Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
Annex 4: Concession Contract Guide
the Agreement. However, the Agreement will often include an ‘exclusive remedies’
clause that will limit the right of either party to remedies under the Agreement,
rather than generally at law, and there may well be exclusions for what are
sometimes loosely referred to as ‘consequential losses’ but might better be referred
to as ‘indirect losses’, including opportunity costs.
Rights and obligations on termination
There are two approaches to termination. First, termination can occur under the
Agreement, in which case those provisions that are to remain in effect, such as
Confidentiality, Dispute Resolution, and provisions relating to post termination
financial adjustment, such as compensation payments must be listed. Second,
termination can occur because the Term under the Agreement expires or is prematurely
reached. In this case, the obligations of the parties are abolished in relation
to the concession, but remaining obligations stay in force. The approach will
in part be impacted by host country law.
Post termination
The Concessionaire should release control of Concessioned Assets in accordance
with the Hand Back procedure, unless and to the extent that it is intended, that
the Concessionaire may keep certain assets. Whether the Concessionaire should
receive compensation, in what circumstances and how much, will depend on
what the market will accept at the time of bidding for the concession, and the law
of the host country.
In essence if termination is due to Authority Default, compensation should be
sufficient to repay Funders, including all unwinding costs, repay equity capital,
pay the unwinding costs of then-existing contracts, the costs of demobilization
and a payment towards future dividends on shares lost as a consequence of early
termination.
Where the Concessionaire is in default, a practical measure would be to offer the
residue of the concession on the same terms as the original concession and, after
payment of the Authority’s expenses, to pay the balance to the Funders of the
Concessionaire. This works only where there is a liquid market—a sufficient
number of companies willing to bid for the replacement concession and sufficient
Funders prepared to lend money. The worst position for the Authority is that it
must pay off Funders in full, plus part of the equity or share capital. A midway
position is possible in jurisdictions that allow an entitlement to compensation if
the concession relates to a public service. The courts will establish compensation
if it was not agreed between the parties, although this will not reassure Funders,
because the process of resolving disputes on value at law is typically prolonged.
On the occurrence of an event of Political Force Majeure the Concessionaire
would expect repayment of Funders, return of equity, and costs of demobilization.
On Force Majeure, the Concessionaire would argue, as a minimum, for repayment
of debt although it does not succeed in all jurisdictions. See issue of power
of the courts in section 2.16 under the reference to Force Majeure.
The World Bank Page 277