By S&S Co. Advocates & Solicitors · Published 16 March 2026 · Informational content, not legal advice. See our disclaimer
Why the Termination Trigger Matters
Most standard-form Indian concession agreements calculate the termination payment differently depending on which party's conduct triggered termination: authority default, concessionaire default, or a force majeure event outside either party's control. Understanding which category a given termination falls into, and how the applicable formula is defined, is usually the single most consequential drafting and negotiation point in the agreement.
Authority Default Termination
Where termination follows a default by the granting authority (such as a persistent failure to make agreed payments or provide contracted support) the termination payment formula is typically the most generous to the concessionaire, often designed to cover outstanding debt, equity invested with a reasonable return, and sometimes a component for lost future revenue, reflecting that the concessionaire should not bear the financial consequence of the authority's own default.
Concessionaire Default Termination
Where termination follows the concessionaire's own persistent default, the formula is typically reduced: commonly limited to a percentage of debt outstanding, sometimes with a further discount, reflecting that the concessionaire should not be fully compensated for a termination it caused, while lenders are nonetheless given some protection to preserve project financeability.
Force Majeure Termination
Where an extended force majeure event makes continued performance of the concession impossible, termination payment formulas are typically calibrated between the authority-default and concessionaire-default figures, on the rationale that neither party caused the underlying event, though the precise split varies considerably by sector and by the specific model concession agreement used as the drafting template.
Drafting Choices That Actually Move the Number
Beyond the headline percentage, three drafting choices determine what a party actually recovers in practice: how 'debt due' is defined (book value versus an independently certified figure, and whether refinanced debt is capped at the originally sanctioned amount); whether equity is compensated at cost, at a specified IRR, or not at all in a default scenario; and whether the termination payment is subject to deduction for the authority's cross-claims (defects, penalties, shortfall in maintenance) before release, which can materially delay and reduce the amount actually paid.
Frequently Asked Questions
Does 'debt due' in a termination payment formula usually mean the original sanctioned amount or the actual outstanding balance?
This varies by contract: many model concession agreements cap compensable debt at the originally sanctioned senior debt amount (adjusted for permitted refinancing), to prevent a concessionaire from inflating the termination payment through subsequent, unapproved borrowing; the specific definition in the agreement governs.
Can an authority deduct penalty or defect-rectification costs from a termination payment before release?
Most concession agreements expressly permit this, subject to the deduction being substantiated and, in many structures, subject to an independent engineer's certification of the deducted amount rather than the authority's unilateral assessment.
Is a lender's step-in right relevant to the termination payment amount?
Indirectly: many concession agreements and their accompanying substitution/tripartite agreements give lenders a right to step in and cure a concessionaire default before termination crystallises, which can avoid triggering the (lower) concessionaire-default termination payment altogether if the cure is timely and effective.
References & Further Reading
This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.
- Model Concession Agreements published by NHAI, AAI and other central and state PPP authorities, termination payment schedules.
- Guidelines for Formulation, Appraisal and Approval of PPP Projects, Department of Economic Affairs, Ministry of Finance.