1 / 15

General Introduction into PPP - Contracts

General Introduction into PPP - Contracts. Bernard Wilson. PPP Contract Design. PPP Operating contracts, not finance contracts Many different models for PPP contracts: concession agreements, DBOM, franchises, management contracts. What does the contract do?.

jasia
Download Presentation

General Introduction into PPP - Contracts

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. General Introduction into PPP - Contracts Bernard Wilson

  2. PPP Contract Design • PPP Operating contracts, not finance contracts • Many different models for PPP contracts: concession agreements, DBOM, franchises, management contracts

  3. What does the contract do? • Sorts out what the parties have agreed to do • Sorts out what will happen if one or other of the parties does not perform obligations • Should set out a mechanism for managing change

  4. What does the contract not do? • The contract documentation cannot by itself create a viable PPP contract • There must be a real consensus between the parties • The parties must be able to deliver what they have promised

  5. The Terms of the Agreement • What the parties do (contract specification) • How risks are allocated • What they are paid • How performance is measured • Other terms e.g. guarantees

  6. What happens if things go wrong • Incentives/penalties: “tickle, hurt, kill” • Step in rights: e.g. for safety or essential services • Substitution rights/ termination: ultimate remedy • [Re-negotiation : Start again]

  7. Dealing with Change • External challenges: change of law, regulatory action; physical threats • Internal change: revising specification, responding to changed economic circumstances

  8. Case Study • London Underground PPP • London Underground, largest, busiest (and oldest) urban railway system • 600km route miles, with 400 stations • 1bn passenger journeys • £2bn fare-box revenue

  9. The Project • Modernise the system: renew and upgrade track, stations and trains • Train operation and revenue risk retained in the public sector

  10. Why PPP? • Benefits of private sector project management expertise • PPP structure allows works to be carried out more quickly • Long term concession structure ensures stable funding

  11. How was it done? • Existing business restructured • Train operations split from infrastructure and train maintenance – 3 SPVs created • SPVs transferred to private sector on 30 year concession agreement • All assets return to the public sector at the end of 30 years

  12. The PPP contract • Output based specification: train miles, system availability, station condition: calibrated each day • Fixed charge; but with incentive payments and abatements • Planned enhancements built into specification • 30 year term; reviews after 71/2 years

  13. Procurement • 3 SPVs allows for competitive procurement process • EU rules apply to competition • EU Commission ruled no State Aid • Contracts split 2/1 between successful consortia • Contracts let in early 2003

  14. Financial Structure • System charge, initially £1.4bn per annum set at level to allow SPVs to borrow to fund enhancements • Financial return to investors through efficiency savings • Change mechanisms (Statutory Arbiter) to protect the parties at periodic reviews

  15. Progress so far • Too early to see improvements • Second round financing achieved in 2003 and 2004 • Structure sufficiently robust to cope with financial problems with two members of the consortia

More Related