Legal Tools for Port Reform
ANNEX I:
CHECKLIST OF
CONCESSION/BOT
AGREEMENT PROVISIONS
(Related to a concession for the management and
operation of an existing terminal and possible
extension)
- Introduction and recitals: Parties to the agreement,
general considerations.
- Definitions: Definitions are important and
should be thorough. Usually they are included
in a schedule to the agreement.
- Conditions precedent: Those conditions that
have to be fulfilled by the concessionaire and
the port authority before the main provisions
of the concession take effect.
- Grant of concession: This provision sets out the
exclusive right of the concessionaire to enter
upon, occupy, possess, enjoy the benefits of,
and use of the terminal.
- Term of the agreement: The term of the concession
is usually between 30 and 35 years for a
BOT agreement. In case of a concession without
BOT, the term may be in the order of 10 to
15 years.
- Employment: Provisions regulating the position
of employees of the port authority who will
be taken over by the new terminal operator, especially with respect to salaries, pension
rights, and retrenchment (if any). This provision
obviously only applies to a situation where
an existing port authority owned terminal is
being concessioned.
- Transfer of assets: This applies to the transfer
of full rights and ownership, as well as leasehold
or license interests (if any) in all the
movable assets and facilities in the case of the
concessioning of an existing terminal.
- Hand-over of the terminal: The port authority
shall hand-over the concession area, the operational
port infrastructure and movable assets
and facilities, and books and records in relation
to the operations of the terminal (if any) by
giving the sole, exclusive, and vacant possession
thereof to the concessionaire.
- Exclusivity: After the completion of the construction
of a new terminal under a BOT, the
new operator may be granted exclusivity rights
for a limited period, usually three to five years.
These rights allow the concessionaire to build
up business without being directly confronted
by a competing facility.
- Project: This provision gives a general description
of the project. This might be the management
and operation of an existing terminal as
well as a possible extension.
- Project document compliance: The concessionaire
is not allowed to materially vary the
project documents. Project documents are the
concession agreement, the site lease, the port
services agreement, the financing documents,
the design contract, and the building contract.
The concessionaire may vary the building
contract under certain conditions.
- Project finance: The government or port
authority acknowledge the necessary financing
of the project by lenders such as commercial
banks or the IFC. The government or port
authority usually conclude with the lenders a
lenders direct agreement. This agreement regulates
the rights and obligation between the
government or port authority and the lenders
in the event that the concession is terminated
by the government or the lenders exercise their
rights under the security documents.
- Lenders security: The concessionaire is allowed
to create forms of security over any movable
assets or facilities owned or leased by the concessionaire,
or other property rights forming
part of its interest in the project in favor of any
lender for the duration of the debt financing.
- Functional requirements: The functional requirements
of the extension works comprise main characteristics
of the terminal (transshipment/domestic, multiuser/dedicated), and the main construction
elements such as quay lengths, types of gantries,
depth alongside, and so forth.
- Design solution: Comprises design and construction
methods.
- Design development: The port authority shall
receive all calculations, designs, design information,
specifications, plans, programs, drawings,
graphs, and so forth in relation to the
extension works and the operations and has
the right of control of such documents.
- Design flaws: Procedures to be followed
when the concessionaire becomes aware of
any failure of the design solution or the
design data.
- Applicable permits: The provision includes
the willingness of the government or port
authority to assist the concessionaire in
obtaining the permits, licenses, and so forth
to operate or build the terminal or terminal
extension.
- Concession area conditions: Before starting the
construction, the concessionaire is deemed to
have inspected the concession area. The government
or port authority shall reject all liability
for claims.
- Archaeological items or geological items: All
fossils, minerals, antiquities, wrecks, or structures
of particular geological or archaeological
interest on or under the concession area shall
be deemed to be the absolute property of the
government or port authority.
- Building contract: The concessionaire shall
have the right to and responsibility for selecting
the designer and the builder and agreeing on
the provisions of the design contract and building
contract, without the approval of the port
authority.
- Construction program: The construction program
is an important part of the concession. A
detailed construction program, including milestones
and milestone achievement dates, is
included with one of the schedules. Every
relevant part of a construction program has a
milestone sunset date, which is defined as the
latest date to achieve a milestone that is part of
a construction program under a concession
agreement. Nonachievement of a milestone
sunset date constitutes a termination event for
the port authority (see number 25 below).
- Progress reviews: A provision with respect to
monthly progress reports.
- Extension events: An extension event prevents
or delays the concessionaire from complying
with the obligations of the concession during
the design and construction period of the terminal.
If an extension event occurs, the construction
time will be extended.
- Sanctions for late completion: The project
elements should be completed by the relevant
milestone achievement dates. Nonachievement
of a milestone sunset date constitutes a termination
event for the port authority.
- Commissioning of the project phases: An
appointed test certifier conducts commissioning
tests during project phases that must be passed
to allow the project to continue.
- Operator’s operational functions and activities:
All the operational functions and activities
allowed under the concession are listed in
detail.
- Port authority’s port services: The port services
of the port authority such as pilotage, towage,
vessel traffic management, mooring and
unmooring, provisions of water, and so forth
are listed. Details of these services are usually
included in a separate port services agreement
with the port authority.
- Berthing priorities: These priorities might
be agreed upon between the port authority
(harbormaster) and the concessionaire, but
must be nondiscriminatory and subject always
to such rules and regulations as may be made
from time to time under applicable laws.
- Security: Provision with respect to the tasks
and obligations of both the concessionaire and
the port authority, within the framework of the
ISPS code.
- Use of the terminals: The operator has the sole
right to carry out the port operations and construction
activities within the concession area.
Also in this article, the issue of multiuser versus
dedicated use of the terminals should be regulated.
- Operator’s operational performance standards:
A port authority may set performance standards
such as a minimum number of crane
moves per hour, a minimum berth hour productivity,
or a maximum vessel turn around
time, and so forth.
- Maintenance of movable assets, facilities, and
infrastructure: In view of the fact that the terminal
will be handed over to the port authority
after termination or expiry of the concession,
maintenance standards both for equipment and
infrastructure maintenance should be included.
- Operational subcontracting: The concessionaire
or sponsor is usually given the right to conclude
a management contract with a qualified operator,
subject to approval of the port authority.
- Tariff regulation: The provision may be necessary
in case of the requirement to regulate the
changes to tariffs for handling of domestic
cargoes in the event of a dominant position of
the concessionaire in a certain port or a series
of competing ports.
- Tariff setting: The concessionaire has the right
to freely set tariffs without interference of the
government or port authority, subject to possible
competition regulation
- Site lease: Main characteristics of the site lease
are included in this article, such as price and
number of square meters of the area. The site
lease itself is a separate document that is part
of the concession. The lease rent should be
indexed for inflation.
- TEU fee: The fee is usually expressed in dollars
or other hard currency for each TEU (other
than restows) handled over the ship’s rail. This
article establishes the (variable) price per TEU
per annum the concessionaire pays to the port
authority during the term of the concession.
The TEU fee should be indexed for inflation.
The structure of TEU fee payments might
include (number of) minimum guaranteed
throughput levels.
- Bank guarantee: The port authority may
require a bank guarantee of the concessionaire
with respect to the minimum guaranteed
throughput levels.
- Refinancing: The port authority may require
approval in case of refinancing of the project.
Instead of a bank guarantee, the port authority
may require a performance bond for the
throughput guaranteed and the overall obligations
within the concession by the concessionaire,
which is often based on the business plan submitted
by the concessionaire in the bid proposal.
- Release from rents, taxes, levies, and other
obligations and dues: Sometimes the government
or port authority grants the concessionaire
release from taxes during a certain
period. The terminal may also get a free
zone status, which implies considerable tax
advantages.
- Payments to the government: Any payment
made by the concessionaire to the port authority
shall be considered as a valid settlement of the
operator’s obligations under the concession.
- Information supply: The concessionaire shall
supply specific information to the port authority
on throughput or vessels on a monthly and
annual basis.
- Legal compliance: The concessionaire shall at
all times during the term of the concession
comply with all applicable laws, directives, and
the conditions of all applicable permits.
- Change in law: This article is necessary to
mitigate the effect of a change in law that
materially affects the operations and financial
position of the concessionaire. It sets out
detailed provisions describing which changes
in law apply, such as changes in taxation,
institutional conditions, nationalization, and
so forth. Under certain conditions the government
or port authority compensates losses
sustained by the concessionaire as result of a
change in law event.
- Force majeure: Any event or circumstance or
combination of events, whenever occurring,
that is outside the control of the affected party,
could not be avoided, prevented, overcome, or
mitigated with reasonable foresight and materially
prevents, hinders, or delays performance of
a party’s obligations under the concession.
Typical force majeure events are tsunamis,
earthquakes, or other acts of God; nuclear
explosions; radioactive, biological, or chemical
contamination; war, invasion, embargo, military
coup, or revolution; and so forth.
- Insurance: Insurance covers required by the
port authority to be taken out by the concessionaire
both for operations and for construction
of new terminal facilities.
- Ownership of assets: This relates to the right of
the concessionaire to own mobile assets and
(sometimes) buildings in the concession area.
- Option to continue: The port authority may
grant an option to continue or a right of first
refusal after the expiry of the concession.
- (Interim) termination by the government: This
article comprises detailed events that may lead
to termination of the concession by the government,
such as a material breach of the concessions,
nonpayment of fees, and so forth.
- Termination by the operator: The concessionaire
might terminate the concession when a
material breach occurs by the government or
port authority of their obligations under the
concession.
- Termination procedure: In the event of termination
either by the port authority or the
concessionaire, a termination procedure is
agreed on that sets out detailed provisions of
the rights and obligations of the parties, such
as notice to terminate, remedial program, and
information to the lenders of the concessionaire.
- Rights cease: On termination or expiry of the
concession, all future rights and obligations of
the port authority and the concessionaire shall
cease and the site lease and the port services
agreement shall also be terminated automatically.
- Termination compensation: In case of termination
by one of the parties to the concession, the
ports authority shall pay termination compensation.
Depending on which party terminates
the agreement, the termination compensation
consists of a percentage of the fair value, established by an independent expert. There are
several methods to used to determine the fair
value, which should be stipulated in advance in
the concession agreement. Methods used
include historical cost, inflation adjusted historical
cost, depreciated replacement cost, optimized
depreciated replacement cost or modern
equivalent asset value, and optimized depreciable
value. The expert shall never apply any
earnings-based valuation methodology or any
goodwill in the business of the concessionaire.
- Hand-back: After expiry of the concession, the
concessionaire shall hand back the entire terminal
to the port authority. This article includes
detailed instructions and technical requirements
and procedures on how the hand-back shall take
place. This is to assure the proper state of the
facilities when returned to the port authority.
- Asset transfers on expiry or termination: It is
necessary to regulate the good cooperation
between the port authority and the concessionaire
regarding the hand-back of the facilities to
the port authority.
- Information technology (IT) license: At the end
of the concession, it might be necessary to
transfer IT licenses to the port authority to
guarantee uninterrupted operation on the terminal
during transfer to a new operator.
- No share or liability acquisition: This article
sets out the terms and conditions in case of
participation of the port authority in the capital
of the concessionaire or vehicle company.
- Employees: At the expiry of the concession, the
position of the employees will have to be regulated.
Usually they will be transferred to the
new operator with certain conditions such as
the continuation of earlier salaries and benefits
as well as accrued pension rights.
- Conflict resolution: This article sets out
detailed procedures for conflict resolution
including international arbitration.
- Waiver of immunity: It will be necessary for the
government and the port authority to waive
most forms of sovereign immunity to create a
level playing field with a private concessionaire.
- Recognition of lenders’ rights: The port authority
may include in the concession a special
recognition of the lenders who will be deemed
to be beneficiaries under the concession.
- Performance monitoring: A general provision
in the event that a party fails in the performance
of its obligations under the concession.
When that failure is capable of remedy, the
affected party may serve a notice on the other
party requiring such other party (at its own
cost) to remedy that failure.
- Transfer committee: The committee, consisting
of representatives of both the port authority
and the concessionaire, is responsible for the
transfer process at the termination or expiry of
the concession.
- Responsibilities: The port authority and the concessionaire
shall be solely responsible for the performance
of their functions and services and for
all the acts, or failures to act, of itself and of its
contractors, subcontractors, suppliers, and
agents.
- Liabilities: Neither the government, the port
authority, nor the concessionaire shall be liable
to the other for any loss, cost, liability, or
expense arising from any breach of the agreement
other than for actual loss directly resulting
from the breach.
- Confidentiality: The parties may agree to keep
the details of the concession confidential during
a certain period.
68. Disclosed data: Restriction by the government
or port authority for the liability of disclosed
data on the terminal or concession area.
- Change in institutional structures: During the
term of the concession, the institutional structure
of the government or the port authority
may change. The concessionaire agrees with the
variation of the concession, provided that such
variation does not affect its rights, obligations,
and liabilities under the agreement.
- Variations: Variations in the project documents
shall only be valid if they are in writing and
signed by or on behalf of each of the parties
- Applicable law: Establishment of the law applicable
to the concession. This is usually the law
of the country where the terminal is located.
- Notices: Elected domiciles for formal notices to
be served under the concession.
