IPBA – 24th Annual Meeting & Conference - Vancouver – May 8th -11th, 2014 Marc Frilet Managing...

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IPBA – 24th Annual Meeting & Conference

-Vancouver – May 8th -11th, 2014

Marc FriletManaging Partner « Frilet – Société d’Avocats »

Chair of the Management Committee of GcilAVice-President of the French Institute of International Legal Experts (IFEJI)

Head of the drafting committee IFEJI CICA PPP-Working GroupCo-promoter of UNECE PPP International Centre of Excellence

07/03/2014© 2014 - Frilet Société d'Avocats

© 2014 - Frilet Société d'Avocats 2

P3: international trends and lessons learnt in France and developing countries

07/03/2014

P3 International trends

What are we talking about

- No international consensus on scope and definition

- More than 15 acronyms creating misunderstanding

- Growing market for international consultants and experts coming mostly from the financial world focusing on financial considerations limited to the Project by itself

- Too little consideration to socio-economic considerations, externalities and long term adaptation to the needs which are essential features for governments and Public sector (specially for PPP in core public services)

- Projects currently promoted do not reflect all the potential of the PPP delivery form

- Misunderstandings and lack of definitions have in practice most damaging consequences

© 2014 - Frilet Société d'Avocats 307/03/2014

P3 illustrative chart

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Two main families within PPIS

1. PFI / PPP family 2. Concessions / PPP family

Design (based on functional specifications) Build and rehabilitate

Finance

Maintain and/orOperate the infrastructure or utility without delivering the full public service

Operate the infrastructure or utility with obligation to deliver full public service to the end users

Compensated entirely by the public authority when service is rendered

Compensated entirely or mainly by the end users paying for the service

Contract duration limited to the project cycle (amortization of assets, profit marging and financial recovery)

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The size of the two families of PPP

25 000 projects

2 000 projects

PPP : Number of Concession-PPP and PFI-PPP in operation

Concession PFI

€1000 bilions

€200 bilions

PPP : Investment value of Concession-PPP and PFI-PPP

Concession PFI

Most common concession PPP:

- Water- Urban services - Waste treatments- Garbage collection- Social and recreation public services- Railways- Ports-Toll highways, bridges and tunnels

Most common PFI/PPP:

- Hospitals- Prisons- Schools- Public lightening- Power production- Water production- Railways

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Lessons learnt in France

Long tradition of priority to P3 for economic public services for which end users would be ready to pay the fees

Underlying considerations with the same level of public budget aside to infrastructure public services

The Concession/PPP approach will permit to have more essentials infrastructures built and all together array of public services

Additional considerations:- Development of specialized private sector companies- Benefits from private sector efficiency and innovation in a competitive environment

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Lessons learnt in France (2)

1. P3 equitable contract law and impact on P3 contracts

For over hundred years, all P3 transferred to the private sector the duty to deliver a public service always adapted to the needs

It was recognized quickly after painful experiences that P3 contracts could not remain satisfactory and resilient for both parties without a series of underlying legal provisions and clauses unknown or not acceptable in traditional commercial contracts

A well respected supreme court ruling inter alia on public-private contracts designed over the years a case law which is commonly referred as equitable public contract law.

Those equitable public contract law principles supersede the contract provisions:

• Sometimes for the benefit of Public Authority• Sometimes for the private party

© 2014 - Frilet Société d'Avocats

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Examples: Sovereign rights belonging to Public Authority

- Public service obligation- Non discrimination, continuity, adaptability - Sovereign right to interfere in the contract if justified by public interest reasons- Change of improvement of the public service - Right to terminate- Right to step-in- Special remedy on 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


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Examples: Special rights to the private partner

• ownership right 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 all 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 if dispute

- Payment conditions : clear timing and currency references


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Some underlying principles governing long term public contracts background

Pacta sunt servanda

Rebus sic stantibus

• Reference to project business case

Some consequences based on long term partnership interests:

Economic and financial equilibrium

Economic and financial viability

Stability of institutional and legal framework

Hardship

Accounting plan and main ratios


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1. Detailed institutional framework for planning, prioritizing Concession and other PPPs

Optimizing Scope and quality of infrastructure public services in the complex exercise but easy to carry out with an appropriate institutional framework and ad hoc policies at local and central level.

Local level:

-Identification of the needs of the optimum scope and quality of service taking into account affordability and socio-economic and externality considerations

Central level:

-Developing guidelines, standards and procedures facilitating local initial evaluation- Monitoring, reviewing and approving various steps of the planning prioritization and project evaluation process

Central and local working together on RFQ, RFP etc.


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1. Detailed procurement framework for each family of PPP

PFI/ PPP (contrats de partenariat in France)

- RFQ- Two stages in most cases including competitive dialogue- Conditions of efficient and non discriminatory competitive dialogue developed in the

competitive dialogue charter (two to five bidders)mostly technical and financial)

Concessions PPP

- Competitive negotiation with the preferred bidder:- Focus on conditions of delivery of public service: capacity to optimize and to adapt in a long

term for best value for money- Sapin Law (1993): negotiation not possible for key conditions including in short front contracts

in a RFP- Efficient protest mechanisms

- If prima facie misprocurement: summary judgment suspending the process- If not prima facie misprocurement: protest entertained by the judge but procurement not

suspended


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Lessons learnt in developing countries: focus on Africa

Painful lessons learnt in the last decade

The financing gap for essential infrastructure public services which may trigger users fees is above USD 3 billions

Public budget with few exceptions on P3 delivering very high level of externalities (ex: some PPIS) cannot permit the use of public payment or availability P3

Most States are frigid States not used to important foreign investments with long recovery cycles (with a notable exception of large mining investments)

The international community has aggressively promoted P3 with governments including financing PPP units and P3 laws

The results: - Some good projects have been developed but are exceptional- Most projects developed become projects in distress after a few years only- Many projects on the drawing boards, essentials for the economic development, are announced with not putting competition


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Lessons learnt in developing countries: focus on Africa (2)

A promising future for Concessions and PPPs under precise conditions

Several public and private working groups have evaluated the situation together with other representatives: outcome:

1. Learning by doing is not an option2. Pilot project cannot be used as reference3. A global approach leading to a new level of institutional and legal framework is necessary

From there, as concluded by high level experts groups and G20 in Cannes in 2011, it is possible to design standards

Contrary to common beliefs, many institutional and legal principles are similar for essential infrastructure public services PPP irrespective of countries and sectors.

The task of evaluating all main issues and developing standards, templates, procedures and other documents is extremely complex (many stakeholders have a vested interest, financing, building, operating, political acceptance, environment, etc.).

This situation prevents the necessary institutional regulatory and legal breakthrough without which the private sector will continue to have very little appetite for projects.

The international community through the United Nations has developed two projects:

Drafting eventually a PPIAS Model law (UNCITRAL) and creating a Center of Excellence “policies, laws and institutions”


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