract or by specifying what comprises “income earned through dividend” and “costs of operation”.

In Clause 37.8 it would be helpful to specify what would happen, if after the given time limit of 5 days, the Licensor has not responded. Does this mean that the Licensee is in the right? Does this mean that the objections raised by the Licensee have been dismissed?

In Clause 37.10. it would be helpful to define objective criteria to select the Licensee who will be asked to increase its fleet. This is because the increase in fleet may have the effect of extending the term of the contract due to a change in the average kilometers run by the fleet. As such, it would be ideal that all Licensees, at least those in the same Phase of the project, have an equal opportunity to bid for the increase in fleet.

In Clause 41, although it is clear that the Licensor may exclude vehicles form service, it could be clarified that the vehicles may not be excluded by the Licensee, in any case, without the express consent of the Licensor. This is because excluding a vehicle affects the average kilometers run by the fleet and thus the term of the the contract.

In Clause 59, it is not clear what is the purpose of the Licensee’s obligation to submit to the Licensor an auditor’s report of the Licensee and/or financial statements, nor is it clear what would be the consequences if such audit and/or financial statements were to be deemed inadequate.

In Clause 62.3., it is not clear what is the purpose of the Licensee consulting with the Licensor regarding new investments the Licensee is to undertake, nor is it clear what would be the consequences where the Licensor may not agree with the proposed new investments.

Clause 81 et al. refer to fines under the contract. According to this section, the Licensee may be fined without the need of a determination by a judicial authority. In some jurisdictions, in particular in civil law jurisdictions, a determination of a default by a private party may be deemed lex comisorio and are prohibited by law.

In Clause 97.1, it is unclear whether the “compliance insurance” (insurance that covers payments for defaults of the covered party under the contract) also covers the fines that may be levied against the Licensee for defaults in the contract.

In Clauses 97.2 (subnumeral 1-v) and 97.4 (subnumeral vi), it may be advisable to specify that the compliance insurance should include an obligation to renew such policies if the term of the policy is shorter than that of the term of the contract.

In Clause 104, although it could be assumed that the “fleet associated with the service” is the same as the “operation fleet”, it is not clear whether the formula to determine the term of the contract refers only to the “operation fleet” or also includes the “reserve fleet”.  If the “reserve fleet” is included, the Licensee could unilaterally extend the term of the contract by adding new vehicles to its “reserve fleet” to decrease the average kilometers run by the fleet and thus unilaterally extend the term of the contact without any real added benefit to the system.

In Clause 105, it is not clear what happens where, although the Licensee may have reverted the requisite goods within 30 days, the Licensor gives the corresponding certificate beyond the stipulated 30 days.

In Clause 107.2 it is advisable to establish under which circumstances the Licensor may decline authorization for the merger or spin-off of the Licensee.

In Clause 113 (procedures for early termination of the contract) it is advisable to indicate what is understood by “major default”.

It not advisable to replicate Clause 113.7 because it is not clear and does not seem to be congruent with the other provision of this section.

It is advisable to clarify Clause 119, to be consistent with Clause 116, and indicate that the Licensee will revert “all other goods that the Licensor deems revertible in accordance with Clause 116.”

The following Clauses must be adapted to the legislation of each country because they have been drafted specifically for Colombian jurisdiction or to resolve specific issues in the city of Bogota, which may not necessarily be applicable to other cities:

• Clause 3.
• Clause 8.7.
• Clause 23.4.
• Clause 23.7.
• Clause 23.10.
• Clause 28.
• Clause 32.4.
• Clause 32.5.
• Clause 34.
• Clause 52.
• Clause 61.
• Clause 71.
• Clause 92.
• Clause 106.
• Clause 120.
• Clause 121. Should be adapted or eliminated.
• Clause 122. Should be adapted or eliminated.
• Clause 123. Should be adapted or eliminated.
• Clause 124. Should be adapted or eliminated.
• Clause 125. Should be adapted or eliminated.
• Clause 129.10
• Clause 130.
• Clause 131.
• Clause 132.
• Clause 133.
• Clause 137.
• Clause 139.
• Clause 140.
• Clause 141. Should be adapted or eliminated.

Provisions of wider general use:

In Chapter 12 (Clauses 90 et al.) the contract refers to the distribution of risks of the deal.  These clauses of distribution of risk may be very helpful to the interpretation of certain features of the contract that may not be otherwise necessarily clear in the practical application of who assumes which risk. These clauses are an interesting way of clarifying the assumption of risks and obligations of the contract, for the benefit of the parties. Nonetheless, care should be taken that these clauses of general distribution of risks are consistently reflected in the specific obligations of each of the parties in the remainder of the contract.

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

Until now (April 2010), there have not been any reported modifications or amendments to the contracts beyond those made to the proforma biding documents during the concession process. A sample of some of these modifications have been incorporated to the sample contract reflected in this knowledge base website. This form of contract has been reported as a successful experience for all parties. The Transmilenio System will soon complete 10 years of uninterrupted service and has been deemed a substantial improvement in the mass public transport in the city of Bogota. It has also served as an example for various mass transport systems around the world. To date, there have not been any reports of defaults under the contract, nor significant disagreements or lawsuits. Also, there have not been any significant problems reported in the actual operation of the system.

Tracking Number:

Transmilenio Fase I.doc