The current issue and full text archive of this journal is available at www.emeraldinsight.

com/2044-124X.htm

BEPAM 3,2

A PPP renegotiation framework: a road concession in Greece
Nikos Nikolaidis
GEKTERNA, Athens, Greece and Department Shipping, Trade and Transport, University of the Aegean, Chios, Greece, and

264

Athena Roumboutsos
Department Shipping, Trade and Transport, University of the Aegean, Chios, Greece
Abstract
Purpose – The purpose of this paper is to present a framework approach to guide the identification of potential public private partnership (PPP) renegotiation outcomes is presented. The framework is applied to a road concession project under renegotiation in Greece. Design/methodology/approach – The framework combines the estimation of stakeholder payoffs with respect to the various strategic options available. Their potential acceptance is evaluated with respect to the power distribution within the stakeholder network. The contextual environment determines the respective power position of each stakeholder in the network. Findings – The proposed framework is applied to a road concession case in Greece, under renegotiation as a result of the economic crisis. The analysis highlights the importance of the contextual environment and the limitations of solutions that seem “satisfying” for all stakeholders involved. Social implications – The framework is designed to guide both public and private parties involved in the renegotiation processes in identifying potential solutions or the inability to reach outcomes under specific contextual environments. Assessments are made based on expert knowledge rather than data collection, which is impossible during the renegotiation phase. The application proposed process limit renegotiation transaction costs. Originality/value – The renegotiation framework based on stakeholder payoffs and power theory, is an approach especially useful for complex contract renegotiations, where multiple stakeholders influence the final outcome. The importance of the contextual environment is highlighted. In addition, the paper contributes to the empirical renegotiation literature. Keywords Concessions, Renegotiation, Stakeholders, Power distribution, Mitigation strategies, Greece Paper type Research paper

Built Environment Project and Asset Management Vol. 3 No. 2, 2013 pp. 264-278 r Emerald Group Publishing Limited 2044-124X DOI 10.1108/BEPAM-05-2012-0031

1. Introduction Public private partnerships (PPPs) have been widely used as an infrastructure delivery model by many governments, especially in the transport sector where transportation capacity was needed to facilitate, support and respond to economic growth. Practitioners and academia have placed emphasis on properly allocating risks, in an effort to achieve “satisfying contracts”, as defined by Simon (1955). However, evidence on transport PPPs (cf. Guasch, 2004; Estache et al., 2008; Estache, 2001; Baeza and Vassallo, 2010) indicates that agents (the public and private sector) settled on plans that seemed complete at the agreement stage and proved incomplete at a later time due to incomplete or asymmetric information ex ante or due to policy trade-offs (e.g. in demand forecasts; cf. Flyvbjerg et al., 2005). In transport PPPs, incompleteness arises, in principal, from the misallocation of risks to the agents involved and the fluctuation of these risks over the contractual period, commonly between 25 and 35 years. Traffic/ revenue risk has been a source of major PPP contract renegotiations. As PPP contracts

input during renegotiations is deemed confidential. 2007. This research aims at contributing to the academic and empirical literature on ex post PPP contract renegotiations by building on a framework model initially presented by Roumboutsos (2009) and expanding it so as to guide parties in identifying potential outcomes. if a government is willing to renegotiate. a contract renegotiated ex post is always accompanied by residual-rights and one party having the ability to “hold-up” the other leading to unsatisfying renegotiated contracts and the increase in transaction costs. Transaction cost economics sees contracts as inefficient governance structures that need to adapt to the changing environment. and mapping the power distribution between stakeholders. The ultimate scope of applying the proposed framework is to enhance all parties’ ability of strategic understanding of the renegotiation process and. 2008.. renegotiations are considered a positive development. Hart. Section 5 concludes with remarks on the framework’s findings and limitations. Section 2 provides the theoretical basis for the framework. 1985). Background and PPP renegotiation framework 2. However. where parties ex post complete their contractual agreement with respect to investments that were non-contractible ex ante (cf. 2008) lead to limited commitment and renegotiations. lead to shorter renegotiations and. Bolton and Dewatripont. therefore. 2009). the proposed framework is applied to the example case. as well as the agents’ perceived payoffs. Renegotiations in this case are necessary. Albalate and Bel. the framework is based on identifying all stakeholders influenced by the renegotiations. renegotiation is not formally included in most contracts. as such. Section 3 briefly describes the case to be studied. imperfect institutions (Guasch et al. the Ionia Odos concession (IOC). 2006) or a win-win game (De Brux. By incomplete contract theory. 1986. empirical observations support developments that incomplete contracts provide reference points for entitlements in ex post trade (Hart and Moore. which are caused by the pressure put by the private sector when the problem relies on low traffic volumes and by governments when unexpected increases of traffic generates enormous benefits that threat its political acceptance. which is currently under renegotiation. In this case.1 Literature background Contract renegotiation has been the object of much attention in the economic literature. leading to renegotiations. Finally. Reports show losers and winners (Estache.were not designed to be incomplete. a limitation of transaction costs. it implicitly encourages aggressive bidding. More specifically. risky and encounter opportunistic behaviours (cf. The framework takes into account the contextual environment and how this impacts on stakeholders’ power distribution. 2. This framework is created to apply regardless of information symmetry and/or availability. taking into account both the power structure between the agents involved in the renegotiation. assessing respective payoffs or utilities of options proposed in the renegotiation. The applicability of the proposed framework is demonstrated on the “Ionia Odos” motorway concession contract in Greece. Framework assessments are made on the assumption that all actors involved behave rationally and pursue their established best interests. Ho (2006) noted that. Grossman and Hart. 2005) or framing robust contracts that will not be renegotiated in the future (cf. In this case. 2000). PPP renegotiation framework 265 . In Section 4. 2006. as defined by Williamson (1979. its development and application. 2010) depending on contracting parties’ behaviour and the reason why renegotiations occur. Saussier. potentially. Dewatripont. 1989). 1995). One stream of development concerns the necessity of full commitment from contracting parties (cf.

there are four main groups of players in a PPP arrangement: the users. These key elements combined in the proposed framework are presented herewith and are illustrated in Figure 1. there is one topic of convergence: the strategic behaviour of the contracting parties in ex post negotiations. These in the proposed framework are mapped as proposed by Salancik and Pfeffer (1978) and Pfeffer and Salancik (1978) in the ABCs of power. In many cases.2 While the above brief description of theoretical development stream is not consistent.. The categorization of stakeholders as internal and external is limiting as an in-depth stakeholder analysis may identify significant differentiations between actors in the same group. interests are aligned with respect to prevailing power dependencies. Complex projects such as PPPs encounter a wide range of stakeholders.2 PPP renegotiation framework Three are the key elements of the proposed PPP Renegotiation Framework: the actors. 2. Identifying stakeholders’ strategic behaviour is the cornerstone of the proposed renegotiation framework. an agent B has power 266 Stakeholders Restructuring Options Stakeholder Utility Stakeholder Power X Figure 1. players or otherwise stakeholders. it is estimated that in changing environments stereotypes may be misleading and a full scale stakeholder analysis is proposed. Schematic presentation of PPP Renegotiation Framework [Utility] × [Power] Optimize Contextual Environment Cn . According to this theory. the various potential renegotiation outcomes or re-structuring of the initial agreement. Furthermore. which are not limited to the parties/actors directly involved in the respective contract. Vassallo. and the estimated payoffs of the various potential renegotiation outcomes. as mapped in the respective power distribution network. in assessing strategic behaviour it is not enough to identify stakeholders and group them with respect to their interests. due to information asymmetries which in turn promote strategic behaviour. which constitute the new mitigation strategies.BEPAM 3.. Engel et al. 2002. 2009) that. 2006. the operators (including sponsors and financiers) and the regulator (the new autonomous off-spring of the government). While it is suggested (Trujillo et al. the government (which represents the taxpayers and the voters).

may change depending on exogenous or endogenous factors. will resume a payoff. which may also be adopted by each stakeholder when analyzing the renegotiation plain. By this approach each stakeholder is studied under various restructuring scenarios and assigned a value in the range of [À3. 2. which attempt to address the identified “contract incompleteness”. (re)negotiations are a highly political process involving various bias and subjectivity of the revealed behaviour. Furthermore. Each party of the contractual arrangement is assumed to assess rationally its expected payoff.over another A to the extent that B fulfills A’s interests over other. institutional and other environment and. It may also vary depending on external factors or changes in the economic. which is defined with respect to its own utility function. Therefore. enhanced by the power this party has over other stakeholders within the network. the actual process is based on the development of a variety of contract restructuring scenarios. every stakeholder receives a payoff. existing alternatives (Salancik and Brindle. positioning. the assessment of payoffs are. the proposed renegotiation framework does not seek to define the “characteristic function” or each stakeholder’s actual utility. where the intention is to demonstrate the methodology. Hence. best made from the viewpoint of the risk neutral and rational observer. with respect to each proposed scenario. potentially. strategic and political ones. this rating is enhanced depending on the power the particular stakeholder has in the network. 1997). Finally. R. In order to minimize efforts. 196 km. This is the approach followed in the presented case study. y. n}. C. Case study presentation: IOC The IOC involves the construction of a newly built motorway extending from Antirrio to Ioannina. each stakeholder. of all potential renegotiation outcomes.8jA{1. for each proposed scenario of contract restructuring. an agent.g. a rating of [ þ 3] would correspond to the outcome that the concerned stakeholder would be so much better off compared to his base scenario as to be willing to provide increased support to the project (e. and is partially financed by using the toll revenues of a 175 km PPP renegotiation framework 267 . i. reflecting the importance of the contextual environment. In practice this effort is concerned with promoting a new risk allocation setting within the contract and assessing the respective risk mitigation strategies. C. for each restructuring option Sj. in all cases. 3. On the contrary. The regulatory agent. if any. A rating of [À3] corresponds to an assessment of the outcome that would be so damaging for the stakeholder concerned that he would prefer to break the deal. Each stakeholder will also seek to maximize its payoff over the area. but introduces a utility rating system. While many reasons may lead to contract renegotiation. This qualitative rating allows for assessments to be made by third parties or each stakeholder for all others. C. As indicated in the previous section. The proposed framework is based on identifying the rational relationships of risk-neutral playerstakeholders. More specifically. regulates the relationship between A and B. 3] describing how much better off (worse off) this stakeholder is with respect to his base scenario. this could be translated into an additional injection of funding into the project if the stakeholder were an active financier). The theory places great emphasis on the regulatory/contextual agent. (ui). Each stakeholder’s utility function may be complex and depend on a number of factors including economic. which. dictates the behaviour of the stakeholders and a change in the contextual agent may alter the power distribution. in practice. it is dependent on each stakeholder’s agenda with respect to the contractual agreement.

The Greek Parliament ratified the concession agreement in early 2007 (Greek Law . while the eastern axis is on the heavily used motorway connecting the three largest cities in Greece. At the same time. the lenders and the project company to engage in a contract renegotiation procedure in order to reach a new economic balance in the existing agreement that would allow project completion. namely Patra.33% ACS (Spanish construction group) 33. jeopardizing its completion. named after the expectation that their completion would improve the Greek TEN-T infrastructure and serve regional growth. the original business case and construction funding scheme were rendered unsolvable. the European Central Bank and the European Commission in 2010. from the initials of the cities it connects. an action that. the sponsor’s expected return on equity was accordingly priced to levels that reflected low sovereign debt risk. accessed 13 December 2011). Financial closure followed soon after. Ionia Odos project key characteristics . 2 in final stage (2005) Project Company 33. debt providers imposed a draw-stop on the project. Both green and brown field parts of the project are on the TEN-T Priority Project 7 (PP7). under positive macroeconomic projections and debt priced at very competitive rates. 2007). as the terms of contract termination involve a complex and cumbersome procedure that would potentially lead to very high litigation costs for all parties involved.200 mil Investment Figure 2. which. as evaluated by international rating agencies. As a result of this gap.BEPAM 3. leading the Greek Government. Traffic projections at the time of the financial close were such that 85 per cent of revenues would be returned to the State as a result of the foreseen revenue sharing mechanism. construction works ceased a few months later. A similar faith was installed for the other four concession road projects underway. Under these conditions and as GDP forecasts did not view this as temporary condition (see Figure 3).33% TERNA (local construction group) 33. along with the Ionia Odos project form the so-called “axes of development”. Athens and Thessaloniki. widely known as PATHE. Bid process Two phase (prequalification/ final stage): 4 consortia in first stage (2001). Construction coincided with the Greek sovereign debt crisis that led to the country’s bailout by a coalition between the International Monetary Fund.34% FERROVIAL (Spanish construction group) Funding Structure 190 mil Shareholders (Equity) 110 mil Debt 360 mil State/EU funds 640 mil tolls received during construction 1. Its sponsors and its funding structure are presented in Figure 2. At this stage the project was approximately 25 per cent complete corresponding to some 489 M euros in drawn funds (www.gr.2 268 section of a brown field motorway that connects Athens to Maliakos. in conjunction with the receding traffic brown field motorway section has created a gap in the project’s financing. Similarly.ypodomes. The project also adds value to an existing concession: the Rio-Antirio Bridge.

this contextual environment state (2007) is prior to the global credit crunch. the government loses credibility. it is evident that the complexity embedded in all megaprojects further enhanced by the project delivery model (concession) is reflected in the number of stakeholders involved and their divergent interests under the evolving economic crisis. where the government has a slim majority rendering this process both tactical and questionable in terms of success.10 8 6 4 % year 2 0 –2 –4 –6 –8 –10 2002 Real GDP and employment CDP Forecast (left-hand side) 31 26 21 % 16 PPP renegotiation framework 269 Employment (right-hand side) 11 6 2004 2006 2008 2010 2012 2014 2016 Source: Ernst and Young (2012) Figure 3. Gradually. Socio-political instability demonstrates and all assumptions concerning project implementation are dismissed. which manifested just a few months after the agreement. historic and forecasted figures Three distinct states of contextual environment (C of the ABCs of power) have been identified in the course of the project’s development. Within this contextual state. where the parties involved seek to reach a mutual agreement upon a choice of . The third state of contextual environment concerns the situation as of late 2011. Finally. National macro-economic figures are positive. Application of the proposed framework The process of renegotiations can very well be described as a bargaining process. political risk is non-existent and lending risk is considered minimum securing a positive financial environment (Roumboutsos and Anagnostopoulos. therefore. The second state of contextual environment is described by the conditions leading to renegotiation. any renegotiation outcome needs to be ratified in parliament. In addition. The debt crisis is now considered structural and manifests at varying degrees in most European and western countries. These stakeholders are briefly presented in Figure 4 and will be further analyzed in the next section. 2008). sovereign risk exposure is not considered. the political acceptance of any outcome is not questionable. Real GDP and employment in Greece. 4. A new coalition government representing the grand majority of Greek Parliament is in office. This latter fact is the key differentiating point with respect to the contextual environment of the second state: the coalition government has 250 seats over 300 in parliament and. The first corresponds to the financial close state (concession agreement execution/ ratification by the Greek Parliament). the Greek sovereignty crisis is considered to be a national crisis developed and limited to the Greek borders. Moreover.

. 2004. moreover. even though the ultimate goal of the renegotiation process is to avoid “termination”.1 Ionia Odos potential renegotiation outcomes (alternatives) and stakeholder payoff ratings A set of potential outcomes as identified in literature (cf. A reduction of investment obligations impacts the project’s capital expenditures. Many concessions and other PPPs have been termed hybrid PPPs by the World Bank as a significant part of the asset-capital base is public. national funds or contribution from the European Structural Funds (ESF). 2008). which may be well accepted by all the parties if public funding were made available. this alternative is included as a potential renegotiation outcome in order to illustrate the repercussions on the agents’ perceived payoffs. More specifically..2 The Lenders The Operator 270 Relationship Banks NonRelationship Banks Local sponsor International Sponsors The Users The Government Figure 4. including extension of concession period. and thus the financing needs during the construction period. the extension of the concession period could be used to gear the project’s economics towards a more viable outcome. in this case several complications to consider: the nature of the project would change. The comparative assessment payoffs with respect to the potential outcomes of the renegotiation and how this is altered depending on the power distribution within the stakeholder network.BEPAM 3. 4. providing unsuccessful bidders with possible grounds to claim against the project. Reducing the exposure of sponsors and lenders by increasing the contribution of public funds is an alternative. Estache et al. Problems arise in any negotiation process when the parties involved have conflicting interests over the set of available alternatives and. since the duration was fixed during the initial bid. Guasch. as described in the methodology is applied herewith for the case of the Ionia Odos renegotiations. reduction of investment obligations. Ionia Odos key stakeholders Brownfield Motorway users Greenfield Motorway users Greek Parliament European Commission one specific alternative over a set of available alternatives. when power dependencies create leaders and followers. Finally. changes in the asset-capital base and contract termination has been tested in the proposed framework. 2003. There are.

stakeholders’ payoffs should be evaluated based on the assessment of several observable factors.The assessment of payoffs as perceived by the project stakeholders follows. stakeholders are not willing to divulge their strategies and expected payoffs during this sensitive period. Stakeholder assessment of payoff rating . safe and state-of-the-art infrastructure. Finally. as proposed in the methodology. Consequently. an extension of the concession period would neither affect the project’s quality. is simplified by rating each renegotiation outcome in the range [À3. respectively. Since the government initiated the procurement process of the project. as in this case. it can be assumed that the government has a vested interest in the project’s completion. including public statements. following the completion of the concession period. the framework proposed is intended as a support tool during the renegotiation process. the exit strategies presented in the concession agreement pertaining to each stakeholder and the value of the project with respect to each stakeholder’s annual turnover. will be positive. 3]. PPP renegotiation framework 271 Stakeholder Government Local sponsor International sponsors Relationship banks Local non-relationship banks Foreign non-relationship banks Brown field motorway users Green field motorway users Local residents Greek Parliament Other concessions European commission Investment reduction 1 1 1 1 0 0 1 1 0 1 1 1 Potential renegotiation outcomes Concession Capital-base extension changes 2 2 2 1 À1 À1 1 3 0 2 2 2 1 3 3 2 1 1 1 3 0 1 3 2 Contract termination À3 À2 À1 0 2 2 0 À1 0 0 À1 À1 Table I. These payoffs are presented in Table I and justified as follows. and project termination would be the least favourable outcome of the renegotiation process. and negative in the case of contract termination. As such. nor would it affect the current financial position of the government (by having it contribute funds). is rated at 1. due to the combined repercussions of failing to secure the completion of the project in addition to the obligation to pay the lenders’ exposition. it can be inferred the government’s payoff with respect to the three alternatives as presented above. Considering the fact that a change in the asset capital base (option 3) would involve an increased financing obligation for the government and a reduction of investment obligations would result in a project significantly lesser than the one planned under procurement. and is one of the partners in the concession agreement. rated at a grade of 2. long-term business strategies based on annual reports. In comparison. The assessment of these payoffs. Notably. the payoff of the government in this case is higher than the other two renegotiation options. The government is a major party in the concession agreement and the ultimate owner of the project. the government’s payoff under renegotiation options 2 and 3. the worst payoff is assumed in the case of contract termination (À3). Being directly accountable to the voters in terms of providing efficient. macroeconomic factors such as Greece’s projected economic outlook based on international agencies’ reports and public statements made by Greek State officials were also taken into account. Also.

the international sponsors share many characteristics and incentives with the local sponsor. as such a case would on one hand eliminate the lenders’ obligations to further finance the project (their existing loans would be repaid by the State). Given that the local sponsor’s main activity is project construction. however. without reducing the project’s size (and respective payoff from construction). As such. Relationship banks provide funding to the project through non-recourse loans. Contract termination would yield the lowest payoff. As a shareholder in the SPV. the exposure to revenue risk would be higher.2 272 With respect to project sponsors. As such. their utility in this case is evaluated at 2. it can be assumed that they would prefer shorter investment periods. As such. indirectly affecting the relationship banks as well. the project is significant in its portfolio. backed by the project’s future revenues. A reduction in investment obligations. Thus. and by the Greek State in case of contract termination. backed by the project’s future revenues and by the Greek State in case of contract termination. but do not have any other direct financing relationship to any of the . The repayment of the loans committed to the project is considered crucial as to their structured loan portfolios. since a longer time-commitment would be necessary. At the same time. the payoff in case of contract termination is evaluated at 0. would also reduce the expected payoff. could make the decision to divest from the project with less hesitation and therefore. even though it would facilitate the timely completion of the project. since the introduction of external funding sources reduces their financing obligations. as well as failing to complete construction of the project. as future cash flows aimed towards repayment of loans provided by these banks could be at risk should the project’s conditions worsen for the sponsors themselves. as illustrated in their financial statements. since external funding would be introduced to the project. the utility of the local sponsor under this scenario is evaluated at 1. their utility assessment under both the second and third contextual environments is lower than that of the local sponsor. whereas the local sponsor is established in Greece and is dependent on the project’s completion and the country’s economic upturn. It is assumed that the local sponsor has a vested interest in the project’s completion while project termination would be the least favourable outcome. the international sponsors. the payoff of the local sponsor under the third renegotiation alternative is evaluated at 3. Non-relationship banks provide funding to the project through non-recourse loans. their main difference is the locality of the project. they often provide recourse-backed loans to the sponsors for other activities. Finally. this stakeholder is considered as having a positive payoff under all renegotiation outcomes except for contract termination. An extension of the concession period would grant more time to the local sponsor to receive a return on its initial investment in the project. the value of which forms a large percentage of the group’s construction revenue. Their payoff is considered lower than that of the sponsors. but on the other it would pose a threat to the sponsor’s payoffs. as the financing of the project does not form as large a part of the Lenders financing portfolio.BEPAM 3. The growth and prosperity of the sponsors is dependent on these banks’ finances. having a more diversified global portfolio of infrastructure projects. without affecting the project’s size or concession duration. as the local sponsor would bear the risk of losing its case in arbitration. The payoff of the local sponsor under the third scenario is considered as the best possible outcome. and thus their exposure to a project affected by Greece’s negative economic outlook. Scenario 3 provides the highest payoff to the relationship banks. for the local sponsor being a company primarily engaged in infrastructure development. especially given the locality of this stakeholder.

along with the increase of safety measures such as the ‘new jersey’ separator will improve significantly travel time and safety. The State did not choose to exercise its power. However. that this motorway section was less expensive under State control (prior to the concession agreement execution). the payoff of this stakeholder would not exceed a rating of 1 under any renegotiation scenario. For green field users the project will provide a new safer and efficient transport route providing the potential for growth. This stakeholder’s payoff in case of contract termination would largely depend on whether the government would keep tolls at the current level or reduce them once the project company is dissolved. A positive payoff is also achieved in the case of changes in asset capital base. Reducing the project’s scope would not necessarily imply a reduction in exposure for the nonrelationship banks. and it is highly unlikely that the members of the parliament belonging to these parties would be opposed to the project’s completion. It must be noted that contract termination would not require ratification. this group’s behaviour elasticity with respect to toll rates and the general macroeconomic conditions was expressed in un-willingness to pay.sponsors. Failure to reach a renegotiation leading to project termination would be undoubtedly the least favourable outcome. since this would mean a reduction in the non-relationship banks’ exposure to the project’s and the country’s risk. In this case. For this group. as such the achieved payoff in this case is evaluated at 0. it is likely that members of the parliament may oppose renegotiation alternatives that have fiscal implications. as well as contract termination. as the user benefits would only be marginally realized. it would be difficult to predict the payoff of the parliament as a whole. The other scenarios are considered with a payoff of (3). since it could be done without refinancing their current obligations. Successful project completion may provide a positive payoff under all renegotiation strategies. Reducing investment obligations may be less attractive and a payoff of (1) is assigned. The Greek Parliament is required to ratify any amendments to the concession agreement. Brown field users should also be considered as project financiers. As such. however. However. Decreasing investment obligations includes a risk of failure to meet EU TEN-T PPP renegotiation framework 273 . It must be noted that changes that negatively affect the project’s nature and/or quality. However. since it would facilitate an elimination of financing obligations in addition to the immediate repayment of drawn loans. Taking into account. this stakeholder’s payoff follows a trend identical to that of the government in all potential renegotiation scenarios. the payoff is evaluated at 0. especially in comparison to those using the green field motorway section (the benefits of which are much easier to realize for the end user compared to the alternative routes). The upgrade of the brown field motorway through the addition of another lane. An extension of the concession period would not provide a positive payoff. the successful renegotiation of the project has remained high on all governing parties’ public agendas. as the parliament represents various political trends. it can be deduced that the European Commission’s would realize a positive payoff in all cases of successful renegotiation. Considering the number of austerity measures passed. as the tolls they pay consist of one of the project’s main sources of funding.e. As the project forms part of the European TEN-T network. all renegotiation scenarios apart from contract termination may provide a positive payoff. would have a negative impact on the European Commission’s payoff from the project. since the non-relationship banks would still be committed to finance a project bearing a risk significantly higher than the one originally committed to (i. the highest payoff is achieved under the case of contract termination. Therefore. prior to the Greek financial crisis).

evaluated at 1. and a payoff of 1 is realized if renegotiation scenario 1 is followed. Therefore. Stakeholder power distribution under contextual environment 2 Foreign nonrelationship Banks -Project Actor European Commission s -Project Relationship . since these funds are already committed for the country’s growth. Both figures show that the SPV is dependent on its financiers (sponsors and lenders) and the government. payoff would be marginally positive in this case. In this case. 4. since it does not introduce any risk of the project not meeting of EU TEN-T motorway standards.2 Stakeholder power distribution and renegotiation potential outcome As proposed in the methodological framework. The sponsors are dependent on their financiers (relationship banks). concessionaires finding their respective projects under similar conditions manoeuvre accordingly. Any successful renegotiation would create a positive precedent for this stakeholder group. in an effort to secure resources for their own projects. payoff for the European Commission would also be higher than the option involving reductions of investment obligations. Finally.BEPAM 3. as the initial concession period was foreseen at 30 years. apart from assigning respective estimations of payoffs for each potential outcome it is important to identify the stakeholder(s) with power within the stakeholder network. and since this scenario would not alter the quality or project duration. the government depends on the parliament (her electorate and ratifying entity of any renegotiation solution) and the European Commission (her main regulator and Finance other activities through loans Foreign Relationship Banks ct Ele International Sponsors Green field motorway users nc th e o ro th ug er h ac loa tiv ns itie s Local Sponsor e nc na Fi h ug ro th bt de Local relationship Banks SPV Re gula tes ula Fina nce s th roug h eq uity debt ugh thro nce Fina ce Finan quity gh e throu Other Concession Companies u Reg Greek Parliament Elect Brown-field motorway users Fi na tes ns loa gh rou h t e anc Fin Local nonrelationship Banks Guarantees liquidity Government reg El ec t t ec El s late Re Key: Name of Actor Description of relationship e vid ro .p g es in lat nc gu fina Figure 5. a payoff of 2 is realized in alternatives 2 and 3. their realized payoff is identical to that of the sponsors. The third renegotiation scenario would involve an application of ESF for the completion of the project. as such. Increasing the concession period would impose a significant change in the project’s scope. Finally.2 274 motorway construction standards. as the government guarantees their liquidity. an arrow directed from each stakeholder A to another stakeholder B indicates dependency of A on B. whereas the only lenders that are dependent on another stakeholder are the local banks. In both figures. Figures 4 and 5 map stakeholders relations under contextual environments 2 and 3. respectively. This option provides a higher payoff than reducing the project investment. as such.

these two actors are expected to play a decisive part in the renegotiation outcomes. that the dependency of the State on either of the stakeholders that belong to the lenders’ group. The parliament in turn is dependent on the voting public (the users). This dependency is even greater under the third contextual environment. a high enough State participation in the funding of the project could facilitate the exit of a problematic existing financier. however. the government is dependent on parliament as it only has a marginal majority. since the project forms part of the EU TEN-T network. It needs to be noted.p es c i n g lat gu f i n a n Foreign nonrelationship Banks -Project Actor European Commission -Project Relationship Figure 6. As a regulator and financier of the government.financier as a result of the economy’s bailout). and the renegotiation outcome that provides them with a highest payoff is the one that is more likely to be implemented. concerns PP7. which allows overcoming the parliament’s dependency on the users and leads to the dependency on the government to resolve the situation. The dependency on international banks is attributable to the decreased availability of funding for Greek infrastructure projects due to the financial crisis. The determining difference between the two contextual environments is the dependency of the government on the parliament. Following through the power relationships between the actors under the third contextual environment (Figure 6) leads to the identification of two main groups of power holding actors: the international lenders and the European Commission. Finance other activities through loans International Sponsors bt de PPP renegotiation framework 275 Foreign Relationship Banks ct Ele Green field motorway users nc th e o ro th ug er h ac loa tiv ns itie Local Sponsor e nc na Fi h ug ro th throu s Local relationship Banks SPV res Fina nce s th roug h eq uity Finance through debt ce Finan quity gh e Other Concession Companies Greek Parliament Elect Brown-field motorway users Fi na ent s u Reg Fin Local nonrelationship Banks r e th anc ans h lo oug tes Guarantees liquidity Government Re rep Re gula El ec t s late t ec El Key: Name of Actor Description of relationship ide rov . The European Commission. would be significantly reduced in the case where a change in the asset-capital base is introduced. since the country’s sovereign risk rating decreased even further. The dependency between the government and the parliament changes in Figure 6. its consent will need to be established prior to any renegotiation outcome being implemented. Stakeholder power distribution under contextual environment 3 s . in essence removing them from the project’s financing and the power distribution map altogether. severely affecting the availability of funding. more specifically. as the government (now a coalition) holds the grand majority in parliament. and. Moreover. while not directly involved influences the project in multiple ways. in Figure 5.

“Regulating concessions of toll motorways: an empirical study on fixed vs variable term contracts”. As such. (1989). Bolton. 43 No. 299-304. 18 No. MA. are likely to cause shifts in the positions of the stakeholders involved in such contracts.2 any changes to the project agreement (especially the injection of additional state or EU funds. however. Dewatripont. J. Contract Theory. (2005). (2009). since the European directives are particularly strict regarding state aid in ongoing projects) will require the EC’s consent. the framework may help stakeholders understand the motivations.M. (2010). M. The application of a simplified approach to rating payoffs and understanding the power distribution allows for a systematic understanding of strategies that renegotiating parties may adopt. “The dark and bright side of renegotiation: an application to transport concession contracts”. P. Public Money & Management. (2010). Baeza. identified in the previous section as the international banks and the European Commission. Vol. also illustrated how a change in the contextual environment may change the optimum solution. B. mainly due to their inherent nature of ex ante incompleteness. 30 No. Conclusions PPP contracts. are highly exposed to exogenous risks. 3 No. it can help reduce stakeholders’ unrealistic expectations as to the renegotiation’s potential outcome. Vol. “Renegotiation and information revelation over time: the case of optimal labor contracts”. depending on the contextual environment. as shown in the case study of Ionia Odos. 4.A. since the second renegotiation option yields a negative payoff to the international banks. engaged as internal stakeholders to a project of a complex contractual nature. the presentation of the case study contributes to the respective empirical literature. The methodology described herein shows that the ABC’s of power theory presented by Salancik and Pfeffer (1978) and Pfeffer and Salancik (1978) provides a good basis for the analysis of the stakeholder positions and consequent shifts thereof. References Albalate. Utilities Policy. Cambridge. and Bel. and Dewatripont. both the second and third renegotiation options provide an equally high cumulative payoff for all the stakeholders involved. expectations and relative power of the rest of the players involved in a renegotiation. facilitating the formulation and proposal of fair solutions in order to resolve potential renegotiations. pp. 276 . Furthermore. Transportation Research Part A: Policy and Practice. 77-85. 219-229. J.3 Estimated renegotiation outcome The next and final steps to the analysis of the Ionia Odos case study and application of the proposed framework are the evaluation of the collective payoffs of the stakeholders under each renegotiation outcome and the identification of the renegotiation outcome that would most likely be accepted by the power holding agents. Specifically. MIT Press. 2. the proposed methodology can assist private and public entities. pp. pp. contextual environment changes. to recognize and identify each other’s interests. De Brux. M. D. “Private concession contracts for toll roads in Spain: analysis and recommendations”.BEPAM 3. The application. it is much more likely that the third renegotiation option will be ultimately chosen. pp. Quarterly Journal of Economics. Analyzing the Ionia Odos case highlighted the importance of contextual environment and the influence on stakeholder positions. 5. 5. Vol. therefore. Finally. More specifically. Vol. and Vassallo. 2. 589-619. 104. M.

. (Eds). Vol. pp. 2. S. L. (2004). pp. A. MA. Grossman. Vol.L.R. A. and Straub. 1. and Galetovic. M. 131-146. “Public–private partnership projects in Greece: risk ranking and preferred risk allocation”. Guasch. Vol. and Straub. (2001).partnership transactions in Latin America”. PPP renegotiation framework 277 . A. DC. pp. 26 No. 421-442. ´ lectricite ´ de Saussier. 3-26.-L. Roumboutsos.M. 1 No. “Who gets power and how do they hold on to it: a strategic contingency model of power”. Journal of Economic Behavior & Organization. Journal of Applied Econometrics.L. and Pfeffer. Journal of Political Economy.-L. “Managing stakeholders by strategically influencing the distribution of power within the stakeholder network”. Contracts. (1978). O. (2006). “Infrastructure concessions in Latin America and the Caribbean: the renegotiation issue and its determinants”. 85-107. 3.-J. NBER. pp. 1-48. and Olomolaiye. (1986). Roumboutsos. Review of Industrial Organization. Guasch. Pfeffer. The World Bank Research Observer.R. London. 4. 42 No. pp. Guasch. 2. (1978).-L. 29 No.R. S. J. Vol. pp. and Salancik. 1. B. (2007).. WB.. and Hart. 678-688. 691-719. (2008). Vol. J. “PPI partnerships vs PPI divorces in LDCS”. The World Bank. 123 No. pp. Estache.L. Construction Stakeholder Management.. J. pp. J. 751-763. Hart. G. The External Control of Organizations: A Dependence Perspective. “The social ideologies of power in organizational decisions”. J. Hart. “Soft budgets and renegotiations in public-private partnerships”. Quarterly Journal of Economics. 189-206. 365-372. Fischer. Cambridge. J. E. Journal of the American Planning Association. Iimi. Holm and Buhl. Washington. 15300. 4665.Engel. 111-132. 2. Infrastructure and Financial Markets Review. NY.. (2003). New York. “How (In)accurate are demand forecasts in public works projects? The case of transportation”. J. J. Laffont. 9 No. “Renegotiation of concession contracts: a theoretical approach”. 5 No. pp. O. S. R.) Organizational Decision Making. S. (2006).-J. Vol. pp. (2006). Oxford University Press. 1-6. S. P. 2-21. Salancik. Granting and Renegotiating Infrastructure Concessions: Doing It Right. P. and Moore. O. 2. (2008). Vol. “Concessions of infrastructures in Latin America: government-led renegotiation”. Ho. pp. 132 No. (2005). Vol. NBER Working Paper No. G. 71 No. Vol. and Brindle. 22 No. Skamris.L. J. (Ed. Oxford. International Journal of Industrial Organization. Cambridge. pp. (2009).. (2009). 42 No. “Multidimensionality and renegotiation: evidence from transport-sector public-private. (2008). Laffont. Harper & Row. Clarendon Lectures in Economics. J. 16 No. S. “Contracts as reference points”. Vol. Estache. Salancik. (2008). in Shapira. pp.. 55-73.D. Estache. (1995). 421-442. A. Firms. 29. J. “The costs and benefits of ownership: a theory of vertical and lateral integration”. and Trujillo. Laffont. “Transaction costs and contractual incompleteness: the case of E France”. Vol. Journal of Construction Engineering and Management. in Chinyio. (1997). 7. Vol.-J. (2000). DC. ISBN: 9781405180986. 94 No. Vol. MA. A. K. E. 2. M. Z. Guasch. Washington. A. Construction Management and Economics. “Privatization and regulation of transport infrastructure in the 1990’s”. Flyvbjerg. A. Guasch.J.. pp. pp. Guasch. and Financial Structure. J. “Model for financial renegotiation in PPP projects and its policy implications”. “Renegotiation of concession contracts in Latin America evidence from the water and transport sector”. and Anagnostopoulos. and Straub. Review of Industrial Organization.S. Cambridge Series on Judgment and Decision Making Cambridge University Press.C. G. 7. Policy Research Working Paper No. 1. Organizational Dynamics. Blackwell-Wiley.

and Estache. Vol. “Dealing with demand forecasting games in transport privatization”. H. 359-381.04. 40 Nos 3 Part 3.com Or visit our web site for further details: www. stakeholder management. transport infrastructure evaluation.200. To purchase reprints of this article please e-mail: reprints@emeraldinsight.2 278 Simon. He has been working as a project finance specialist in structured finance and PPP transactions since 2005.BEPAM 3. change management and innovation. (1985). Vol. procurement and contract management. (1955). Quinet. 9 No. public private partnerships (she is Chair of COST Action TU1001). game theory and models .nikolaidis@gmail. Quarterly Journal of Economics. J. 2. Government Gazette: 3555/81/16.. Trujillo.com/reprints . 99-118.emeraldinsight. Free Press. The Economic Institutions of Capitalism. accountability and entrepreneurial responsibility. (2006). (2002). pp. O. L.M. 4. Her research interests include risk analysis and management. New York. Trade and Transport. pp. Vol. E. Journal of Law & Economics. She worked as a consultant and Project Manager for the public and private sector in more than 20 countries for over 20 years before joining the University in 2005. (1979). Vassallo. “Transaction-cost economics: the governance of contractual relations”. 69 No. Greek Law (2007). entrepreneurship. Department of Shipping. alliances and strategies. “Traffic risk mitigation in highway concession projects: the experience of Chile”. 1. pp. 325-334. About the authors Nikos Nikolaidis is pursuing a PhD at the University of Aegean with a focus on PPP contract renegotiations. NY.d. “A behavioral model of rational choice”. 22 No. A. Williamson. Journal of Transport Economics and Policy. He has been employed as a senior advisor in Ernst & Young and currently holds a Project Manager position in GEKTERNA. 233-261.com Athena Roumboutsos is an Assistant Professor at the University of the Aegean. Williamson. Nikos Nikolaidis is the corresponding author and can be contacted at: nikos. Vol. Transport Policy. pp. O.