2.2.1.2 Events -
As mentioned in Section 1, Force Majeure, the dividing line between political risk (which is allocated to the Contracting Authority) and certain commercial risks (which the Private Partner is expected to take or share) is, in practice, likely to be a difficult one to draw. It is usually accepted that MAGA events include war related events within the relevant country, as well as deliberate acts of state such as outright nationalisation or expropriation of the PPP Project (including creeping expropriation, which is often carried out indirectly and over a period of time) and a declaration of a moratorium on international payments and restrictions on currency conversions into foreign exchange. MAGA may also include failures by the Contracting Authority or other public entity to grant licenses or comply with certain obligations.29
Apart from these more obviously political events, there may be certain risks which result in increased costs and are outside the control of the Private Partner and could have a political aspect to them. For instance, there could be a politically inspired strike, which could force up the price of key raw materials which are obliged to be purchased locally or a dock strike could prevent the importation of materials.
It is worth noting that some MAGA risks will seem more clearly within the Contracting Authority's control than others (e.g. where the event is controlled by it or occurs as a clear result of its actions, as opposed to happening through a higher or more distant arm of government). However, as the nature of these risks is such that they cannot or will not be borne by the Private Partner (or will result in unaffordable pricing), market practice is that these risks are typically accepted by the Contracting Authority. One approach which the Contracting Authority may find helpful is to sub-categorise MAGA events into "fault" and "no fault" events, even though they are both still at its risk.
The individual circumstances of the PPP Project and jurisdiction will need to be taken into account, e.g. the risk of upstream water pollution in a water sector PPP Project or the building of a competing road (especially a free road), port or airport within a certain distance from the tolled highway, port or airport to be operated under the PPP Contract concerned.
| EMERGING AND DEVELOPED MARKET DIFFERENCES Some jurisdictions are more politically volatile than others. If a political event (such as war) is highly unlikely, the Private Partner may be comfortable with the risk being treated as a shared Force Majeure risk. In more volatile jurisdictions, however, certain events may be more appropriately treated as Contracting Authority risk under MAGA provisions. Alternatively, it may be appropriate to differentiate between certain political risks so that they are classified as Force Majeure Events if they occur outside the relevant country and as MAGA events if they occur within the relevant country. The Contracting Authority must consider carefully what distinctions, if any, are appropriate for its jurisdiction and PPP Project. See Section 2.3, Sample Drafting 2, Clause (2). |
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29 MAGA should not include failure by the Contracting Authority/government to enact laws crucial for the implementation of the relevant PPP Project. If the legal framework is not in place, the PPP Project is unlikely to be bankable and the private sector will be reluctant to spend time and resources bidding. If necessary, this type of issue should be dealt with as a condition precedent to be satisfied before the PPP Contract is effective.