Concession Agreement

Many concession agreements have an arbitration clause. It is sometimes referred to the arbitration of the International Chamber of Commerce (ICC) (which is the preference of most lenders) or to a local arbitration institute. The agreement often has a specific procedure. Arbitration is often a preferred option in the event of a conflict between the parties. The reference clauses in Box 52 are used to decide whether to increase the concession fee if the parties fail to reach an agreement. This type of arbitration can also be applied to other disputes that may arise during the concession period. Concession contracts were initially developed for service ports. In general, lease ports did not require concession contracts, but instead used leases. The two types of agreements have a lot in common, and some see a lease as a variant of a concession. In order to avoid misunderstanding, the term full concession agreement is used to describe a concession in its broadest form; that is, a number of contracts defining the relationship between government and the private sector with respect to the right to use port land and facilities, as well as the obligation to build port infrastructure and provide construction infrastructure.

At best, concession agreements are a form of outsourcing that allows all parties to benefit from comparative advantages. Often, a country or company has resources that lack the knowledge or capital to use it effectively. By outsourcing the development or exploitation of these resources to others, it is possible to earn more than they could on their own. For example, a country may lack capital and technical capacity to exploit offshore oil reserves. A concession contract with an oil multinational can generate income and jobs for that country. There is no generally accepted standard for the concession fee. This levy is normally determined as the sum of a fixed levy for the use of land managed by the Authority and a variable levy in the form of a debit licence fee for the right to perform handling services. The amount of the fee is a function of the local situation. The fixed share may represent the infrastructure costs (and, if applicable, construction costs) of the terminal, including financing costs.

The structure and amount of the concession fee is an essential part of the analysis by the project proponents.