2.2.5. Concessions

In this form of PPP, the Government defines and grants specific rights to an entity (usually a private company) to build and operate a facility for a fixed period of time. The Government may retain the ultimate ownership of the facility and/or right to supply the services. In concessions, payments can take place both ways: concessionaire pays to government for the concession rights and the government may also pay the concessionaire, which it provides under the agreement to meet certain specific conditions. Usually such payments by the government may be necessary to make projects commercially viable and/or reduce the level of commercial risk taken by the private sector, particularly in the initial years of a PPP programme in a country when the private sector may not have enough confidence in undertaking such a commercial venture. Typical concession periods range between 5 to 50 years.

The next figure shows the typical structure of a concession contract. It may be noted that in a concession model of PPP, an SPV may not always be necessary. An SPV may be necessary for a BOT type of concession however.


Figure 7.
Concession contract

Concessions may be awarded to a concessionaire under two types of contractual arrangements:

  • Franchise
  • BOT type of contracts

These concession types are explained below.

 

Copyright © 2008 by Transport Policy and Development Section, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).