Large Project Finance Workshop Presentation on Public Private Partnerships PPPs Structural, Legal an

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Large Project FinanceWorkshopPresentatio
n onPublic Private Partnerships
(PPPs)Structural, Legal and Regulatory issues

• Peter Kyle
• Lead Counsel
• The World Bank

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Outline for Discussion

• PPPs Structures, Objectives and Options
• PPP Unit
• Legal Environment - Key Issues
• Regulatory Issues

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• What are Public Private Partnerships (PPPs)?
• a range of relationships between the public and
  private sectors for the delivery of
  infrastructure services
• generally, the public sector enters into an
  agreement with a private company to provide a
  specified public service, in exchange for
  payments based on the service actually delivered

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Summary Range of Options
Divestiture
Joint Venture
Public Water Co.
Private
Corporatisation
Management of Service provider
Mixed
Delegation to Private Sector
Municipal or Provincial Authority
Public
Public
Mixed
Private
Ownership of Assets
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Objectives behind PPPs

• Why do governments choose PPPs?
• insufficient public funds to meet the demand for
  infrastructure
• new sources of finance
• a desire to improve the quality of public
  services
• transfer of certain risks to the private sector
• better value for public investments in
  infrastructure by the use of private sector
  skills
• introduction of innovation/ technology

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Which option fits objectives?

• Assets Existing or New
• Existing service to be operated by private
  sector?
• New facilities to be added and then operated?
• Transfer end-user risk
• Operator takes all risk of end user bills user
  directly
• Operator is paid fee by public entity
  performance bonus for increased collection rates

• Management contract/ O M/ Lease/Affermage/
  Concession
• BOT/ BOOT/ Concession etc
• Lease/ Affermage/ Concession
• Management Agreement/ O M Agreement
• BOT/ Concession with off-take arrangement

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Pros and Cons of PPPs

• Pros
• Off balance sheet creates fiscal space
• Private sector is seeking to make a profit
  generally will do what it is paid to do
• Private sector brings expertise and good
  practice
• Private sector paid to make efficiencies

• Cons
• Can be expensive
• Contract needs to be carefully drafted to ensure
  operator cannot avoid obligations/ benefit
  excessively
• Public body will need to retain expertise to
  monitor operator
• Efficiencies are likely to be made at expense of
  workforce dont underestimate trade union and
  public pressure

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PPP Unit

• Is there an entity equipped to implement PPP
  Program? (Unit in Treasury, PPP Unit, statutory
  body etc)
• Does it have full mandate from relevant
  ministries?
• Are all PPPs, in all sectors, handled by this
  unit?
• Will it have all necessary powers?
• How is it funded?
• How is it staffed?

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LEGAL ISSUES

• The laws, regulations and concession agreements
  are not the whole story
• Government commitment on a continuing basis is
  key
• Stable and investor-friendly legal/ enabling
  environment is key
• Involvement of all stakeholders from an early
  stage in project development is key
• Need for high quality legal advisers foreign
  and domestic
• Need for sophisticated financial instruments and
  financing techniques

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LEGAL ISSUES - Trends in Power Industry
PPPsWorld Bank 2003 Survey of Investor Concerns
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Local Legal Environment - Key Issues (1)

• Is the environment a safe one in which to invest?
• Legal/ political certainty
• What power does the government have to
  expropriate assets?
• Are adequate dispute resolution systems
  available?
• Foreign exchange controls are there limits on
  the amounts of forex that can be brought into or
  out of the country?
• Is the return that the operator is to receive
  protected by contract? Who is responsible for
  setting tariffs?
• Are political risk insurance/ guarantees
  available eg MIGA, World Bank

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Local Legal Environment - Key Issues (2)

• Can the public body (Ministry, PPP Unit) delegate
  powers and obligations?
• If the service is decentralized, does the legal
  instrument delegating authority to municipality
  allow it to delegate powers?
• Even where the authority has general power to
  delegate, is it actually possible to delegate
  what is contemplated?
• If it is intended that private operator is to
  bill end-users, is this allowed? What recourse
  does private operator have against non-payers?
  In the case of the utility, can the user have
  service cut off?
• A utility will need powers to work on third party
  property, can this be delegated?

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Local Legal Environment - Key Issues (3)

• Property rights
• If the private entity is to build a new power
  plant, and is to receive financing to do this,
  are the laws on title to land sufficiently clear
  to allow entity to own plant and have rights of
  access over land?
• Is a foreigner permitted to hold property?
• Can security be granted over assets
• Possibility of step-in rights for lenders/ direct
  agreements
• Tariffs
• If it is intended that tariffs will be increased,
  are there legal limitations on tariff increases?
  Can the public body guarantee that such tariff
  increases will be implemented, or is this the
  responsibility of a third party regulator/
  parliament?

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Local Legal Environment - Key Issues (4)

• Are guarantees available from the central
  government?
• Is the procurement regime clear and transparent?
• Are the labor laws conducive to a PPP investor?
• What are the taxation implications for the PPP?
• Dose the country have a modern insolvency regime?
• Will the Legislature enact an appropriate
  PPP/Concession Law?

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Regulatory Issues

• Can regulation be achieved in the contract or
  is there a necessity for a separate regulatory
  body?
• Relationship between regulator and PPP Unit
• Transitional arrangement before regulatory
  body is established
• Formal regulation may not be practical
• Who will regulate the contract independent
  engineer?
• Should regulatory body be independent What
  does independence really mean? Who appoints
  regulator, is it a board or an individual, how is
  it funded (through tariffs or from central
  government)?
• Should there be outsourcing of regulatory
  duties?

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ISSUES TO CONSIDER WHEN CONTEMPLATING REGULATION/
GOVERNANCE RE. UTILITIES

• Should there be a separate regulator to cover
  each sector or a common regulator?
• What powers and duties should be given to the
  regulator
• Can Government step in and reverse regulators
  actions without recourse to legislation?
• Can other bodies/ courts overrule regulator?
• Is regulator to set tariffs?
• Are there other regulatory body with similar/
  conflicting powers/ duties?
• Need adequate appeals process against
  regulatory decisions

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Thank You

• Guidance and Materials
• Uncitral - http//www.uncitral.org/pdf/english/tex
  ts/procurem/pfip/guide/pfip-e.pdf 
• EBRD - http//www.ebrd.com/country/sector/law/conc
  ess/core/index.htm
• Peter Kyle, Lead Counsel, The World Bank
• Tel [phone],
• Email pkyle_at_worldbank.org