Region: East Asia and Pacific
The Indian Ministry of Railways ("MoR") issued a model concession agreement for the development of railway projects on a Design, Build, Finance, Operate and Transfer (“DBFOT”) model. This model agreement is between the President of India represented by the MoR and a private company (“Concessionaire”).
Key features of the model concession agreement:
Concession Period – the typical concession period is for 25 years.
Land acquisitions and approvals – the MoR is responsible for procuring the land required to carry out the project. The Concessionaire is granted a license to use the land (Art 3.1.2 and 10). The MoR is also responsible for procuring applicable permits relating to environmental protection and site conservation. The Concessionaire has primary responsibility for procuring most of the regulatory permits required for the project, however the MoR is required to provide reasonable support and assistance to the Concessionaire in obtaining those permits (Art 5.1.4 and 6.1).
Reserved services – While the Concessionaire is required to maintain the rail system including signaling and telecommunication equipment, the MoR retains responsibility for and control of certain operations on the rail system (Reserved Services), which typically include operation of the rolling stock, traffic control and collection of tariffs (Art 18).
Concession Fee – the Concessionaire is required to pay the MoR an annual concession fee, calculated as a percentage of the rail project’s annual revenue (Art 26).
Revenue Sharing – MoR pays a User Fee to the Concessionaire amounting to 50 per cent of the revenue collected from freight operations on the rail system. The remaining 50 per cent is retained by the MoR. The MoR further provides a minimum revenue guarantee to the Concessionaire (if actual revenue drops below the applicable benchmark) and profit sharing applies if revenue exceeds agreed benchmarks. The freight tariff to be charged to third party users is agreed in the Concession Agreement (Art 27).
Government Shareholding – the Concessionaire must issue one non-transferable equity share to the MoR and grant the MoR certain governance rights, including the right to appoint a nominee to the Concessionaire’s board and the right to veto certain corporate actions (Art 5.12 & 5.13).
Step-in rights – the MoR has the right to step-in to carry out the project and operate the road infrastructure in the event of:
a failure by the Concessionaire to maintain or repair the rail system in accordance with the agreed maintenance requirements;
a suspension of the concession agreement for Concessionaire default;
a material breach of the concession agreement by the Concessionaire which is likely to cause hardship or danger to rail users; or
a national emergency or civil commotion.
Termination rights – the agreement may be terminated by either party for a Force Majeure Event subsisting for 180 days (Art 31.8). Each party also has the right to terminate for counterparty default. Upon termination, the State must pay a termination payment to the Concessionaire (calculated with reference to the Concessionaire’s outstanding debt and equity investments). The amount payable varies depending on the basis for termination (Art 34).
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Updated: October 25, 2021