Concession default may require compensation depending on governing law.

before construction start

-- Grantor: no compensation as: little or no investment to date.

-- Funders: would like compensation for pre-qualification and tender costs, and initial capitalization of project company, as well as any capitalization costs required by the bidding procedures.

after construction start

-- Funders: substantially increased risk require certain rights of termination and compensation.

differentiation of type of funds

Termination provisions differentiate the types of funds put at risk by termination, namely debt, equity and loss of future profits.

Force Majeure termination

-- require discussion between parties

-- no agreement? then arbitration panel determines compensation

-- Grantor usually agrees to repay the project lenders

-- Grantor may or may not partially compensate equity investors

-- generally no compensation for loss of future profits.

Adversity termination

-- eg. new tax or new legislation adversely impacts the project financially to such an extent that it causes the dissolution of the project company.

-- usually no express right of termination, but such rights may arise indirectly in this case

Grantor default

-- generally Grantors concede express right of termination to the concession entity in the event of Grantor default.

-- Grantor fully compensates lenders

-- Grantor fully compensates equity investors

-- Grantor compensates for loss of future profits.

Default of Concession Entity

-- Grantor reserves right to terminate the concession for insolvency or breach of the concession company

Governing Law

-- Grantor usually insists on local law governing the concession agreement

-- other project agreements may be subject to foreign law

-- check local law regarding termination and compensation.

-- check that the arbitration and other dispute resolution clauses survive any termination.

Grace Periods

-- concession contract usually allows 90 days or longer grace period after proclaimed termination

-- during this period lenders may try to exercise the substitution rights which are commonly written into the concession contract and to enforce the standstill obligations which they will have secured from the other project participants.

Insurance or Guarantee of Government Obligations

-- lenders may obtain other remedies, for example guarantees or other support from export credit agencies and multi-laterals in the event of Grantor government default.

Continuous Operation

-- if termination occurs, the Grantor usually reserves the right to step in and ensure the continuous operation of the project facility, without prejudice to the legal rights of the parties.