Sector:  

Railways

Name of Agreement:

Concession Contract

Type of Agreement:

For the exploration and development of the public service of railway transportation

Region (if known):

Latin America

Year of Agreement/ Draft:

1996

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

MRS Logistica – Armando Galhardo Nunes Guerra Junior and Fernando Carlos Pinheiro Cardoso (both directors).

Annotated by:

Luiz Henrique Alcoforado 

Purpose and Context:

Concession for exploration and development of the railway transportation in the Southeast Railroad

Circumstances where this contract may be appropriate:

Drafted for common law/ civil law jurisdiction:

Civil law

• The conceding authority (Brazilian Federal Govt) can set an amount to be paid by the concessionaire (MRS Logistica) between 3% and 10% of the latter’s net revenue derived from its authorized activities to be distributed in the following fashion: 5% to the Union and 95% to the then-existing Govt Agency which owned the Railroad (RFFSA, which now is under bankruptcy procedures).
• Duration: 30 yrs
• The concessionaire will pay for the right of the concession the amount of [R$ 44,445,550.00], which corresponds to 5% of the winning bid, pursuant to the bidding announcements. (This amount would cost US$29m in 2010).
• Concessionaire will have reached, in the first five years, the following minimum annual production levels: [21b ton/net km in 1st yr with approx. 1b increase for each of the following year.] (these levels change depending on the agreement)
• Concessionaire must reach the following minimum accidents reduction targets (below the 1995 level of 66 accidents/million of railroad km: 5% (2nd yr), 15% (3rd yr), 30% (4th yr), and 40% (5th yr) [these levels also change]
• Concessionaire is free to charge the fee that is” commercially interesting” to it, capped in [  ]. The minimum amount cannot be lower than the long-term variable costs.
• The conceding authority (Union or Federal Govt) will readjust the reference fee value based on an official inflation index (IGP-DI/FGV) with a view to reestablishing the economic and financial equilibrium of the contract, every time this equilibrium is broken due to the Brazilian currency’s purchasing power
• Without prejudice to the above ‘readjustment’ the reference fees can also be ‘revised’ when a justified permanent market and/or cost alteration occurs that alters the contract’s financial equilibrium. This can be done by a request from the concessionaire (at any time) or by a determination of the Federal Govt (every 5 yrs)
• Rights and obligations clauses (for both the Federal Govt and the concessionaire)
• Intervention clause (to assure the service is provided adequately)
• Rights and obligations of the users (to receive an adequate service, have access to information etc.)
• Extinction of the concession in 6 cases (each of which with its legal peculiarities): 1) end of the concession term; 2) annulment, 3) termination, 4) bankruptcy/extinction of concessionaire, 5) lack of the contract’s object, or 6) when the conceding authority takes over the service for a public interest reason (this is quite broad).
• With the concession’s extinction, all rights and privileges that had been transferred to the concessionaire will return to the conceding authority

Possible additional provisions that it might be appropriate to include:

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

Provisions of wider general use:

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

Tracking Number:

Brazil Railways Concession.pdf