Transcript Slide 1

Contractual and Legal Issues in PPP Projects
Exporting PPP in the International Market
An International Perspective
Exporting PPP in the growing international PPP Market
22nd & 23rd November 2006, Vilnius
Robert Gross
Partner – International Projects
Berwin Leighton Paisner
Contents
Introduction
Conflict between local law and international practice
Civil law and common law structures
Procurement issues
Bankability and competitiveness
Transaction Management
Final Thoughts
Introduction
About Berwin Leighton Paisner
“a truly integrated service of outstanding quality”
(Legal 500 2004)
Berwin Leighton Paisner is a leading, full service City of London law
firm with over 500 lawyers based in offices in London and Brussels,
and an international network designed to meet our clients
requirements.
The firm has had extraordinary success in developing a blend of
market-leading corporate, finance and real estate practices.
The firm has one of London’s leading PPP and Project Finance
practices and has a dedicated mutual referral network of overseas law
firms with which it works closely.
Our reputation within the legal sector was recognised at the 2004
Lawyer Awards when we were awarded Law Firm of the Year, the
highest accolade for any UK law firm and again in 2005 when we were
awarded Chambers UK Law Firm of the Year.
We were recently nominated for Project Finance Law Firm of the
Year in the Legal Business awards for 2006.
Background & Credentials
BLP has been involved in PPP/PFI since its inception.
Acting originally for UK Government and public sector on
leading projects such as the Home Office and the Treasury
Buildings.
Practice expanded to sponsors and private sector.
Extensive involvement in cross-border PPP projects:
– acting for ASFiNAG on the Austrian PPP roads project
– acting for the Slovak Republic on their PPP roads
programme
Conflict between local law and
international practice
Dominance of UK models
PPP introduced in the UK in the late-1980s and developed in
the context of UK government policy and UK law.
Application outside UK – different legal systems and different
political circumstances.
Prevalence of UK models– abundance of precedent,
development and standardisation.
Financing commonly governed by English law.
Watch out for…
Problem of imposing UK structures in different jurisdictions – need to
accommodate local law and practice, e.g.:
– force majeure limited to terrorism and nuclear war
– position on risk transfer reflects years of negotiation and
development of standardisation
– peculiarities such as no compensation upon termination in the UK
roads sector
Standardisation in the UK has been a negotiated process reflecting the
involvement of public and private sectors and different interest groups.
Statutory position differs:
– is enabling legislation required?
– public sector capacity and authority
In short:
International practice has much to offer in
terms of structuring and precedent but must
be sensitive to genuine local law concerns.
Civil law and common law structures
What is the difference?
Common law: Freedom of contract.
Civil law: Enshrined rights and obligations in a civil or commercial
code.
Common law: Supremacy of contract.
Civil law: Enshrined rights and obligations in a civil or commercial
code.
Common law: Totality of contract.
Civil law: Enshrined rights and obligations in a civil or commercial
code.
How does the difference manifest itself?
Length of concession agreement and related documents.
Cultural or political differences:
– private sector and public sector roles, e.g. custodial services
– public sector control over concessionaire, sub-contractors,
third-party agreements, etc.
Accepting the philosophy of PPP and the implications of risk
transfer.
Procurement
Application of procurement law
Local procurement and implementation of European directives
differs.
Impacts on structuring, timetable and documentation and can be
fundamental.
Approach varies with some countries adopting a literal,
prescriptive approach and others taking a broad brush intentbased approach.
Influence of litigation environment.
Attitude towards compliance.
Political forces – public sector versus public sector.
Conflict between local law and international practice.
Bankability & Competitiveness
Traditional PPP structure
Government
Concession
Agreement
Private
Investor(s)
Shareholders
Agreement
Funding
Agreements
Concessionaire
Construction
Contract
Construction
Contractor
O & M
Agreement
Operator
Lenders
Emerging PPP structure?
Government
Private
Investor(s)
Concession
Agreement
Shareholders
Agreement
Funding
Agreements
Concessionaire
Government
Construction
Contract
Construction
Contractor
O & M
Agreement
Operator
Lenders
Unrealistic or unsatisfactory business case
Forecasts are used to determine the revenue for a project and the
forecasts are too conservative or too aggressive.
The host government when contributing assets to the project seeks
(as it has in a number of instances) to extract a commercial return
on such assets.
The construction price quoted by the foreign contractor and the
return required on its equity is viewed by the host government as
being excessive having applied its public sector comparators.
The financing terms proposed by the foreign contractor are
considered to be too expensive.
The host government requires control over project revenues directly
derived from the public without providing appropriate protections for
future increases in costs and expenditures.
Inappropriate project structure
Government owned company (GOC) issues.
Use of a paper vehicle.
Uncertainty over revenues:
– will GOC be able to make all the payments required under the
concession as and when they fall due (both unitary payment and
termination compensation)
– if the government changes the basis of or withholds payments to the
GOC, is the GOC able to assure concessionaires that they will get paid
in all circumstances
– inability of GOC to assure concessionaires that their payments will not
be affected by other liabilities that the GOC may incur
Uncertainty over ability to discharge liabilities.
Unable to borrow or raise capital by itself.
Inability to assure concessionaires in respect of non-competition issues.
Key concerns
Creditworthiness of project cash flow
Political dynamics
Risk allocation and government control
Direct agreement and step-in
Lack of track record or poor track record
Inexperience
Pricing
Lack of cultural awareness and sensitivities
Transaction Management
Understanding…
Process and roles
When to add value and when to step-back
Interplay between local and international influences
When to rely on precedent and when to follow domestic
requirements
When to innovate and when to replicate
Teamwork
Cultural issues
Final Thoughts
Advance preparation
Identification of key public infrastructure for investment.
Ensuring necessary legal framework is in place.
Identification of “pathfinder” projects.
Identification of key personnel within Government to
co-ordinate PPP projects and to be a repository of PPP
know-how.
Establishment of market precedent.
Standardisation for costs savings.
Transaction process
Recognise process involves a multi-party approach with a diverse
number of stakeholders.
Recognise that some participants may be less sophisticated than
others.
Identify key government concerns and key private sector concerns.
Draw upon experienced participants and advisers.
Formulate strategies to:
– avoid pitfalls and obstacles
– address key government concerns
– address key private sector concerns
An International Perspective
Exporting PPP in the growing international PPP Market
22nd & 23rd November 2006, Vilnius
Robert Gross
Partner – International Projects
Berwin Leighton Paisner