Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
Annex 4: Concession Contract Guide
cost because the rate subsequently increased of any Relevant Taxes that the Concessionaire
would be obliged to pay, or to indirectly bear, and if the Concessionaire
is unable to obtain a compensating adjustment to any tariffs fixed by the
Transport Regulatory Board, then the Concessionaire should provide the Authority
with full details of any Change in Relevant Taxes as soon as practicable after it
becomes aware of it, including the amount of tax and due dates for any payments.
The method of dealing with the Change in Relevant Taxes will depend upon host
country tax law. The Concessionaire could be exempted by an extra statutory exemption,
provided that it is legally binding on the tax authorities. Otherwise the
Authority should hold the Concessionaire harmless, including by making compensatory
payments.
In some case, these types of provisions require the effect of a Relevant Change in
tax to reach a particular financial threshold before the compensation regime locks
in; in other cases, the provisions in the Agreement will allow a tax reduction to
benefit the Authority.
2.18 Change in Circumstances
For the purposes of this Guide, a Change in Circumstances is defined as a significant
change in the assumptions and conditions upon which the parties based
their decision to enter into the Agreement, that is, either unforeseeable circumstances,
or circumstances whose consequences were unforeseeable at the date of
execution of the Agreement. The change can be further defined as one that was
not caused by, or contributed to by, any act or default of any party, and in respect
of which, had the parties been aware prior to the execution of the Agreement that
such Change in Circumstances would arise, they would not have entered into the
Agreement. The basis for that being that such Change in Circumstances would
have adversely affected the relevant party’s ability to carry out its obligations and
duties under the Agreement, or would have adversely affected the financial equilibrium
under the concession. Preferably, Change in Circumstances should include
only those events similar to the following for which the Authority is responsible,
such as Change in Law, acts of expropriation, compulsory acquisition, and
nationalization.
In some jurisdictions the civil code will incorporate protections against these
kinds of changes. For instance to be considered within a Change in Law, the
change may be required to be material and satisfy the following criteria:
• It is generally inapplicable to commercial and industrial undertakings in the
host country in which there is private investment or ownership.
• It imposes costs on the Concessionaire that exceed the value of any benefits
to the Concessionaire; the change carries a discounted present cost to the
Concessionaire over the remainder of the Term that exceeds a specified sum.
One solution to a Change in Circumstances is for the parties, at their own cost, to
take all steps reasonably required to restore their ability to perform their obligations
under this Agreement that are affected by a Change in Circumstances, and
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