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

Glossary

Key Term	Meaning
Availability based projects	Projects which entitle a Private Partner to receive regular payments from a public sector client to the extent that the project asset is available for use in accordance with contractually agreed service levels.
Awarding government	The public sector body (or department, agency or constitutional institution) that procures a service from the PPP. Also known as a procuring government.
BOO – Build Own Operate	A project delivery mechanism in which a government entity sells to a private sector party the right to construct a project according to agreed design specifications and to operate the project for a specified time but with no obligation to transfer the project at the end of that period.
BOOT – Build Own Operate Transfer	A project delivery mechanism in which a government entity sells to a private sector party the right to finance, design, construct, own and operate a project for a specific number of years. This structure is very similar to the build-operate-transfer (BOT) structure, except that the private sector party owns the asset during the term of the agreement and, at the expiration of the specific period, the facility is returned to the government. The BOOT structure is often used to build power stations, water treatment facilities and sewage facilities.
BOT – Build Operate Transfer	A project delivery mechanism whereby the government sells to a private sector party the right to build and operate a project. After the concession agreement comes to an end (usually after 20 or 30 years) and the private sector entity has operated the project for the duration of this period, the entity then transfers control of the project and its operations back to the government.
Cap and collar arrangement	An agreement not to go above (cap) or below (collar) certain amounts in relation to a particular requirement (e.g. subsidy levels in the case of a “cap and collar subsidy arrangement”).
Changes in law	The amendment or passing of new laws, as well as new interpretations of laws, that conflict with the laws affecting the project and impact upon the project; change in law protection may be subject to a specified level of materiality before any protection is given (e.g. demonstrating the change has a minimum financial impact on the Private Partner).
Commercial lenders	The parties, typically international banks but may also include local banks, who provide financial backing to the project, taking an interest by way of security – often of the asset in question or the project as a whole.
Commercial operate date / commercial operations / COD / Scheduled COD	The date on which the construction phase of the project is successfully completed (typically determined by some form of independent certification and/or testing regime); the scheduled COD represents a target date for such successful completion with failures to achieve that date having commercial consequences (typically delay liquidated damages and/or termination).
Community engagement	Steps taken to ensure that the project in question can adequately function in the local community. This may be by developing the land in a way that is as compliant as possible with local customs, employing a certain amount of local citizens or engaging with local businesses.
Compulsory acquisition	The process whereby the Contracting Government does not give the local land owners a choice to sell their land, but rather uses its legislative powers to compel them to sell for a predetermined price.
Concession agreement	An alternative term for a project agreement. The parties may refer to a “concession” where a project provides a paid-for service to the public, such as a “concession” to operate a toll bridge but is also sometimes used more generally to refer to any long-term PPP agreement.
Construction phase	The period from when the Private Partner takes control of the project site (typically by reference to the date of signing or effective date (if conditional) of the concession agreement or the commencement of construction by reference to certain works) until the commercial operations date.
CTA / Common Terms Agreement	This is an agreement between the financing parties and the Project Company which sets out the terms that are common to all the financing instruments and the relationship between them (including definitions, conditions, order of drawdowns, project accounts, voting powers for waivers and amendments).
DBF – Design Build Finance	A project delivery mechanism in which a government entity grants a private sector entity the right to design and construct a public infrastructure project, in addition to sourcing full or partial financing of the project. The government retains the operating and maintenance obligations in respect of the fully-constructed project.
DBFM – Design Build Finance Maintain	A project delivery mechanism like DBFO/DBFOM but where the operation of the asset is retained by the public sector; for example where a railway system (track and rolling stock) is delivered and maintained but the public sector retains control over the dispatching and operation of the rolling stock.
DBFO – Design Build Finance Operate (or DBFOM – Design Build Finance Operate Maintain)	A project delivery mechanism in which a government entity sells to a private sector party (which has funding capabilities) the right to design and construct the project and thereafter maintain and operate it for an extended period of time.
De minimis	A minimum threshold often used in concession agreements to benchmark when something is of a material nature, thereby triggering a consequence under the agreement.
Deductions	A method, set out in the payment mechanism by which payments to the Private Partner are reduced if it fails to meet the key performance indicators. Sometimes called abatements, adjustments or penalities.
Default termination	Where an innocent party exercises its contractual right to terminate the concession agreement in whole or in part due to the other party’s actual or anticipatory failure to perform its contractual obligations.
Demand risk projects	Projects where the revenue generated by the project will fluctuate based on the level of usage and which therefore relies on demand forecasting to determine the bankability of the project.
DFI	A Development Finance Institution (DFI) provides credit by way of debt or equity and guarantee instruments to private sector investments based in developing countries.
Direct agreement	An agreement creating a direct contractual relationship between a sub-contractor of the project company and either the awarding government or the project’s funders. The parties sometimes call the agreement between a sub-contractor and the awarding government a collateral warranty. Key sub-sub-contractors enter into direct agreements (or collateral warranties) with the project company. Direct agreements include a right to step in to the sub-contract.
DSRA / Debt Service Reserve Account	This type of bank account is usually required by lending banks in the context of project finance transactions. The primary purpose of the Debt Service Reserve Account (DSRA) is to protect a lender against unexpected volatility or interruption in the cash flow available to service the debt. These funds, essentially put aside for a rainy day, are usually established at the end of a construction period once the loan becomes repayable. The DSRA is usually funded to be either six months or even one year of principal and interest payments.
ECAs / Export Credit Agencies	An export credit agency (ECA) is a financial institution (which can be a private or quasi-governmental institution) that offers financing for domestic companies’ international export operations and other activities. ECAs offer loans and insurance policies to such companies to help remove the risk of uncertainty of exporting to other countries.
EPC (or Turnkey contract) – Engineering, Procurement, Construction	A contract requiring a contractor to complete the design, engineering, procurement, construction, and start-up of a project or facility by a certain date, for a fixed price and at certain performance specifications.
Equator Principles	A risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects. It is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making. These can be found at: http://www.equator-principles.com/
Equity	Monies used to finance a deal that is sourced from the existing finances of a company (for example, raised through the issuing of shares in the company), rather than though external debt (for example, from commercial lenders).
Equity return	The amount of a company’s net income returned as a percentage of the shareholders’ equity.
Event of Default / EoD	This is usually is a predefined circumstance, situation, condition or event that is considered to be a breach or violation of the facility agreement / CTA. This allows a lender to exercise its rights and remedies under the agreement and demand full repayment of the outstanding balance before it is due.
Expropriation	Where the Government takes privately owned property and declares it for public use.
Facilities management	Management of the asset and services by the supplier. The parties, and the PPP contracts, may refer separately to hard FM and soft FM. Hard FM relates to “hard” facilities management: the maintenance of buildings, engineering, landscaping and similar elements of an asset, rather than “soft” FM, associated with services which support the operation of the facility (for example, catering, cleaning, laundry, parking).
Finance Documents	The suite of key finance documents which relate to the transaction in its entirety.
Financial Model	A financial model is used in project finance transactions to assess the economic feasibility of the project and whether or not it will be capable of producing enough cash to cover all operating costs and debt-servicing expenses for the duration of the concession agreement. The financial model is used for multiple reasons: to assist with structuring a project finance deal, to determine the maximum amount of debt the Project Company is able to take on, to calculate the annual debt service coverage ratio which will highlight the riskiness of the project and is often used to determine the level of interest to be paid on the debt.
Float period	The amount of time that one stage of the project can be delayed without causing delay to any subsequent stages of the project.
FM contractor	A company contracted to carry out hard FM or soft FM services using the completed asset. Largely synonymous with an O&M Contractor.
Force majeure	An event, outside the control of the contracting parties, that results in one or both of the parties being unable to fulfil their contractual obligations. In common law jurisdictions the definition of force majeure is typically a matter of drafting and negotiation whilst in civil law jurisdictions is normally set out in the relevant civil or commercial code.
Foreseeable / unforeseeable	Circumstances in the reasonable contemplation of the parties given their knowledge at the time of entering into the concession agreement. Unforeseeable having the opposite meaning.
Functional specification	The document outlining the required specification of as-built project and how the project is to operate in practice.
Gearing ratio	The gearing ratio measures the proportion of a company’s borrower funds to its equity. The ratio indicates the financial risk to which a business is subjected, since excessive debt can lead to financial difficulties. A high gearing ratio represents a high proportion of debt to equity, this is indicative of a great deal of leverage, where a company is using debt to pay for its continuing operations. In a business downturn, such companies may have trouble meeting their debt repayment schedules, and could risk bankruptcy. The situation is especially dangerous when a company has engaged in debt arrangements with variable interest rates, where a sudden increase in rates could cause serious interest payment problems. A low gearing ratio represents a low proportion of debt to equity, this may be indicative of conservative financial management, but may also mean that a company is located in a highly cyclical industry, and so cannot afford to become overextended in the face of an inevitable downturn in sales and profits. The most comprehensive way to calculate the gearing ratio is as follows: (Long-term debt + Short-term debt + Bank overdrafts) Shareholders’ equity
Government support	Where the Government in the jurisdiction in which the project is based actively uses its powers to enable the project to function, or acts in a passive manner whereby it does not prevent the project from commencing. Such support may extend to guarantees if the Contracting Government is perceived by the Private Partner to be a credit risk and/or other fiscal measures designed to stabilise any jurisdictional uncertainties that make the project not bankable (e.g. foreign currency protections and tax breaks)
Grace period	The period after an obligation is due for performance during which such obligation may still be performed without declaring an event of default and/or termination.
Hair trigger	Circumstances that easily and disproportionately allow a party to terminate all or part of contract with no genuine prospect of the offending party remedying the issue.
Hedging arrangements	An instrument used to limits exposure to a price or unit of value that fluctuates. These typically cover interest rate, foreign currency exchange rates or commodity prices and/or inflation.
Hedging termination costs	The costs associated with terminating any hedging arrangements prior to their expiry.
HoldCo / Holding Company	A holding company is a company or entity that exercises control over one or more other companies, this is usually due to it being a majority or sole shareholder of the respective subsidiary companies. In a project finance transaction, a special purpose vehicle (SPV) is usually set up to be a “shell” holding company (HoldCo). This HoldCo is owned by the Project Investors and other investors all of which in turn own the project itself. This structure enables debt to be raised at HoldCo level. The debt-holders and equity-holders then rely on the cash flows of the assets in HoldCo to recover their investment.
IFC Safeguards	All projects undergoing the International Finance Corporation’s (IFC) initial credit review process after 1 January 2012 must follow: · The Policy on Environmental and Social Sustainability, which defines IFC’s commitments to environmental and social sustainability; · The Performance Standards, which define clients’ responsibilities for managing their environmental and social risks; and · The Access to Information Policy, which articulates IFC’s commitment to transparency. These can be found at http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/our+approach/risk+management/ifcsustainabilityframework_2012.
Indigenous land rights	The legal or beneficial interests in the land on which the project will be built that belongs to local citizens or affects their customs in a material way.
Institutional investors	An institutional investor is an entity which pools money to purchase securities, real property and other investment assets or loans for their respective investment portfolios. Institutional investors include banks, insurance companies, pension funds, hedge funds, investment advisers, endowments, and mutual funds.
Interface agreement	A contract between the construction sub-contractor and the FM contractor / O&M Contractor. The interface agreement regulates who bears the cost of, for example, a defect in the completed asset caused by the construction sub-contractor, which delays the FM contractor’s / O&M Contractor’s performance
Investors	Parties who provide capital to the project enabling it to commence, seeking to make gains on the monies provided in the form of interest payments or a proportion of profits from the project (i.e. equity return).
IRR	This means internal rate of return, used as the measure of return on the investment made by shareholders in a consortium.
ITT	An invitation to tender (by submitting priced bids) issued to bidders by an awarding government.
Life-cycle cost	This is the total cost of providing the asset and services to the end of the contract term. It includes capital costs, finance, running costs, staff costs and the total cost of maintenance, taking into account the value of any asset at the end of the contract term.
Liquidated damages / LDs	A specified monetary amount paid for a specific contractual breach that aims to compensate the injured party for the loss it suffers for such breach.
Longstop date	A date which is tied to a prescribed time period after a scheduled completion date by when all obligations must have been fulfilled otherwise a right of termination will typically arise.
MDBs / Multilateral Development Banks	A multilateral development bank (MDB) is an international financial institution, usually created by two or more countries for the purpose of encouraging economic development. MDB’s often have a large and varied group of members, ranging from developed countries acting as “donors” and developing countries who require such funds.
MMRA / Major Maintenance Reserve Account	During the operational phase of a project, capital investment is required to ensure that the project is able to continue operating as planned. The Major Maintenance Reserve Account (MMRA) is a specific bank account that is designed to accumulate funds over time to ensure that the funds are there when they are needed, if not a little before. An MMRA is typically required by lenders where the maintenance cycle of the project is such that there are large maintenance costs relative to the cash flow which will be incurred during the operational life of the project. The MMRA is usually funded up to a certain target balance. The target balance might be set at 6, 12, 18, or 24 months of future major maintenance capital expenditure. It may even be a fixed amount. The MMRA could be funded (i) in full on the last day of construction; (ii) partially funded on the last day of construction and then subsequently built up from the project’s cash flow; (iii) completely built up from the project’s cash flow.
MSA – Management Services Agreement	An agreement entered into between a consultant or independent contractor and a company to provide management, consulting or other services for a fee. A management services agreement helps the company to reduce its operational costs and to increase its efficiency.
Natural force majeure	A force majeure event that is brought about by an act of nature, for example, an earthquake.
Non-default termination	The situation in which the contract can be terminated by an event that is not brought about by either party breaching their contractual duties (e.g. termination for extended force majeure or termination by agreement).
Novate / novation	Replacing one of the parties to an agreement with another party who consequently takes on the rights and obligations of the party who is no longer bound by the contract (in contrast to an assignment whereby, typically, only rights can be transferred).
O&M – Operation and Maintenance	An agreement between the project company and an operator to manage, operate and maintain a project.
O&M Contractor	A company contractor that carries out operation and maintenance services on a project.
Offtake agreement	An agreement to purchase all or a substantial part of the output or product produced by a project.
Operations phase	The functional stage of the project after the construction phase when it adequately operates, finishing with the end date of the concession agreement.
Output specification	The specification that sets out the awarding government’s requirements in non-prescriptive terms, it usually outlines the levels of capacity from the project from a technical and financial perspective that are required in order to ensure the projected is built to the desire standard and is profitable. This leaves the bidders to determine how to deliver those requirements. May be similar to a functional specification.
Payment mechanism	The formulae used to assess performance of the project and to calculate the payments to be made to the Private Partner assessed against their compliance with the performance indicators.
Performance indicators / KPIs	Benchmarks to measure performance and of the project, or the parties’ contribution to the project. These are typically referenced to the output specification and are the benchmark against which the Private Partner is incentivised to perform. If the Private Partner falls short of the performance indicators then typically deductions will be made and in persistent or material circumstances a right of termination may arise. It is imperative that the Contracting Government runs a sensitivity analysis in the payment mechanism to calibrate the deductions.
Political force majeure	A force majeure event that is brought about by the direct acts of the Government, such as a nationwide strike protesting the Government’s actions, or by indirect events affecting the Government, such as war. Similar terminology used may include “material adverse Government action” / events of Government action / inaction / buyer risk events (which may also extend to Contracting Government breach).
PPP – Public Private Partnership	A contractual arrangement between a public and private sector entity providing a service or performing a departmental function, in accordance with an output specification, for a specified, significant period of time. PPP involves a substantial transfer of all forms of project life cycle risk to the private sector. The public sector retains a significant role in the project either as the main purchaser of the services provided or as the main enabler of the project.
PRI / Political Risk Insurance	This is a type of insurance that is commonly taken out by private sector entities in the context of project finance transactions to protect against the risk of revenue loss due to a change in the political environment. Political risk may be defined as extra-economic changes arising strictly out of the political process, either through violent means (war, insurrection, politically-motivated terrorism etc.) or through specific government action (new law and/or regulation) that can directly affect a company’s operations and interfere with its ability to generate revenue.
Private Partner	The entity from the private sector that undertakes the project typically through the use of a special purpose vehicle incorporated specifically and only for the purposes of undertaking the project.
Project agreement	The principal agreement between the awarding government and the project company governing the project. Sometimes also known as a Concession Agreement.
Project Company	The SPV company, established by the preferred bidder, to enter into the project agreement with the awarding government. Also known as ProjectCo.
Project Documents	These are a suite of documents which are vital to the design, construction, ongoing operation, maintenance and service of the project after it has been built.
Rehabilitate-Operate-Transfer / ROT	The project structure whereby the Private Partner receives from the Contracting Government an existing asset, may then upgrade, improve or rehabilitate that asset and then operate and maintain the asset to the agreed standard and subsequently transfers it back to the Contracting Government after a specified period of time (typically somewhere between 25 and 30 years in the transport sector and 15 and 25 years for energy and waste/water). The Contracting Government should carefully consider the quality of the asset it expects to receive back at the end of the term and how to ensure that the Private Partner ensures that the asset achieves that standard.
Risk matrix	This usually takes the form of a table identifying the risks involved in a project, indicating the provisional risk allocation for each risk and any mitigation of that risk, such as insurance.
Senior debt	Money that is borrowed by the Private Partner to finance a project that takes priority over any ‘junior’ debt (lower down the order of priority) or equity in the event that the project company becomes insolvent.
Service level specification	The specification (typically scheduled to the project agreement) setting out the standard to which the service must be delivered, often accompanied by an agreed performance monitoring regime that uses key performance indicators, which are a measure of the contractor’s performance against the contract specification.
Set-off	If one of the contracting parties is owed monies by another contracting party, the debtor’s right of set-off allows it to balance mutual debts with the creditor.
Sponsor(s)	The party that is the ultimate owner of the Private Partner. It invariably includes the major project parties such as construction contractor and commonly includes financial investors or funds. Sponsors will limit their liability to the project through the Private Partner but may need to give limited support or guarantees to the lenders of the senior debt, particularly during the construction phase.
Stabilisation	Contractual clauses that entrench certain legal provisions, enabling foreign investors to protect themselves from changes in the law and a certain degree of political risk.
Substitute concessionaire	The party who fulfils the obligations of the Private Partner in the event that the concession agreement is novated.
Tariff	The rate at which prices for the project output – for example, electricity in the context of a project in the energy sector – are paid between the Contracting Government and Private Partner, in relation to either a predetermined price or agreed formula.
Termination costs	The fee charged to a party to the contract when it wants to break the contract.
Termination trigger	An event that allows for an innocent party to terminate a contract in the event that the other party to the contract breaches its obligations.
Unavailability	This is the test for determining deductions from the unitary payment, by referring to standards for the provision of the facility (not the standard of associated services that are provided by the public sector).
Uninsurable	When a project, or part of a project, cannot be covered by any insurance policy or insurance cover cannot be obtained on the specified terms, or when it is not commercially feasible to obtain an insurance policy for the project or insurance cover on specified terms.

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Public Private Partnerships in the Infrastructure Sector

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Public Private Partnerships in the Infrastructure Sector

Introduction to PPP in the infrastructure sector 6

Chapter 2: Structuring a PPP project 5

Chapter 3: Financing an infrastructure PPP project 6

Chapter 4 :Documenting the transaction: anatomy of a PPP concession agreement and key risk allocation issues 11

Chapter 5: Documenting the transaction: finance documents 8

Chapter 6:Documenting the transaction: other project documents 2

Chapter 7:Procurement arrangements 2

Chapter 8:Introduction to key sector issues 7

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