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Description of Public Private Partnerships

Introduction - Denton Wilde Sapte's "Project Finance: The Guide to Financing Build Operate Transfer Projects" is the successful practical guide to the financing of worldwide infrastructure projects using build-operate-transfer techniques is now in its second edition! Fully updated and with the new title of "Public Private Partnerships: BOT Techniques and Project Finance", this essential text has been revised to include: Equity bridge financing and Islamic financing techniques; The current PFI situation; Additional terms and conditions in PFI transactions; The effect of changes in UK tax law and regulatory changes; and Project finance cover for export credit agencies.

The second edition of this hugely popular book guides you through: The development of PPP; The different issues surrounding the concepts of economic viability and financial viability of BOT projects; The key to managing tenders both from the public sector side and for prospective tenderers; The different contractual structures available, identifying the appropriate allocation of benefits and risks associated with a new infrastructure project; The terms to include in the all-important concession agreement; The various sources of finance available; and, Finance documentation. Recent years have seen a dramatic increase worldwide in the involvement of the private sector in the development and funding of public facilities and services, and techniques are continuously being developed to draw the public and private sectors together with a view to sharing the risks and rewards associated with such activities.

These various techniques are often referred to as "public private partnerships" (PPPs) and range from the simple contracting out of services to the involvement of the private sector in the financing, design, construction, operation, maintenance and, in some cases, ownership of major infrastructure facilities. This book is concerned with the latter, commonly referred to as "BOT" projects. Although BOT is often used to describe the specific build-operate-transfer technique of infrastructure development (under which the private sector finances, constructs, operates and maintains the facilities for a given period, with the public sector acquiring operational control at the end of that period), the expression is given its wider meaning in this book and is used to refer to all types of infrastructure projects which involve private sector investment and funding. There are many factors contributing to the PPP trend.

The public sector is currently suffering from a general shortage of public funds available for the development of large-scale and capital intensive infrastructure projects, while at the same time increasingly perceiving the need for infrastructure facilities to promote economic growth in the shortest possible timescale. BOT structures also allow the public sector to transfer onto the private sector many of the risks associated with the implementation of these projects. For private sector investors and financiers, BOT projects have opened up a whole new area of opportunities for new business and relatively high returns. The sharing of risks with other parties to the project and with the public sector entity concerned enhances the appeal of BOT. One aspect of many BOT projects which is attractive to investors and financiers is that they incorporate sovereign credit risk, and this renders them more suitable for financing in the bond markets. For a BOT project to succeed, it must be sufficiently attractive to both the public and private sectors. If the risks are felt to be too great, or to outweigh the potential benefits and returns, the project will not proceed.
As a general principle, however, investors and financiers are becoming more flexible in terms of the types of project in which they will participate and will now consider financing a project the revenue stream of which is market-based, rather than assured under a long-term contract with a creditworthy purchaser. Over recent years, much has been learned by both the public and the private sectors as to the types and extent of project risk which the other will bear and this knowledge is being used to accelerate the implementation of BOT projects in general. Additionally, repayment periods have lengthened considerably for BOT projects in developed markets, in turn making them more attractive for project developers. The development of secondary markets for debt and equity in these markets has increased liquidity and enabled lenders to recirculate their investments. The spread of guarantees of project bonds being given by monoline insurers with strong credit rating has attracted new sources of funding. Many countries with developed economies have made substantial use of BOT techniques.

In the UK alone, under the government's "Private Finance Initiative" launched in 1992, BOT projects with a value of GBP 48.3 billion had been signed by March 2006, of which about one half represented transport projects. In the emerging markets, however, the implementation of BOT projects has progressed more slowly than expected. This has largely been as a result of the perceived political risks associated with such projects and the difficulties and delays which have been experienced in relation to many of them. As governments of emerging markets countries become more accustomed to the requirements of foreign investors and financiers recognise that the BOT approach is increasingly the way in which the international markets expect infrastructure to be developed and operated, the implementation of BOT projects will become easier and quicker, thereby encouraging further projects. This work covers the basis of BOT techniques and their potential advantages and disadvantages for the participants in these projects.

It gives a general view of the application of project finance techniques to projects of this type and also covers in some detail project viability and public/private sector risk allocation issues, procurement procedures, concession agreements and the sources of financing available for these projects. In a book of this type, it is possible only to give a general overview of BOT structures and the issues involved. It should be borne in mind that every project is unique and the statements contained in this publication will not be equally applicable to all BOT projects. There is no substitute for taking appropriate advice on each individual project.

Title Information

ISBN:

9781843742753

Pages:

180 pages

Format:

Hardback

Product Code:

169930

Publisher:

Euromoney Institutional Investor

Published:

20/11/2006

Edition:

2nd Revised edition

Press and Industry Reviews

"This was a very enjoyable read. It sets out clearly and succinctly the various types of infrastructure projects and gives the reader a clear insight into the different aspects of financing BOT projects and Project Financing which can also be used as a very interesting guide book for novices to this type of financing. It is a clear explanation of the tools that need to be acquired in order to understand such financing and is a great additional text to this growing area of such financing."
- Richard Drummond, Legal adviser to ECGD

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About Howard Barrie

Howard Barrie is head of project finance at Denton Wilde Sapte. Having qualified as a solicitor in 1983, he joined one of its constituent firms, Wilde Sapte, in 1991, becoming a partner in its banking and finance department the following year. In 2005, he was appointed chairman of the firm's Africa Committee which is responsible for the development of the firm's Africa practice and the relationship with its Associate law firms in Africa. He is a regular speaker at conferences on project finance and public-private partnerships and has led the project finance section of the Euromoney Summer school on International Financial Law for many years. He also edited the first edition of this work. Howard has advised lenders, sponsors and governments on the development and financing of a number of public-private partnerships and on numerous project financings in the UK and internationally. He holds a LLB degree in law from the University of Exeter.

Contents of Public Private Partnerships

1 - Introduction to infrastructure projects
Public/private partnerships
BOT project structure
Economic and financial viability
Risk allocation
Financing
Build, operate, transfer
The UK Private Finance Initiative
Advantages and disadvantages of the BOT structure

2 - Project viability
Economic and financial viability distinguished
Economic viability
Financial viability
Technical feasibility
Political and social viability
Legal and administrative viability
Environmental viability

3 - Tenders
Introduction
Choice of tender process
Risk transfer
Invitations to tender
Public procurement law
International procurement

4 - Overview of contractual structures
Consortium agreement
Project vehicle
Shareholders agreement
Construction contract
Operation and maintenance agreement
Other key contracts
Risk matrix
"Bankability"
Conclusion

5 - Concession agreements
What is a concession?
Statutory framework
Purpose
Terms and conditions
Key issues
Conclusion

6 - Sources of finance
Equity
The sponsors and project finance
Mezzanine finance
Bond finance
Project leasing
Development finance institutions
Export credit agencies and political risks insurance
Derivative products in project financing

7 - Finance documents
Loans
Bond issues
Project leasing
Security
Direct agreements
Intercreditor agreements
Conclusion
Closing Observations