PPP – THE KEYS TO SUCCESS
EDWINA ELENA UDRESCU, FCIArb
Lawyer and Arbitrator, Wolf Theiss Law Firm
Public-private partnership (PPP) projects are complex financial and legal structures used by many countries around the world to develop infrastructure projects. To attract private financing, the fairness of the allocation of risks between the public and private sector is one of the key aspects to the success of a PPP project. This article analyses how risks should be best allocated and what concerns the investors and lenders might have when deciding to bid in or finance this type of project. All of these will be correlated to the level of experience in PPP of the country trying to implement a PPP project and having regard for the characteristics of different legal systems and jurisdictions.
PRIVATE-PUBLIC PARTNERSHIPS – KEY FEATURES
The definitions of public and private partnerships vary because they describe a wide variety of arrangements involving the public and private sectors. PPP projects are a “further refinement” of private finance initiative (PFI). 1
This article refers mainly to availability-based PPP, which involve a private party that designs, finances, builds or rebuilds and subsequently is operating and maintaining the necessary infrastructure, while the public authority pays for the services provided by the private partner.
This is why in developing countries, this type of PPP structure might raise issues such as the affordability of the projects because the payments are made from public funds and not through user payment mechanisms. The latter are concession agreements or so-called “user-fee PPP.” The demand risk of user-fee PPP is a significant challenge that might cause the failure of a project. For availability-based PPP, there is a risk on long-term payments because such payments may rely on annual budget approvals. Chart 1 is a typical legal scheme on availability-based PPP.
1 Bruce, L, PFI/PPP Update , 2014 lecture, page 1.
Pt 2] Australian Contractors, Owners and Banks
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