nayan parikh at iim indore

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

mailto:[email protected]

http://www.nayanparikh.com/

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.


RISK ALLOCATION FRAMEWORK

Pre- operative risks

Construction phase risks

Operational phase risk

Handover risks

Other risks


Risk Type Primary Risk Bearer

Delay in Land Acquisition

Financing RiskPlanning

Regulatory administrative & Approval Delays

PRE- OPERATIVE RISKS



Design Risk

Construction Risk

Change in Scope Risk

Financing Risk

CONSTRUCTION PHASE RISKS



Technology Risk

Operations & Maintenance Risk

Market Risk

Performance Risk

OPERATIONAL PHASE RISK



Handover Risk

Private Operator Event of Default

Govt event of Default

HANDOVER RISKS



Force Majeure

Change in Law risk

OTHER RISKS


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


LAND ACQUISITION:

Whose Responsibility? Can it be acquired beforehand?

DESIGN:

Whose Responsibility? Can it be finalized before hand?


PROJECT

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


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.


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


CONCESSIONS

Design

Build

Operations & maintenance

Fee collection


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

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


TARIFF/FEES

Clearly defined tariff

Increased at agreed period

Taxes levis applicable

Exemptions – Government vehicles, local villages on project highway


CAPACITY AUGMENTATION

Capacity augmentation to maintain service level

At predefined time

Cost of augmentation and raising funds

Exit of existing concessionaire if not willing


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


PERIOD & CONCLUSION OF AGREEMENT

Defined period

Bid criterion

Handing over at the term end


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


THANK YOU

Nayan ParikhNayan Parikh & Consultants

Email : [email protected]: www.nayanparikh.com


mailto:[email protected]

http://www.nayanparikh.com/