Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
Annex 4: Concession Contract Guide
how and when compensation should be paid. Typically this would require the
Authority to agree that the senior debt loan life cover ratio and equity return are
to remain unchanged. However, if changes have occurred in assumptions used in
preparing the Financial Model between the Agreement execution date and the
circumstances giving rise to the claim, then the use of this mechanism could risk
over rewarding or under rewarding the Concessionaire. Sometimes, changes in
factors can be imported into the Financial Model. Nevertheless the Agreement
should be drafted so that Compensation Events require as simple an approach as
possible and the sole concern is to ensure fair compensation for a limited number
of events, which can be calculated in a straightforward manner.
Force majeure events
Force Majeure Events are incidents that prevent the Concessionaire from performing
its obligations at any time, for which the Concessionaire bears the financial
risk in terms of increased costs and reduced revenue, but for which it is allowed
relief from termination for failure to meet its obligations under the Agreement
to the extent that the Force Majeure Event caused that failure. Examples
listed below may be outside Concessionaire control. However, ‘outside Concessionaire
control’ is not the appropriate measure of whether an event should appear
on the list to be contained in the Agreement. Many events ‘outside Concessionaire
control’ at the time they occur could in fact have been prevented by
proper precautions (e.g., fire). Therefore, the real question is whether the risk of
specific events occurring, or the consequences of those events, ought to be borne
by the Concessionaire since it is better positioned than the Authority to mitigate
and manage the consequences through risk management and planning, which
will also take into account insurance cover and the ability to work around events
or the consequence of events.
Force Majeure Events may include the following:
• Fire, explosion, lightning, storm, tempest, flood, bursting or overflowing of
water tanks, apparatus or pipes, ionizing radiation (to the extent it does not
constitute a Force Majeure Event), earthquakes, riot and civil disturbances;
• Failure by any, utility company, local or regional authority, or other similar
body to carry out works or provide services;
• Any accidental loss or damage to the Concessioned Assets;
• Any failure or shortage of power, fuel, or transport;
• Any blockade or embargo that does not constitute a Political Force Majeure
Event; and
• Any labor disruptions, including the following:
− official or unofficial strike;
− lockout;
− go-slow; or
− other dispute,
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