1. In view of the difficulties being
faced by Concessionaires in Public-Private-Partnership (PPP Projects),
Government has decided to permit the substitution of existing Concessionaires,
in a harmonious manner, in accordance with provisions of Clause 40.3 of the
Model Concession Agreement read with Substitution Agreement set forth in
Schedule-V of the Model Concession Agreement.
2. This decision shall be applicable to
all National Highway projects under PPP mode awarded/yet to be awarded on
Build-Operate-Transfer (BOT) mode of delivery:
a. The on-going 2-laning and 4-laning
National Highway projects where financial close has been achieved by the
Concessionaire but Commercial Operation Date (COD) has not yet been declared by
the Authority;
b. The 6-laning National Highway
projects wherein the financial close has been achieved by the Concessionaire
but the project completion certificate has not yet been issued by the
Authority;
c. Completed 2-laning, 4-laning and
6-laning National Highway projects awarded on Build-Operate-Transfer (BOT) mode
of delivery under PPP mode; and
d. All the new National Highway
projects under PPP mode yet to be bid out on BOT mode of delivery in line with
(a), (b) and/or (c) above, as the case may be.
3. Provisions pertaining to
substitution of the Concessionaire by the Lenders’ Representative are contained
in Clause 40.3 of the Model Concession Agreement in general, and Clause 3.1.1
of Substitution Agreement in particular. Clause 3.2 and 3.3 of the Substitution
Agreement provide for substitution in the event of Financial Default and
Concessionaire’s Default respectively. It is further clarified that Right of
Substitution by the Lenders’ Representative can be exercised in situations
other than those illustrated in Clause 3.2 and 3.3 of the Substitution Agreement.
In case of harmonious substitution as envisaged in this circular, the
provisions contained in Clause 3.4 of the Substitution Agreement, except those
contained in para 3.4.1, shall be applicable, in addition, to the procedure
laid down herein below:
i. The
Concessionaire shall make a written representation to the Lenders’
Representative with a copy to the Authority requesting the Lenders’
Representative to seek approval of the Authority for its Substitution. Upon
receiving the said request, the Lenders’ Representative shall make its own
assessment regarding the said request of the Concessionaire and upon being
satisfied that it will be in the interest of the Project that the
Concessionaire may be substituted by a Nominated Company, Lenders’ Representative
in consultation with the Concessionaire would invite, negotiate and procure
offers either by private negotiations or public auction or tenders, for the
takeover and transfer of the Project Highway including the Concession to the
Nominated Company.
ii. Selection of the Nominated Company
and the valuation of the Equity of the Concessionaire would be done by mutual
consent of the Concessionaire and the Lenders’ Representative.
iii. Upon receiving the proposal of the
Lenders’ Representative for substitution of the Concessionaire with the
Nominated Company under Clause 3.4.3, the Authority shall satisfy itself about
the credentials of the Nominated Company and accord its concurrence regarding
such substitution.
a. For projects that have achieved COD,
the substituting entity should have adequate experience of operating and
maintaining completed road projects by itself or through its
associates/subsidiaries.
b. For projects under construction, the
substituting consortium/entity should have the requisite financial and
technical qualifications to bid for a project of at least the same size, or
higher/better.
Thereafter, the nominated Company
will form an SPV for taking over the project along with all the rights and
obligations of the Concessionaire.
iv. While concurring to the said
proposal of the Lenders’ Representative, Authority’s Board may levy an
appropriate penalty keeping in view the nature and extent of default as per the
procedure to be prescribed for the purpose by the Authority subject to a cap of
1% (one percent) of Total Project Cost.
v. Where the responsibility for delay
in execution or completion of the project is on account of non-fulfilment of
the obligations of the Authority, namely, land acquisition, environmental
clearances, other statutory/regulatory approvals/clearances, no penalty would
be levied on the Concessionaire for non-fulfilment of its obligations. However,
the Authority would be required to remedy the defaults before the formal
agreement for substitution is signed.
vi. Subsequent to such substitution, for
completed projects, the lead substituting entity shall be required to maintain
at least 51% holding in the project SPV, save and except the situation for
dilution of equity, in accordance with the provisions of Clause 7.1(k) of the
Model Concession Agreement read with the definition of “Change of Ownership” as
prescribed in Article 48 of the Model Concession Agreement.
vii. The procedure prescribed in other clauses
of the Concession Agreement and the Substitution Agreement, other than that
contained in Clause 3.4.1 of the latter, shall be strictly adhered to.
viii. The Authority shall stand fully
discharged of any claims whatsoever, by the exiting Concessionaire.
ix. Such substitution may be permitted
only once during construction period
4. The above clarifications/stipulations
read with the Clauses referred hereinabove are with reference to Concession
Agreements based on the Model Concession Agreement dated August, 2011. However,
these shall apply mutatis mutandis to
the relevant provisions of other Concession Agreements signed by the Authority
for BOT Projects on PPP mode of delivery from time to time.
