Content Headings

Key Issues

Example clauses

Notes and References

Events of default and termination

The concession agreement needs to provide for termination provisions.  Termination provisions need to specify:

(a)  when either the project company or the government can exercise the right to terminate the concession agreement, usually this is on insolvency or liquidation events of the other party, and for material breach (the scope of which should be carefully considered); 

(b)  the mechanisms needed to exercise the termination right, there is usually a requirement to provide a notice of termination, except for termination on insolvency or cases where breaches of the agreements are not capable of being remedied, this may give lenders time and opportunities to exercise any step-in rights; 

(c)  the compensation payments on termination, usually the government needs to compensate the project company for the investments already made in infrastructure facility; 

(d)  other rights and obligations of the parties following termination, for example surviving confidentially obligations; and

(e)  the termination provisions need to be reconciled with the lenders' step-in rights, the lenders would want to forestall a possible termination of the concession agreement to keep the project alive until the lenders have been paid out. 

If a Party having become entitled to do so decides to terminate this Agreement pursuant to clause [ref], it shall issue Termination Notice setting out: 

(a)  in sufficient detail the underlying Event of Default; 

(b)  the Termination Date which shall be a date occurring not earlier than 60 days from the date of Termination Notice; 

(c) the estimated Termination Payment including the details of computation thereof and; 

(d)   any other relevant information. 

Notwithstanding anything inconsistent contained in this Agreement, if the Party who has been served with the Termination Notice cures the underlying Event of Default to the satisfaction of the other Party at any time before the Termination occurs, the Termination Notice shall be withdrawn by the Party which had issued the same. 

Provided the Party in breach shall compensate the other Party for any direct costs/consequences occasioned by the Event of Default which caused the issue of Termination Notice.

See SOPC Section 18.

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