Sector:

Transport – roads

Name of Agreement:

Concession Agreement for a Toll RoadProject

Type of Agreement:

Concession Agreement

Region (if known):

LAC

Year of Agreement/ Draft:

[2001]

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

Documentation prepared by international law firm

Annotated by:

Robert Phillips, LEGPS

Purpose and Context:

Concession for development of upgrades to existing road system

Circumstances where this contract may be appropriate:

The Concession envisages the creation of a Toll Regulator by statute but many issues are referred to an Expert. If the Regulator does not grant toll increases up to the Capped Toll Level as indexed in accordance with the Concession then Grantor has to pay balance. This may limit circumstances where the contract as drafted would be applicable but there are other terms which indicate the agreement should not be replicated without amendments.

Drafted for common law/ civil law jurisdiction:

Common law, but could be adapted to civil law jurisdiction.

Main  Features:

(a) thirty five year concession.

(b) Concession of right and obligation to design, build, finance, operate and maintain improvements to existing road in three phases:

Early Project,

Phase 1(a) and

Phase 1(b).

Phase 2 ( also in two parts) will be subject of separate Concession Agreement. In some jurisdictions this approach could give rise to procurement issues as Phase 2 is more an agreement to agree.

While the concession includes rights to develop gas stations and service areas the Grantor can also develop the land adjacent to the tolled road .Developments by Developer have to be handed back at end or on termination of the concession free of encumbrances which may create difficulties for tenants or franchisees of gas or service areas/

(c) Concessionaire receives income from tolls and from associated developments .Developer agrees to pay percentage of  surplus revenue by reference to IRR to Grantor.

(d) With the concept of a Toll Regulator ( link to legislation site) it would appear that the Concession would be one of a series

(e) Land to be leased or sub-leased by Grantor to Developer

(f) Redacted terms so key commercial details omitted.

(g) Series of conditions precedent and subsequent for each phase which could lead to termination of concession.

(h) Requirement for Construction Warranty to be issued by Contractor.

(i) Liquidated damages for delay in completing each phase in addition to delay in recovering tolls.

(j) Points regime for failure to achieve key performance indices. Followed by warnings and eventually termination.

(k)Site to be made available to Developer in stages. Route can be amended which in many jurisdictions could give rise to substantial delays and therefore might be impractical.

(p) Archaelogica lMatters - Public Sector risk

(q) Unforeseen ground conditions Developer’s risk except for pre-existing ground conditions.

(r) Construction Contract has to be in agreed form .No change to Operator or Contractor without prior notice plus in accordance with quality control schedule details of Operator’s and Contractor’s sub-contractors to be supplied to Grantor.

(s) Handback survey to be carried out 3 years before expiry of Concession and Handback Bond to be issued.

(t) If failure in meeting obligations by Developer Grantor can appoint short term contractor to meet obligations.

(u)Compensation can be sought for Qualifying Force Majeure and Qualifying Changes in Law. Inability to obtain insurance at commercial premiums is a Qualifying Force Majeure risk.

(v) On termination for any reason lending other than by shareholders is repaid. If termination is through Extended Force Majeure (nine or more months duration) then 50% of equity repaid.

(w) Restrictions on dividends until Phase 1(b) completed (not to exceed 8% IRR) and then revenue uplift sharing by reference to IRR.

Possible additional provisions that it might be appropriate to include:

Rather than having an Independent Engineer there is heavy use of an Expert. In reality there could be three experts each nominated by a different nominating authority depending upon whether the dispute is technical, financial or other. Issue arises as to what happens if all three elements appear in the same dispute. If Independent Engineer is large consultancy this may overcome issue-alternatively a standing committee of experts could be a solution.

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

See comments above on use of Expert and also practicality of being able to amend corridor for road. Consider also protection of franchisees or tenants of gas stations or service areas on early termination.

Provisions of wider general use:

The technical schedules particularly the process for developing design and other data is helpful

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

Not known

Tracking Number:

Roadconcession2