1. 3rd Conference "PPP Speed Up in Ukraine" April 10 – 11, 2014 Marc Frilet Managing Partner « Frilet – Société d’Avocats » Chair of the Management Committee of GcilA Vice-President of the French Institute of International Legal Experts (IFEJI) Head of the drafting committee IFEJI CICA PPP-Working Group Co-promoter of UNECE PPP International Centre of Excellence

2. Legal and contractual structure of PPP projects Lessons learnt internationally

3. 1.PPP are not new, some PPP families have been developed for over 100 years Historically, PPPs have played a very important role in economic development of OECD countries 2.Why pipelines of PPPs are needed in any region in the world ? Without massive investments in the public infrastructure service sector many countries will continue to lose several potential percentage point of GDP. Nowhere in the world the public budgets permit to finance such massive investments. The financial crisis further limit the capacity of the industry to consider PPP. UNIVERSAL NEED OF PPP

4. Source: Mark Moseley, Lead Counsel, The World Bank, Infrastructure Project Disputes and the World Bank Group, DRBF 13th Annual International Conference Paris (May 2013) ; Guasch (2010) updated THE ALARMING TRACK RECORD OF PPPS IN DISTRESS IN EMERGING ECONOMIES AND DEVELOPING COUNTRIES

5. STATUS OF PPP INSTITUTIONNAL AND LEGAL FRAMEWORK IN EMERGING ECONOMIES: NEEDS FOR MAJOR IMPROVMENTS Aside from very few OECD countries, the legal and institutional framework facilitating PPP projects is not in place. The situation is in sharp contrast with the legal and institutional framework existing in most countries for public procurement A case to case contractual approach for PPP is complex, costly and not conductive to good governance. International priority: improving the framework regulating the preparation and implementation of PPP Projects. How to proceed? identify the main issues and aggregate the lessons learnt internationally.

6. - No international consensus on scope and definition - More than 15 acronyms creating misunderstanding - Growing market for international consultants focusing on financial considerations limited to the Project by itself (Project bankability) - Too little consideration to socio-economic considerations, externalities and long term adaptation to the needs which are essential for Public sector (specially for PPP in core public services) - Many projects are proposed on PPP with very little chance of success - Other projects which could become successful PPP are not even considered - It is essential to clarify the place of PPP within private participation in Public Infrastructure PPP : WHAT ARE WE TALKING ABOUT ?

7. PPP AND PRIVATE PARTICIPATION IN PUBLIC INFRASTRUCTURE Two families of PPP (Economic public service)

8. 1. PFI / PPP family2. Concession / PPP family Design (based on functional specifications) Build or rehabilitate Finance Operate the infrastructure or utility without delivering the public service to the users (facility management, output capacity) Operate infrastructure of utility and deliver full public service to the end users Compensated entirely by the public authority when facility service rendered or output available Compensated entirely or mainly by the public paying individually for the service Contract duration limited to the project cycle (amortization of assets, and financial recovery) MAIN FEATURES OF THE TWO FAMILIES OF PPPS

9. THE SIZE OF THE TWO FAMILIES OF PPP Estimate: no reliable statistics internationnally so far

10. THE FUTURE OF THE TWO PPP FAMILIES IN EMERGING ECONOMIES 1.Concessions PPP : examples: Ports, Airports, Railways, Highways, Toll Bridges, Industrial Parks, Water production and distribution, Urban Services, Sport Arenas  Complex projects need of innovative procurement procedures and of contractual and legal solutions to meet the long term expectations of stakeholders.  First priority in most countries due to very low impact on public budgets and public debts current or future  Most promising future if an appropriate institutional and legal framework is in place based on a socially acceptable equilibrium (social license to operate) 2.PFI / PPP: examples: IPP power, Schools, Prisons, Hospitals  Less complex and innovative from contractual and legal stand point: essentially based on a design and built concept: closer to traditional procurement.  Promising future in specific situations but limited by public budgets and public debts issues  Too rigid to adapt the service to new requirements

11. ad hoc company local laws Contracting Authority users subsidy Contract for concession of public service (1) Suppliers Contractor Operator Garanties Shareholding: -Investor-operator -Public investor? -Others External financing -Loans -Bonds -Others Financial flow from operation (only if necessary for commercial viability and below threshold) 1. Another important family member is « Affermage »: similar to public service concession but where initial investment in infrastructure is made by the Public authority OVERVIEW OF PPP CONTRACTUAL AND FINANCIAL STRUCTURE 1.Concession-PPP family: risks and rewards for the operation of the service mostly borne the concessionaire highly influenced by public interest considerations

12. 2.PFI-PPP family: risks and rewards spread between an array of projects participants highly influenced by project finance techniques. Contracting Authority Local law ad hoc company shareholding: -Contractor -Operator -Financial institutions -Public investor ? -Others External financing: -Loans -Bonds -Others Suppliers Operator Contractor PFI contract (design, build, operate) Financial flow from operation Limited recourse OVERVIEW OF PPP CONTRACTUAL AND FINANCIAL STRUCTURE

13. 1.Some clauses structuring main rights and obligations over the project life cycle Economic and financial equilibrium Economic and financial viability Stability of institutional and legal framework Hardship THE CONTENT OF PPP CONTRACT: FOCUS ON UNUSUAL CLAUSES CRITICAL FOR THE SUCCESS OF CONCESSION FAMILY PPP (1)

14. 2.Some clauses creating special rights and obligations (1) Public service definition and consequences - Scope - Non discrimination - Continuity - Adaptability The reference business case - Simplified presentation and main indicators - Its organization and continuous updating process - its impact on contract provisions - accounting plan and main ratios THE CONTENT OF PPP CONTRACT: FOCUS ON UNUSUAL CLAUSES CRITICAL FOR THE SUCCESS OF CONCESSION FAMILY PPP (2 )

15. 2.Some clauses creating special rights and obligations (2) Sovereign and unilateral rights - their scope: reference to public interest - their content: - change of contract condition - change or improvement of the service - right to terminate - right to step-in (general) - right to use equipment and staff of the private party Sovereign ownership rights on infrastructure and equipments necessary for the service - rights on returned assets - rights to repurchase assets - full ownership right of the private party on remaining assets THE CONTENT OF PPP CONTRACT: FOCUS ON UNUSUAL CLAUSES CRITICAL FOR THE SUCCESS OF CONCESSION FAMILY PPP (3)

16. 2.Some clauses creating special rights and obligations (3) Special rights to the private partner ownership rights within the term of the contract rights to full indemnification of other form of acceptable compensation when any of the sovereign rights affecting the contract term is exercised special rights of indemnification in case of early termination: examples:  Termination events: Default, Sovereign, Repurchase  Consequence of termination: Compensation for assets value in cases - Default: deduct indemnity for default - Sovereign: add loss of profits - Repurchase: agreed formula  Calculation of the compensation: - Reference to the PPP economic and financial scenario and contractual accounting plan - Simple interim determination of dispute  Payment conditions: clear timing and currency references THE CONTENT OF PPP CONTRACT: FOCUS ON UNUSUAL CLAUSES CRITICAL FOR THE SUCCESS OF CONCESSION FAMILY PPP (4)

17. 3.Some clauses avoiding or reducing risks for both parties (1) Tax and customs Force majeure Insurances from private companies Insurances from international institutions Permitting - at national level - at local level - EISE and related permits - land use permits, resettlement authorization Community relationships THE CONTENT OF PPP CONTRACT: FOCUS ON UNUSUAL CLAUSES CRITICAL FOR THE SUCCESS OF CONCESSION FAMILY PPP (5)

18. 3.Some clauses avoiding or reducing risks for both parties (2)  applicable law  structured partnering  structured conciliation / mediation  dispute boards  outside regulator (sector specific)  Arbitration THE CONTENT OF PPP CONTRACT: FOCUS ON UNUSUAL CLAUSES CRITICAL FOR THE SUCCESS OF CONCESSION FAMILY PPP (6)

19. Thank You ! Me Marc Frilet Frilet – Law firm/ GcilA 91, rue du Faubourg Saint Honoré 75008 Paris – France Tel : + 33 1 56 26 00 40 e-mail : avocats@frilet.com www.gcila.org