Concession Agreement

A negotiated contract between a company and a government that gives the company the right to operate a specific business within the government's jurisdiction, subject to certain conditions. A concession agreement may also refer to an agreement between the owner of a facility and the concession owner or concessionaire that grants the latter exclusive rights to operate a specified business in the facility under specified conditions. Regardless of the type of concession, the concessionaire usually has to pay the party that grants it the concession ongoing fees that may either be a fixed amount or a percentage of revenues. Concession agreements span the gamut, from mining concessions valued in the hundreds of millions, to a small food and beverage concession in a movie hall. The terms of a concession agreement also depend on its desirability. For example, a popular concession in a sports stadium may not offer much to the concessionaire in terms of incentives. On the other hand, a government that is looking to attract mining companies in an impoverished area may offer significant inducements, such as tax breaks and a lower royalty rate.

BOOT
A project based on the granting of a concession by a Principal (the Union or Government or a local authority) to the concessionaire, who is responsible for the construction, financing, operation and maintenance of a facility over the period of the concession before finally transferring the facility, at no cost to the Principal, a fully operational facility. During the concession period the promoter owns and operates the facility and collects revenue in order to repay the financing and investment costs, maintain and operate the facility and make a margin of profit. BOOT (build, own, operate, transfer) is a public-private partnership (PPP) project model in which a private organization conducts a large development project under contract to a public-sector partner, such as a government agency. A BOOT project is often seen as a way to develop a large public infrastructure project with private funding. Here's how the BOOT model works: The public-sector partner contracts with a private developer typically a large corporation or consortium of businesses with specific expertise - to design and implement a large project. The public-sector partner may provide limited funding or some other benefit (such as tax exempt status) but the private-sector partner assumes the risks associated with planning, constructing, operating and maintaining the project for a specified time period. During that time, the developer charges customers who use the infrastructure that's been built to realize a profit. At the end of the specified period, the private-sector partner transfers ownership to the funding organization, either freely or for an amount stipulated in the original contract. Such contracts are typically long-term and may extend to 40 or more years.

A BOOT structure differs from BOT in that the private entity owns the works. During the concession period the private company owns and operates the facility with the prime goal to recover the costs of investment and maintenance while trying to achieve higher margin on project. The specific characteristics of BOOT make it suitable for infrastructure projects like highways, roads mass transit, railway transport and power generation and as such they have political importance for the social welfare but are not attractive for other types of private investments. BOOT & BOT are methods which find very extensive application in countries which desire ownership transfer and operations including. Some advantages of BOOT projects are:

Encourage private investment. Inject new foreign capital to the country. Transfer of technology and know-how. Completing project within time frame and planned budget. Providing additional financial source for other priority projects. Releasing the burden on public budget for infrastructure development.