(a) Assurance given by the host government to the Project Company that no competing infrastructure projects will be developed for a certain period and within a certain perimeter, up to a defined threshold (e.g. traffic, consumption, etc.) and that no agency of the government will compete with the Project Company, directly or through the concessionaire. This may be particularly important for toll roads projects, where an additional road could undercut the revenue flow. Such provisions must be carefully reviewed by the Public Sector, however. Given the long-term nature of PPP contracts, population growth or other factors may render such provisions problematic.
(b) Limitations: (i) requirements of competition laws (risk of monopolies that put national customers at a disadvantage), and (ii) requirements of international /regional agreements.
(c) Ancillary revenue sources.
| (d) Allowing the Project Company to diversify its investment through additional concession for the provisions for ancillary services or the exploitation of other activities (e.g. right to collect tolls on an existing bridge, or the right to charge fees for the use of a facility built by the Contracting Authority). | e.g. Sydney Harbour Tunnel Project: sponsors obtained the concession to operate the existing Sydney bridge as one of the incentives and the bridge toll was increased to the same level as the toll for the tunnel. |
(e) Necessity of legislation allowing the right to use property of the Contracting Authority for purposes of charging fees for the use of a facility built by the Contracting Authority.
Possibility to create, perfect and enforce reliable security instruments:
In the context of non-sovereign transactions, lenders look to the cash flow and assets of the project company to secure payment of their loans. In this respect, lenders will pay particular attention to how much and how fast they can recover their unsatisfied claim through realization of charged assets, and how simple the whole process will be.
Creation, perfection and enforcement of lenders' security instruments (see examples below) require that the legal system does not contain legal or regulatory impediments. Examples of such impediments include:
(a) For the creation of a security: necessity of precise identification of the cadastre for mortgage or pledge or other attachment on movable or immovable assets;
(b) For the perfection of a security: difficulties to verify the existence of prior ranking claims (poor state of corresponding registries) unclear, thus costly, procedures for registration, impossibility to attach public property, immunity;
(c) For the enforcement of a security: difficulties in repossession and selling of collateral.
Security interests in property assets:
(a) Mortgages over land, buildings and other fixed assets (floating) charges over movable assets, including project inventory and receivables production/work in progress, intangibles. And other personal property and interests.
(b) Pledge on shareholders equity participation on the borrower's interest in the major projects agreements.
(c) Assignment of rights underlying major project authorizations.
Escrow accounts:
(a) Control and retain cash flow relating to the project.
| ACTION POINT The experience and key learnings from PPPs to date underscore the importance of building institutional and human capacities in PPPs and the need to improve governance in PPPs. |
Sources and Further Information
(i) British Columbia Ministry of Municipal Affairs, Public-Private Partnership: A Guide for Local Government, May 1999.
(ii) Canadian Council for Public-Private Partnerships, About PPP - Definitions and Models.
(iii) Deloitte and Touche, Closing the Infrastructure Gap, Global Addition, 2006.
(iv) DLA Piper Rudnick Gray Cary, European PPP Report 2005.
(v) Invest Japan, Japan's Private Finance Initiative on the Move, 2003.
(vi) Vladimir Varnavskiy, Public-Private Partnerships: Types, Projects, Risks; Moscow, 2005.