A concession agreement is a legal contract between two parties, where one party grants the other party the right to use, occupy, or develop a property for a specified period of time. A concession agreement is a common way to manage public resources such as oil, gas, and mineral reserves or public infrastructure such as toll roads, bridges, airports, and ports.
Investopedia defines a concession agreement as “a contract between a government entity and a private organization or consortium that allows the private company to operate, maintain, and develop a public facility or service for a specified period of time, typically 20 to 30 years.”
The private entity or concessionaire is responsible for financing, designing, constructing, operating, and maintaining the infrastructure or service. In exchange, the concessionaire has the right to collect user fees or tolls and generate revenue from the project. The concessionaire bears the risks and benefits of the project and must comply with the terms and conditions of the concession agreement.
The government entity or grantor retains ownership of the asset or resource and may receive a share of the revenue or profit generated by the concessionaire. The grantor also regulates and monitors the performance of the concessionaire, enforces the terms of the agreement, and protects the public interest.
Concession agreements are often used in developing countries or emerging markets to attract foreign investment and expertise in infrastructure and public services. They can leverage private sector efficiency and innovation, transfer technology and know-how, and create jobs and economic growth. However, they also raise concerns about transparency, accountability, environmental and social impacts, and sovereignty.
In summary, a concession agreement is a complex and important contract that regulates the relationship between a public authority and a private entity in the development and operation of public assets or resources. It requires legal, financial, technical, and social expertise, as well as a clear definition of roles, responsibilities, risks, and benefits. Investopedia provides a useful resource for understanding the key concepts and issues of concession agreements.