Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

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Railway Reform: Toolkit for Improving Rail Sector Performance Annex 4: Concession Contract Guide • Assisting in obtaining temporary and permanent import licenses for material and for equipment, and immigration consents for key personnel; • Working with the Concessionaire to identify staff to be transferred to the Concessionaire and dealing with issues arising from staff not to be transferred; • Transferring to the Concessionaire the necessary rights in the Concessioned Assets both in their entirety and punctually; and • Where appropriate, entering into an intercreditor agreement referred to in section 2.11 and a Direct Agreement with the Concessionaire and Senior Lenders. The role of the Authority after Term commencement, and to a degree before, may include the following: • Paying any service payments or other payments to be made under the Concession Agreement whether of a capital or revenue nature and allowing adjustments in accordance with the Agreement for inflation and, where relevant, currency fluctuations; • Reviewing and commenting on any changes (Variations) to Concessionaire designs and construction proposals as they are developed; this should not be confused with the continuing role of the Independent Engineer; • Reviewing and commenting on Concessionaire maintenance, renewal, and operational procedures, to the extent these are not addressed within the role of the Rail Safety Board and the Transport Regulatory Commission; • Viewing and observing tests of any equipment being developed; • Administering the agreed process for the Concessionaire or Authority to propose and implement changes to output requirements, constraints on inputs, or Concessionaire proposals, to the extent these are not addressed within the role of the Rail Safety Board and the Transport Regulatory Commission; • Accessing management information to ensure the delivery timetable is on track and any overriding safety issues are being satisfactorily addressed, depending on the scope of Authority exposure to the scheme. This may include access to the site and places of manufacture; rights of access that should extend to the Independent Engineer. Principles outlined in this section 2.10 reflect an intention to ensure appropriate risk transfer during the period leading up to the commissioning of the New Upgrades and beyond. 2.11 Concession Fees The World Bank Page 256
Railway Reform: Toolkit for Improving Rail Sector Performance Annex 4: Concession Contract Guide Should the Concessionaire make a capital payment for using concession assets in addition to the obligation to supply New Upgrades? This will depend upon how robust the business case is, which in turn depends upon whether the Authority wishes the users to include within the payments to the Concessionaire, a portion towards the return of, and return on, that capital payment. Bidders will evaluate all the risks and any up-front capital payment will be fixed with those risks in mind. Where the amount of the capital payment forms part of its bid rather than being fixed by the public sector there is likelihood that bidders will be more conservative in relation to any up-front payment. If a capital payment is to be made, it could be paid immediately before the Term commences, by installments, or partly through a capital payment and partly through a debt to the Authority, which is subordinated to the senior debt from Funders but ranks ahead of equity. This does not mean that Concessionaire shareholders will receive no return until the subordinated debt is paid, but if the concession gets into difficulties the subordinated debt will rank ahead of shareholders. Thus the business case would have to be robust before shareholders would accept greater risk to their investment. If subordinated debt is used, this would be reflected in separate loan documentation including a form of inter-creditor agreement between Government and Senior Lenders. In addition to or instead of a payment of capital monies, the Concessionaire may be required to pay annually an amount fixed by reference to turnover or other amount, perhaps based on the idea that after achieving an annual turnover target, any surplus should be shared. Issues to consider include whether the target is fixed before or after discounting for inflation, and whether any regulator rules conflict with this approach. If a lease is used, the payment may be made under the lease; however, it is preferable that all operative provisions of the agreement between the Concessionaire and the Authority should appear in one place, leaving the lease document in a simple form. 2.12 Bonds The Concessionaire will add the cost of any surety bond(s) to its total costs, which it will then wish to recover from users and, if the Authority makes a payment to the Concessionaire, then within that payment. Thus, bonds should be used only if a strong cost/ benefit case can be made. In most cases, if the Concessionaire fails, an immediate cost accrues to the Authority; therefore it is recommended that all bonds issued be callable on demand. The different types of procurement procedures are addressed in Chapter 13. It should be borne in mind that the use of a bid bond within the context of a negotiated bid is not without difficulty. The bond merely supports bidder commitment to enter into a contract based upon its bid. If there are negotiations, the original bid will be superseded by subsequent negotiations; therefore, an argument can be made that the bond is no longer enforceable. Another option would be to negotiate with more than one bidder and to request that they submit their ‘best and final offers,’ each supported by a bid bond. Yet another option is to have discussions at prequalification or pre-bid stage, and request bids with bid bonds, based The World Bank Page 257
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Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

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