Indian Ports Model Concession Agreement

Region
South Asia
Country
India

Sector:

Ports

Name of Agreement:

Indian Ports Model Concession Agreement 

Type of Agreement:

Concession Agreement

Region (if known):

South Asia

 

 

 

 

Comments by:

 Consultant for LEGPS

Purpose and Context:

This agreement should be read in the context of the Major Ports Trust Act 1983 and other port legislation. In particular the level of tariff is regulated by the Tariff Authority for Major Ports and not fixed by the Concession Agreement.

Circumstances where this contract may be appropriate:

Where the State wishes to improve port services by the introduction of private sector expertise and possibly funding.

This is generally a useful document to form the basis of a port concession agreement.
The issues set out below should be considered when looking at this as a sample agreement – and should form part of a feasibility study for any proposed project.

Drafted for common law/ civil law jurisdiction:

Common law, but could be adapted to a civil law jurisdiction, subject to local law input.

Main Issues:

1. There is a requirement for a minimum cargo throughput (referred to as a “Minimum Guaranteed Cargo"). Whether this would be appropriate to replicate depends upon the level at which it is fixed and the general circumstances. The private sector has little or no control over landward surface access –which can be an issue in India - nor over macro economic events. While there may be a concern that shareholders in the Concessionaire may have an interest in competing ports, this could be  addressed other than by way of a Minimum Guaranteed Cargo.

 

2. While there is an emphasis on the construction period, the Model Form does not go into detail on issues affecting modern port management. Little detail is given on the IT systems used to track cargo, complete customs returns and provide relevant government departments with statistical information. There is a recognition of the requirements for access both seaward and landward, there is little focus on how these mesh on a day to day basis or what facilities are required  for immigration and customs authorities and the like. While  recognizing that these issues are site specific, these are concepts that parties might want to cover in greater detail.

 

3. Failure to insure is a serious default in so far as no compensation is payable on termination in any circumstance. Internationally there has been a recognition that a failure to insure may arise as a consequence of there being no market for that type of insurance or the premium levels no longer being available at commercial rates. Whether the existing wording might be considered as a penalty in any jurisdiction would depend upon the laws of the relevant jurisdiction.

 

4. Although compensation is payable on termination due to force majeure with a higher level if due to political force majeure, it is not immediately apparent that compensation is payable while the latter event exists. As termination occurs only after 180 days it is probable that international lenders would require debt service reserves and other reserves to be established at the outset. Local banks may be able to take a more relaxed view but the structure would not necessarily be appropriate in a country where lenders are not able look more to a political settlement where a project falls into difficulties.

 

5. An issue for the public sector is that movable equipment may not transfer to the public sector on termination of the Concession where the Concessionaire is insolvent. Some equipment such as gantry cranes may not be easily and quickly replaceable. Under the form of direct agreement with Lenders the Lenders are entitled to be paid out in full notwithstanding the terms of the Concession Agreement so that in order to be paid out the Lenders will have to require the transfer to the public sector of the port assets. This would not necessarily work in a civil law jurisdiction nor in a country where lenders do not rank in priority to other creditors.

 

6. Where liquidated damages are imposed as a consequence of a failure by the Concessionaire eg. to achieve a milestone, a review of the relevant law of the jurisdiction is recommended. In some common law countries particularly those following Indian rather than English concepts the level of liquidated damages may be reviewed by the Courts-i.e. liquidated damages are not only re-opened where they are shown to be a penalty.

 

7. The model form assumes that no third parties such as freight forwarders, shipping lines etc will require offices or other premises at the port. If this is not the case in a particular project, then provision should be made for a grant of rights to occupy to those third parties preferably on the basis that they can continue to occupy when the Concession comes to an end so that the business of the port can continue. The position is not so relevant if the Concession is of a terminal rather than the whole port. Protection would have to be built in to avoid the Concessionaire from requiring a large premium from the third party rather than an economic rental but that is not unusual for these types of arrangement.

 

 

 

Tracking Number:

 

IndianPortsummary.pdf

 

 

THIS DOCUMENT HAS BEEN PREPARED FOR THE PURPOSES OF THE PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS. IT IS A CHECKLIST FOR GENERAL GUIDANCE PURPOSES ONLY AND SHOULD NOT BE USED AS A SUBSTITUTE FOR SPECIFIC LEGAL ADVICE FOR A PROJECT. 

 

For more information about this sector, please visit PPPs in Ports / Port Reform.

Last Updated : Tue,2019-09-10