By Chongo Sombo Mulenga (MCIArb)

Much like other agreements, a concession agreement is broken down into several parts and also contains annexures which are linked to various clauses within the agreement. The first part of a concession agreement is dedicated to preliminary matters such as the preamble, definition and interpretation clauses as well as the project scope which deserve much more than a casual perusal as they play a crucial role in deciphering the substantive provisions and implications of the agreement.

Preamble

The preamble of a concession agreement identifies the parties to the agreement and also contains recitals that briefly outline the procurement process leading up to the agreement itself. Notably, the preamble specifies the public sector entity (known as a “Contracting Authority”) that will assume certain responsibilities under the agreement on behalf of the government and also identifies the special purpose vehicle incorporated by the private party (known as the “Concessionaire”).

Under the recitals, the concession agreement confirms that the Contracting Authority has acquired the necessary authority for project procurement, detailing the specific procurement procedures undertaken. It is imperative for the recitals to explicitly mention the creation of a special purpose vehicle tasked with fulfilling the obligations and exercising the rights of the private party that has been awarded the concession. The formation of a special purpose vehicle is crucial as it shields the project from any current or future incumbrances linked to the promoting private entity.

Definitions and Interpretation
Many contracts contain a clause that defines key terms used within the agreement and also provides guidance on how the agreement is to be interpreted. Concession agreements tend to have several defined terms, some of which aid in identifying key stages in the project.

For instance, the concession agreement usually distinguishes the “appointed date” from the “commercial operations date” whereby the former pertains to the date when financial close is achieved while the latter pertains to the date upon which the project becomes operational post construction. It is crucial to differentiate between these dates, especially in brownfield projects, as they provide clarity as to when the private party may begin to collect project revenues.

The definitions clause also establishes a link between the concession agreement and other project related agreements such as the Financing Documents; Engineering, Procurement and Construction (EPC) Contracts; and Operation and Maintenance (O & M)  Contracts, among others. The substantive provisions of the concession agreement provide further details on these project agreements and the manner in which they interact with the concession agreement.

The interpretation portion of the concession agreement provides the context within which the agreement should be construed. For example, it may provide for the computation of time by stipulating whether any reference to ‘days’ in the agreement shall be understood to mean working days or calendar days. Such matters, though seemingly trivial, often have significant implications on the project and govern the manner in which parties perform their obligations and exercise their rights under the agreement.

Project Scope

The essence of a clearly defined project scope is evident from its early premiere within the concession agreement as it is much more than a geographical description of the project. The purpose of collaboration between the public and private sectors and the desired outcome of the project is revealed by the clause detailing the scope of the project. This clause outlines the infrastructure or services to be delivered, the specifications thereof and the expected standards of performance. Due to its significance, the first annexure to a concession agreement usually pertains to the project scope and contains a site plan for the project.

Conclusion

While it may be tempting to gloss over the introductory clauses of a concession agreement and dive into the substance of the agreement, it is usually strenuous to come to a holistic appreciation of the agreement with this approach. These clauses are absolutely important as they identify the parties, provide a background to the project, bring out the purpose of the agreement and serve as a campus for navigating the document as a whole.

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