Concession (contract)

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A concession is a business operated under a contract or license associated with a degree of exclusivity in business within a certain geographical area. For example, sports arenas or public parks may have concession stands; and public services such as water supply may be operated as concessions.

The owner of the concession — the concessionaire — pays either a percentage of revenue to the entity with the ability to assign exclusive rights for an area or facility. A concession may involve the transfer to the concessionaire of 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 land use rights.

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 supply system) 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.

Some countries, such as Chile, Canada and the United Kingdom, have built toll highways on a concession basis (e.g. M6 Toll in the UK). Concessions have also been used in London in construction of extensions to the Docklands Light Railway system.

Public-private partnerships (PPPs) and private finance initiatives (PFIs) may be considered similar to concessions.