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Drafting a Good Concession Agreement & Project Aspects in
Contract Management
IIM Indore2nd August 2016
Nayan Parikh Nayan Parikh & Consultants Email: [email protected] Website: www.nayanparikh.com
NAYAN PARIKH & CONSULTANTS
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INTRODUCTION A concession agreement is a legal contract between a
company and a government that gives the company the right to operate a specific business, within the government's jurisdiction, subject to certain conditions.
CA is a Gita/Bible for the Project, which defines the Project and in case of any doubt, brings about the clarity on how to move forward and prevents conflicts and deadlocks.
The most important document. The quality of CA would define the quality and success of the Project.
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RISK ALLOCATION FRAMEWORK
Pre- operative risks
Construction phase risks
Operational phase risk
Handover risks
Other risks
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Risk Type Primary Risk Bearer
Delay in Land Acquisition
Financing RiskPlanning
Regulatory administrative & Approval Delays
PRE- OPERATIVE RISKS
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Risk Type Primary Risk Bearer
Design Risk
Construction Risk
Change in Scope Risk
Financing Risk
CONSTRUCTION PHASE RISKS
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Risk Type Primary Risk Bearer
Technology Risk
Operations & Maintenance Risk
Market Risk
Performance Risk
OPERATIONAL PHASE RISK
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Risk Type Primary Risk Bearer
Handover Risk
Private Operator Event of Default
Govt event of Default
HANDOVER RISKS
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Risk Type Primary Risk Bearer
Force Majeure
Change in Law risk
OTHER RISKS
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IMPORTANAT ASPECTS IN A CONCESSION
AGREEMENT Project Concessions Obligations of concessionaire Obligations of government Tariff/fees Capacity augmentation Substitution Period and conclusion of agreement Dispute resolution
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LAND ACQUISITION:
Whose Responsibility? Can it be acquired beforehand?
DESIGN:
Whose Responsibility? Can it be finalized before hand?
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PROJECT
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CAPACITY:
The optimum capacity to keep the project financially viable And Provide for future need for 25-30 years
DELIVERABLES:
Service Level – Road Smoothness Index
Physical Infrastructure – Four Lane Road
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TIME:
To be frozen To be bid criterion
ENVIRONMENTALLY RESPONSIVE:
EIA to be part of project report
Who gets clearance from Government?
Cutting of trees/forest
Infrastructure projects have significant social and environmental impact.
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FINANCIAL MODEL:
Viability by project cost, tariff, land development rights, FSI etc with minimum reliance on grants
By state subsidy and/or VGF
Complex financial products as in VHTL
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CONCESSIONS
Design
Build
Operations & maintenance
Fee collection
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OBLIGATIONS OF CONCESSIONAIRE
Design
Raising finance for the project
Physical infrastructure of agreed specification
Admin approvals
Service delivery of a particular level
Handing over at term endNAYAN PARIKH & CONSULTANTS
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OBLIGATIONS OF GOVERNMENT
No competing facilities
Policy support
Incentives/ VGF in time
Permissions
Law & order support for construction and collection of fees
Change in scope
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TARIFF/FEES
Clearly defined tariff
Increased at agreed period
Taxes levis applicable
Exemptions – Government vehicles, local villages on project highway
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CAPACITY AUGMENTATION
Capacity augmentation to maintain service level
At predefined time
Cost of augmentation and raising funds
Exit of existing concessionaire if not willing
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SUBSTITUTION In the event of technical/ financial default, substitution to
safeguard interests of stakeholders.
Bank’s comfort
Continuation of services for public
Compensation for exiting concessionaire
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PERIOD & CONCLUSION OF AGREEMENT
Defined period
Bid criterion
Handing over at the term end
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DISPUTE RESOLUTION Arbitration
Quasi-judicial body
Courts
Jurisdiction – international courts
Dispute prone - long contracts & complex issues
Projects affect large population so fast & smooth dispute resolution for minimum disruption in services
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THANK YOU
Nayan ParikhNayan Parikh & Consultants
Email : [email protected]: www.nayanparikh.com
NAYAN PARIKH & CONSULTANTS