Contingent liabilities means liabilities whose occurrence, timing and magnitude depend on some uncertain future event, outside the control of Government.
A few of the common instances of contingent liabilities that have been observed under PPP arrangements include:
a. Guarantees on particular risk variables - an arrangement to compensate the private partner for loss in revenue in the event of a particular risk variable deviating from a contractually specified level. The associated risk is thereby shared between the public entity and the private partner. For example, this could include guarantees on demand remaining above a specified level or on exchange rates remaining within a certain range.
b. Compensation clauses - for example, a commitment to compensate the private partner for damage or loss due to certain specified, uninsurable force majeure events.
c. Termination payment commitments - a commitment to pay an agreed amount, in the event of the contract getting terminated due to default by the public entity or the private partner then, the amount may depend on the circumstances of default.
d. Debt guarantees or other credit enhancements - a commitment to repay part or all of the debt used to finance a project. The guarantee could cover a specific risk or event. Guarantees are used to provide more security to a lender that their loan will be repaid.
| Provisions for Contingent Liabilities in the MCA for Development of National Highways The following articles of the MCA provide for contingent liabilities arising out uncertain events: • Article 26 - Concession Fee • Article 27 - User Fee • Article 28 - Revenue Shortfall Loan • Article 29 - Effect of Variation in Traffic Growth |