«Buy-Build-Operate» (BBO). Transfer of a public asset to a private or quasi-public entity usually under contract that the assets are to be upgraded and operated for a specified period of time. Public control is exercised through the contract at the time of transfer.
«Build-Own-Operate» (BOO). The private sector finances, builds, owns and operates a facility or service in perpetuity. The public constraints are stated in the original agreement and through on-going regulatory authority.
«Build-Own-Operate-Transfer» (BOOT). A private entity receives a franchise to finance, design, build and operate a facility (and to charge user fees) for a specified period, after which ownership is transferred back to the public sector.
«Build-Operate-Transfer» (BOT). The private sector designs, finances and constructs a new facility under a long-term Concession contract, and operates the facility during the term of the Concession after which ownership is transferred back to the public sector if not already transferred upon completion of the facility. In fact, such a form covers BOOT and BLOT with the sole difference being the ownership of the facility.
«Build-Lease-Operate-Transfer» (BLOT). A private entity receives a franchise to finance, design, build and operate a leased facility (and to charge user fees) for the lease period, against payment of a rent.
«Design-Build-Finance-Operate» (DBFO). The private sector designs, finances and constructs a new facility under a long-term lease, and operates the facility during the term of the lease. The private partner transfers the new facility to the public sector at the end of the lease term.
«Finance Only». A private entity, usually a financial services company, funds a project directly or uses various mechanisms such as a long-term lease or bond issue.
«Operation & Maintenance Contract» (O & M). A private operator, under contract, operates a publicly owned asset for a specified term. Ownership of the asset remains with the public entity. (Many do not consider O&M's to be within the spectrum of PPPs and consider such contracts as service contracts.)
«Design-Build» (DB). The private sector designs and builds infrastructure to meet public sector performance specifications, often for a fixed price, turnkey basis, so the risk of cost overruns is transferred to the private sector. (Many do not consider DB's to be within the spectrum of PPPs and consider such contracts as public works contracts.)
«Operation License». A private operator receives a license or rights to operate a public service, usually for a specified term. This is often used in IT projects.
Bankability. The ability of a project to generate sufficient cash flows, bearing in mind the risks associated with the project, to repay its financing.
Concession agreement/contract. An agreement or contract made between a host government and a project company or sponsor to permit the construction, development, and operation of a particular project, through which the government is delegating its monopoly or other unique rights.
Concession period. The duration over which the private sector will operate the service/asset. The asset is handed back to the government authority in a pre-agreed condition at the concession handover/reversion date.
Consortium. A group of companies wishing to act jointly as sponsors to a project.
Construction cost. Any of the cost types (appropriations, commitment, expenditure or estimate to complete) associated with the scope of the construction work.
Construction risk. Risk associated with the physical construction phase of project development.
Currency risk. The cross-currency and foreign exchange availability risks.
DG TREN. The directorate at the European Commission responsible for regional policy on transport and energy.
Financial close. The finalization of all arrangements and contracts pertaining to the external financing of a project.
Financing agreement/contract. The documents, which provide the project financing and sponsor support for the project as defined by the project contracts.
Financing risk. The risk of not being able to obtain the necessary funding of a project from the banking and capital markets. Whilst this is formally a risk for the project sponsors, it is also a major risk for the host government in delivering the project, and explains why financial close is such a major milestone.
Infrastructure gap. The difference between existing infrastructure and the infrastructure needed to promote economic development of a region.
Operational risk. The risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events during the operational phase of a project.
PFI. Private Finance Initiative, the original acronym used to describe PPPs in the UK, sometimes used to mean a subset of PPPs based primarily on availability payments.
Political risk. The general term used to describe risks arising from factors that are determined or influenced by governments. External risks, such as currency convertibility, war, sanctions, etc., may be avoided, hedged, or insured against, and are significantly mitigated by membership of the EU and EMU. Internal risks, such as taxation, terrorism, inflation, and strikes, are usually unavoidable and uninsurable, and particularly affect PPPs.
Private funding. Finance provided by a private party.
Private sector. The economic entities which are not controlled by the state, i.e. a variety of entities such as private firms and companies, corporations, private banks, non-governmental organizations, etc.
Public Contribution. The level of funding committed from the public sector to a project.
Public Guarantee (or sovereign guarantee). A government commitment of funds/actions under certain conditions, based on project documents.
Public Sector Comparator (PSC). The risk-adjusted, estimated full lifecycle cost of a project if it was carried out by conventional in-house means. It is expressed in terms of net present value.
Return on equity. Earnings before extraordinary items, less preferred-share dividends, divided by average common shareholders' equity; the rate of return on the investment for the company's common shareholders, the only providers of capital who do not have a fixed return.
Revenue-generating (RG) projects. A project involving an infrastructure, the use of which involves fees borne directly by users and any operation resulting from the sale or rent of land or buildings.
Risk. An event which can change the expected cash flow forecast for a project.
Syndication. The process of inviting other banks to participate in a financing by the underwriters of the financing.
Sovereign risk. The risk that a government will be unable to meet its external commitments. By definition, all governments are able to meet their obligations expressed in their own currency, so government bonds issued in their own currency are deemed to be risk-free for economic actors in that currency.
Special Purpose Company/Special Purpose Vehicle (SPV). A special purpose joint venture project company established by the sponsors which has, as its sole purpose, the delivery of a specific project.
Sponsor. A party wishing to develop and finance (with own equity or subordinated debt and other project finance) a project. Shareholders of project companies are known as sponsors.
Step-in rights. Rights relevant to both the private and the public sector. An entitlement to perform or allow a third party to perform the SPV's obligations under the concession contract in certain circumstances.
Traditional Procurement. Procuring infrastructural projects through a tender that encompasses only the construction of the relevant facilities.
Traffic Risk. A risk relevant to transport infrastructure projects, namely the chance that the number of users is not sufficient to meet established payback requirements.
Trans-European Transport Networks (TEN-T). A European Union designation for roads, railways, inland waterways, airports, seaports, inland ports and traffic management systems which serve the entire continent, carry the bulk of the long-distance traffic and bring the geographical and economic areas of the Union closer together.
Underwriting of financing. The commitment by a group of banks to provide the entire agreed financing, subject to certain restricted conditions.
Underwriting of risks. Formal agreement to take on a certain risk and reimburse the other party in the case of negative consequences ensuing from that risk.
Value for Money (VfM). A concept associated with the economy, effectiveness and efficiency of a service, product or process, i.e. a comparison of the input costs against the value of the outputs and a qualitative and quantitative judgment of the manner in which the resources involved have been utilized and managed.
Whole life costs. The full costs of a project including those incurred during the design, construction, operation and maintenance of the facility.
Source:
(i) Hybrid PPPs: Levering EU funds and private capital, PricewaterhouseCoopers LLP and the World Bank, January 2006.