• Home
  • Courses
  • About Us
  • Contact
Have any question?
(+255 27) 254 3226
training@ealawsociety.org
RegisterLogin
East Africa Law Society InstituteEast Africa Law Society Institute
  • Home
  • Courses
  • About Us
  • Contact

Public Private Partnerships in the Infrastructure Sector

  • Home
  • All courses
  • eals
  • 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

    Supervening events

    There are certain events which are beyond the contractor’s control. PPP contracts often divide these into the following categories:

    • Compensation events / political force majeure;
    • Relief event / non-political force majeure;
    • Excusing causes;
    • Changes; and
    • Changes in law / stabilisation provisions.

    This section addresses each category in turn.

    (a)        Compensation events / political force majeure

    These events give the contractor full relief (in time and money) which will put it in a “no better, no worse” position. These events will usually consist of government breaches (or other events solely within the government’s control) and any other events that the private sector is unable or unwilling to “price for” when bidding for the project.

    These events might include the existence of latent defects in existing assets which the concessionaire is obliged to take over, or the provision of government warranties as to ground risks (such as contamination and the discovery of archaeological remains) that may be very difficult to identify or verify from surveys before contract signature. This might also include risks which the government is better placed to manage, such as the obtaining of certain approvals (e.g. planning) or “political” events for which the government is entirely responsible for, such as expropriation of assets or imposition of capital controls.

    Overall, such events may sometimes be termed “Political Force Majeure” or “Material Adverse Government Action”, but ultimately it is the stated contractual remedy that defines the relief, rather than the title.

    (b)        Relief event / non-political force majeure events

    This refers to events which provide the contractor with relief from breach or termination, and typically they do not allow for any financial compensation to be received and, on availability-based projects, the contractor will usually not receive any relief from availability deductions that may be levied as a result of non-provision of the service. A relief event or force majeure list may be open-ended and non-exclusive, or it may be a prescribed list of no-fault events. These usually include events such as natural disasters, fire, accidental damage and strikes.

    Where physical damage is caused, these events are likely to be insured by the concessionaire and therefore business interruption insurance should be available to cover the subsequent loss of revenue. It is for this reason that these events typically do not attract compensation from the government. Alternatively, the risk may be able to be passed to suppliers, although it would be included in the price of the contract and this may not present value for money.

    However, even if insurance is available it is usually limited in time. Where insurance is not available (such as for non-damage events like labour strikes), the government may expect the concessionaire to bear this risk to some degree and lenders may therefore require the concessionaire to put in place a debt service reserve account to manage the risk. Six months debt service coverage would be common. If the force majeure continues beyond this and the project remains uneconomic, then lenders can no longer manage the risk and, for this reason, most PPP contracts will provide for a no-fault termination to occur at this point.

    (c)        Excusing causes

    In an availability-based project, the concessionaire may not require positive compensation but it may simply wish to have its availability fee protected from the occurrence of certain events. These events may be very similar to those discussed above but in this context they are often termed “excusing causes”. The list may include additional events which sit below the insurance claim threshold but which should not be treated as penalising the contractor, e.g. extreme weather.

    An alternative approach to creating a long list of protections is to ensure that the performance mechanism acknowledges that a certain element of disruption within the project is inevitable. For example, a light rail project may seek a reliability threshold of 98% rather than an unrealistic 100%; this would allow a 2% buffer for day-to-day problems that are unlikely to be endemic or long-lasting, such as passenger emergencies, electrical faults or adverse weather conditions.

    (d)        Changes

    Given the long duration of a typical PPP contract, it is inevitable that there may be a need for the government to change its requirements and the PPP contract should facilitate that, as long as the concessionaire is kept in a “no better, no worse” position.

    That said, it is fair to have some limits on the nature of such changes and lenders will often insist on this as a bankability issue. For example, they may wish to veto any change that would require the concessionaire to materially change its risk profile, which may include a variation to increase the size of the project by a material amount. Similarly, the concessionaire should not be required to carry out a change that may be impossible to implement or which would cause it to breach legislation.

    The outcome of the change procedure is that the concessionaire should be compensated for the change, either through direct payment or by adjusting the revenue-sharing mechanism under the contract. It may also be fair to require the concessionaire to use reasonable endeavours to find additional external funding, as long as the revenue stream from the project can bear this.

    The concessionaire may have the right to propose changes itself, but typically the government will be under no obligation to consent to these changes unless the change is necessary in order to comply with a change in law and there is no cost increase to the government. The government may consider requiring a share in savings made as a condition of giving consent.

    (e)        Changes in law / stabilisation provisions

    PPP contracts often make distinctions between the following categories of “changes in law”:

    • Discriminatory changes in law (discriminatory against the concessionaire or similar concessionaires);
    • Specific changes in law (specific to the respective project’s sector as opposed to other sectors); and
    • General changes in law (all other changes in law).

    Discriminatory and specific changes in law are invariably treated like “change orders”, so as to leave the concessionaire in a “no better, no worse” position. This is fair as it is difficult to see how the concessionaire could meaningfully predict and price against such changes.

    For general changes in law, practice differs. If the change in law affects the market as a whole then inflationary increases to tariffs or availability fees may cover the risk, or the concessionaire may have flexibility within the tariff structure to make non-inflationary adjustments. In these cases, the concessionaire may be able to manage its risk. In some jurisdictions, the governments give protection against general changes in law which require new capital expenditure on the grounds that such changes are difficult to predict and could create significant costs.

    Predictability of changes in law may also affect the risk allocation. In a country with a transparent law-making process, it may be fair to require the concessionaire to take the risk of change in law during the construction phase on the basis that it is well-placed to see what changes in law are likely to come into force during that period. In an emerging market context however, this is probably not a realistic risk allocation and the concessionaire may expect to be protected against changes in law that occur after the bid date.

    If the law is changed in such a way that the performance of the project has become impossible, it would be reasonable to require the government to issue a “change order” to adjust the scope and make it feasible again. If it does not, it would be reasonable for the concessionaire to have the right to terminate the project and seek compensation.

     

     

    SUMMARY OF KEY POINTS
    Supervening events

    Certain events are beyond the contractor’s control and so the PPP contracts divide them into the following categories:

    • Compensation events / political force majeure – the contractor obtains full relief (in time and money) and it will be put in a “no better, no worse” position. Such events tend to consist of government breaches, events which are the responsibility of the government (e.g. imposition of capital controls) and could also include situations where there are latent defects in existing assets or warranties as to ground risks that cannot be verified from surveys.
    • Relief event / non-political force majeure – the contractor obtains relief from termination but cannot receive financial compensation. A force-majeure list may be open-ended or it may constitute a prescribed list of no-fault events (including natural disasters, fires, strikes etc.) If physical damage is caused, these events are likely to be insured by the concessionaire and business interruption insurance is usually available to cover revenue loss. If insurance is not available, the concessionaire might have to bear the risk and the lenders might require a debt service reserve account to be set up to manage this risk (six months debt service coverage is common).
    • Excusing causes – these may be events that are similar to those discussed above, but they are given a different name. The concessionaire may not desire compensation but may wish to have its availability fee protected from such events.
    • Changes – due to the long duration of a PPP contract, it is inevitable that the government’s requirements may change over time, the PPP contract should permit this provided the concessionaire is kept in a “no better, no worse” position. Some limits might be placed on the changes permitted, for example if it affects the bankability of the project. The concessionaire should be compensated for the change, usually (through direct payment or adjusting the revenue-sharing mechanism under the contract. The concessionaire may have the right to propose changes itself, but the government is not obliged to consent to the changes unless it is necessary to comply with a change in law and there is no cost increase to the government.
    • Changes in law / stabilisation – if the changes in law are discriminatory against the concessionaire, then the concessionaire must be kept in a “no better, no worse” position. If the changes in law are general then practice differs, if it affects the whole market then the concessionaire may have the flexibility within the tariff or availability fee structure to manage its risk. If the law is changed in such a way that the performance of the project has become impossible, the government might be required to issue a “change order” to adjust the scope and make it feasible again. If it does not, the concessionaire can terminate the project and seek compensation.
    Prev Payment regimes
    Next Termination and compensation

    Leave A Reply Cancel reply

    Your email address will not be published. Required fields are marked *

    logo-eduma-the-best-lms-wordpress-theme

    (+255 27) 254 3226

    hello@ealawsociety.org

    Company

    • About Us
    • Blog
    • Contact

    Links

    • Courses
    • Events
    • Gallery
    • FAQs

    Support

    • Documentation
    • Forums
    • Partners
    • Accreditation

    Recommend

    • Law Society of Kenya
    • Tanganyika Law Society
    • Uganda Law Society
    • Rwanda Bar Association

    East Africa Law Society Institute by Perception Concepts limited.

    • Home
    • Courses
    • About Us
    • Contact
    No apps configured. Please contact your administrator.

    Login with your site account

    No apps configured. Please contact your administrator.

    Lost your password?

    Not a member yet? Register now

    Register a new account

    Are you a member? Login now

    Modal title

    Message modal