This section explains what direct agreements are in the context of Privatizations, focusing primarily on direct agreements between the Entity and the funders; and policy towards these agreements.
Direct agreements are entered into between the private sector party, the banks financing a project and the parties to the project's key underlying commercial contracts including the Entity. The key contracts in the context of Privatizations would typically include the Privatization Contract, the main construction contract and related sub-contracts, any operation and maintenance agreement, any long-term supply contract and any long-term sales contracts.
In relation to Privatizations, the objective of a direct agreement is to enable the banks and/or other parties to step into and continue the contractual relationships in the event that the Private sector party wishes to terminate or extract itself from an existing contract that is the basis of a direct agreement, including in the event of a default in its loan obligations.
The direct agreements provide a right for the funders (i.e., banks) and/or other parties (e.g., sub-contractors) to assume the rights and obligations of the private sector party under the contract for a specified period of time or allow the transfer of the contract(s) to a separate company established by the banks for this purpose. The objective is to be able to continue to deliver the services to the Entity and/or to enable a restructuring of the Private sector party and associated services in consultation with the Entity.