Some government require an equity interest in Project Companies, with an accompanying right for the Procuring Authority to appoint a director to the Project Company's board.
There are several benefits of this, including sharing in the profits of good performance, enhancing the relationship and communications, assisting to raise issues at a strategic level, increasing the level of transparency and information management.
There are also negative aspects including sharing of losses, blurring the line between the public and private sector interests and creation of conflicts of interest. It is typically not a preferred structure for other private sector investors (including equity investors and lenders), who will require strict controls around what rights the directors who are appointed by the Procuring Authority have at the board level. Additional challenges will arise in the case of financial difficulty or insolvency of the Project Company, as detailed in Chapter 6 (Insolvency).
EXAMPLE Procuring Authority appointed directors In the Qiaoxi District Central Heating project in China, the Project Company governance structure includes a board of directors and a supervisory committee. At least one of the five members of the board and at least one of the three members of the committee must be from the government of the Qiaoxi district in China. This allows the Procuring Authority to monitor the performance of the project on an ongoing basis. In several PPPs in Scotland, the Procuring Authority has an observer who sits in on the board meetings of the Project Company (other than during shareholder-related commercial discussions). For more information, see the Qiaoxi District Central Heating Case Study. |