SGs can expose Governments to delicate conflicts of interest throughout the life of the PPP contract. With SGs, Governments may be de facto potential creditors of the PPP companies (e.g. by standing behind certain lenders). On the other hand, Governments often are, or control, the PPP contract grantors. The interests a Government may have as a PPP contract grantor may run against its interests as a guarantor to the lenders. For instance, as a PPP contract grantor, the Government may wish to terminate the PPP contract following a major event of default, while, as a guarantor, it will be unwilling to terminate the contract to avoid a call under the SG. The lenders to PPP projects will look very closely at the conflict of interest that arises for the public sector on a given project. They are likely to request a robust governance structure that separates and clarifies the roles of the Government. If this conflict is not properly addressed, the lenders may be unwilling to lend to the project.
Guidance: Conflicts of interest can be complex matters. They should be evaluated case by case as every form of SG will imply specific issues. The interests of lenders and investors and what they are prepared to accept will need to be taken into account when devising an SG structure.