The existence of a legal and administrative regime which permits PPPs and provides for a clear and transparent procurement process is essential. Without this, private sector parties are unlikely to invest time and resources (both financial and personnel), in participating in a PPP Project procurement process which may be lengthy and ultimately fail. Before any procurement process begins, governments in both civil and common law jurisdictions need to consider what additional legislation may be required in order to facilitate and permit PPP arrangements - this will include ensuring Contracting Authorities have the legal capacity and authority to enter into PPP Contracts (i.e. that they will not be acting "ultra vires" - beyond their powers) and that PPP arrangements in their desired form are legally permitted. Governments will also need to consider whether specific legislation is required to facilitate PPP Projects in a particular sector or (particularly in the case of civil law jurisdictions) is needed to limit the scope of an underlying law restriction which may be preventing or impeding the successful procurement of a PPP Project. This includes assessing any implications as regards potential financing, tax and security arrangements.12
A stable political, economic and legal regime and environment is also desirable. While certain associated risks can be managed under the PPP Contract, ultimately the risk of investing in and lending to a PPP Project where these conditions do not exist may be too high for some private parties, particularly when compared with alternative investment or lending opportunities. The involvement of export credit agencies and multilateral and development finance institutions can give Equity Investors and Lenders greater confidence in certain jurisdictions. This is due not only to their ability to offer more favourable financing terms or products such as political risk insurance in respect of commercial loans and equity, but also because of the relationships they enjoy at government level. Similarly, the existence of bilateral investment treaties between governments may play a part in the private sector's decision to invest in some jurisdictions. These elements are additional factors in the negotiation of a well-balanced PPP Contract in such jurisdictions, but are not a substitute for a PPP Contract.
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12 For an overview of as well as specifics on PPP legal frameworks, see the PPP Reference Guide Version 3.0, dated April 2017. See link in Appendix, Additional PPP Resources.