Concession Contracts - Scope & Shariah Ruling

Transcription

1. Shari ’ah Standard No. (22): Concession Contracts Statement of the Standard 1. Scope of the Standard This Standard covers the basic Shari’ah rulings relating to Concession Contracts for utilization, construction or management of projects, and provides guidance to Institutions on application of such contracts. It does not cover legal or consensual concession rights, which are subsidiary rights. This standard does not cover franchises as it should be dealt with by a separate standard. 2. Definition of Concession Concession in this context refers to the act of an authorized party granting another party the right of utilizing, constructing or managing a project for agreed upon consideration. 3. Permissibility of Concession Contracts 3/1 The concession contracts described in this Standard are permissible, as set out in the Shari’ah rulings, unless those contracts comprise an element that does not conform to the rules and principles of Islamic Shari’ah. Such contracts are considered to be among the devices that facilitate realization of public interest or the interests pursued by the two contracting parties. 3/2 There is no Shari’ah objection to taking on the procedures required to the offering of concession rights against specific fees or any compensation stipulated in the contract, unless the deal constitutes an element of Riba (usury), Gharar (uncertainty), or any other Shari’ah-banned practices. 4. Offering the Concession Right When offering concession rights, due consideration should be given to justice, equality of chances, and realization of public interest. 588
2. Shari ’ah Standard No. (22): Concession Contracts 5. Concession Contracts for Utilization of Minerals, Water and the Like (Utilization Concession): 5/1 Definition of utilization concession contracts A Utilization Concession contract is an agreement between the State and a natural or legal person (Institution) according to which the latter becomes the sole owner of the right of extracting and producing the minerals, water or any other object in question against a specific remuneration, as is shown in item 5/3 below. 5/2 Formal procedures of utilization concession 5/2/1 Granting a survey license The State has the right to require natural or legal persons to obtain permission (license) before conducting survey in a certain area against payment of a specific amount of fee or rent to the State. Such a license does not grant its holder the right of the sole surveyor in that area nor does it grant him the right to conduct works relating to extraction through mining and construction of the required facilities. 5/2/2 Granting exploration licenses The State has the right to require natural or legal persons to obtain permission (license) before conducting exploration in a certain area for a certain period against payment of a specific amount of fee or rent to the State. Such exploration license may entitle its holder the right to become the sole explorer in that area and the right of conducting the works required for exploration. 5/2/3 Obtaining utilization concession The exploration licensee, after discovering the minerals, water or any object in question, becomes eligible for the exclusive right of obtaining the utilization concession in the area specified in the license, unless the license stipulates otherwise. 589
3. Shari ’ah Standard No. (22): Concession Contracts 5/2/4 If until the end of the exploration period, the holder of the exploration license (the licensee) does not discover the minerals, water or for whatever the license has been obtained then the licensee is not entitled to utilization concession at the end of that period. 5/2/5 Notwithstanding the procedural order stated in preceding paragraphs, the State may offer exploration or utilization concessions directly, and without resorting to the above-mentioned procedures. 5/2/6 When the State requests a specialized body to conduct survey or exploration on its behalf, the contractual relationship becomes subject to the rulings of “Ijarah” and “Ju’alah”. In this case Shari’ah Standard No. (9) on Ijarah and Ijarah Muntahia Bittamleek, as well as Shari’ah Standard No. (15) on Ju’alah, should be referred to. 5/3 Shari’ah perspective on utilization concession contracts Utilization of minerals, water resources and the likes cannot take place without exploration, which entails an unknown amount of effort. Whereas the remuneration to which the holder of concession is entitled, is usually a well-defined lump sum amount or percentage share of the output. The Shari’ah classifies such contracts as a form of Ju’alah, where the State is the “Ja’il” “Ja’il” (Ju’alah initiator), initiator), the licensee Institution is the “’Amil “’Amil”” (hired party) and the specific amount to be received by the latter is the ““Ju’l Ju’l”” (compensation amount). [see Shari’ah Standard No. (15) on Ju’alah] 5/4 Scope of utilization concession contracts Since utilization concession contracts are concluded between the State on the one hand and natural or legal persons on the other, the following should be observed: 5/4/1 When adopting the Fiqh viewpoint that considers minerals to be the property of the State, whether such mineral have been extracted from a State-owned or a privately-owned land, 590
4. Shari ’ah Standard No. (22): Concession Contracts concession contracts may be applied to all types of lands, whether State- or privately-owned. 5/4/2 When adopting the Fiqh viewpoint that gives the right of utilization of minerals to the owner of the land or its usufruct against a fee payable to the State, the following types of lands should not become subject to concession contracts: 5/4/2/1 Privately-owned lands whether vacant or built on. 5/4/2/2 Wastelands that have been contracted for development according to the relevant Shari’ah stipulations and legal rulings. 5/4/2/3 Lands allotted by the State to natural or legal persons, whether through change of ownership title or for temporary utilization. 5/5 Requirements of obtaining the utilization concession A holder of a utilization concession is entitled to undertake all the activities required for utilization, such as establishing refineries and treatment laboratories, acquiring transportation devices and facilities, etc. The holder becomes the sole owner of such rights throughout the period of the concession license thereof. 5/6 Continuity of utilization Concession contracts usually indicate the commitment of the licensee to continue utilization as per contract or the prevailing customary practices. In case the licensee ceases utilization without a reasonable excuse, the licensee may be given a reasonable grace period to restart again and preserve utilization, otherwise the State has the right to cancel the license thereof. 5/7 Product pricing and purchase by the State 5/7/1 The State has the right to determine in advance the way in which the licensee should dispose of his share of the extracted products and the value to be paid to him taking into account public interest 591
5. Shari ’ah Standard No. (22): Concession Contracts 5/7/2 In addition to its own share in the product, the State has also the preemptory right of purchasing the quantities it needs from the output, according to the prevailing prices and contractual terms. 5/8 Expiry of utilization concession contracts A utilization concession contract expires at the end of its specified period, or when the two parties agree to prematurely cancel it. The contract can also be cancelled when there remains no more output to be utilized. Moreover, each of the two parties has the right to revoke the contract when the other party breaches a contractual condition or commitment. In this case the breaching party has to compensate the other party for any consequent actual damages. 6. Concession Contracts for Construction of Projects (Construction Concession) 6/1 Definition and forms of a construction concession contract 6/1/1 Definition of a construction concession contract A Construction concession contract is a contract between the State and another party according to which the latter constructs a specifically defined project usually related to public utilities. 6/1/2 Forms of construction concession contracts: Construction concession contracts may take several forms including the following: 6/1/2/1 When the licensee constructs the project according to certain specifications, on a piece of land owned by the State, and the State becomes the owner of the project, while the licensee is entitled to the usufruct of the project for a specific period. After this period, the ownership of the usufruct is transferred to the State. 6/1/2/2 When the licensee constructs the project according to certain specifications on a piece of land owned by the State, and the project and its usufructs become 592
6. Shari ’ah Standard No. (22): Concession Contracts the property of the licensee for a specific period after which the ownership of the project (and its usufruct) goes to the State. 6/1/2/3 When the licensee constructs the project according to certain specifications on a piece of land owned by the State, and the project becomes a property of the State, while the two parties agree to share the revenue for a specific period after which the project belongs to the licensee. 6/1/3 In all three cases set out in 6/1/2, the licensee becomes entitled to collection of fees or rent for provision of services to the public. 6/2 Shari’ah perspective on construction concession contracts: Construction concession contracts vary with regard to their Shari’ah adaptation, according to the following conditions: 6/2/1 If the commitment of the licensee includes construction works as well as provision of materials, which is the predominant case, the contract is that of “Istisna’a”. The value of the contract is the right which enables the licensee to utilize the project for one’s own benefit for a specific period before handing it over to the State. 6/2/2 If the project is constructed on a piece of land that the licensee obtained on lease from the State against handing over the project thereto after a specific period, the contract is that of “Ijarah” and the rent is the project itself which will be handed over to the State at the end of the contractual period. 6/3 Remuneration for construction concession contracts 6/3/1 When the remuneration for construction of the project is determined in terms of the right to utilize the project for a specific period, the contract is considered as “Istisna’a” against a price determinable in terms of utilizing the constructed facility for a specific period before handing it over to “al-Mustasni’”. 593
7. Shari ’ah Standard No. (22): Concession Contracts 6/3/2 If the remuneration for the construction of a project is determined in terms of a certain amount of money, the licensee retains the ownership of the project to ascertain one’s right to get the price through utilization of the project. Licensee has also the right of arranging a clearance deal with the licensor so that the licensee can receive the full price and hand over the project to the licensor before the end of the contract period. Otherwise, the licensee keeps on utilizing the project until the receipt of the full amount agreed upon. 7. Application of Utilization Concession Contracts by Institutions Institutions can apply utilization concession contracts either through direct relationship with the State, or by playing an intermediary role in the contract between the State and the licensee. Application of such contracts may take place in one of the following forms: 7/1 Ju’alah It is possible to apply Ju’alah or Parallel Ju’alah where the licensee receives a specific share of the output as remuneration. 7/2 Ijarah Ijarah contract may be applied where the State gives the land on lease to the licensee for a rent payable as a predetermined share of the output. The licensee may, in turn, give the land on lease to a third party to establish the project thereon (sub-contracting). 7/3 Mudarabah Mudarabah may be applied where the State provides the land to the licensee to utilize it on the basis of a predetermined rate of profit sharing. The Institutions may either implement the project directly or through two-steps Mudarabah. 7/4 Musharakah In utilization concession contracts, Musharakah - whether fixed or diminishing - may be applied as follows: 7/4/1 In fixed Musharakah, the Institution contributes a share in the required capital besides the State or the party that executes the 594
8. Shari ’ah Standard No. (22): Concession Contracts concession license, and the Musharakah continues up to the end of the contract’s period. 7/4/2 In diminishing Musharakah, the Institution contributes a share in the required capital, and undertakes (the Institution or the party that executes the concession license) to sell its share in the project gradually to the State. 8. Application of Construction Concession Contracts by Institutions Institutions may apply construction concession contracts whether through direct relationship with the State, or by entering as an intermediary party in the contract between the State and the licensee. Application of such contracts may take place in one of the following forms: 8/1 Ijarah and Ijarah Muntahia Bittamleek In this case, the licensee hires the land from the State with the aim of constructing the project thereon and presenting the project back to the State based on Ijarah Muntahia Bittamleek. The licensee may, use a sub-contract of operating or diminishing Ijarah, to rent out the land to another party to construct the project thereon. 8/2 Istisna’a Istisna’a and Parallel Istisna’a contracts may be applied where the State is “al-Mustasni’” and the Institution becomes “al-Sani’ (the licensee is a parallel Mustasni’)” and the price of the product is the income generated from the fee or rent collected from the public for provision of the services. 8/3 Musharakah In construction concession contracts Musharakah, whether fixed or diminishing, may be applied as follows: 8/3/1 In fixed Musharakah, the Institution contributes a share in the required capital besides the State or the party that executes the concession license, and the Musharakah continues up to the end of the contract’s period. 595
9. Shari ’ah Standard No. (22): Concession Contracts 8/3/2 In diminishing Musharakah, the Institution contributes a share in the required capital, and undertakes (the Institution or the party that executes the concession license) to sell its share in the project gradually to the State. 9. Disposing of the Concession License Since the concession license is a financial right, its owner may dispose it of through selling, leasing, mortgaging, partnership or securitization according to Shari’ah rulings, as well as the conditions imposed by the licensor. 10. Management Concession Contracts 10/1 Definition of management concession contracts These are contracts between the State and other parties according to which the right of managing public utilities and providing services to the public is given against a specific price. 10/2 Shari’ah perspective on management concession contracts 10/2/1When the price for offering management concession is determined as a lump sum amount of money or a percentage percentage of total income, the contract between the State and the licensee is that of Ijarah. The licensor in this case has the right to receive rent for offering the concession license, in addition to the amount/percentage of income the licensor deserves during the period of the contract. If the price of the management concession is a percentage of the profit (net income after expenses and allocations), the contract between the State and the licensee becomes Mudarabah wherein the capital is the original facility or the project itself. 10/2/2In both cases mentioned in item (10/2/1) above, the contract between the State and the project’s utilizer is either that of Ijarah or Bay’ (sale) contract, as per the nature of the activity in question. 596
10. Shari ’ah Standard No. (22): Concession Contracts 10/3 Cancellation of the management concession contract Management concession contract is a fixed-term contract. It may be rescinded by tthe he State when the licensee breaches a condition or fails to meet one’s contractual obligations. The licensee may also rescind the contract on condition that the licensee takes the measures that ascertain the provision of the services to the public. 10/4 Pricing of services It is permissible for the licensor to fix or adjust the price of the services to be delivered by the licensee in a way that leads to establishing justice and preservation of the interests of both the licensee and the beneficiaries. 10/5 Observation of the contract’s conditions The licensor has the right to perform (directly or through deputation) monitoring and inspection to ascertain observation of the conditions and specifications stipulated in the contract. It has also the right to impose penalties stipulated in the contract, in case of breach of contractual obligations on the part of the licensee. 11. Date of Issuance of the Standard This Standard was issued on 22 Rabi’ I, 1426 A.H., corresponding to 2 May 2005 A.D. 597