Concession contract

A concession or concession agreement is a grant of rights, land or property by a government, local authority, corporation, individual or other legal entity.

Public services such as water supply may be operated as a concession. In the case of a public service concession, a private company enters into an agreement with the government to have the exclusive right to operate, maintain and carry out investment in a public utility (such as a water privatisation) for a given number of years. Other forms of contracts between public and private entities, namely lease contract and management contract (in the water sector often called by the French term affermage), are closely related but differ from a concession in the rights of the operator and its remuneration. A lease gives a company the right to operate and maintain a public utility, but investment remains the responsibility of the public. Under a management contract the operator will collect the revenue only on behalf of the government and will in turn be paid an agreed fee.

A grant of land or property by a government may be in return for services or for a particular use, a right to undertake and profit by a specified activity, a lease for a particular purpose. A concession may include the right to use some existing infrastructure required to carry out a business (such as a water supply system in a city); in some cases, such as mining, it may involve merely the transfer of exclusive or non-exclusive easements.

In the private sector, the owner of a concession — the concessionaire — typically pays either a fixed sum or a percentage of revenue to the owner of the entity from which it operates. Examples of concessions within another business are concession stands within sporting venues and movie theaters and concessions in department stores operated by other retailers. Short term concessions may be granted as promotional space for periods as short as one day.

On regular concessions which are based on traditional French concessions, asset ownership remains with the authority and an awarding authority is responsible for the replacement of larger assets unlike with build-operate-transfer, build-own-operate-transfer, and outright sale, all of which are allowed the concessionaire to own the assets. An example of this is the franchise of National Grid Corporation of the Philippines (NGCP) in which despite that the company operates, builds, and maintains the country's transmission assets since 2009, they are still Philippine government/state-owned through the National Transmission Corporation (TransCo) as stated on their franchise law. Both of them will revert to the authority after a concession period, including assets purchased by a concessionaire. Sometimes, an operator and authority can both own the facilities.

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