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Public Private Partnerships in the Infrastructure Sector

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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

    Government support obligations

    In order for the project to be bankable, it needs to be economically sustainable; not every revenue-generating project will make enough revenue to be able to pay for itself. If the government party still wants to participate in the PPP project, it will need to consider how to fill the viability gap.

    1. Some governments have viability gap funding programmes set up for this purpose, discussed previously.
    2. Many projects use capital contributions as a means of reducing the financing cost of the project. It is essentially a government grant to the project. This has been addressed earlier under the construction period payment terms.
    3. A subsidy would be a similar form of support during the operational period, e.g. payment of an availability fee alongside the right to recover tolls.
    4. The government may also consider treating its contribution to the project as equity. This would allow the government to benefit from any upsides in the project.
    5. The government’s contribution could also be structured as a loan, perhaps on concessional terms. Some countries have national infrastructure banks set up to play such a role, although the government needs to ensure that by doing so it does not unduly crowd commercial funders out of the market.

    Instead of direct contributions, the government’s support could be contingent, and this may be sufficient for commercial banks to rely on to lend the additional funding required.

    For example:

    • A project with uncertain demand risk (such as a new toll road) could be supported by a traffic guarantee. If traffic falls below a certain level, the government party would be obliged to provide a subsidy to ensure the concessionaire can meet its financing obligations. The subsidy could be conditional (i.e. there could be an obligation on the concessionaire to repay it when profits are available in the future) or alternatively there could be a reciprocal obligation on the concessionaire to share super-profits with the government if they arise. This reciprocal arrangement is termed a “cap and collar”.
    • If the procuring government does not have a clear financial covenant, a central government guarantee may be requested. In some projects, the government may provide a weaker letter of comfort, which is a promise that it will ensure that the procuring government is properly funded to meet its obligations. The enforceability of these letters however is not always without challenge.
    • Bilateral investment treaties may provide a level of protection outside the contract where the government interferes with the investment, but they are not straightforward in practice to enforce.
    • The government may need to provide additional works and services that fall beyond the scope of the project but nevertheless support its aims and objectives. This may include constructing connecting roads or railways, or carrying out upgrades to power networks or other utilities. In some cases there are reserved services within the project that can only be provided by the government, such as air traffic control services in an airport project.
    SUMMARY OF KEY POINTS
    Government support obligations

    • Projects will often require government support to make it bankable and economically sustainable because it cannot generate enough revenue to pay for itself initially.
    • Such support can be provided by way of a loan; viability gap funding (which was discussed earlier); capital contributions by way of a grant to reduce the financing cost of the project; a subsidy during the operational period of the project; or an equitable contribution to enable the government to benefit from the upsides in the project.
    Prev Government controls
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