Authority's undertakings

Content Headings

Key Issues

Example clauses

Notes and References

The government should not assume that a PPP means that all the risks and responsibilities of operating the project transfers to the project company. The government may offer the project company incentives to invest, construct and operate infrastructure services. Some of the typical incentives are:

Tax incentives. This may include exemption from corporate tax for a period ("tax holidays"), exemption or concession from other indirect taxes, exemptions from import duties on equipment, raw materials and components of construction, operation and maintenance of the project.

Contribution of land and assets. The government commonly provides the land on which the project is conducted. Usually, the right to the land including all easements over adjoining property and facilities such as roads, water suppliers and energy transmissions as needed to conduct the project is conferred until the end of the concession period. Occasionally, such rights is conferred until the end of the construction phase, following which the infrastructure assets are transferred to the government and the project company then leases the infrastructure assets from the government until the end of the concession period. Some concession agreements provide for the project company to reimburse the government for the land over the life of the project.

Network and logistical support. The infrastructure facility under the concession agreement may be part of a larger network, for example, roads, telecommunications and electricity. The government may need to construct, or arrange for the construction of, associated infrastructure facilities and the logistics involved with connecting the infrastructure facilities together.

Supply of labour and materials. The government may be responsible for ensuring the availability of labour in the local workforce. The government may ensure that building materials and inputs needed for the construction and operation of the project facilities are available. This is particularly important if monopoly suppliers (usually state owned enterprises) dominate the supply of the building materials and inputs. The project company may request that the government guarantees the availability of sufficient supply at a reasonable price.

Remittance of income from the project. Foreign currency restrictions may prevent the conversion of local currencies into a foreign currency, or the remittance of income from the project abroad. Where this is the case, and the project sponsors and lenders are overseas entities, then the private sector may require that the government provide assurances that the project company can convert and remit currency out of the country without undue restrictions.

Guarantees and stand-by financing. While the government sometimes provide guarantees and stand-by financing for infrastructure projects, any requests for these guarantees should be carefully considered. The sponsors and/or the contractors, and not the government, should provide guarantees of events that are their responsibilities, for example, completion guarantee. A common form of guarantee is an off-take agreement in which the government is a purchaser, if there is a specified minimum purchase, then this in effect is a guarantee of minimum revenue to the project company (usually subject to the project company having the capacity to provide a minimum level of the infrastructure services).

Non-competition. The project company may require an assurance from the government that competing infrastructure facilities will not be constructed. While a certain degree of assurance is reasonable given the private company's investment in the project, the government should be careful not to create monopolies at the cost of consumers. A compromise might be to ensure no competing infrastructure facilities unless certain revenue targets are met. This would not impede unduly on the development of a country's infrastructure assets.

Alternative 1:

The Authority undertakes to the Concessionaire that it shall:

(a) subject to the provisions of this Agreement, comply with all Laws, [Regulations] and [Consents] applicable to it which relate to the Project Operations;

(b) not willfully impede the Concessionaire in the performance of its obligations under this Agreement (having regard always to the interactive nature of the activities of the Authority and of the Concessionaire and to the Authority's use of the Facilities to provide the Services and any other operations or activities carried out by the Authority or at the Site for the purposes contemplated by this Agreement or any other of the Authority's statutory functions);

(c) inform the Concessionaire as soon as reasonably practicable if at any time it becomes unable to meet any of its financial obligations and in such case inform, and keep the Concessionaire informed, of any course of action to remedy the situation recommended or required by [the Secretary of State] or other competent authority;

(d) to the extent permitted by Law, supply the Concessionaire within 60 Business Days of their publication, a copy of the Authority's Annual Report and Accounts; and

(e) comply with the provisions of the Retained Staff Agreement, its employment policies and the terms and conditions of the contract of employment of the relevant Retained Staff Member provided that: to avoid doubt:

(i) nothing in this clause shall in any way fetter the discretion of the Authority in fulfilling its statutory functions; and

(ii) if there is a conflict arising between the terms of this Agreement and the terms of the Retained Staff Agreement, the terms of the Retained Staff Agreement shall prevail.

See SOPC Section 3.2.

Alternative 1 adapted from Department of Health (UK), Standard Form Project Agreement Index reference A1 Folder 1.

Alternative 2:

The Authority may, notwithstanding anything to the contrary contained in this Agreement, require a change in the scope of the Project ("Change of Scope"), provided that such change does not involve variation in capital expenditure exceeding. The Change of Scope may be required by the Authority by an order (the "Change of Scope Order") issued in accordance with the procedure set forth in Clause [change of scope procedure, see below].

The Authority may, at any time during the Implementation Period but at least 90 days prior to the Scheduled Project Completion Date, require Change of Scope by a written notice (the "Change of Scope Notice") to the Concessionaire, through the Independent Engineer.

The Concessionaire shall, within 15 days of receipt of Change of Scope Notice, provide to the Independent Engineer such information as is necessary and reasonable together with preliminary documentation and details including calculations where necessary, in support of the following:

(a) the impact which the Change of Scope is likely to have on the Construction Requirements and/or the O&M Requirements.

(b) variation in capital expenditure, operating cost and taxes to be incurred by Concessionaire for implementing the Change of Scope.

(c) the estimated additional time (number of days) that the Concessionaire would require to achieve COD consequent to Change of Scope.

The Concessionaire shall upon review by the Independent Engineer of the information, documentation and the details submitted by it pursuant to preceding sub-clause (b), forward to the Authority the statement of variation in capital expenditure, operating cost and taxes and the other details in sub-clause (b) as determined in consultation with and duly certified by the Independent Engineer. The Authority may, within a period of 15 (fifteen) days from the date of receipt of such statement, issue the Change of Scope Order.

Provided, if for any reason the Authority chooses not to issue the Change of Scope Order, it shall reimburse to the Concessionaire the cost/expenses certified by the Independent Engineer as having been incurred by the Concessionaire in preparing and submitting the drawings, documents, estimates and other information in compliance with the Change of Scope Notice.

Simultaneously with the issue of the Change of Scope Order, the Authority shall notify the Concessionaire the mode of settlement of variation in capital expenditure/ operating costs/ taxes which shall be one of the following modes:

(a) by lump-sum reimbursement to the Concessionaire of the increase in capital expenditure/ operating costs/ taxes; or

(b) reimbursement of increase in capital expenditure/ operating costs/ taxes to the Concessionaire, in a maximum of four equal half yearly instalments, subject to payment of interest at [AWPR +2%] on the amount the payment of which is deferred; or

(c) resetting of Bid Availability Payment by taking into account the variation in capital expenditure/ operating costs/ taxes.

It is clarified that any decrease in capital expenditure/ operating costs/ taxes due to above Change in Scope during Construction Period shall be settled only through resetting of Bid Availability Payment as per provisions of this clause.

Provided that if the Change of Scope causes variation in cost of meeting O&M Requirements only, such variation during an Availability Payment Period shall be added to / deducted from Adjusted Availability Payment payable by the Authority to the Concessionaire on the Availability Payment Date in respect of that Availability Payment Period.

The Change of Scope Order shall be effective from the date the mode of reimbursement is notified to the Concessionaire in terms of the preceding clause

The Authority shall, within 30 days from the date of receipt of a Certificate from the Independent Engineer certifying that the Concessionaire has completed the works in accordance with the Change of Scope Order, settle the Concessionaire's account in accordance with provisions of this Clause.

Alternative 2 adapted from Concession Agreement for Colombo Kathunayake Expressway Project (note confidential), index reference A2, folder 1.