Content Headings

Key Issues

Example clauses

Notes and References

Commencement

Some alternative commencement dates are:

(a)  on the date of the agreement;

(b)  on the date the conditions precedent are satisfied; and

(c)  on a specified date in the future. 

Is it appropriate to have a staggered commencement date? (see for example Alternative 2), so that some obligations come into effect on the date of the agreement and others at some milestone in the project (for example on Completion of the construction of the facility)

The concession period means the length of time the private sector is able to operate the infrastructure facility. Although the concession period is often specified in terms of time, a more unusual alternative is to calculate the concession period on the basis of a fixed return on investment of the project company (that is, for the period of time necessary for the private sector to achieve a specified financial return). On expiry of the concession, it is usually appropriate to terminate rights and obligations rather than terminate the concession agreement entirely. For example, after the infrastructure is transferred to the government, the project company may still be liable for warranties in relation to the design and construction of the infrastructure. The appropriate length of a concession period would depend on a number of factors:

The cost of constructing the facility. If the cost of constructing the facility is large, then a long concession period is needed in order for the private sector to repay its loans and make the return on its investments.

The cost of the process for selecting the private sector. If the process of selecting a private selector (usually a tendering process) is lengthy and expensive, it may not be efficient to put the concession up for tender regularly.

The benefits of competition. Usually (though not always) a concession confers an exclusive right to operate in a certain market. The extent to which the private sector's monopolistic power is curtailed by regulations may also be limited, because heavy regulations would limit the extent of private sector's interest in the project. A shorter concession term (assuming this allows for recovery of costs for the private company) in this case would provide for greater competitiveness because the government can put the infrastructure facility for auction to other interested private operators in the market. This is sometimes called competition to a market, as opposed to competition in a market.

Alternative 1:

The concession period shall commence [on the date of this agreement/ on the date all the Conditions Precedents are satisfied or waived in accordance with clause [CP clause].

Alternative 2:

The Term of this agreement shall commence:

(a)  for clauses [specify clauses, eg pertaining to warranties, design and construction etc] on the date of this agreement; and

(b)  for the remaining clauses of this agreement, on the [Service Commencement Date].

See SOPC Section 2.

Alternative 3:

The Concession hereby granted is for a period of [concession period] years including a construction period of [construction period] years commencing from [the Commencement Date/ the date of this agreement/ specify date] and ending with on [the Expiry Date/ the []th anniversary of commencement/ specify date] ("Concession Period"). However, in the event of [Termination], the Concession Period shall mean and be limited to the period commencing from the Commencement Date and ending on the Termination Date.

Alternative 3 adapted from Concession Agreement for Colombo Kathunayake Expressway Project (note confidential), index reference A2, folder 1.