+ All Categories
Home > Documents > PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private...

PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private...

Date post: 26-Mar-2015
Category:
Upload: chloe-russell
View: 215 times
Download: 0 times
Share this document with a friend
Popular Tags:
25
PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins (KPMG) 16 January 2007
Transcript
Page 1: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

PPP/PFI terminology unravelled

[or An idiot's guide to the curious world of Public Private Partnerships]

Richard Dyton (Simmons & Simmons) and Nick Hopkins (KPMG)

16 January 2007

Page 2: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

2/RRD/247DB70

Introduction to the Private Finance Initiative

Part 1: Some Background– What is the difference between PPP and PFI?

– What is PFI?

– Terminology Quiz - 1

Part 2: The Legal Framework– Basic contractual structure

– Terminology Quiz - 2

– Principal documents

– Treasury guidance

Part 3: Conclusion

Page 3: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

3/RRD/247DB70

Part 1: Some Background

What is the difference between PPP and PFI?

What is PFI?

Terminology Quiz - 1

Page 4: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

4/RRD/247DB70

What is the difference between PPP and PFI?

Is it:

A) Not a lot?

B) “F” and “I”?

C) That one is a general term for public private partnerships, the other a particular type of public private partnership?

Page 5: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

5/RRD/247DB70

The PPP Range

PPP

ConventionalProcurement

Outsourcing& FM

Leasing GOCOJoint

VenturesFull

PrivatisationStrategic

PartneringPFI

Page 6: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

6/RRD/247DB70

Headlines Quiz

These are all headlines:

(A) “I.T. Hits The Fan”

(B) “Amey Amiss”

(C) “The Strange case of the Vanishing Hospitals”

(D) “The Great PFI Sell-off”

…from the Times, The Daily Mirror, Private Eye

Page 7: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

7/RRD/247DB70

Terminology Quiz - 1

What does “PIN” mean and how does it fit into the PFI process?

A) Personal Identification Number - needed to access funding for the PFI

B) Pesticide Information Network - term only used in specialised agricultural PFIs

C) Prior Information Notice - initial formal announcement of the project

D) Project Identification Number - used to track each project throughout its set-up and operation

Page 8: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

8/RRD/247DB70

Terminology Quiz - 1

What is the “OJEU”?

A) Official Journal of the European Union - publication in which new projects are announced

B) Orange Juice officially approved by the European Union for consumption in the course of a PFI

C) Original Jurisdiction of the European Union - regime under which approval for PFI projects must be sought

Page 9: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

9/RRD/247DB70

Terminology Quiz - 1

What is the “ITN” in this context?

A) Integrated Testing Network - prototype scheme used to roll out and test the features of a PFI scheme

B) Invitation to Negotiate - discussions and negotiations with co-sponsors, contractors, banks and advisors for the preparation of a deliverable technical, commercial and financing solution

C) The evening news - used to catch up on the latest developments in the scheme

D) Identification Tasking and Networking - allocation of responsibilities between the parties at the outset and provision for interaction between the parties

Page 10: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

10/RRD/247DB70

Part 2: The Legal Framework

Basic contractual structure

Principal documents

Treasury Guidance

Page 11: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

11/RRD/247DB70

Basic Contractual Structure

Contractor usually a Special Purpose Vehicle

Significant up-front investment required– Equity is usually 10-15% of requirement

– Lenders provide the remaining funding

Lenders rely solely on the project cashflows for debt servicing

Risk to cashflow is minimised by appropriate allocation of risk

Page 12: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

12/RRD/247DB70

Concession Agreement

(may include Land transfer agreement or lease)

(Basic Contractual Structure)

Contractor (SPV)

Shareholders/Sponsors(Shareholders Agreement) InsurersLenders

(Inter-Creditor Agreement)

AUTHORITYConstruction Contractors

Operations andmaintenance Contractor

Equity

Direct Agreement

Insurance policies/agreements

Construction Agreement

Suppliers/Subcontractors

OperatingAgreement

Suppliers/Subcontractors

Possibly collateral warranties

Direct Agreement

Loan Agreement

Page 13: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

13/RRD/247DB70

Terminology Quiz - 2

What is a “Unitary Payment”?

A) One-off payment paid by the public sector for the provision of services by the concession holder.

B) Periodic payment paid by the public sector for the provision of services by the concession holder

C) Periodic payment paid by the project parties to their much valued legal and accounting advisors

Page 14: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

14/RRD/247DB70

Terminology Quiz - 2

What is “Financial Close”?

A) The point at which all the contracts are signed by all parties involved in the project

B) The funder’s correspondence address

C) The point at which the final payment is made by the public sector to allow operation of the project to commence

D) The point at which the final payment is made by the public sector upon termination of the project

Page 15: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

15/RRD/247DB70

Principal Documents

Concession Agreement

Subcontracts

Direct Agreement

Loan Agreement

Insurance

Shareholders Agreement

Page 16: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

16/RRD/247DB70

Principal Documents

Concession Agreement

Service requirement

Payment mechanism

Acceptance of the Service by the Authority

Performance regime

Change mechanisms

Termination

Refinancing restrictions on Contractor

Page 17: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

17/RRD/247DB70

Principal Documents

Risk allocation– authority risks

– contractor risks

– operating risks

Page 18: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

18/RRD/247DB70

(Principal Documents)

Subcontracts

May be shareholders of the SPV

Construction Contractor

Operation and maintenance contracts

Authority must carry out due diligence

Authority’s rights under collateral warranties arise on termination of Concession Agreement

Page 19: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

19/RRD/247DB70

(Principal Documents)

Direct Agreement

Main purpose: sets out rights and obligations following threatened or actual termination of the Concession Agreement

Rights of step-in and liability during step-in

Rights to replace non-performing Subcontractors

Application of insurance proceeds to reinstate assets on total loss

Page 20: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

20/RRD/247DB70

(Principal Documents)

Loan Agreement

Restrictions on the Contractor to alter the Project’s risk profile

Cashflow requirements and ratio setting: breaches can trigger loan default

Term will be shorter than the Concession Agreement

Page 21: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

21/RRD/247DB70

Treasury Guidance

Standardisation of PFI Contracts, version 3 (April 2004) (SOPC3), as updated

Guidance for negotiating (and some required drafting) the Concession Agreement and Direct Agreement

Promotes consistency of approach and aims to reduce negotiating time

Assumes:– Contractor is an SPV

– there is a construction phase and an operational phase

– there is limited recourse debt

Page 22: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

22/RRD/247DB70

(Treasury Guidance)

Standardisation of PFI Contracts (continued)

SOPC3 must be followed, but:– assumptions above may not apply

– large, complex and/or novel projects may need individual treatment

– example drafting is not exhaustive

– MoD standard contract consultation ongoing ( April 2005)

Principle of freedom of contract under UK legal system has allowed PPP contract structures to be developed in deals without requiring contract to conform to rigid legal structure

Document is continually reviewed and amended to reflect differences with market practice or current legislation

Page 23: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

23/RRD/247DB70

Part 3: Conclusion

The future of PFI

Page 24: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

24/RRD/247DB70

Future of PFI

Current projects are still in the early stages of operation

So far the National Audit Office has concluded that PFI deals have saved public money, but early schools deals proved to be more expensive than conventional procurement

Many governments overseas considering and beginning to use PFI

Considered to be an important UK “export”

Page 25: PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

25/RRD/247DB70

PPP/PFI terminology unravelled

[or An idiot's guide to the curious world of Public Private Partnerships]

Richard Dyton and Nick Hopkins 16 January 2007


Recommended