It is prudent to assess whether a renegotiation on any particular project may be symptomatic of a sector-wide or industry-wide issue. If any systemic factors can be identified, then a more robust (policy) change should be considered for future PPPs.
It is typical that more complex provisions, particularly in respect of remuneration and compensation, bear a greater likelihood of being the subject of renegotiations. Therefore, it is important that details of these provisions are shared between similarly structured projects and are incorporated into the preparation of new projects.
Similarly, if the risk allocation agreed between the parties at financial close is adjusted as part of a renegotiation, it should be assessed whether that adjustment should be incorporated into the preparation of new projects. For guidance on typical risk allocation arrangements between the Procuring Authority and the Project Company, see the GI Hub's PPP Risk Allocation Tool.3
| EXAMPLE Reviews in India and Brazil PPPs in India were suffering from several systemic challenges, including delays in land acquisition, difficulties in the shifting of utilities and right of way issues, often culminating in disputes. On the private sector side, inadequate due diligence and aggressive bidding led to project failures. As a result, the Indian Finance Ministry appointed a committee to review PPPs with a focus on the assessment of challenges associated with contract renegotiations, the adequacy of risk allocation, contract drafting and institutional capacity. Several recommendations were made for improvement. Lessons from previous PPP contracts have informed new contracts in the Brazilian electricity sector. The Procuring Authority (the national energy regulator, ANEEL) observed that difficulties in obtaining environmental permits often led to extensive delays and occasional project terminations. Consequently, ANEEL altered the bidding process to introduce a step to assess the feasibility of a proposed project from an environmental perspective, thus reducing the risk of environmental permitting causing delays. |
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3 Available at http://ppp-risk.gihub.org.