1. UNCITRALThird International Colloquium on Public-Private Partnerships (PPPs) October 2017, Vienna
Experts for Chapter V
Sebastian Quijada
PIAPPEM
October 2017

2. Possible future work onV
PROPOSALS FOR CHAPTER V
Introduction: Typical PPP/PFI transaction scheme   

3. Possible future work onV
PROPOSALS FOR CHAPTER V
Section B: Elements to be taken into account when establishing the concession period
The duration of the concession shall be set forth in the Concession/PPP contract
Model Provision 43: Fix term Contract. The laws of some countries limit the duration of infrastructure concessions to a certain number of years (ie. 50 years)
Colloquium comments:
Can the duration be proposed by the concessionaire?
Variable/floating term concession contract.
How do they work? Do they create efficiencies and value for
money?   

4. Possible future work onV
PROPOSALS FOR CHAPTER V
Section B: Elements to be taken into account when establishing the concession period
Factors to consider
the operational life of the facility
useful life of the assets
“economic amortization”
the total maturity of the senior debt that lenders and financiers are available to commit for such specific project

5. PROPOSALS FOR CHAPTER V
Study Case: The Least-Present Value of Revenue (LPVR) auction
Under this mechanism, the tender award the contract to the bidder with the lowest bid expressed as the present value of the expected revenue
The concession contract will remain in place until the SPV revenues (not profits) meet its full bid
The firm is fully insured against demand risk also mitigates the need for costly renegotiation. However is it not the case for liquidity
Examples: UK (Queen Elizabeth II Bridge and Second Severn Bridge), Chile, South Africa, Australia 5

6. PROPOSALS FOR CHAPTER **
II. Extension of the Concession Contract
Section C.
Recommendation 62.The term of the concession should not be extended. Exceptions:
Force Majeure
Project suspension
To allow the concessionaire to recover additional costs arising from requirements of the contracting authority not originally foreseen in the project agreement
Colloquium comments:
Contractual mutually negotiated extensions are exceptional
The extension should be considered early and not be substantial compared to the initial term/value 6

7. PROPOSALS FOR CHAPTER V
II. Extension of the Concession Contract
Periodic rebidding
any “rebidding” preparations should start long before the end of the project term
Legal obligation to rebid 7

8. PROPOSALS FOR CHAPTER **
II. Extension of the Concession Contract
Discussion Topics/Practical cases:
Colombia, Strategic Advantage is Difficult to Overcome: The Case of Chirajara Villavicencio
Benchmarking Prior to Direct Negotiations (Peru, UK)
Change of Law due to direct negotiations (Chile, Brazil, Spain) 8

9. PROPOSALS FOR CHAPTER V
III. Termination of the Concession Contract
Preamble: Some initial thoughts
Given the serious consequences of termination, it should under most circumstances be regarded as a measure of last resort
Not an even game. The concessionaire is usually not allowed to terminate the project agreement without cause and in some legal systems termination by the concessionaire even in the event of breach by the contracting authority requires a final judicial decision 9

10. PROPOSALS FOR CHAPTER V
III. Termination of the Concession Contract
Recommendation 63. Termination by the contracting authority
No longer be reasonably expected that the concessionaire will be able to perform its obligations
reasons of public interest
Serious breach by the concessionaire 10

11. PROPOSALS FOR CHAPTER V
III. Termination of the Concession Contract
No longer be reasonably expected that the concessionaire will be able to perform its obligations
allowing the lenders to propose another concessionaire when termination of the project agreement with the original concessionaire appears imminent  (  This is absolutely the case.
Issue of convenience of applying this clause in emerging countries with high political risk 11

12. PROPOSALS FOR CHAPTER V
III. Termination of the Concession Contract
II. reasons of public interest
subject to payment of compensation to the concessionaire
Notification to financiers and lenders (limitation to the right of early terminate the PPP Contract could enhance bankability)
Particularly sensitive are early termination due to reason of public interest during construction phases (construction risk) 12

13. PROPOSALS FOR CHAPTER V
III. Termination of the Concession Contract
III. Serious breach by the concessionaire
Serious breach during construction phase
Failure to observe building regulations, specifications or minimum design and performance standards and non excusable failure to complete work within the agreed schedule;
Failure to provide or renew the required guarantees in the agreed terms;
Violation of essential statutory or contractual obligations. 13

14. PROPOSALS FOR CHAPTER V
III. Termination of the Concession Contract
Serious breach by the concessionaire
b) Serious breach during operation phase
Serious failure to provide services in accordance with the statutory and contractual standards of quality
Non excusable suspension or interruption of the provision of the service
Serious failure to maintain the facility, its equipment and appurtenances
Failure to comply with sanctions imposed by the contracting authority   14

15. PROPOSALS FOR CHAPTER V
III. Termination of the Concession Contract
Serious breach by the concessionaire
c) Insolvency of the concessionaire   
Under EU law modification (rather than termination) is permitted where:
a new concessionaire replaces the one to which the contracting authority had initially awarded the concession as a consequence of either:
universal or partial succession into the position of the initial concessionaire, following corporate restructuring, including takeover, merger, acquisition or insolvency
in the event that the contracting authority itself assumes the main concessionaire’s obligations towards its subcontractors where this possibility is provided for under national legislation; 15

16. PROPOSALS FOR CHAPTER V
III. Termination of the Concession Contract
IV. Termination by the concessionary (LR 64)
(a) In the event of serious breach by the contracting authority or other public authority of their obligations under the project agreement;
In the event that the concessionaire’s performance is rendered substantially more onerous as a result of variation orders or other acts of the contracting authority 
This should be considered in the light of:
- Payment default of the authority
Concessions modifications
Refers to substantial modifications
Change economic balance   16

17. PROPOSALS FOR CHAPTER V
III. Termination of the Concession Contract
IV. Termination by mutual consent (LR 65)
The parties should also have the right to terminate the project agreement by mutual consent.
Colloquium comments:
Do local law allow the public sector to enter into such negotiations?
Potential lack of transparency and deviation from the PPP Contract
Lenders normally limit the ability of the concessionary to enter and agree mutual early terminations 17

18. PROPOSALS FOR CHAPTER V
IV. Consequence of Termination
Transfer of assets to the contracting authority or to a new concessionaire (LR 65)
The project agreement should lay down the criteria for establishing the compensation to which the concessionaire may be entitled in respect of assets transferred to the contracting authority or to a new concessionaire or purchased by the contracting authority upon expiry or termination of the project agreement.
Colloquium Comments:
 - To clarify that this refers to tangible and intangible assets
 - This could be a substantial purchase (spend of public money) - add a transparency requirement on how this is going to work?
- Opportunity of Payment 18

19. PROPOSALS FOR CHAPTER V
IV. Consequence of Termination
II. Financial arrangements upon termination
The project agreement should stipulate how compensation due to either party in the event of termination of the project agreement is to be calculated, providing, where appropriate, for compensation for the fair value of works performed under the project agreement, and for losses, including lost profits (LR 67)
Colloquium comments:
- Key topic for bankability (acceleration clause and debt repayment)
- Compensation should include equity investment and anticipated profit 19

20. PROPOSALS FOR CHAPTER V
IV. Consequence of Termination
II. Financial arrangements upon termination
Study case: Certificados de Reconocimiento de Pago Anual de Obras (CRPAOs),
CRPAOs are delivered from the Government of Peru (GOP) to concessionaires as compensation for advances on works 
CRPAOs are direct, general, irrevocable, unconditional, unsubordinated and unsecured obligations of the GOP. The obligations are included in the GOP's multiyear budgetary projections and while legally different from public debt, are governed by New York State law, and cross-default with other CRPAOs.
Repurchasing of Construction Risk?   20

21. PROPOSALS FOR CHAPTER V
IV. Consequence of Termination
III. Termination due to breach of the Concessionary
Two different approaches
The concessionaire is not usually entitled to damages in the event of termination due to its own breach   
Termination due to breach, even regarded as a sanction for serious performance failures, should not result in the unjust enrichment of either party
Key to bankability
Controversial provision particularly on PPP on
public utilities 21

22. PROPOSALS FOR CHAPTER V
V. Wind up and transitional measures
The project agreement should set out, as appropriate, the rights and obligations of the parties with respect to:
(a) The transfer of technology required for the operation of the facility;
(b) The training of the contracting authority’s personnel or of a successor concessionaire in the operation and maintenance of the facility;
(c) The provision, by the concessionaire, of operation and maintenance services and the supply of spare parts, if required, for a reasonable period after the transfer of the facility to the contracting authority or to a successor concessionaire. (LR 68)
Colloquium comments:
Important issues on transferring intellectual property and know how on technology
Particularly relevant on Health care PPP projects 22

23. PROPOSALS FOR CHAPTER V
CONCLUSION AND RECOMMENDATIONS
Provisions and proposed articles looks sensible and complete
Bankability and the financial perspective of termination clause is key factor to consider
Variable term contract should be also an option
Termination clause should also take into account differentiation between developed and high risk countries 23

24. End of Presentation Thank you