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Conventional types of Public Procurement: Classical Public Contract Concession Agreements

The main Legal and Business Aspects of: Public Private Partnerships (PPPs) by Alexander Lykourezos Lykourezos Law Offices Belgrade, May 11 th , 2006. Conventional types of Public Procurement: Classical Public Contract Concession Agreements. Main Features/Characteristics

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Conventional types of Public Procurement: Classical Public Contract Concession Agreements

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  1. The main Legal and Business Aspects of:Public Private Partnerships (PPPs)by Alexander LykourezosLykourezos Law OfficesBelgrade, May 11th, 2006

  2. Conventional types of Public Procurement: • Classical Public Contract • Concession Agreements

  3. Main Features/Characteristics of Public Contracts: • Contract for Public Works (on Public Property) • State appoints Contractor (Public bid/Contract) • Contractor undertakes the project (construction) • State pays reward to Contractor (installments/upon completion)

  4. Main Features/Characteristics of Concessions: • Contract for Public Works (on Public Property) • State appoints Contractor (Public bid/Contract) • Contractor undertakes the project (construction) • State pays agreed reward for the project • State concedes use and exploitation of the final project by Contractor for a long time period

  5. The basic practical weaknesses The burden on the Public side: • Immediate Cost – On Balance Sheet • Breach of Public Contract (delays, faulty construction) • Risk for bad performance • Initiative dependant on the National Economy (“only available when money is available”) • Unfair terms in Concession Agreements • Not flexible

  6. Public Private Partnerships (PPPs) Definition: “any joint venture between a public body and a private company, typically involving the joint ownership of a special purpose vehicle (SPV) established under company law, to work in collaboration on a variety of projects”

  7. The basic facts about PPPs: • PPPs are not new (UK Privatization scheme in the 80s) • PPPs, in principle, are a type of Public Procurement (requiring special legislation) • A “PPP” approach can be seen in conventional types of Public Contracts (e.g. concessions) • However, PPPs introduce new financial tools and require a new “attitude” by the Public and Private Sector • Considerable interest about PPPs all over Europe (EC Commission launched a wide debate with the “Green Paper” on PPPs in 2004) • “PPP” is a generic term: Private Finance Initiatives (PFIs) is one form of PPP – “Procurement of services by private sector that are delivered through public assets”

  8. The basic characteristics of PPPs: • Contract between a public body and a private entity • Relatively long duration of the contract • Private entity either Designs-Builds-Operates (DBO) or Designs-Builds-Finances (DBF) facilities • Private entity is financed by Private Institutions (agreement may include risk transfer, insurance and “step-in” clauses) • Public body either pays upon completion of the project or agrees on a concession

  9. Practical layout - Award of a PPP contract (Greek Law 3389/2005):

  10. A quick case study: “Athens International Airport” • A concession contract (with a PPP approach) • EU funding: Cohesion Fund 11%, EIB loan 47% • Greek State contribution 19% • Commercial debt 17% • Equity 6% • SPV: Athens International Airport S.A (55% Greek State, 45% Private Consortium) • Construction delays: 3 months in advance Source: Patrick Boeuf, EIB, 2004

  11. “Athens International Airport” – Duration of Project Implementation Source: Patrick Boeuf, EIB, 2004 (Time in months elapsed in each phase) Total (10 years)

  12. Why invest in PPPs? • Access to a new market • Private investment (institutional & private investors) • Project Finance • Insurance and Risk Transfer • Legal and Financial advice

  13. Arguments in favour of PPPs: • Expand of Public Works - Private finance, off balance sheet • Value for money – Risk transfer – Performance-related reward • Commercial interest - Investments • Innovation, Efficiency, Quality • New approach to “Privatization”

  14. Arguments against PPPs: • Burden on future balance sheet • Excessive outsourcing/sale of public property • Excessive private sector control • Commercialization of public services • Corruption? Are these real concerns or remainders of an old attitude?

  15. The keys to a successful PPP: • Political support (focus on the public service) • Proper and complete legislation harmonized with international practice and expertise • Full and complete legal, financial and technical advice to the public bodies • A good PPP contract • A level playing field • Collaboration

  16. Email: allykourezos@lykourezos.grWebsite: www.lykourezoslawoffices.gr Thank you for your kind attention!

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