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Introduction to PPP in the infrastructure sector 6
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Lecture1.1
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Lecture1.2
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Lecture1.3
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Lecture1.4
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Lecture1.5
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Lecture1.6
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Chapter 2: Structuring a PPP project 5
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Lecture2.1
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Lecture2.2
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Lecture2.3
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Lecture2.4
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Lecture2.5
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Chapter 3: Financing an infrastructure PPP project 6
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Lecture3.1
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Lecture3.2
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Lecture3.3
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Lecture3.4
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Lecture3.5
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Lecture3.6
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Chapter 4 :Documenting the transaction: anatomy of a PPP concession agreement and key risk allocation issues 11
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Lecture4.1
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Lecture4.2
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Lecture4.3
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Lecture4.4
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Lecture4.5
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Lecture4.6
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Lecture4.7
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Lecture4.8
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Lecture4.9
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Lecture4.10
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Lecture4.11
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Chapter 5: Documenting the transaction: finance documents 8
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Lecture5.1
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Lecture5.2
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Lecture5.3
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Lecture5.4
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Lecture5.5
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Lecture5.6
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Lecture5.7
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Lecture5.8
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Chapter 6:Documenting the transaction: other project documents 2
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Lecture6.1
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Lecture6.2
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Chapter 7:Procurement arrangements 2
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Lecture7.1
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Lecture7.2
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Chapter 8:Introduction to key sector issues 7
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Lecture8.1
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Lecture8.2
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Lecture8.3
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Lecture8.4
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Lecture8.5
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Lecture8.6
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Lecture8.7
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Scope and term of a PPP Concession Agreement
(a) Scope
In many cases the scope of the project will be clear in both geographical terms (outlined in a site plan) and in the scope of the obligations (in terms of the works to be delivered, and services to be performed at the completed facilities).
In some cases, however, the geographical and services scope may differ throughout the project. A common example is where the contract obliges the concessionaire to carry out off-site works (for example, improvements to local roads to facilitate greater traffic caused by the project) but where these works are not to be maintained over the longer term but handed back to municipal authorities.
In some projects there may be an expansion of the project scope. A common example would be an airport project involving the construction of a new passenger terminal. As passenger numbers rise, the contract may require a second terminal to be constructed to manage the passenger flow.
Scope reductions are less common but they are sometimes seen. One example is where an government wishes to have the option to take part of the service provision back in-house. This was done on a recent tramway project where the government wanted the flexibility to integrate the tramway operations within its wider bus operations.
(b) Commencement
Since most PPP projects are dependent on private finance, the effectiveness of the concession agreement and the obligations thereunder are usually subject to a series of conditions precedent (CPs), which will typically include the achievement of all conditions for effectiveness of the finance documents, save only for the effectiveness of the concession agreement itself.
CPs may be split by responsibility; those for the concessionaire, those for the government, and those of joint responsibility. In some cases there may be a penalty on the concessionaire if CPs within its responsibility cannot be met by a longstop date; for example, the concessionaire’s bid security may be forfeited to compensate the government for the costs of the failed tender process. Occasionally there may be a penalty the other way – the government may be obliged to compensate the concessionaire for some of its wasted bid costs, but this is not universal.
(c) Duration
A typical PPP contract duration is 25-30 years, as this is usually seen as an optimal time to amortise the capital cost of the project and achieve life-cycle efficiencies between construction and operation, assuming lending rates are sufficiently low and that such long-term finance is possible. In an emerging market context, these circumstances may not exist, and some projects are structured over a shorter duration. Conversely, some projects may be structured over longer periods (such as 50 year concessions), but this is less common. Governments should be cautious about tying up their assets over too long a term, as this may affect their ability to make legitimate changes to their infrastructure base to reflect changes in policy or demographics.
When does the project duration start? Most projects operate on the basis that the project duration is inclusive of the construction works period. If the project is late then the delay will eat into the assumed operating period and this acts as a powerful incentive to ensure punctual completion. In some cases however, the expiry date is only measured from completion of construction (sometimes termed COD – commercial operation date). In this case, a delay to construction does not cause a reduction to the operating period, but the concessionaire will still need to meet the additional interest costs on its debt until operations do start.
SUMMARY OF KEY POINTS |
Scope and term of a PPP concession agreement
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