How to Draft a Good Concession Agreement

1. IIM Indore
2nd August 2016
Nayan Parikh
Nayan Parikh & Consultants
Email: npcinfra@nayanparikh.com
Website: www.nayanparikh.com
NAYAN PARIKH & CONSULTANTS

2.  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.
NAYAN PARIKH & CONSULTANTS

3.  Pre- operative risks
 Construction phase risks
 Operational phase risk
 Handover risks
 Other risks
NAYAN PARIKH & CONSULTANTS

4. Risk Type Primary Risk Bearer
Delay in Land
Acquisition
Financing Risk
Planning
Regulatory
administrative &
Approval Delays
PRE- OPERATIVE
RISKS
NAYAN PARIKH & CONSULTANTS

5. Risk Type Primary Risk Bearer
Design Risk
Construction Risk
Change in Scope Risk
Financing Risk
CONSTRUCTION
PHASE RISKS
NAYAN PARIKH & CONSULTANTS

6. Risk Type Primary Risk Bearer
Technology Risk
Operations &
Maintenance Risk
Market Risk
Performance Risk
OPERATIONAL
PHASE RISK
NAYAN PARIKH & CONSULTANTS

7. Risk Type Primary Risk
Bearer
Handover Risk
Private Operator
Event of Default
Govt event of Default
HANDOVER
RISKS
NAYAN PARIKH & CONSULTANTS

8. Risk Type Primary Risk
Bearer
Force Majeure
Change in Law risk
OTHER RISKS
NAYAN PARIKH & CONSULTANTS

9.  Project
 Concessions
 Obligations of concessionaire
 Obligations of government
 Tariff/fees
 Capacity augmentation
 Substitution
 Period and conclusion of agreement
 Dispute resolution
NAYAN PARIKH & CONSULTANTS

10.  LAND ACQUISITION:
 Whose Responsibility?
 Can it be acquired beforehand?
 DESIGN:
 Whose Responsibility?
 Can it be finalized before hand?
NAYAN PARIKH & CONSULTANTS
PROJECT

11.  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
NAYAN PARIKH & CONSULTANTS

12.  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.
NAYAN PARIKH & CONSULTANTS

13.  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
NAYAN PARIKH & CONSULTANTS

14.  Design
 Build
 Operations & maintenance
 Fee collection
NAYAN PARIKH & CONSULTANTS

15.  Design
 Raising finance for the project
 Physical infrastructure of agreed specification
 Admin approvals
 Service delivery of a particular level
 Handing over at term end
NAYAN PARIKH & CONSULTANTS

16.  No competing facilities
 Policy support
 Incentives/ VGF in time
 Permissions
 Law & order support for construction and collection of
fees
 Change in scope
NAYAN PARIKH & CONSULTANTS

17.  Clearly defined tariff
 Increased at agreed period
 Taxes levis applicable
 Exemptions – Government vehicles, local villages on project
highway
NAYAN PARIKH & CONSULTANTS

18.  Capacity augmentation to maintain service level
 At predefined time
 Cost of augmentation and raising funds
 Exit of existing concessionaire if not willing
NAYAN PARIKH & CONSULTANTS

19.  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
NAYAN PARIKH & CONSULTANTS

20.  Defined period
 Bid criterion
 Handing over at the term end
NAYAN PARIKH & CONSULTANTS

21.  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
NAYAN PARIKH & CONSULTANTS

22. Nayan Parikh
Nayan Parikh & Consultants
Email : npcinfra@nayanparikh.com
Website: www.nayanparikh.com
NAYAN PARIKH & CONSULTANTS