Government concessions—key issues for project finance lenders

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Government concessions—key issues for project finance lenders
  • What are 'concessions' in the context of project finance transactions?
  • Common government concessions
  • Rights and obligations of the project entities
  • Rights and obligations of the host government
  • Rights of the lenders
  • Key issues in concession contracts for project finance lenders
  • The length of the concession period
  • Grounds for termination of the concession
  • Effect of enforcing security
  • More...

Government concessions—key issues for project finance lenders

A typical project is underpinned by a complex web of contractual relationships between the parties involved in the project eg the project company, equity investors, contractors, sub-contractors, off-takers and suppliers (see Practice Note: Key project finance parties). The documents governing these relationships are generally referred to as the 'project documents'.

In many projects, a concession contract is one of the principal project documents.

A concession contract governs the relationship between the host government (or governmental authority) and the project company.

What are 'concessions' in the context of project finance transactions?

Many projects involve some sort of collaboration between the private sector and the public sector.

Depending on the structure of the project, the private sector may take responsibility for scoping, designing, financing, constructing and/or operating a project. Often, though, the government in the country where the project is located (the 'host government') will also have to, or want to, be involved in the project to some extent.

Typically, host government involvement is required because:

  1. the project involves the provision of a piece of social infrastructure which will benefit the general population of the host country, such as a school, hospital, road, airport or power plant, or

  2. the project involves the exploitation of a state-owned asset (such as minerals or oil)

In many cases, a project will not be legally or financially viable without host

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