Sector:

Transport

Name of Agreement:

Concession Agreement for a Metro System

Type of Agreement:

Concession Agreement

Region (if known):

Europe 

Year of Agreement/ Draft:

Late 1990s

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

Documentation prepared by international law firm

Annotated by:

Robert Phillips, LEGPS

Purpose and Context:

Concession for underground metro system with both tunneling and cut and cover for construction. Guaranteed passenger usage with revenue sharing if certain levels achieved. Contribution from State towards construction costs and subsidy towards farebox. 

Circumstances where this contract may be appropriate:

Where State wishes private sector participation with some private sector finance and performance related to passenger usage although some penalty if failure to achieve certain levels of availability.

Drafted for common law/ civil law jurisdiction:

Civil law jurisdiction

Main Features:

(a) Concession period for 25 years including construction period with possible extensions for e.g. force majeure..

(b) Concession of right and duty to design, build finance,operate and maintain an underground metro system and with certain exploitation rights such as revenue from advertising and retail related franchises.

(c ) Concessionaire receives capital grant during construction, farebox revenue and ticket subsidy.

(d) Legislation required and obtaining of legislation is a condition precedent to the Effective Date but no compensation for Concessionaire if not obtained.

(e) Land rights granted by State to Concessionaire. No property development rights for airspace over stations or maintenance/stabling depots.

(f) Government Department (Service) to monitor Construction but Independent Engineer acts as independent checker of both design and construction.
Independent Engineer certifies achievement of stages for release of capital payment by the State.

(g) Other public transport so no known passenger levels .In addition to compensation when certain passenger levels not achieved there is subsidy on tickets.

(h) Force majeure compensation very wide and covers risk which is not required to be insured against or consequent losses are above levels required to be insured against. Anomaly however as no provision dealing with insurance where either not available or alternatively not available at commercial rates.

(i) Both Construction and Operation and Maintenance Contracts attached in draft to Concession Agreement. Constraints against amendment or change of contractor and right for State to take over on termination.

(j) On termination in effect lenders always paid out On termination for force majeure return on equity also paid out..

(k) Standing panels created for disputes. Decisions of Independent Engineer sent to technical panel.

(l) Concessionaire had liability for three years after termination or expiry of term to support the State in operating the Metro.

Possible additional provisions that it might be appropriate to include:

No proper mechanism for the used of stored cards which can be used on most forms of local public transport.

No provision to allow for extension of Metro- particularly allowing for issues on linked control and signaling systems or use of stabling/maintenance depots.

No apparent ambient quality levels-might be helpful to have passenger surveys as to perceived quality of services including cleanliness with both positive and negative incentives depending upon whether levels exceeded or missed.

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

There is an unnecessary restriction on Concessionaire’s rights under the Construction Contract to those liabilities which Concessionaire has under the Concession Contract. Could prevent provision for liquidated damages to cover some debt service as that liability does not exist under Concession Agreement.

Requirement for Joint Venture which was the actual bidder for the Concession and was replaced by corporate vehicle which became the Concessionaire to guarantee performance of Construction Contractor (Constructor) and O&M Contractor (Administrator). In addition continuing guarantees issued by banks had to be given by Constructor during construction period and Administrator during operation period to the Concessionaire and be assignable to State if termination.

Also Administrator’s guarantee had to be assigned to State six months before expiry of Concession Period. This seems to assume that maintenance levels were responsibility of Administrator rather than decision of the Concessionaire.

Provisions of wider general use:

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

Not known

Tracking Number:

 metroconcessionagreement1