If the PPP Contract allows for termination for prolonged Force Majeure, it typically provides that the Contracting Authority pays compensation to the Private Partner reflecting the principle that Force Majeure is neither Party's fault and the financial consequences should be shared. This does not mean that the Contracting Authority should pay "full" compensation (i.e. repayment of all debt, equity and break costs) as this would result in the Contracting Authority bearing all the financial pain. The usual payment amount results in the Private Partner losing all its forecast equity return (i.e. its profit) but being able to repay all of its outstanding senior debt which is sufficient to address bankability concerns. See Section 4.5, Termination Payments and Section 4.7, Sample Drafting 4, Schedule, Clause (3).
| EMERGING AND DEVELOPED MARKET DIFFERENCES Where certain natural risks are insurable (and would reasonably be expected to be insured against as good operating practice), the Contracting Authority may succeed in negotiating paying no termination compensation in respect of such events (or a reduced amount reflecting insurance payments received (or receivable - see Section 1.2.1.4) by the Private Partner). This to some extent reflects the practice in more developed markets mentioned in Section 1.2.1.2(b) where these type of events may instead be classified as "Relief Events" which are at the Private Partner's risk and entitle it to time relief only (but no ultimate right of termination). This will of course depend on the risk assessment by the Private Partner and its Lenders. Any differing treatment agreed upfront for different types of Force Majeure event should be clearly expressed in the PPP Contract. |