Background
Version 8, changed by admin. 03/12/2007. Show version history
Without getting into the specifics of concession agreements and before we begin to discuss “best-practices,” there have been experiences in establishing concession agreements that can provide some additional background.
- The protected area authority should maintain ultimate control over the concessionaire to make sure that resources are not over-exploited or damaged, such that conservation is not neglected for profit-making (Font, 2004).
- Concession agreements can have widely varying time spans; private sector operators would prefer long license periods because it helps to ensure greater returns on their investment. The risk of long concession periods for the protected area authority is that the business may fail, decline, or try and change its mode of operation (Font, 2004).
- Concessionaires occasionally disregard contractual requirements, sometimes illegally constructing facilities in the park and operating business that were not allowed in the contract. Therefore, penalties for non-compliance must be clearly stated and there must be a procedure outlining rules for reparation and termination of the contract due to this non-compliance. It may be useful to measure the effectiveness of the contract at periodic intervals (Eagles, 2002)
- The fee that parks receive from the concessionaire may take the form of an annual set fee, or a flat fee with a royalty or percentage of concessionaire gross revenue. The fee may be increased over time or provide incentives for the concessionaire to operate at specific times (Eagles, 2002).
- The pricing policy within an agreement should be based on whether the park concession has a monopoly. If the park concessionaire has a monopoly within the park, regulation of prices is required, however with multiple concession operators, competition is encouraged (Eagles, 2002).
- Various case studies of existing concession agreements have shown that good communication is vital to creating an arrangement that benefits the agency, operator, and the local community. Poor transparency and communication between stakeholders can ruin projects, and reduce the level of trust between stakeholders (Spenceley, 2003).
Survey with Examples
Below is the survey that we have provided you. Again, the answers provided below are not necessarily “best-practices,” they are just established and existing practices that our research has generated.
With respect to the answers below:
(SA_SP)
(NZ_DOC) New
CONCESSIONAIRE QUALIFICATIONS
What type of legal entity is created for whom the contract deals with, project company, joint venture, trust, etc.?
- Varies. (SA_SP)
How do you ensure that concessionaire has appropriate experience and financial backing?
- One of the shareholders (owning at least 20% of equity) must have appropriate eco-tourism experience. (SA_SP)
LEGAL ASPECTS
Who owns land and infrastructure?
- Ownership by the community provides them the most powerful form of equity. It provides them the opportunity to obtain the concession fees from the private sector for use of the natural resources. (Spenceley, 2003)
Who retains control of improvements?
- All improvements built by concessionaire become the property of SANParks on a Build, Transfer and Operate Basis. (SA_SP)
How does contract handle unexpected situations that arise?
- Contract sets out process and rules on how parties will sit down and resolve the situation. (SA_SP)
Who is accountable for the guests at the site?
- Concessionaire is responsible. (SA_SP)
How are related party transactions controlled?
- Contract prevents concessionaire from siphoning revenues off to related parties (sister companies) for various services provided. (SA_SP)
What are consequences of concession being terminated through
concessionaire’s fault?
- Concessionaire gets kicked off site, no cost to government (SANParks). Financial institutions that financed the physical developments have the right to appoint a new concessionaire, provided government (SANParks) approves. (SA_SP)
FINANCIAL ASPECTS
What is concession length?
- Community leased land to trust for 30 years. Entered 5 year agreement with private sector operator to market and manage the lodge and entertainment center. (SA_PL)
- 20 years with no right to renew or right of first refusal. (SA_SP)
What is the renewal process?
- After 20 years government (SANParks) can re-bid the concession, if concessionaire has done well than it is in good position to win re-bid contest. (SA_SP)
What type of fee does the concessionaire pay, flat,
variable, percentage, etc.?
- Difficult to balance between concession earnings and the
amount that is returned to the protected area or the state. In the
US - Annual fee based on percentage of gross revenue bid by the concessionaire during the bidding process. (SA_SP)
- The concession fee should be linked to the income of the concessionaire, such that each party receives and income proportional to the investment they have made to the business. (NZ_DOC)
- Fees are all based on market value, set by the following mechanisms:
- By comparison to fees set for similar concession activities in similar circumstances, both inside and outside the Department of Conservation (DOC) and direct negotiation with the applicant
- By specific valuation of the of the opportunity and direct negotiation with the applicant
- By tendering the opportunity to an open market. (NZ_DOC)
If concession is bid, what mechanisms are used to prevent
“over-bidding?”
- Concessionaires must pay a minimum of 65% of the fee payment projected for each year in their bids. (SA_SP)
How do you ensure that concessionaire actually goes forth
with development?
- During first 12 months the concessionaire is held to a Bid and Development Bond of R250,000. If it fails to implement the project within a specified time, it forfeits the bond. (SA_SP)
What are the financial penalties for breaking rules,
damaging the environment, or general non-compliance to agreement/contract?
- Penalties outlined in contract. (SA_SP)
What can lead to the termination of the concession?
- Concession can be terminated for persistent or serious breaches of contract, including empowerment commitments. (SA_SP)
ENVIRONMENTAL ASPECTS
How do you ensure that development and operation of
concession meets environmental standards?
- Private sector can provide alternative tools and goods to community in exchange for agreement to not degrade resource. For example provide alternative sources of fuel for cooking and lighting so community doesn’t harvest wood. (Spenceley, 2003)
- Each concession is subject to site-specific Environmental Impact Assessment and the development of an Environmental Management Plan. The rules and regulations include:
- the appointment of an environmental control officer,
- protection of cultural and natural resources,
- biosphere manipulation,
- site carrying capacity,
- visual impacts including lighting,
- bulk infrastructure (e.g. electricity, water, communications, waste management),
- the siting construction and maintenance of roads and tracks,
- fire management,
- provision of artificial water points,
- staff accommodation and health and safety,
- park access and government (SANParks) access to concessions,
- standards for concession vehicles, and
- codes of conduct for drives, walks and off-road driving. (SA_SP)
What are penalties if concessionaire fails to meet
environmental standards?
- Penalties outlined in contract. (SA_SP)
EMPOWERMENT / SOCIAL ASPECTS
How do you ensure that local community benefits from
concession?
- If local community has secure land tenure they have control and power over decision making. (Spenceley, 2003)
- Create purchasing agreements through responsibility to fulfill lease agreements or ethical responsibility, relationships with rural entrepreneurs, SMMEs (Small Medium and Micro Enterprise), services and labor. (Spenceley, 2003)
- Provide environmental and agricultural education, training and equipment to improve sustainable use of natural resources in existing livelihood practices. (Spenceley, 2003)
- If funding for concession comes from a grant, the grant can stipulate certain provisions regarding training and empowerment. In grant from the Poverty Relief Fund, it included provisions for a training budget of R325,000. (Spenceley, 2003)
- Empowerment obligations are determined by the bidders with 20% of the award mechanism being based on these empowerment commitments. Winning bidder is held to these commitments, which form part of the contract. (SA_SP)
How are these benefits maintained and monitored?
- Concessionaire is obliged to report on progress made achieving obligations every six months. (SA_SP)
Eagles, P., McCool, S., and Haynes, C. (2002).
Sustainable Tourism in Protected
Areas: Guidelines for Planning and Management. IUCN
Fearnhead, P. (2003). Commercial Tourism Concessions: a means of generating income for South African National Parks. Paper presented at the meeting of the Vth World Parks Congress: Sustainable Finance Stream, Durban, South Africa. Retrieved July 18, 2006, from http://conservationfinance.org/WPC/WPC_documents/Apps_06_Fearnhead_v1.pdf
Font, X., Cochrane, J., and Tapper, R. (2004).
Tourism for Protected Area
Financing: Understanding tourism revenues for effective management plans.
IUCN (2000) Financing Protected Areas: Guidelines for
Protected Area Managers. Retrieved
Spenceley, A. (2003).
Tourism, local livelihoods and the private sector in
