INTRODUCTION TO PPP

Budgetary Resources - Allocation

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Central Sector Projects - Time Overrun Trend

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Central Sector Projects - Time Overrun Trend

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Central Sector Projects - Cost Overrun Trend

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Investments in Infrastructure

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Investments in Infrastructure – Contd.

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 PPP Concept

 Why private sector participation in infrastructure

development?
► Traditional procurement system - Limitations
► Efficiency gains
► Private capital
 Functions
► Accelerate implementation of high priority projects
► Access specialised management capacity for large and
complex programs
► Facilitate delivery of new technology developed by private
entities
► Access wide range of financial resources
► Encourage private entrepreneurship in infrastructure

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 PPP Concept – Contd.

 Definition
► “A contractual agreement between a public agency
and a private sector entity. Through this agreement,
the skills and assets of each sector (public and
private) are shared in delivering a service or facility
for the use of the general public. In addition to the
sharing of resources, each party shares in the risks
and reward potential in the delivery of the service
and/or facility.”

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 PPP Concept – Contd.

 Features
► Facilities transferred to private entity
► Private sector builds, extends or renovates the facility
► Public sector specifies the facility’s operating features
► Private sector provides services
► Private sector agrees to transfer back the
facility/Operate it prepetually

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 PPP Concept – Contd.

 Benefits to governments
► Easing budgetary constraints and access to private
capital
► Allocation of risks
► Faster delivery of projects
► Encourage innovation and efficiency
► Completion on time and within budget
► Transfer of technology and training
► Access to international finance & foster local capital
market development

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 PPP Models - Types

 Risk allocation
 Nature of the facilities

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 PPP Models - Types

High
Public Sector Private Sector

Degree
of
Risk

High
Low
Maintenance Design & Operations & Rehabilitate, Build, Divestiture
Management Construction Management Operate & Operate &
Transfer Transfer (BOT)

▪ Makes investment from the private sector over a longer period

▪ Consideration of life costs more likely
SIMPLE ▪ More government preparation and supervision required COMPLEX
▪ More risk transfer possible

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 PPP Models - Types

New Projects

Design-Build- Design-Build- Design-Build- Build-Own- Build-Own-

Design-Build Maintain Operate Operate-Maintain Operate-Transfer Operate

Public Responsibility Private Responsibility

Service Contracts Management Lease Concession Divestiture

Contracts

Existing Services and Facilities

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 PPP Contractual Structure

Investors Granting Authority (usually

Government)
Shareholder
Agreement
Concession
Agreement

Operation &
Loan Maintenance Operator
Lenders Agreement Project Company Agreement

Management and/or Design-Construct

Checking Agreement Contract
Supply Contracts
(where applicable)
Project Manager and/or Design-Construct
Independent Checkers Consortium
Suppliers

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 PPP Contractual Structure – Contd.

 Functions
► Definition of the overall concept and structure of the
project including project finance and taxation issues
► Enabling legislation and regulatory systems
• Environmental protection, planning and user charges
► Controlling undue competition
► Procedure for disputes resolution
► Negotiation of the respective rights and obligations
and preparation of the associated documentation,
allocating risks and identifying insurance
requirements.

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 PPP Contractual Structure – Contd.

 Typical Key contractual agreements

► Concession agreement
• Focus of this course
► Shareholders’ agreement
► Financing agreements
► Construction contract
► Operating contract

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 PPP Contractual Structure – Contd.

 Shareholders’ agreement
► Govern relationships between the sponsors
► Sponsors
• Contractor – Captive contracting business
• Operators – Develop their business
• Equipment suppliers
• Companies
– Spread their risks over a wide portfolio in the relevant
industry
► Provisions
• Memorandum & AOA, Directors, Regulation of shareholders’
equity contribution, Dividend policy

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 PPP Contractual Structure – Contd.

 EPC Contract
► “Back-to-Back” with concession agreement
► Fixed price, date certain EPC
• Time & cost overrun risks
• Penalty & bonus clauses – Liquidated damages

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 PPP Contractual Structure – Contd.

 Loan agreement
► Maturity
► Interest rates
► Fees
► Pre-disbursement conditions
► Covenants – Positive & Negative
► Collateral/security
• Mortgage on project facilities
• Assignment of operating revenues
• Pledge of bank deposits
• Assignment of letter of credit/Performance/Completion bonds
• Assignment of insurance proceeds
• Assignment of all project agreements
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Discussion!

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