Exporting PPP in the International Market

1. Contractual and Legal Issues in PPP Projects Exporting PPP in the International Market

2. An International Perspective Exporting PPP in the growing international PPP Market 22nd & 23rd November 2006, Vilnius Robert Gross Partner – International Projects Berwin Leighton Paisner

3. Contents • Introduction • Conflict between local law and international practice • Civil law and common law structures • Procurement issues • Bankability and competitiveness • Transaction Management • Final Thoughts

4. Introduction

5. About Berwin Leighton Paisner “a truly integrated service of outstanding quality” (Legal 500 2004) • Berwin Leighton Paisner is a leading, full service City of London law firm with over 500 lawyers based in offices in London and Brussels, and an international network designed to meet our clients requirements. • The firm has had extraordinary success in developing a blend of market-leading corporate, finance and real estate practices. • The firm has one of London’s leading PPP and Project Finance practices and has a dedicated mutual referral network of overseas law firms with which it works closely. • Our reputation within the legal sector was recognised at the 2004 Lawyer Awards when we were awarded Law Firm of the Year, the highest accolade for any UK law firm and again in 2005 when we were awarded Chambers UK Law Firm of the Year. • We were recently nominated for Project Finance Law Firm of the Year in the Legal Business awards for 2006.

6. Background & Credentials • BLP has been involved in PPP/PFI since its inception. • Acting originally for UK Government and public sector on leading projects such as the Home Office and the Treasury Buildings. • Practice expanded to sponsors and private sector. • Extensive involvement in cross-border PPP projects: • acting for ASFiNAG on the Austrian PPP roads project • acting for the Slovak Republic on their PPP roads programme

7. Conflict between local law and international practice

8. Dominance of UK models • PPP introduced in the UK in the late-1980s and developed in the context of UK government policy and UK law. • Application outside UK – different legal systems and different political circumstances. • Prevalence of UK models– abundance of precedent, development and standardisation. • Financing commonly governed by English law.

9. Watch out for… • Problem of imposing UK structures in different jurisdictions – need to accommodate local law and practice, e.g.: • force majeure limited to terrorism and nuclear war • position on risk transfer reflects years of negotiation and development of standardisation • peculiarities such as no compensation upon termination in the UK roads sector • Standardisation in the UK has been a negotiated process reflecting the involvement of public and private sectors and different interest groups. • Statutory position differs: • is enabling legislation required? • public sector capacity and authority

10. In short: • International practice has much to offer in terms of structuring and precedent but must be sensitive to genuine local law concerns.

11. Civil law and common law structures

12. What is the difference? • Common law: Freedom of contract. • Civil law: Enshrined rights and obligations in a civil or commercial code. • Common law: Supremacy of contract. • Civil law: Enshrined rights and obligations in a civil or commercial code. • Common law: Totality of contract. • Civil law: Enshrined rights and obligations in a civil or commercial code.

13. How does the difference manifest itself? • Length of concession agreement and related documents. • Cultural or political differences: • private sector and public sector roles, e.g. custodial services • public sector control over concessionaire, sub-contractors, third-party agreements, etc. • Accepting the philosophy of PPP and the implications of risk transfer.

14. Procurement

15. Application of procurement law • Local procurement and implementation of European directives differs. • Impacts on structuring, timetable and documentation and can be fundamental. • Approach varies with some countries adopting a literal, prescriptive approach and others taking a broad brush intent-based approach. • Influence of litigation environment. • Attitude towards compliance. • Political forces – public sector versus public sector. • Conflict between local law and international practice.

16. Bankability & Competitiveness

17. Government Concession Agreement Shareholders Agreement Private Investor(s) Funding Agreements Concessionaire Lenders O & M Agreement Construction Contract Construction Contractor Operator Traditional PPP structure

18. Government Private Investor(s) Concession Agreement Shareholders Agreement Funding Agreements Concessionaire Lenders Government O & M Agreement Construction Contract Construction Contractor Operator Emerging PPP structure?

19. Unrealistic or unsatisfactory business case • Forecasts are used to determine the revenue for a project and the forecasts are too conservative or too aggressive. • The host government when contributing assets to the project seeks (as it has in a number of instances) to extract a commercial return on such assets. • The construction price quoted by the foreign contractor and the return required on its equity is viewed by the host government as being excessive having applied its public sector comparators. • The financing terms proposed by the foreign contractor are considered to be too expensive. • The host government requires control over project revenues directly derived from the public without providing appropriate protections for future increases in costs and expenditures.

20. Inappropriate project structure • Government owned company (GOC) issues. • Use of a paper vehicle. • Uncertainty over revenues: • will GOC be able to make all the payments required under the concession as and when they fall due (both unitary payment and termination compensation) • if the government changes the basis of or withholds payments to the GOC, is the GOC able to assure concessionaires that they will get paid in all circumstances • inability of GOC to assure concessionaires that their payments will not be affected by other liabilities that the GOC may incur • Uncertainty over ability to discharge liabilities. • Unable to borrow or raise capital by itself. • Inability to assure concessionaires in respect of non-competition issues.

21. Key concerns • Creditworthiness of project cash flow • Political dynamics • Risk allocation and government control • Direct agreement and step-in • Lack of track record or poor track record • Inexperience • Pricing • Lack of cultural awareness and sensitivities

22. Transaction Management

23. Understanding… • Process and roles • When to add value and when to step-back • Interplay between local and international influences • When to rely on precedent and when to follow domestic requirements • When to innovate and when to replicate • Teamwork • Cultural issues

24. Final Thoughts

25. Advance preparation • Identification of key public infrastructure for investment. • Ensuring necessary legal framework is in place. • Identification of “pathfinder” projects. • Identification of key personnel within Government to co-ordinate PPP projects and to be a repository of PPP know-how. • Establishment of market precedent. • Standardisation for costs savings.

26. Transaction process • Recognise process involves a multi-party approach with a diverse number of stakeholders. • Recognise that some participants may be less sophisticated than others. • Identify key government concerns and key private sector concerns. • Draw upon experienced participants and advisers. • Formulate strategies to: • avoid pitfalls and obstacles • address key government concerns • address key private sector concerns

27. An International Perspective Exporting PPP in the growing international PPP Market 22nd & 23rd November 2006, Vilnius Robert Gross Partner – International Projects Berwin Leighton Paisner