Public Private Partnership

DAY 1MODULE 1: PPP Contract Negotiation & Strategy

INTRODUCTIONOpening Remarks

This is to brief the participants on the overall objectives of the program. An overview ofthe course will be provided and the ‘rules of engagement’ will be set out. Planning the Process of Introducing Private Participation

Objective: This session will look at the issues governments should consider when looking at involving the private sector, including:

• Documenting particular problems or challenges being faced by the sector and diagnosing the underlying cases of the problems
• Determine whether private participation can address the problems
• The session starts with a section analyzing key issues related to provision of services including:
• Key areas of responsibility and how can they be defined?
• Key risks related to these responsibilities, and how can they be defined?
• We look at ways of determining the best allocation of responsibilities and risks between the operator and the contracting authority
• The implication of involving different stakeholders in the process of consultationand implementation of the PPP Risk Allocation and Contract DesignObjective: This session will cover the important task of establishing an efficient allocation of project risks between the public and private sector parties. This risk allocation subsequently forms the basis for many elements of main contractual documents that will provide the legal and commercial basis for a successful PPP. Aspects covered will include:
• Overview of key risks in a PPP project
• The principle of value for money in relation to risk allocation
• The importance of ‘bankability’ and the need for contractual security
• Key contractual clauses
• Case study and worked example of risk assessmentObjective: This session will look at applyingsome of the basic concepts of risk allocation by describing a real case study (likely in roads, water or energy), and splitting the group into different roles of sponsor, lender and grantor. The project will be assessed against samerisk factors, eg land acquisition, rights of way, political and expropriation risk etc. Each team will present its risk assessment against a predefined risk matrix. At the end of the session the following learning outcomes are expected:
• Differentiation of risk given different perspectives
• Estimating probability of risk
• Value judgment of risk and implication of risk
• Quantification vs ‘emotion’ of risk

CONCLUDING REMARKSPreparing and Managing the Bidding ProcessObjective: This session will cover the key tasks required in preparing a PPP project fortendering and then managing the subsequent bidding process.

Topics will include:

• The importance of market sounding
• Engaging with advisors (legal, financial and technical)
• Preparing key documents (e.g. the RFQ, RFP)
• Bidding and negotiation procedures
• The Preferred Bidder Stage
• Financial and contract close and the swap process
• Summary and learning issuesObjective: Every day will conclude with a wrap up of core principles of each one of the sessions, drawing out each of the learning outcome for each session. This will be done in the form or a real case study eg. Tanzania Water Dar es Salaam failed lease contract (contract was terminated early due to ineffectual risk allocation between parties), or other appropriate case study.

DAY 2MODULE 1: PPP Contract Negotiation & Strategy (cont.)Principles for debt financing and the interest of the private sectorObjective: This session will cover important issues related to project financing to be addressed before and during the procurement of PPP projects.

• How are PPP projects financed?
• What are the main constraints of project financing?How a project’s financing is structured over time?
• What are the main difference between typical construction financing and PPP financing?
• What are the main typical financial risks involved for investors in PPP projects andhow are these typically managed?
• How can investors and lenders expectation be usefully managed throughout a PPP procurement process?Managing the Preparation of the Contractual DocumentationObjective: This session will outline the process of preparing the suite of contractual documents that are required for a successful PPP project. The session will interact with participants by doing a quick survey of the different experiences amongst the students, by asking each to outline their experience to date in preparing contractual documents and any issues/problems they currently face. The course leader / teacher will then present an overview of the process and sharebest-practice. This will be followed by an interactive Q&A session.Managing Prequalification and Bidding ProcessObjective: This session will cover the procurement of PPP projects, focusing more specifically on the selection of proposals/bidders. The session will also solicit experiences from the audience. In addition, the session will show different PQ and bidding specifications in different sectors. Fiscal Impact of PPPs, Risk Management Framework, Management of Contingent LiabilitiesObjective: This session will look at the issues that arise in terms of obligations from government and the public sector in PPPs. Some of these obligations are direct (ie explicit) yet others are contingent. Despite being contingent, these should be adequately understood and provided for. The session will therefore look at:
• Mechanisms to distinguish between direct and indirect liabilities
• Liability treatment depending on national legislation and accounting treatment (EgEU Eurostat approach etc.)
• Mechanisms to deal with contingent liability, valuation and probabilistic scenario testing
• Some of these principles will be illustrated by recent examples (eg toll roads in Spain and Portugal) where some of these issues led to catastrophic failure of high profile road PPPs.Wrap Up and Conclusions
• Course review questionnaire to assess course
• Distribution of reading material
• Overall Q&A

DAY 3MODULE 2: Structuring & Managing PPP Legal AgreementsINTRODUCTIONOpening RemarksThis is to brief the participants on the overall objectives of the second part of the program for the structuring and management of PPP agreements, and how this links to the first two days.Upstream Policy Implications and Their Effect on PPP Contractual AgreementsObjective: In this session, we specifically link the legal arrangements that are developed under PPP agreements and how they relate to upstream and sector policy. This involves three broad topics, including:

• How do we define an appropriate Market structure?
• How do we identify the level of Government to be responsible for infrastructure services and what are the responsibilities of other levels of Government, and how these relate to PPP contractual agreements?
• Competition and regulation – how can we establish competition and how does it get reflected in a PPP agreement e.g. how to deal with monopoly arrangements etc. Implications of Different Legal Jurisprudence Environments Objective: This session is intended to assess implications of different legal jurisprudence environments. Specifically:
• Why does the system matter and how do I link contractual obligations with legalregime?
• Contracts and local courts – the implications of legal precedence and how it can affect contract design In order to illustrate these fundamental differences for contract drafting and its implication different examples will be providing, comparing and contrasting civil and Anglo-Saxon jurisprudence. Furthermore, examples will be provided as to how these ‘shape’ certain contractual arrangements.CASE STUDY AND DISCUSSION SESSIONEach one of these issues outlined in session 10 and 11 will be explained by referring to specific case studies in projects for toll roads (Senegal Diamando), Ports (Ghana), Metro (Sao Paolo Brazil and Dar es Salaam Rapid Bus Transport), Power generation (Azito Power, Kenya wind) and Health (Mozambique hospital). So, for example, when dealing with early termination issues, the case study of Tanzania water lease contract will be used, etc.Upstream Policy Implications and Their Effect on PPP Contractual AgreementsObjective: In this session, we look at:
• Where does VfM fit in the project evaluation cycle?
• What is an adequate definition of VfM?
• The linkage of VfM and the Public-Sector Comparator
• How to determine VfM?
• Overview of case studies using the UK, Brazilian, Indian and Australia (Victoria) VfM methodology.Summary and Learning Issues Objective: Every day will conclude with a wrap up of core principles of each one of the sessions, drawing out each of the learning outcome for each session.DAY 4MODULE 2: Structuring & Managing PPP Legal Agreements (cont.)Key Contractual ClausesObjective: This session is divided into two given the quantity of contractual clauses that will be covered. The two sessions will look at some of the more critical contractual clauses encountered in PPP agreements. The startingpoint will be a discussion of the differences between Common and Civil Law legal traditions. In addition, discussion will be had on:
• Appropriate techniques for contract drafting
• Estimating probability of risk
• Developing a risk matrix (and setting out its minimum contents)Use of ‘Heads of Terms’ as an Instrument for Risk Allocation Prior to Contract draftingObjective: This session will continue from the previous session but will specificallyfocus on:
• Why standardization is important and examples of where this approach has been successful
• Role of credit committees and implications to key contract clauses
• Institutional investors Clauses and risk allocationSample Clauses and Risk AllocationObjective: This session will continue from the previous session but will specificallyfocus on:
• Clauses and risk allocation
• Sample clauses
• Standard clauses
• Dealing with change within a PPP agreement (including tariff variation procedures – an often-controversial set of provisions subject in some instances toregulatory approval)
• How to Manage Change Within a PPP Including Tariff Resets, TransitionPeriods, Extension of Contract Terms etc.Objective: Building on the concepts of previous sessions, this session will be a structured discussion on:
• Mechanisms to deal effectively with conflicts within a PPP
• Back stopping of public sector obligations within the contract as a means of enhancing the project’s overall bankability
• Other contractual clauses will be evaluated and their implication discussedby using relevant cases studies. The session will interact with participants by doing a quick survey of the different experiences amongst the students, by asking each to outline their experience to date in preparing contractual documents and any issues/ problems they currently face. The course leader will then present an overview of the process and share best-practice. This will be followed by an interactive Q&A session.DAY 5MODULE 2: Structuring & Managing PPP Legal Agreements (cont.)Dispute Resolution and Managing Change within PPP AgreementsObjective: PPPs are long term contracts which by their nature will change. This session will look at mechanisms by which change can be managed within a contract, allowing flexibility to deal with change but at the same time ensuringcontractual integrity. Particular focus will be on:
• How to build clauses that allow for change e.g. tariff review processes, reviewprocedures, milestone attainment etc.
• Techniques to address change within a contract
• Dealing with unforeseen circumstances
• Case study example of Chile toll road program of variable length contractsThe session is intended to be an introduction of the specifics of dispute resolution procedure in the session below.Objective: building form the second session on Key Contract Clauses, this session will continue the discussion on how to manage change within a PPP agreement with a particular focus on:
• The dispute resolution procedure
• Expedited dispute resolution including expert panels
• Arbitral awards
• Managing the process of renegotiations
• Venues for dispute resolution UNCITRAL, ICSID etc.
• IFI Risk mitigation instruments and other forms of guarantees (political riskinsurance etc.)Case Study Review of conflicts e.g. Aguas Argentinas, Panama Canal expansion etc. Group WorkA specific worked session will be presentedwhere the group will be split into grantor and sponsor. Each party will negotiate a mock PPP agreement. An interactive and moderated discussion will be done simulating:
• Initial PPP negotiation with grantor
• PPP negotiation to achieve financial close
• Midterm tariff review
• Early termination event Wrap Up and Conclusions
• Course review questionnaire to assess course
• Distribution of reading material
• Overall Q&A