Natural Resource and PPP Infrastructure Projects and Project Finance by Takao Higuchi

Author:Takao Higuchi
Language: eng
Format: epub
ISBN: 9789811322150
Publisher: Springer Singapore

5.1.4 Reasons to Transfer the Project–Related Facilities to the Host Country/Off–Taker at the Conclusion of the Project

In a BOT project, the Host Country/Off-taker’s obligation to take over the project’s facilities by a transfer of such facilities upon the conclusion of the project is stipulated in the Concession/Off-take/PPP Agreement. The subject transfer is usually carried out without any additional consideration being paid when the conclusion of the project coincides with the conclusion of the Project Period. A question then arises as to why the project-related facilities are to be transferred to the Host Country/Off-taker upon the conclusion of the project.

The presumed reasoning can be explained as follows: (i) the objective of the subject project is to provide goods and/or services which the Host Country/Off-taker is originally responsible to provide; (ii) the Host Country/Off-taker usually needs to continue providing the subject goods and/or services after the conclusion of the subject project; and thus (iii) the facilities related to the subject project are transferred to the Host Country/Off-taker to allow the Host Country/Off-taker (or its third-party contractor) to continue providing the subject goods and/or services. As a matter of course, it is conceivable that the term of subject Concession/Off-take/PPP Agreement would be extended upon or prior to the conclusion of its original term, and the same private business entity would continue providing the subject goods and/or services pursuant to such renewed Concession/Off-take/PPP Agreement. However, whether or not the subject renewal arrangement is entered into depends on whether an agreement relating to the subject renewal between the Host Country/Off-taker and the private business entity is made or not, and since there exists a possibility that such agreement will not be made, the premise at the execution of the Concession/Off-take/PPP Agreement is that the Concession/Off-take/PPP Agreement will not be renewed. On the other hand, should ownership of the facilities related to the project be retained by the private business entity (i.e., if the facilities are not transferred to the Host Country/Off-taker), it cannot be assumed that the subject private business entity would continue providing the subject goods and/or services, and usually it is not conceivable to covert the subject facilities for another use other than the subject provision of goods and/or services. In that sense, even if the private business entity retains ownership of the facilities, they would be of no use to such private business entity, and rather it is more likely the case that the private business entity would end up incurring the risk of bearing unwanted responsibility in relation to such facilities. Consequently, the private business entity would choose to demolish the subject facilities, and then it would naturally include the cost for such demolition in the consideration of the Concession/Off-take/PPP Agreement. As a result, the overall cost of the project would unnecessarily become higher, which would not be appropriate at all from the viewpoint of the Host Country/Off-taker.

Additionally, in the case where the Concession/Off-take/PPP Agreement is terminated in the middle of the operation period due to a reason attributable to the

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