Sector:

Transport – roads

Name of Agreement:

Concession Agreement for a Tolled Bridges Project

Type of Agreement:

Concession Agreement

Region (if known):

Europe

Year of Agreement/ Draft:

Early 1990s

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

Documentation prepared by international law firm

Annotated by:

Robert Phillips, LEGPS

Purpose and Context:

Concession for the alleviation of congestion on an existing estuarial crossing by constructing an additional crossing and concessioning both. Bidders had to identify in advance the income required to design construct and finance the second crossing and operate and maintain both. When the actual income from tolls equaled that amount after allowing for inflation the concession would terminate.

Circumstances where this contract may be appropriate:

Where the state wishes to alleviate congestion and the existing facilities are revenue earning .The risk of super-profits for the Concessionaire is avoided by the Concession Period ending when a pre-determined required income has been achieved.

Drafted for common law/ civil law jurisdiction:

Common law jurisdiction

Main Features:

(a) concession period is for a maximum number of years but is likely to be shorter because period will end when required income is met.

(b) Concession of right and obligation to design build and finance a second estuarial crossing and to operate and maintain both crossings.

(c) Concessionaire receives income from tolls. Limited third party income from towage charges which had to be reasonable.

(d) Legislation required to permit the second crossing and Government responsible for obtaining that.

(e) Land to be leased by Government to Concessionaire with air-rights granted for the bridge areas over land and water.

(f) To reduce Government involvement in construction period, Concessionaire was required to have Designer and Checker appointed to carry out design and to check design for certain structures. Designer and Checker had to issue certificates to be passed to Government. Commercial risk that if certificates improperly issued either or both designer and Checker would not be involved in public sector projects.

(g) As a consequence of known traffic flows no government support for revenue except where Government caused delay in commencement or interruption of traffic flows when compensation payable based on financial model.

(h) Limited force majeure protection e.g nuclear risk.

(i) Terms of construction contract not objected to by Government and right to take over if termination during construction.

(k) At time of financing previous high inflation rates meant that indexed linked bonds gave best value for money.Therefore Concession Agreement wraps around that concept. Subsequent agreements have been more permissive in terms of financing. Existing crossing had overhang of debt while in the public sector. Concessionaire paid part of that debt on Concession commencement and balance was by Government debt subordinated to senior financing. Under that loan instrument Concessionaire was not able to refinance without consent of Government.

(l) Another consequence of robust traffic experience was that pin-point equity used-redeemable preference shares. Termination provisions simplified as to compensation on termination. However Lenders not discharged if termination due to default  by Concessionaire but were entitled to some part of the future toll income.

(m) At the time there was particular concern as to the pension rights of existing staff who were transferred from public sector to private sector.  Subsequent European legislation made this less of an issue.

(n) Standing panels created to deal with disputes-one for technical and one for financial. If unanimous decision then final and binding but if majority could go to arbitration.

(o) As actual length of carriageway was not that long, Government agrees to carry out winter maintenance-gritting, snow removal etc. Long lengths of state provided motorways either side of crossing make the decision logical.

Possible additional provisions that it might be appropriate to include:

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

Subsequent contracts have had less intrusive quality assurance procedures.

Provisions of wider general use:

Use of required income subsequently appeared in some Chilean road projects.

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

Original disputes resolution procedure softened to allow longer time limits for resolution of disputes.

Tracking Number:

roadbridgeconcession