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Public Private Partnerships in the Infrastructure Sector

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  • Public Private Partnerships in the Infrastructure Sector
CoursesealsPublic Private Partnerships in the Infrastructure Sector
  • Introduction to PPP in the infrastructure sector 6

    • Lecture1.1
      What is PPP and how is the concept defined? 30 min
    • Lecture1.2
      The growth of PPP from an historical perspective 30 min
    • Lecture1.3
      The concept of privatisation in the context of PPPs 30 min
    • Lecture1.4
      Conventional procurement and PPP procurement 30 min
    • Lecture1.5
      Examples of PPP reform 30 min
    • Lecture1.6
      Summary of key characteristics and criteria of PPPs 30 min
  • Chapter 2: Structuring a PPP project 5

    • Lecture2.1
      Structuring a PPP project 30 min
    • Lecture2.2
      Project structuring: feasibility study 30 min
    • Lecture2.3
      PPP economics 30 min
    • Lecture2.4
      PPP economics 30 min
    • Lecture2.5
      Alternative PPP structure: rail project case study 30 min
  • Chapter 3: Financing an infrastructure PPP project 6

    • Lecture3.1
      Sources of financing for an infrastructure PPP project 30 min
    • Lecture3.2
      What is Project Finance? 30 min
    • Lecture3.3
      Drawbacks of using project finance in infrastructure PPP transactions 30 min
    • Lecture3.4
      Structure 30 min
    • Lecture3.5
      Key parties 30 min
    • Lecture3.6
      Timeline for financing an infrastructure PPP project 30 min
  • Chapter 4 :Documenting the transaction: anatomy of a PPP concession agreement and key risk allocation issues 11

    • Lecture4.1
      Scope and term of a PPP Concession Agreement 30 min
    • Lecture4.2
      Construction period obligations 30 min
    • Lecture4.3
      Operation period obligations 30 min
    • Lecture4.4
      Payment regimes 30 min
    • Lecture4.5
      Supervening events 30 min
    • Lecture4.6
      Termination and compensation 30 min
    • Lecture4.7
      Liability and insurance 30 min
    • Lecture4.8
      Dispute resolution 30 min
    • Lecture4.9
      Government controls 30 min
    • Lecture4.10
      Government support obligations 30 min
    • Lecture4.11
      Additional terms and conditions 30 min
  • Chapter 5: Documenting the transaction: finance documents 8

    • Lecture5.1
      Core finance documents 30 min
    • Lecture5.2
      Equity arrangements 30 min
    • Lecture5.3
      Impact on the concession agreement 30 min
    • Lecture5.4
      Direct Agreements 30 min
    • Lecture5.5
      Security 30 min
    • Lecture5.6
      Enforcement and insolvency 30 min
    • Lecture5.7
      Involvement of multilateral development banks (MDBs), development finance institutions (DFIs) and export credit agencies (ECAs) 30 min
    • Lecture5.8
      Government shareholder arrangements 30 min
  • Chapter 6:Documenting the transaction: other project documents 2

    • Lecture6.1
      Construction contract, O&M contract and interface issues 30 min
    • Lecture6.2
      Sub-contract risk pass-down 30 min
  • Chapter 7:Procurement arrangements 2

    • Lecture7.1
      A typical PPP timetable 30 min
    • Lecture7.2
      Unsolicited proposals 30 min
  • Chapter 8:Introduction to key sector issues 7

    • Lecture8.1
      Road projects 30 min
    • Lecture8.2
      Urban rail projects 30 min
    • Lecture8.3
      Freight rail projects 30 min
    • Lecture8.4
      Airport projects 30 min
    • Lecture8.5
      Port projects 30 min
    • Lecture8.6
      Accommodation projects 30 min
    • Lecture8.7
      Glossary 30 min

    Direct Agreements

    (a)  Where the project company has failed to comply with its obligations under one of the project documents, the counterparty to that project document will be entitled to terminate. This is likely to occur at the same time as the lenders are entitled to enforce their security. As we will see below when we look at security, the ability of the lenders to enforce their security in respect of the project is very important, but in real terms, is piecemeal and may not yield the desired amount of money to repay the loan. The lenders may take the view that they, or a third party appointed by the lenders, could do a better job of running the project than the project company and that, rather than enforcing the security, the lenders would prefer to take on the project as a going concern to remedy the defaults which have led to the right of the counterparty to terminate. The problem is that the lenders have no contractual relationship with the project counterparties under the relevant project document so how can they stop the counterparty terminating?

    (b)  This is achieved by “direct agreements” which create direct legal relations between the lenders and each party to the project documents. A direct agreement stipulates that the relevant party to the project document will not exercise its rights of termination or wind-up the project company before the lenders have been given the option of running the project themselves. This option is known as a “step-in” right.

    (c)  In simple terms, a direct agreement:

    (i)   is a three-way agreement between lenders and the parties to the key project documents;

    (ii)  provides step-in rights to lenders and a covenant from the project document counterparty not to terminate or take other adverse action without first notifying the lenders and allowing them time to decide whether they want to step-in. During this period (the “standstill period”) and any step-in period, the project document counterparty will also agree to perform its obligations under the project document; and

    (iii) usually permits the granting of security by the project company of its rights under the relevant project document to the lenders.

    (d) Direct agreements can have benefits for the counterparty. For instance, most direct agreements will contain a promise from the lenders that if they step in, outstanding amounts due from the project company to the counterparty will be repaid by the lenders.

    (e) The direct agreement will often also include restrictions on who the lenders decide to appoint as the nominee, in the case of step-in, or the identity of the transferee if they decide to enforce security and sell the shares in the project company to a third party. These can take the form of pre-emption rights on a sale of the project company shares or a requirement that the nominee or transferee is not a competitor, and has adequate financial and technical capability to undertake the relevant obligations.

    Funders direct agreement

    (f)         A government will be expected to enter into a direct agreement with the lenders – typically called a funders’ direct agreement.

    (g)  The government will be particularly concerned with the following:

    (i)  the identity of any transferee to ensure that the infrastructure development they originally contracted for (usually due to an urgent public need) is indeed delivered by a reputable and capable contractor with the relevant technical expertise and financial backing;

    (ii) the length of any step in period – the government will want to ensure that the lenders are diligently pursuing steps to remedy the default under the concession agreement in as short a period as possible before they will have the right to terminate the concession agreement and take back the project into public ownership; and

    (iii) agreeing what happens after payment of compensation on termination if the lenders have not recovered the full amount of the senior debt. In this scenario, the lenders will want the ability to enforce their security in respect of the remaining amount of senior debt, but the government will also be looking to the project assets to recoup its investment, or to take back the project into public ownership in order to continue construction or remedy defects to get the project back to full performance. The direct agreement can govern the rights of the lenders and government relating to the priority over the project assets in this situation. 

    SUMMARY OF KEY POINTS
    Direct Agreements

    ·         These agreements create a contractual relationship between the lenders and the counterparties to the project documents. If the project company commits a breach of a project document, the contract counterparty may wish to exercise its right to terminate the contract. However, the direct agreement will prohibit the counterparty from exercising its termination rights before the lenders have been given the opportunity to remedy the issue themselves. These are called “step-in” rights.

    ·         It is common to see restrictions on who the lenders appoint as the nominee (in the case of step-in) or who the lenders transfer ownership of the project company to if they decide to enforce security and sell their shares in the project company.

    Prev Impact on the concession agreement
    Next Security

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