Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
Annex 4: Concession Contract Guide
• The possibility of further reforms, which might require significant changes to
the approach to the rail system;
• Affordability of services for users and for the Authority, taking into account
the expected useful economic life of the underlying assets. Longer duration
may be preferred, from an affordability perspective, if assets involved in delivering
services have a longer economic life—bridges and other major structures;
• Need for and timing of major refurbishment or asset renewal programs during
the Term;
• Likely Senior Debt term, and potential for refinancing the concession over a
longer debt service period, which could increase the duration; and
• Potential for an option to extend the term of the Agreement by entering into a
further contract period with the initial Concessionaire.
Both Authority and Concessionaire should be cognizant of inevitable rapid pace
of technological change. Also, as the economy grows, the diverse requirements for
transport will rise along with the risk of an increasing share of freight haulage by
road. Furthermore, rising affluence increases the desire for personal vehicle ownership,
particularly automobiles, and increases competition from low-cost airlines.
Accordingly, the Authority’s requirements are likely to change during the
period of the Term. The Authority should be able to ensure that the regimes under
the Agreement are sufficiently flexible to allow changes to the service over
time. If, however, the Authority is concerned that changes will be sufficiently
radical that the concession in its existing form may become redundant, the
Authority may wish to retain flexibility through shorter contract periods, consistent
with an affordable financing plan.
The impact of intervening events on the duration of the Agreement is dealt with
in the item on Intervening Events in section 2.16 below.
Subsequent Guide provisions will address circumstances upon expiry of the Term
and termination. The host country law and practice will determine whether termination
prior to Term expiry should be that of the Term, or of the Agreement.
There may be some advantage in terminating the Term, and dealing with consequences
of termination whilst the Agreement continues to exist.
2.7 Concession
It is highly unlikely that all the assets to be used by the Concessionaire will have
been identified by the time the Term commences, let alone by the time the Concession
Agreement is executed. Examples exist of sets of wagons found on larger
systems some time after the private sector has taken over the Concession. Therefore,
the grant of rights should be sufficiently generic to include all the assets that
the Concessionaire might reasonably need. However, if there are interfaces with
other systems that are not intended for inclusion in the concession, it may be
sensible to specify a transition period during which it might be ascertained that
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