Sector:

Transport - Tolled Roads

Name of Agreement:

Draft Concession Contract for Road Concessions

Type of Agreement:

Concession Contract

Region (if known):

Africa  

Year of Agreement/ draft:

2003

Annotated by: -

Robert Philips (LEGPS)

Purpose and Context:

Proposed form for tolled road projects in African country

Main  Features:

Thirty year concession

Concession not only of road but rights offered for economic development  of petrol and service stations, health and sports facilities, commercial facilities etc.

Concessionaire receives income from tolls and economic development.

Concessionaire granted vacant possession and use of site.

Commercial annexures not available nor is form of suretyship of lending to be issued by Government in favor of the Lenders.  The absence of annexures is quite important as the contract is a very interventional contract with the Concessionaire required to give details of construction costs, related contracts and even has to pay monies received from contractors to the Implementing Authority which would cover liquidated damages etc.  It is not readily identifiable as to why such an interventionist approach is required.

Concessionaire has to be incorporated in host country.

Series of Bonds :

-  up to meeting conditions precedent

-  construction completion

-  maintenance

-  final maintenance

Concessionaire obliged to carry out additional enhancements within 6 months of certain traffic volumes being reached. 

Without the annexures it is difficult to determine whether these volumes have to be reached for a sustained period of time – what happens if they are cyclic e.g. during one month of peak holiday period only?

Delegation of rights and obligations are a little obscure.  

Clearly over laden vehicles are an issue but the contract stipulates the amount of money permitted to be spent on a weighbridge.  Report indicates that change in law required and suggests decriminalization of overloading – no reason why it should not remain a road traffic offence – key issue is that Concessionaire entitled to refuse vehicles continued access to road if they are over laden.

Review of Concessionaire’s performance by an Independent Engineer.  Joint appointment with mechanism for appointment if no agreement (although mechanism itself could fail through lack of agreement).  Payment made by Implementing Authority.

Site to be made available by public sector but can be programmed for delivery with extensions of time and compensation if failure to deliver.

Archeological matters – public sector risk as to both time and money.

Unforeseen ground conditions – Concessionaire risk.

Protestor action – extensions of time but no money.

Utilities – existing utilities at the risk of the Concessionaire – changes requested by Utilities including relocation at risk of public sector.

Public Sector has approval rights over contracts other than those of immaterial nature.  Rather curious wording in that the Concessionaire is to ensure that Contractors perform e.g. Construction Works in accordance with the terms of the relevant Construction Contracts.  As Concessionaire’s remedy for breach is ultimately to terminate then technically Concessionaire cannot “ensure”.

Obligation to use and to train local labor.

The Concessionaire is to pay a sum of money to Implementing Authority by way of contingency fund but no clear indication as to how this is to be used.

Penalties for failure to meet O & M requirements are calculated against Daily Gross Toll revenue.  Penalties range between 2% and 3% of Daily Gross Toll Revenue.

Hand-back is secured by a Final Maintenance Bond.

Development rights taken away if not utilized but development rights terminate with Concession terminating or expiring.  This may lead to difficulties in maintaining businesses towards the end of the concession period and probably does not represent the best solution.  In addition in absence of commercial annexures it is not clear how the public sector achieves the benefit from the developments.

Compensation payable for Material Adverse Government Action which is limited to discriminatory changes in law.  Increases in tolls controlled by Implementing Authority so important to know circumstances under which tolls can be increased.

Force Majeure Events – extension of time but Concessionaire may terminate while senior debt is outstanding and certain criteria are met or where it lasts for 28 days by Implementing Authority.

Insurance – requirement to use local brokers.  However, number of usual provisions dealing with non-availability of insurance missing.  Relief from obligation to insure if not available at reasonable commercial rate which means that on occurrence of event project would be uninsured.

Termination – it would appear lenders are repaid under Suretyship but form not seen.  However while termination is permitted under the Force Majeure Clause there does not appear to be a compensation provision in relation to that event.

The Implementing Authority has a prior right to appoint a substituted entity of Concessionaire in default.  If Implementing Authority elects not to appoint substituted entity Lenders have only 14 days to make an election to appoint a substituted entity which would appear to be very restrictive compared with international practice.

Disputes including decisions of the Independent Engineer are to go to conciliation under UNCITRAL rules.  Then to the chief executive officers and then to UNCITRAL Arbitration with the forum in host country.

Confidentiality Clause is rather restrictive if Concession Company or a major shareholder is a quoted company on a stock Exchange.

Circumstances where this contract may be appropriate:

As indicated in the commentary this contract is heavily interventionist and, therefore, should be carefully considered as to whether it is appropriate for other jurisdictions.  Some of the elements may work because of the insolvency and other laws governing the taking of security in host country.

Possible additional provisions that it might be appropriate to include:

Without the detailed annexures dealing with issues of quality assurance, technical requirements and the like it is difficult to identify what is missing.  However if there is to be a system of tolled roads then consideration should be given to a single system of electronic tolling and how this would work.

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

It is difficult to understand why the Contract is quite so interventionist.

Provisions of wider general use:

N/A

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

N/A

Tracking Number:

Road concession [003]