The legal and regulatory issues in implementing a PPP project need to be carefully examined during the project planning stage. These issues have important implications in project structuring as well as in contract design. Also, a concession agreement cannot be considered in isolation from the legal system of the jurisdiction. Generally, civil law13 based countries have a separate category of laws dealing with contracts and concessions. Rights of the parties to the contract or concession may have been clearly specified in such laws.
However, when a contract is awarded or a concession is granted under the administrative laws, as is often the case in common law countries, the contract/concession may be revocable at the will of the government. The private sector, including the lenders, would obviously be concerned considering such a possibility. The private parties would consider the extent to which it affects their commercial rights and may require some special provisions in the contract to protect and enforce their commercial rights. In the due diligence process, they would carefully consider legal issues concerning irrevocability, certainty and enforceability of their rights.14 The enforceability of rights, however, is also an important legal issue for the government, especially when a foreign private party is involved.
Besides these issues that are of a more fundamental nature concerning the legal systems of the jurisdiction, there could be many legal and regulatory restrictions. For example, not all types of PPP models may be applicable for a sector or type of a project. A PPP project needs to be designed around these restrictions. If these restrictions are not assessed early on and a project is not designed accordingly, the project will not pass lenders' due diligence process. Consequently, the concessionaire/private party in the contract would not be able to arrange financing.
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13. The legal systems of most countries can be broadly categorized in two systems: civil law and common law. Over the years, the differences between these legal systems, however, have become blurred to a great extent.
14. The lenders, for example, would carefully assess their step-in right. They would also like to ensure as much security for the financing as possible. They may require security rights to allow them to take over the project rather than just sell the project assets, as the value of the project lies in its operation and not in its completed assets. They may ask for securing their interests through assignment, transfer and substitution of the concession to a nominated company under certain specified conditions.