J. TERMS OF CONTRACT

Several parties are involved in the implementation of a PPP project. They include government agencies, project sponsor(s), banks and other financial institutions, experts, suppliers, off-taker(s) and third parties. A special project company called SPV may also be established for the purpose of project implementation and its operation. The details of implementation and payment arrangements are negotiated between the parties involved and are documented in a number of written agreements signed by them.

If an SPV is established, it is at the centre of most such agreements. The SPV negotiates the agreements with the other parties involved in the process. If the establishment of an SPV is not required, the concessionaire (or the private project company which sponsors the project) is at the centre of such agreements and negotiates the contract agreements with the other parties including the government involved in the process.

Figure 3 shows the nature and the general order of execution of agreements between different parties. The contract agreement with the government forms the basis for subsequent agreements with other parties.

Figure 3. greements in a typical PPP arrangement

A concession/contract agreement is the only agreement that is unique to PPP projects. The agreement:

• Underpins the whole structure of a PPP transaction;

• Defines the relationship between the public sector and the private sector;

• Identifies and allocates vital risks in a project; and

• Represents an important part of the security documents for the lenders.

Other agreements are analogous in form and content to agreements found in other corporate or commercial transactions.

It may be mentioned here that all types of agreements shown in figure 3 may not be necessary for all projects, for example, an off-take agreement in case of a toll road. An off-take agreement may not also be necessary for all power projects.

Contract agreements in respect of a project between the contracting authority in government and the private project company may be contained in a single document or may consist of more than one separate documents. It is difficult to generalize possible contents of all such agreements as they vary due to difference in legal and regulatory provisions from one country to another, type of PPP model and the nature of involvement of the public sector, implementation arrangements (including financial matters), operational, and various sector specific resource utilisation, technological and other matters. There are, however, certain key elements that need to be covered in most contract agreements. These key elements are discussed in Chapter 5.