Development of Policy, Legal, and Insitutional Framework for - ppiaf

More documents

Recommendations

Info

Development of Policy, Legal, & Institutional Framework for the PPP Program in Malawi Final Report In most PPP projects, the Authority’s long-term objectives are best served by having the assets transfer to the Authority at the end of the service period. This is one reason why so many PPP infrastructure projects are structured at Build-Operate-Transfer (BOT). There are many examples, such as highways. The Contractor cannot be a highways authority, so the highways that it builds and operates must be transferred to the Authority at the end of the service period. Care must be exercised, however, in the transfer of assets to the Authority at the end of the service period because international experience has shown that such transfers can bring back the same problems that existed when such assets were under government control and management, i.e. the inefficiencies that caused PPP to be developed for a solution. An example is the power generating facilities in the Philippines that were developed using BOT. Many of those facilities have reached the ends of their concession periods and have reverted to government ownership and operation. The same inefficiencies that existed prior to the PPP program are re-emerging. Governments need to view the asset transfer at the end of a concession contract to be an opportunity to have a new round of bidding to secure a new private operator rather than an opportunity for government to re-take control of service delivery. In cases where the assets are transferred to the Authority at the end of the service period, the contract should specify what conditions the assets must be in at the time of transfer, and should provide for recourse in the event that the assets are not in the condition that is specified in the contract. This applies to assets that will still have useful life at the time of transfer. For assets that will have expended their useful life by the time of transfer, it is not necessary to provide for compensation if they were not properly maintained. Most equipment will have expended its useful life by the time of transfer to the Authority. The Authority should focus on value for money rather than capturing residual asset value. In most cases, it is advantageous to provide an incentive to the Contractor to maintain the assets in good condition. Such incentive can be provided by a provision in the contract whereby the Contractor will be paid for the assets at time of transfer, at a price that is a function of the condition of the assets. Another method is to provide for an optional renewal of the contract if the assets are in good condition. If the assets have an alternative use at the end of the contract period, there are two main options for determining amounts payable to the Contractor at the end of the service period: (1) the market value of the assets; or (2) an amount bid by the Contractor when negotiating the original contract. Early Termination & Payment for Early Termination The Contractor should be allowed the right to terminate the contract if the Authority acts in a way that renders the contractual relationship untenable or completely frustrates the Contractor’s ability to deliver the service. In determining the compensation to be paid in event of default or breach by the Authority, the objective should be to ensure that the Contractor and the financiers are no worse off than they would have been had the default not occurred. The contract must provide a formula for such early THE INSTITUTE FOR PUBLIC-PRIVATE PARTNERSHIPS 214
Development of Policy, Legal, & Institutional Framework for the PPP Program in Malawi Final Report termination payment. Such formula can be based on either of the following three options: Compensation to reflect the base case IRR for equity and junior debt for the duration of the contract; Compensation to reflect the market value of both equity and junior debt for the duration of the contract; or Compensation to reflect the base case return for equity and junior debt for the remainder of the duration of the contract. In event of termination due to Contractor default, the contract must deal comprehensively with the possibility of such termination event, and must achieve a fair balance between the Authority’s desire to be able to terminate for inadequate service provision and the interests of the Contractor and financiers to restrict termination to only the most severe of defaults. Termination should be the Authority’s last resort. Generally, the Authority should have the right to terminate in the event of a consistent breach by the Contractor. A common definition of “persistent breach” is a breach that could have been rectified with reasonable efforts by the Contractor, and which has taken place several times over a 6 months period after the dates of the final warnings provided to the Contractor by the Authority. The contract should specify where the rectification process for such termination will involve re-tendering or not. Termination due to events defined as Force Majeure does not require either party to pay compensation or liquidated damages to the other party. Dispute Resolution & Authority Step-In Provisions A popular dispute resolution process for PPP contracting is as follows: The Authority and Contractor consult with each other for a fixed period of time in an attempt to come to a mutually satisfactory agreement; If consultation fails, the parties may then put their case before an expert to decide. The expert is appointed from a panel whose appointment is regulated by contract, and a separate financial expert may be appointed to handle disputes relating to price variations, financial returns, etc.; and If either party is not satisfied with the expert’s decision, it may refer the matter to arbitration or to the courts for a final and binding decision. The method by which the arbitrator will be appointed should be set out in the contract. In many cases, step 3 is required to be binding arbitration because both parties to the PPP contract agree that referring the matter to the courts will be too costly. Although this is a good way to avoid litigation, parties to the contract should check to see if the decisions reached in a binding arbitration will be honored by local courts. In many countries, such decisions are not really binding unless a local court ratifies them. In such cases, binding arbitration has little value and such cases might as well go directly to the courts. THE INSTITUTE FOR PUBLIC-PRIVATE PARTNERSHIPS 215
Page 1 and 2:
Development of Policy, Legal, and I
Page 3 and 4:
31 March 2007 Mr. Constantine Chiko
Page 5 and 6:
Development of Policy, Legal, & Ins
Page 7 and 8:
Page 9 and 10:
Page 11 and 12:
Page 13 and 14:
Page 15 and 16:
Page 17 and 18:
Page 19 and 20:
Page 21 and 22:
Page 23 and 24:
Page 25 and 26:
Page 27 and 28:
Page 29 and 30:
Page 31 and 32:
Page 33 and 34:
Page 35 and 36:
Page 37 and 38:
Page 39 and 40:
Page 41 and 42:
Page 43 and 44:
Page 45 and 46:
Page 47 and 48:
Page 49 and 50:
Page 51 and 52:
Page 53 and 54:
Page 55 and 56:
Page 57 and 58:
Page 59 and 60:
Page 61 and 62:
Page 63 and 64:
Page 65:
Page 68 and 69:
Page 70 and 71:
Page 72 and 73:
Page 74 and 75:
Page 76 and 77:
Page 78 and 79:
Page 80 and 81:
Page 82 and 83:
Page 84 and 85:
Page 86 and 87:
Page 88 and 89:
Page 90 and 91:
Page 92 and 93:
Page 94 and 95:
Page 96 and 97:
Page 98 and 99:
Page 100 and 101:
Page 102 and 103:
Page 104 and 105:
Page 106 and 107:
Page 108 and 109:
Page 110 and 111:
Page 112 and 113:
Page 114 and 115:
Page 116 and 117:
Page 118 and 119:
Page 120 and 121:
Page 122 and 123:
Page 124 and 125:
Page 126 and 127:
Page 128 and 129:
Page 130 and 131:
Page 132 and 133:
Page 134 and 135:
Page 136 and 137:
Page 138 and 139:
Page 140 and 141:
Page 142 and 143:
Page 144 and 145:
Page 146 and 147:
Page 148 and 149:
Page 150 and 151:
Page 152 and 153:
Page 154 and 155:
Page 156 and 157:
Page 158 and 159:
Page 160 and 161:
Page 162 and 163:
Page 164 and 165:
Page 166 and 167:
Page 168 and 169: Development of Policy, Legal, & Ins
show all

Development of Policy, Legal, and Insitutional Framework for - ppiaf

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?