Title: Wastewater Concession Agreement - Example 2

Languages: English

Type: Document

Published: January 1, 2008


Region: Middle East and North Africa

Country: Global / Non-Specific

Sectors: Water and Sanitation

Keywords: Contractual Provisions

Document(s):

Wastewater Concession Agreement - Example 2380.5 KB, Wastewater Concession Agreement - Example 21 MB


Document Summary:

Concession agreement for concessionaire to establish and operate wastewater services in country where existing arrangements consisted of private septage and haulers.


Document Details:

Long-term concession. Prepared by operator with input from international law firm and adapted by World Bank staff. 

Suitable for common law or civil law jurisdictions, subject to modification and local legal advice. English language.


Sector:

Water and sanitation

Name of Agreement:

Concession Agreement

Type of Agreement:

Form of BOT arrangement to design, build and operate a sewerage system, plus operate the existing arrangements for removal of septage by haulers until system comes into operation

Region (if known):

Middle East  

Year of Agreement/ Draft:

1999 (Draft only)

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

Private operator, with limited input from an international law firm.  Amendments added by World Bank staff

Annotated by:

Julie Rieger, LEGPS, World Bank

Purpose and Context:

Government granting [25] year concession to private developers to construct a wastewater system and operate and maintain it. The rights and obligations of the developers are assigned to an SPV.

Circumstances where this contract may be appropriate:

Development in a country that does not have any existing wastewater systems.   The existing method for removal of septage is privately-owned septage arrangements and use of haulers for removal.

Drafted for common law/ civil law jurisdiction:

Suitable for both

Main  Features:

  • Concession for constructing and operating centralized wastewater system (‘Sewerage System’).
  • Contract term [25] years.
  • Agreement entered into by consortium of developers. Their rights and obligations are transferred to an SPV under Clause 2.1 (the ‘Company’).  It is safer to have SPV enter agreement at signature if possible.
  • Part of the conditions precedent is a requirement for a performance bond obtained by the EPC Contractor (Clause 3.3.1(a)) and a bond securing the performance of the Company (Clause 3.3.1(k)).  Agreement does not have agreed form of bonds appended – this is advisable.
  • Concession includes the rights to (Clause 4.1): design, procure, construct, operate, manage, own and maintain the sewerage system, finance it, charge tariffs from consumers and retain them for own benefit (except for amount payable to the government under the agreement), sell treated effluent and sludge, receive, collect, treat and dispose of septage (and charge fees for disposal), grant approvals in respect of wastewater planning reviews and charge for the reviews, dispose of effluent, sludge and septage.
  • The Company has the exclusive right to operate in the concession area other than in relation to haulers for septage removal prior to System coming into operation (Clause 4.4) and pays rent for the concession under the lease agreement (form in Annex 1) (Clause 13).
  • Provisions describing the sewerage system are in Clauses 4.5 to 4.13.
  • The agreement provides for the appointment of an independent consulting engineer to review construction and ensure compliance with the performance standards (Clause 4.10).
  • Provisions requiring the Company to submit quarterly progress reports, allow the government and its representatives access to the sites, plans and other documentation are in Clause 4.11.
  • Clause 5 contains provisions requiring the Company to keep to certain deadlines and a failure to comply requires payment of liquidated damages (Clause 5.7). Extensions are, however, possible in some circumstances (e.g. force majeure events, government fault (5.5 and 5.6)).
  • Performance Tests regime (6)
  •  Company to prepare monthly reports on operations and maintenance, a copy to be provided to the government (Clause 7.11).
  • Tariffs paid by the consumers to the Company (Clause 8).
  •  Agreement includes requirement for the government to pass relevant legislation and implement other regulatory mechanisms (e.g. appointment of ‘sewer tariff officer’) (Clause 13.2.1 and CPs in 3.3.2).
  • Clause 9 deals with tariff collection and contains mechanism for disconnecting non-paying consumers from the electricity supply. Ordinarily, one would expect the disconnection to be from the water and sanitation supply rather than the electricity supply given that the failure to pay relates to the water and sanitation services – this is likely to be a project specific provision.   However, in a number of countries it is not deemed appropriate to disconnect water supply for humanitarian reasons.
  • Clause 9.10 contains certain rights of set-off for the Company against amounts owed to the government if the default amounts per financial year exceed certain thresholds.
  • Clause 10 allows the Company to assign rights and benefits under the Agreement as security for financing the sewerage system (10.1.5), subject to prior approval of the government.
  • Clause 10.3 states that the Company is responsible for ensuring that the EPC contractor has insurance etc, and for awarding the O&M contract. In awarding contracts it is to give priority to local contractors as far as practically and technically possible.

 

  • Penalty payments due for failure to maintain, operate or repair sewerage system for a continuous period of 30 days (Clause 10.6). After 90 days the government can terminate (Clause 10.7). Ideally these clauses should cross-refer to the Force Majeure provisions in Clause 17.

 

  • The Company is to grant a specified amount (see Clause 11)of treated effluent to the Municipality free of charge and an additional amount to be purchased by the Municipality (Clause 11).

 

  • Government bears risk of increased costs due to change in laws, taxes, government charges and changes in government (Clause 12).

 

  • Clauses 13.5 and 6 provide for royalty payments to the ruler of the country.

 

  • Clause 15 provides that 1 year before the end of the term the parties commence negotiations for the process of transferring the business and assets to the government.

 

  • Termination provisions can be found in Clause 16. Clause 16.1 lists events upon which the government is entitled to terminate and Clause 16.2 lists events upon which the Company is entitled to terminate. On termination, a steering committee is established to ensure continued operation of the sewerage system.

 

  • Clause 17 contains the Force Majeure provisions. It may be advisable to include a notification mechanism and possibly a consultation mechanism in this clause. Also, in the definition of Force Majeure, it may be advisable to refer to events or circumstances that ‘materially’ adversely affect the ability to perform, rather than just ‘adversely affect’.

 

  • Clause 18 – procedures for claims for additional costs, extensions of time etc

 

  • Clause 19 – formal variation procedure

 

  • Arbitration provisions are in Clause 20:
    • First, parties will reasonably endeavor to find an amicable and timely solution. The Advisory Board (see Clause 20 below) also acts to consider and advise on disputes although this is not mentioned in this clause.
    • Failing that, an arbitration tribunal of 3 arbitrators is to be appointed (1 by each party and the third by both parties).
    • Procedure is to be governed by the UNCITRAL rules.
    • For any disputes concerning legality, validity or enforceability of the Agreement, Agreement to be governed by local law. It is unusual for the governing law clause to be part of the arbitration clause and this should be a separate clause.
    • Award by the arbitration tribunal is conclusive and binding and may be enforced in any court of competent jurisdiction.

For guidance on arbitration provisions see the Dispute Resolution Checklist.

 

  • Clause 21 also provides for an Advisory Board, consisting of 2 members of the Company and 2 members of the government. It is to act as an advisory body to , ,among other things, consider and advise on problems or disputes, review the activities of the Company, consider generally ways in which wastewater can be collected and treated, review monthly reports and discuss matters related to tariffs and customer response.

 

  • Clause 22.2 contains confidentiality provisions.
  • Clause 22.3 contains an anti-bribery representation and covenant.
  • Clause 22.5 contains a covenant on mutual co-operation which is to include agreement on training local nationals.

 

Annexes: The Agreement contains various annexes:

  • Lease Agreement (Annex 1);
  • Tariff Structure (Annex 2);
  • Performance Standards (Annex 3) and Tests (Annex 4);
  • Insurances (Annex 5);
  • Tariff Adjustments (Annex 6); and
  • draft Sewer Law (Annex 7).

Possible additional provisions that it might be appropriate to include:

  • Definition of Independent Consulting Engineer: If possible, could be more strictly defined as being a consulting engineer who is a member of a regulatory body that is internationally recognized.
  • In the definition of Force Majeure, it may be advisable to refer to events or circumstances that ‘materially’ adversely affect the ability to perform, rather than just ‘adversely affect’.
  • There are some other provisions in the Agreement where the requirements are vague. For example, in Clause 7.10 reference is made to insurances reasonably required for the adequate operation of the system. It may be preferable to link this in with usual market standards. In Clause 9.5, reference is made to a 48 hour time limit but it is unclear when this period starts running. In Clause 4.9, reference is made to ‘internationally recognized’ design criteria, again a vague concept. Similarly, in Clause 11.8, the provision states that the Company can terminate service, claim damages etc on a registered user it ‘reasonably believes’ to discharge sewage into the system- this is subjective and there is no standard of proof.
  • Parties may wish to consider use of email in the notice provision given that some developing countries do not have reliable postal systems but may be connected by email.
  • The anti-bribery provisions in Clause 22.3 may not be appropriate in every contract.

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

  • The governing law clause should be separate. The arbitration clause should also refer to the advisory board as from clause 21 it seems to be intended that the Advisory Board advises on disputes but there is no referral mechanism and so it is not clear how this fits in with Clause 20.1.
  •  No jurisdiction is specified for enforcement of arbitration award. Parties may wish to choose specific jurisdictions.

Provisions of wider general use:

 

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

N/A

 

Tracking Number:

 wastewaterconcession2.doc

Updated: April 21, 2021