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Public Private Partnerships in South East Asia and IndiaPhillip Georgiou, Jones Day Singapore OfficeBill Napier, Jones Day Sydney OfficeStephen O'Neal Jones Day San Francisco OfficeStephen O'Neal, Jones Day San Francisco OfficeMaria Pedersen, Jones Day Hong Kong Office
September 27, 2013
PPP
2013 9 27
Part 1 Section 1:Part 1 – Section 1: The Basics of PPP Projects
Bill Napier, Jones Day Sydney Officep , y y y
3
1 – 11 1
4
Introduction
5
6
Introduction and Background to PPPsg• A Public Private Partnership (PPP) is a contractual
arrangement between a government and the private g g psector for the delivery of public infrastructure
• Arrangements often also include the provision of g pservices in relation to that infrastructure (for example, maintenance and cleaning services)
• Public infrastructure is ‘social’ or ‘economic’
– social infrastructure is, broadly, health, education, public sector accommodation, defence and some transport
i i f t t i b dl f iliti– economic infrastructure is, broadly, user-pays facilities such as toll roads
7
PPP PPP• PPP
•
•
––
–
8
Introduction and Background to PPPs (cont.)g ( )• Services sold directly to public sector
public sector purchases services from the private– public sector purchases services from the private sector which is then responsible for up-front investment in capital assetsp
– public sector provides core services while private sector will typically design, build, finance, maintain and provide non core services
– public sector client makes payments only on delivery of services to specified quality standards
9
PPP PPP•
–
––
–
10
Introduction and Background to PPPs (cont.)• Financially free standing projects
private sector designs builds finances and operates asset
g ( )
– private sector designs, builds, finances and operates asset
– recovers costs entirely through direct charges to the private users of the asset rather than from payments by public p y y psector
– role of public sector restricted to assistance with planning, licensing and other regulatory approvals
– no government contribution or acceptance of risk beyond thisthis
• Hybrid of first two
t f j t t tl f h t d d– costs of project are met partly from charges to end user and partly from public subsidies
11
PPP PPP•
–
–
–
–
•
–
12
Global Development• PPP is a global phenomenon
flourished over last 30 years in stable economies with high
p
– flourished over last 30 years in stable economies with high GDPs, such as UK, Australia, Canada, France, Germany, Netherlands, Ireland, South Africa, Portugal and Italy. Now
d i l d l d k tunder way in less developed markets
– detailed PPP policies have been developed in most of these jurisdictionsjurisdictions
• PPP is being used across all major public assetclasses…
13
• PPP30– 30
GDP
PPP– PPP
• PPPPPP
14
Global Development (cont.)Share of P3 Projects by Sector, 2007-2011 (per cent)
Social infrastructure and defence
p ( )
C d
TransportWater and wastewater
UK
Canada
Spain
Australia
US
France
0 20 40 60 80 100
Source: The Conference Board of Canada, August 2013
15
PPP 2007-2011
0 20 40 60 80 100
16
Source: The Conference Board of Canada, August 2013
Typical PPP StructureGOVERNMENT
BODY
yp
BODY
INDEPENDENTCERTIFIER
PROJECTCOMPANY
INVESTORS•Sponsors•Others LENDERS
INSURERS
CONSTRUCTIONCOMPANY
OPERATORCOMPANY
PARENT OFOPERATORCO A
PARENT OFCONSTRUCTION
CO A
CONSTRUCTION SUB-
CONTRACTORS
OPERATORSUB-
CONTRACTORS
OFFTAKER•Government•Public•Other
COMPANYCOMPANY
PPP
Typical PPP Structure (cont.)GOVERNMENT
BODY
yp ( )
Concession Agreement
BODY
IC DeedINDEPENDENT
CERTIFIER
Debt Funding
arrangementsAnd security
Equity Funding
arrangementsPROJECT
COMPANY
INVESTORS•Sponsors•Others LENDERS
Operation andM iD&C
INSURERS
CONSTRUCTIONCOMPANY Operation and
MaintenanceContract
MaintenanceContract
D&CContract
Construction contract
OPERATORCOMPANY
Sub-Contracts Sub-Contracts
PARENT OFOPERATORCO A
PerformanceGuarantee
PARENT OFCONSTRUCTION
CO A
PerformanceGuarantee
CONSTRUCTION SUB-
CONTRACTORS
OPERATORSUB-
CONTRACTORS
OFFTAKER•Government•Public•Other
COMPANYCOMPANY
PPP
IC
D&C
Typical PPP Structure (cont.)
Lenders Tripartite Agreement(Concession agreement)
GOVERNMENTBODY
State Tripartite Agreements / Side Deeds(Construction Contract)
State Tripartite Agreements / Side Deeds(Operation and Maintenance Contract)
yp ( )
Concession Agreement
(Concession agreement)BODY
IC DeedINDEPENDENT
CERTIFIER
Debt Funding
arrangementsAnd security
Equity Funding
arrangementsPROJECT
COMPANY
INVESTORS•Sponsors•Others LENDERS
LendersDirectOperation and
M iD&C
LendersDirectAgreements(construction
INSURERS
CONSTRUCTIONCOMPANY Operation and
MaintenanceContract
DirectAgreements(operatingContracts)
MaintenanceContract
D&CContract
Construction contract
OPERATORCOMPANY
Contracts)
Sub-Contracts Sub-Contracts
PARENT OFOPERATORCO A
PerformanceGuarantee
PARENT OFCONSTRUCTION
CO A
PerformanceGuarantee
CONSTRUCTION SUB-
CONTRACTORS
OPERATORSUB-
CONTRACTORS
OFFTAKER•Government•Public•Other
COMPANYCOMPANY
PPP/
/
IC
D&C
Drivers – Financial Return, Risk Allocation• Public sector
value for money especially improved project schedule and
,
– value for money, especially improved project schedule and capital cost over traditional procurement, governments attracted to the access to private finance also
– contract with single consortium counterparty
– no risk ‘gaps’
• Private sector
– achieve desired pre-tax and post-tax returns, cashflow and p pquarantining of liability
– ‘step down’ principle: typical step down deals with all design d t ti i k d ll ti l i d i kand construction risks and all operational period risks
– consider step down gaps and project unique factors
– ‘gaps’ insured against or factored into model23
–•
––
––
••–
–
––
24
Drivers – Financial Return, Risk Allocation (cont.)• Design and Construction to be covered in further detail, but
(in outline) to include…
, ( )
– scope and interfaces
– approvalspp
– site conditions
– extension of time compensation for ‘relief events’extension of time, compensation for relief events
– liquidated damages, liability caps, indirect loss, indemnities generallyg y
– fitness for purpose
– termination triggers, sunset datetermination triggers, sunset date
25
–•
–
––
–
– ,
–
–
–
26
Drivers – Financial Return, Risk Allocation (cont.)• Operations and Maintenance
contracted services ‘hard’ (for example lifecycle based
, ( )
– contracted services – hard (for example lifecycle based, related to construction cost) and ‘soft’ (for example landscaping maintenance)
– output specifications – what, not how
• Service standards and failure, evaluation and monitoring of performance
• Benchmarking, market testing and re-setting
• Payment principles
– ‘unitary’ payment for availability
– fixed and variable components
27
–•
– –
– – How What
•
•
•–
–
28
Drivers – Financial Return, Risk Allocation (cont.)Payment mechanism Contractual risks are allocated to those
ti ibl f
, ( )
mechanism features parties responsible for…
Availability PlanningD iDesignConstructionCommissioningOngoing availability / operations / lifecycle
Performance Facility management / operation to agreed standardsstandards
Volume Taking / sharing risk on demandIndexation Part of payment linked to indexp y
29
– ( )( )
/ /
//
/
30
Conclusion of P t 1 S ti 1Part 1 - Section 1
31
-
32
Part 1 Section 2 :Part 1 – Section 2 :Current Opportunities and Developments
Maria Pedersen, Jones Day Hong Kong Office, y g g
33
1 21 2
34
General Overview – The Need for PPPGeneral Overview – The Need for PPP Development
• India and South East Asian countries have a huge need for a high and sustainable growth in the economy in order to raise the overall standard of living and reduce povertystandard of living and reduce poverty
• Investment climate surveys repeatedly showed that the limited and poor quality of infrastructure facilities acted as a major impediment p q y j pto business growth in this region
• Governments are no longer able to finance infrastructure projects solely or even predominantly from the public purse, therefore they highly promote PPP
• PPP in infrastructure projects picked up momentum since mid 90s• PPP in infrastructure projects picked-up momentum since mid-90sin this region which continues to show great potential in PPP development
35
PPP•
– PPP
•
•
PPPPPP
• PPP90 PPP90
36
Development of PPP – Project CountDevelopment of PPP – Project Count from 1990 to 2012
100
re
80
finan
cial
clo
su
Indonesia
Cambodia
60
ects
reac
hing
f Cambodia
Laos
Malaysia
Myanmar
Philippines
20
40
Num
ber o
f pro
je Philippines
Thailand
Vietnam
India
019901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012
N
19901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012Year
Source : Compiled from the World Bank PPI Database
37
PPP –1990 2012
100
80
Indonesia
Cambodia
40
60 Laos
Malaysia
Myanmar
Philippines
20
40 Thailand
Vietnam
India
01990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201219901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012
YearSource : Compiled from the World Bank PPI Database
38
De elopment of PPP Total N mber of PPP ProjectsDevelopment of PPP – Total Number of PPP Projects reaching financial closure from 1990 to 2012
India
PhilippinesPhilippines
Thailand
Indonesia
Malaysia
VietnamVietnam
Cambodia
Laos
Myanmar
0 100 200 300 400 500 600 700 800Source : Compiled from the World Bank PPI Database
39
PPP – PPP1990 2012
India
Philippines
Thailand
Indonesia
Malaysia
Vietnam
Cambodia
Laos
Myanmar
0 100 200 300 400 500 600 700 8000 100 200 300 400 500 600 700 800
Source : Compiled from the World Bank PPI Database
40
PPP Systems ComparisonPPP Systems ComparisonInstitutional framework Financial support from
GovernmentProject Development
Fund (PDF)
Indonesia
• National Development Planning Agency (BAPPENAS)
• Coordinating Ministry for Economic Affairs (CMEA)
• Ministry of Finance (MOF)
• Viability Gap Funding (VGF)• Indonesia Infrastructure Guarantee
Fund (IIGF)
• Some organisations are entitled to provide PDF based on specific regulations
Malaysia • 3PU • No guarantee for long term funding• Facilitation Fund • No PDF
Philippines • PPP Center• Case by case approach• No direct government guarantee, • Project Development and
Monitoring Facility (PDMF)Philippines • NEDA subsidy or equity for unsolicited projects
Monitoring Facility (PDMF)• Strategic Support Fund
Thailand• SEPO• Ministry of Finance (MOF)• Communitee of Private
• No direct government guarantee for funding to the private sector
• Fiscal budget• Establishment of PDF
underwayInvestment in State Undertaking • Multilateral institutions
India • PPP Center• VGF• India Infrastructure Finance Company
Limited • PDF
E t bli h t f PDFVietnam • Ministry of Planning and
Investment • Case by case approach• Establishment of PDF
underway (around VND20,000billion)
Source: ASEAN PPP at a glance by ERIA
41
PPP(PDF)
PPP ( )
•(BAPPENAS)
• (CMEA)• (MOF)
•(VGF)
•(IIGF)
• 3PU •
•
• PPP • •• PPP • NEDA
••
•(PDMF)
•
• SEPO• (MOF)
• ••
• PPP • VGF•
• • • PDF (
Source: ASEAN PPP at a glance by ERIA
42
India – Overview• Ranked the 5th country with the most ideal environment for PPP
projects in ASEAN by The 2011 Infrascope
f• According to the World Bank data, India is the largest market for PPP in the developing world:
• Government aims to promote PPP so that by 2014 private• Government aims to promote PPP so that by 2014, private investments would represent 50% of the infrastructure investments
• Enormous investment needed driven by roads infrastructure
43
–• 2011 Infrascope ASEAN PPP
5
•PPPPPP
– 201450 PPP
•
44
India – PPP Projects in the Pipeline128
120
140
11%
42% In planning
85
80
100
47%
42% In planning
In tender
Project awarded
40
60
2% 4%
Models of PPP in India
59
15
61 1
6
0
2019%
3% 2% 4%
BOT
DBFOT
DBFO
72%
DBFO
DBFOM
DBFOMT
Source : Compiled from InfraPPP World45
– PPP 128
120
140
11%
42% In planning
85
80
100
47%
42% In planning
In tender
Project awarded
40
60
2% 4%
PPP
59
15
61 1
6
0
20 19%
3% 2% 4%
BOT
DBFOT
DBFO
72%
DBFO
DBFOM
DBFOMT
46Source : Compiled from InfraPPP World
I di O t iti i th P t S tIndia – Opportunities in the Port SectorProjected growth of the port sector:• Projected growth of the port sector:
• Driven by notorious delay in turnaround times
• The government has developed its port infrastructure through an investment of US$25 billion throughinvestment of US$25 billion through PPP
• 100% FDI permitted
• 100% income tax exemption for 10 years Source : Indian Port Sector by Gammon
Infrastructure Projects Limited
• Projected growth in cargo volume
47
–
•
–
•
•
• PPP 250
• 100%
• 10 100% Source : Indian Port Sector by Gammon Infrastructure Projects Limited
•
48
India – Opportunities in the Port Sector• 11 Major ports highlighted for redevelopment
49
• 11
–• 11
50
India Opportunities in the AviationIndia – Opportunities in the Aviation Sector• Projected growth of the aviation sector:
• Plans to upgrade 125 airports and to add new airports in the next 10 yearspg p p y
• Need for private investment into this sector
• Compound annual growth at over 15% in passenger traffic in the next few years
• Growth of cargo traffic
• 100% income tax exemption for a period of 10 years• 100% income tax exemption for a period of 10 years
• 100% FDI permitted
• 100% equity ownership by foreign company permitted100% equity ownership by foreign company permitted
Source : Ministry of Civil Aviation 51
–
•• 125 10125 10
•
• 15%
•
• 10 100%
• 100%• 100%
• 100%
Source : Ministry of Civil Aviation 52
India – Trend of Locations of PPP Projects• 61% – located in 7 key states
Maharashtra
Tamil Nadu
15%
12%
• 61% – located in 7 key states in India
• 39% – located in 21 other Tamil Nadu
Gujarat
Uttar Pradesh
8%
8%
states
• Why? Madhya Pradesh
Andhra Pradesh
Karnataka
6%
6%
6%
• More robust regulatory framework
21 other states
Total
39%
100%
• With these robust regulatory framework, PPP projects located in these
0 20 40 60 80 100
% of total announced projects between 2006 and 11
p jstates are more likely to succeed
Source: Thomson One; "Developing India’s Infrastructure through Public Private Partnerships", BGC research 53
PPP– PPP61% 7• 61% – 7
• 39% 21
15%
12%· • 39% – 21
•8%
8%
•
•7 PPP
6%
6%
6% 7 PPP
0 20 40 60 80 100
21
Total
39%
100%
0 20 40 60 80 100
2006 2011
Source: Thomson One; "Developing India’s Infrastructure through Public Private Partnerships", BGC research 54
India – Risks for Foreign Investors• Risk allocation is significantly biased in favour of the
government
• Land acquisition risk is a significant factor derailing most projects
• Variety of state-based approaches gives significant advantage to local private sectors
• High corruption risk due to lack of transparency:
- Often results in faulty bidding process
• Long legal and bureaucratic procedure
• Lack of coordinationLack of coordination
Source : BCG research and Public Private Partnership: A Growth accelerator or a power failure? – by the Property Observer 55
–•
•
•
•-
•
•
Source : BCG research and Public Private Partnership: A Growth accelerator or a power failure? – by the Property Observer 56
Case Study - Airport ExpressCase Study - Airport Express Line of Delhi Metro• Issues:
• Cracks found in the metro pillar structures: Resulted in the shut down of the express line for 6 months– Resulted in the shut-down of the express line for 6 months
• Inflated traffic projection:– Skewed the projection of financial viability for the operator
• Speed cut due to safety issues • Missed 4 deadlines
C f th i• Causes of the issues:• Poor preparation • Flawed risk-sharing – biased in favour of the government g g• Absence of an institutional mechanism to deal with
renegotiations• Forgetting about “Partnership” in PPP• Forgetting about Partnership in PPP
57
–
•
•– 6
•
–
•
• 4
•
•• –•• PPPPPP
58
Indonesia - Overview• The Masterplan for the Acceleration and Expansion of• The Masterplan for the Acceleration and Expansion of
Indonesian Economic Growth (MP3EI)
• Goal
• Key sectors for PPP development:• Water supply• Water supply • Roads • Railroads
Source :Masterplan – Acceleration and Expansion of Indonesia Economic Development 2011-2025 by The Republic of Indonesia
59
–••
(MP3EI)
•
• PPP•••
Source :Masterplan – Acceleration and Expansion of Indonesia Economic Development 2011-2025 by The Republic of Indonesia
60
Indonesia – Recent Developments in theIndonesia – Recent Developments in the Legal Framework• Presidential Regulation No.67 (2005) as amended by the
Presidential Regulation No.13 (2010) and the Presidential Regulation No 56 (2011)Regulation No.56 (2011)
• Sets out provisions necessary for PPP implementation
• Applicable to the following sectors:– Transportation Infrastructure– Road InfrastructureRoad Infrastructure– Irrigation Infrastructure– Drinking Water Infrastructure
I f ti d T l i ti I f t t– Information and Telecommunication Infrastructure– Electricity Infrastructure– Oil and Gas Infrastructure
61
–
• 13 2010 56 201167 2005
• PPP
•–––––––
62
Indonesia – Recent Developments in theIndonesia – Recent Developments in the Legal Framework (cont’)• Ministry of Finance Regulation No.223 (2012)
• Prescribed a Viability Gap Fund (VGF) to raise thePrescribed a Viability Gap Fund (VGF) to raise the financial viability of PPP projects
• VGF• VGF
– Financial support for construction costs of PPP projectsprojects
• The Ministry of Finance is now preparing a regulation on Project Development Facility (PDF)on Project Development Facility (PDF)
63
–
• 223 2012
• PPPPPP
VGF
• VGF
PPP– PPP
PDF• PDF
64
Indonesia – PPP Projects in the Pipeline
Sector Number of Projects
Cost of Projects (in Million in
USD)
7%
15% Electricity
RailroadsProjects USD)
Electricity 1 68
14%
7%
57%Roads
Seaports
Water Suppy
Railroads 2 3,750
Roads 2 24,253
Seaports 1 25
Water Supply 8 604
43%
43%
14%In Planning
In TenderSupply
Total 14 28,700Project awarded
Source : Compiled from InfraPPP World and the PPP Infrastructure Projects Plan in Indonesia by the Republic of Indonesia 65
– PPP
1007%
15% Electricity
Railroads
1 68
2 3,750
14%
7%
57%Roads
Seaports
Water Suppy
2 24,253
1 25
8 604 43%
43%
14%In Planning
In Tender
14 28,700 Project awarded
Source : Compiled from InfraPPP World and the PPP Infrastructure Projects Plan in Indonesia by the Republic of Indonesia 66
Indonesia – Risks and Considerations forIndonesia – Risks and Considerations for Foreign Investors• Difficulty in the acquisition of land due to legal impediments to
agree on fair compensation for land-owners resulting in endless l l di tlegal disputes
• Corruption in the country has improved but is still present
• Lack of regulatory certainty poses higher investment risks
• Greatest ratio of failure to number of PPP projects according to th W ld B k PPI d t tthe World Bank PPI dataset
• Indonesia’s infrastructure spending is only about 2.3 percent of its gross domestic product which is substantially lower than itsits gross domestic product, which is substantially lower than its peers in the region
Source : Public Private Partnership (PPP) Investor’s Guide: What private investors should know about investing in Indonesia’s Infrastructure – Coordinating Ministry of Economic Affairs; Source : Indonesia Investments website
67
––
•
•
•
• PPI PPP
• 2.3
Source : Public Private Partnership (PPP) Investor’s Guide: What private investors should know about investing in Indonesia’s Infrastructure – Coordinating Ministry of Economic Affairs; Source : Indonesia Investments website
68
Philippines - Overview• Ranked the 8th country with the most ideal
environment for PPP projects by The 2011 Infrascope• Types of implementation of PPP projects:
• Unsolicited mode– Submitted by private sectors– No direct government guarantee, subsidy or
equity is provided• Solicited mode
– Identified by the government – Government undertaking may be provided
69
2011 I f PPP
–• 2011 Infrascope PPP
• PPP••
––
•––
70
Philippines – Recent Development in thePhilippines – Recent Development in the Legal framework
• Amendments made to the Build-Operate-Transfer Law –Implementing Rules and Regulations
• Accelerated processing of PPP projects
• Clearer transparency measures in the bidding for and• Clearer transparency measures in the bidding for and award of projects
• Improved governance and accountability mechanisms• Improved governance and accountability mechanisms
• Improved guidelines on unsolicited proposals
• Reviewed and streamlined processes in evaluation and approval of projects
71
–•
• PPPPPP
•
•
•
•
72
Philippines – Recent Development in thePhilippines Recent Development in the Legal Framework (Cont’)
E ti O d N 8 (2010)• Executive Order No.8 (2010)• Expanded mandate to cover all modes of PPP• Outlined PPP Center’s role:Outlined PPP Center s role:
– Provide advisory services– Facilitate development of PPP projects– Manage the PDMF– Advocate policy reform– Monitor implementation of PPP projects
• Proposed amendments:St th th l l b i f th PDMF– Strengthen the legal basis of the PDMF as a revolving fund
73
( )– ( )8 2010• 8 2010
• PPP• PPPPPP
–– PPP– PDMF–– PPP
•PDMF– PDMF
74
Philippines – Recent Development in thePhilippines – Recent Development in the Legal Framework (Cont’)• Executive Order No.78 (2012)
• Mandated the inclusion of provisions on the use of alternative dispute resolution mechanisms
• Efficient tool and alternative procedure in pachieving speedy and impartial justice
• De-clogging of court docketsgg g
• More inviting climate for private investments:
Less expensive dispute resolution– Less expensive dispute resolution
– Less complex dispute resolution
– Less time-consuming dispute resolution75
– ( )
• 78 2012
( )
• 78 2012
• ADR
•
•
•
–
–
–
76
Philippines – Current issues with PPPPhilippines – Current issues with PPP Projects• Delay in closing big-ticket infrastructure projects in the transport
PPP pipeline
• Primary reason:
– Lack of transparency between public and private parties
• Decreased interest from potential bidders due to high level of risk from excessive delays in procurement and additional cost resulting from local real property taxresulting from local real property tax
• Wavering commitment from private sector investors
77
– PPP
• PPP
•
–
•
•
78
Philippines – Eligible PPP Projects• Power Plants • Land Reclamation• Power Plants
• Highways/Roads
• Railroads & Railways
• Land Reclamation
• Solid Waste Management
• Tourism Facilities• Railroads & Railways
• Ports
• Airports
• Tourism Facilities
• Education
• Health FacilitiesAirports
• Transport Systems
• Telecommunications
Health Facilities
• Industrial & Tourism Estates
• Markets, Warehouses,
• ICT Systems/Facilities
• Agriculture
, ,Slaughterhouses
• Housing, Government Buildingsg
• Canals, Dams, Irrigation
• Water Supply
• Other Infrastructure/ Development Projects/ Systems
Source :The Philippine PPP Program & The Role of the PPP Center – by the PPP Center of the Philippines 79
– PPP• ••
• /
•
•
•
•
•
•
•
•
•
•
•
•
• ICT /
•
•
•
• , ,
•
Source :The Philippine PPP Program & The Role of the PPP Center – by the PPP Center of the Philippines 80
Philippines – PPP Projects in the PipelineSector Number of
ProjectsCost of Projects
(in Million in USD)Energy 1 2,100
7%
13%13% Energy
Airportsgy ,
Airports 2425
To be decided
13%
27%
27%Railroads
Roads
Buildings
Water Supply
Railroads 2700
To be decidedRoads 4 1 977Roads 4 1,977Buildings 4 806
Water 21,000
40%
40%
20% In planning
In tender
Water supply 2
,To be decided
Total 15 7,008 + TBD
Project awarded
Source : Compiled from InfraPPP World and PPP Center of the Republic of Philippines 81
– PPP
7%
13%13% Energy
Airports
(100 )1 2,100
13%
27%
27%Railroads
Roads
Buildings
Water Supply
2425
7002
700
4 1,977
40%
40%
20% In planning
In tender
4 806
21,000
Project awarded
2
15 7,008 +
Source : Compiled from InfraPPP World and PPP Center of the Republic of Philippines 82
Philippines– Risk for Foreign Investors• High corruption levels due to weak rule of law and justice
system
• Government’s ineffectiveness in implementing policies
• Inconsistent application of laws and regulationspp g
• Difficulties in maintaining good relations with local officials
• Enforceability of long-term contracts through leadership• Enforceability of long-term contracts through leadership transitions is a major concern for private sector
• Complex legal procedures around constitutional limits onComplex legal procedures around constitutional limits on foreign ownership in certain sectors
• Security threatsSecurity threatsSource: A S.W.O.T. Study of Asia’s Emerging Countries (2011); IMF Country Report Article IV Consultation (2013)
83
–•
•
•
•
••
•
•Source: A S.W.O.T. Study of Asia’s Emerging Countries (2011); IMF Country Report Article IV Consultation (2013)
84
Thailand – Overview • According to the Global Competitiveness Report 2011-
2012, Thailand’s infrastructure is ranked 42nd out of 142 countries indicating that infrastructure is developing butcountries indicating that infrastructure is developing, but that there remains room for improvement.
• Due to the recent enactment of the new PPP law PPP• Due to the recent enactment of the new PPP law, PPP projects are expected to play an important role in implementing the newly announced 5.5 trillion baht (~20% of Thailand’s GDP, ~USD 170 billion) government investment plan in infrastructure over the next seven years (2013-2020)years (2013 2020).
• PDF will be established by the Ministry of Finance in the new PPP law to provide seed money for new projects.new PPP law to provide seed money for new projects.
Source :CLC Asia; Ministry of Finance; Global Competitiveness Report 2011-2012
85
–• 2011-2012
142 42
• PPP PPPPPP PPP5.5 GDP 20% 1700
7 2013-2020
• PPP• PPPPDF
86
Source :CLC Asia; Ministry of Finance; Global Competitiveness Report 2011-2012
Thailand – Recent Development in theThailand – Recent Development in the Legal Framework• Thailand has passed the new PPP law (effective from 4
April 2013 onwards), Private Investment in State U d t ki A t B E 2556 l i th 1992 ACTUndertaking Act B.E. 2556, replacing the 1992 ACT, Private Investment in State Undertaking Act B.E. 2535
Provides a PPP “Master Plan”• Provides a PPP Master Plan
• Sets out clearer procedure for private investors
• Streamlines approval process
• Encourages large-scale PPP projects
Source :CLC Asia; Ministry of Finance; infrastructure journal
87
––
• PPP B.E.2556 2013 4 1992
B E 2535B.E. 2535• PPP
•
•
• PPP
88
Source :CLC Asia; Ministry of Finance; infrastructure journal
Thailand – Recent Development in theThailand – Recent Development in the Legal Framework (Cont’)• The new PPP law promotes public private partnership by
providing:
• A comprehensive institutional and regulatory framework
• Methodology for risk allocation and/or project evaluation
• Value for money analysis
• Contract management
• Central agency that oversees investments
Source :CLC Asia; Ministry of Finance
89
– ( )( )
• PPPPPP
•
• /• /
•
•
•
90
Source :CLC Asia; Ministry of Finance
Thailand – Breakdown of 5 5 tr BahtThailand – Breakdown of 5.5 tr Baht Government Spending plans
7%
• On budget items include: small road projects and
l i t d
32%
7%
On budget investmentConnectivity
normal maintenance sourced from general revenue
Connectivity infrastructure61%
Connectivity InfrastructureWater Management
• Connectivity infrastructure predominantly includes: high speed rail, mass transit and proads
• Flood Management Schemes
Source :CLC Asia; Ministry of Finance; Credit Suisse
91
– 5 5– 5.5
7%
•:
32%
7%
61%•
•
92
Source :CLC Asia; Ministry of Finance; Credit Suisse
Thailand – PPP Projects in the pipeline• Projects implemented in the past under the 1992 ACT were
mostly in the transport sector, e.g. Sri-Rat Expressway (BTO), Donmuang Tollway (BTO) Bangkok Skytrain (BOT) MassDonmuang Tollway (BTO), Bangkok Skytrain (BOT), Mass Rapid Transit-Blue Line (BTO), Mass Rapid Transit-Purple Line (PPP Gross Costs), Catering and Ground Services in the S bh i Ai t (BTO)Suvarnabhumi Airport (BTO)
• Forthcoming projects which are under preparation for PPP are:
• Mass Rapid Transit – (Green and Blue Lines extensions)
• Inter-city Bang Pra In – Nakhon Ratchasima Motorway
• Bang Yai – Kanchanaburi Motorway
• Coastal Port at Lam Cha-Bang, etc.
Source :CLC Asia; ERIA; Ministry of Finance; Credit Suisse
93
1992
– PPP• 1992
• Sri Rat BTO Donmuang BTO• Sri-Rat BTO , Donmuang BTO , BOT , -
BTO , - PPP Gross Costs ,
BT
• PPP
• –
• –
• –
•
Source : CLC Asia; ERIA; Ministry of Finance; Credit Suisse
94
Thailand – Likelihood of governmentThailand – Likelihood of government infrastructure projects being implemented
Source :CLC Asia (2013); Ministry of Finance (2013); Credit Suisse (2013)
95
–
96
Source :CLC Asia (2013); Ministry of Finance (2013); Credit Suisse (2013)
Thailand – Risk for Foreign Investors• The new PPP unit may become a incompetent
gatekeeper for infrastructure investments because of t ti l i t l lpotential internal power plays
• Long time for the government to provide detailed investment guidelines for investorsinvestment guidelines for investors
• Lack of institutional capacity to implement reforms
• Political instability
• Potential negative impact on current account balance from infrastructure spending
Source: CLC Asia; Credit Suisse
97
–• PPP
•
•
•
•
Source: CLC Asia; Credit Suisse
98
Malaysia – Overview• 10th Malaysia Plan (2011 – 2015)
• The Government laid out 52 projects with an estimated value of RM62.7 billion (~USD 19.1 billion)
• The private sector is encouraged to invest in development j t th h PPPprojects through PPP
• A Facilitation Fund was created with allocation of RM20billion (~USD 6 4 billion)billion ( USD 6.4 billion)
– An allocation of RM5 billion (~USD 1.6 billion) is set aside to finance land acquisition for highway projects q g y p jimplemented via PPP approach
Source: ‘Tenth Malaysia Plan’ - The Economic Planning UnitPrime Minister’s DepartmentPutrajaya2010
99
–• 10 2011 – 2015
• 627 RM191 52
• PPP
• 200 RM 64
– 50 RM 16 PPP
100
Source: ‘Tenth Malaysia Plan’ - The Economic Planning UnitPrime Minister’s DepartmentPutrajaya2010
Malaysia – Governmental Involvement• Public Private Partnership Unit “3PU”:
• Accountable to the Prime Minister
• Also known as Unit Kejasama Awan Swasta (UKAS)
• Core agency with the responsibility to coordinate theCore agency with the responsibility to coordinate the Privatisation and the PPP projects:
– Re-affirms its position as a central agency within the country’s administrative framework and a reflection of strong political commitment to the PPP program
Responsible for promoting planning coordinating– Responsible for promoting, planning, coordinating, controlling, monitoring, facilitating and ensuring the effectiveness of PPP projects
Source: ‘Tenth Malaysia Plan’ - The Economic Planning UnitPrime Minister’s DepartmentPutrajaya2010
101
–• PPP – 3PU
•
• Unit Kejasama Awan SwastaUKAS
• PPP
– PPP
– PPP
102
Source: ‘Tenth Malaysia Plan’ - The Economic Planning UnitPrime Minister’s DepartmentPutrajaya2010
Malaysia – Foreign Ownership for landMalaysia – Foreign Ownership for land and buildings
• There is no restriction for foreigners to own land and b ildi t f th f ll i t ibuildings except for the following categories:
• Malay Reserve Land
• Real estate valued less than RM500,000 (~USD 161,000) per unit
L t h• Low cost houses
• Real estate reserved by state authority for bumiputerainterest in any development projectinterest in any development project
Source: PPP Comparative Table, Economic Research Institute for ASEAN and East Asia (ERIA), February 2013 103
–•
•
• 1 500,000RM 161,000, ,
•
••
104Source: PPP Comparative Table, Economic Research Institute for ASEAN and East Asia (ERIA), February 2013
Malaysia – Identified PPP Projects for theMalaysia – Identified PPP Projects for the “10th Malaysia Plan”
• Key themes of the current “10th Malaysia Plan” center around:• Improvement of basic infrastructure• Upgrading of public transportation in Greater Kuala Lumpur
Roads • West Coast Expressway• Guthrie-Damansara Expressway• Sungai Juru Expressway
Upg ad g o pub c a spo a o G ea e ua a u pu
• Paroi-Senawang-KLIA Expressway• Ampang-Cheras-Pandan Elevated Highway
Transport • Mass Rapid Transit in Greater Kuala Lumpur• East Coast Rail Route (currently under feasibility study)
I t t d T t T i l i G b k S l• Integrated Transport Terminal in Gombak, SelangorPower • Two coal electricity generation plants
• 300-megawatt combined-cycle gas power plant in Kimanis, Sabah• Liquefied natural gas regasification in Malacca
Ed cation • Five Universiti Teknologi MARA (UiTM) branch campusesEducation • Five Universiti Teknologi MARA (UiTM) branch campuses• Education hub in Pagoh, Johor
Health • Women and Children’s Hospital• International Islamic University Malaysia Teaching Hospital
Source: ERIA PPP Country Profile Report, dated 1 March 2013 105
– 10– 10PPP
• 10••
•••
•
••
••••••••••
Source: ERIA PPP Country Profile Report, dated 1 March 2013 106
Malaysia – PPP Projects in the Pipeline
Number of Cost of ProjectsSector Number of Projects
Cost of Projects (in Million in USD)
Energy 1 45014%
43%Energy
RailroadsRailroads 2 16,080Roads 1 2,000Buildings 3 8 605
29%
14%
Railroads
Roads
Buildings
Buildings 3 8,605Total 7 27,135
Source : Compiled from PWC107
PPP– PPP
( )1 450
14%
43%Energy
Railroads2 16,0801 2,0003 8 605
29%
14%
Railroads
Roads
Buildings
3 8,6057 27,135
108Source : Compiled from PWC
Malaysia – Risks for Foreign Investors• Second highest ratio of failure to number of projects
according to the World Bank PPI dataset
• Land acquisition risk is significant
• Political instability causing delays of projectPolitical instability causing delays of project approvals and permits
• Interest rate volatility• Interest rate volatility
• Operation risk due to improper measurement, ill planned schedule and low operation efficiencyplanned schedule and low operation efficiency resulting in cost overruns
Source : International Journal of Sustainable Construction Engineering & Technology Vol 2, Issue 2, December 2011, Risk Allocation in Public-Private Partnership (PPP) Project: A Review on Risk Factors, Nur Alkaf Abd Karim 109
–• PPI
2
•
••
••
•
Source : International Journal of Sustainable Construction Engineering & Technology Vol 2, Issue 2, December 2011, Risk Allocation in Public-Private Partnership (PPP) Project: A Review on Risk Factors, Nur Alkaf Abd Karim 110
Vietnam – Overview• The Vietnamese economy has been growing steadily
since 1988
• Its GDP growth rate has been in the range 5% to 9.5% per annum despite various fluctuations of the international economy such as the Asian Financial Crisis and the Lehman Shock
• According to the Ministry of Planning and Investment (MPI), the estimated necessary capital for i f t t t ti i Vi t b 2020 iinfrastructure construction in Vietnam by 2020 is calculated as USD 400 billion, of which half is planned to be mobilised from the private sectorplanned to be mobilised from the private sector
111
–• 1988
•GDP
5 9.5
• MPI 20204
112
Vietnam – Regulatory Framework• Ministry of Planning and Investment
• Coordinating ministryCoordinating ministry
• Gathers opinions from relevant authorities and reporting to the Prime Minister for approvalreporting to the Prime Minister for approval
• Advisor for investors preparing a PPP project
• Steering Committee on investments in the forms of PPP
• Assist in formulating and commencing projects
113
–•
•
•
• PPP
• PPP
•
114
Vietnam – Government Support • A state capital of up to 30% of the total investment
capital of the PPP projects can be granted
• On a case to case basis, foreign exchange may be guaranteed
• Compared to a normal Corporate Income Tax rate of 25%, most PPP projects are given a 10% Corporate I T f 15 j d i iIncome Tax for 15 years or project duration, exemption for first 4 years, and half reduction for 5 to 9 years
M t PPP j t t f L d f f• Most PPP projects are exempt from Land use fee for project duration
Sources – Vietnam’s Country Profile by ERIA 115
• PPP 30–
• PPP 30
•
• 25 PPP1515
10 4 5 9
• PPP
116Sources – Vietnam’s Country Profile by ERIA
Vietnam – Encouraged Sectors• The PPP framework specifies the following sectors
for pilot investment:• Roads, road bridges and tunnels and ferry landings for road traffic
• Railways, railway bridges and railway tunnels
T ffi i b• Traffic in urban area
• Airports, seaports and river ports
• Clean water supply systemspp y y
• Power plants
• Health (hospitals)
• Environment (waste treatment plants)
• Other projects for infrastructure development and/or provision of public services as decided by the Prime Minister
Sources – Vietnam’s Country Profile by ERIA 117
• PPP
–• PPP
••••••••
/• /
118Sources – Vietnam’s Country Profile by ERIA
Vietnam – The Dau Giay – Phan ThietVietnam – The Dau Giay – Phan ThietExpressway• First PPP in Vietnam’s pipeline to be released to the
international market
• To be funded by a combination of state and private sector finances
• Potential model to be applied to future infrastructure projects in Vietnam if proven successfulp j p
• Project costs are approximately USD$750 million
119
––
• PPP
•
•
• 7 5000
120
Vietnam – PPP Projects in the PipelineNumber of Cost of ProjectsSector Number of Projects
Cost of Projects (in Million in USD)
Airports 1 1,400Energy 2 ---Railroads 2 ---R d 8 8 718
8%4%
17%Energy
Ai tRoads 8 8,718Seaports 3 57
95
8%
13%17%
% Airports
Railroads
Seaports
Roads
B ildi
Water 4
95------
33%Buildings
Water Supply
---Buildings 4 350T t l 24 10 620 + kTotal 24 10,620 + unknown
Source : A Star in ascendant? PPP Opportunities in Vietnam – by the AshurstInsight
121
– PPP
( )1 1,4002 ---2 --- 8%
4%17%
Energy
Ai t8 8,7183 57
95
8%
13%17%
% Airports
Railroads
Seaports
Roads
B ildi
4
95------
33%Buildings
Water Supply
---4 350
24 10,620 +
122Source : A Star in ascendant? PPP Opportunities in Vietnam – by the AshurstInsight
Vietnam – Risks for Foreign Investors• Only foreign invested organisations established under the laws of
Vietnam are entitled to be issued a Certificate of Land Use Right and a Certificate of Ownership of Construction Works:and a Certificate of Ownership of Construction Works:
• Foreign lenders must mortgage the land use right through agents in Vietnam
• The enforceability of agency arrangements has yet to be tested in the Vietnamese Courts
• The PPP bidding and negotiation processes are unpredictable and lengthy
• Acquiring land rights is a lengthy process that lacks transparency• Acquiring land rights is a lengthy process that lacks transparency
Sources – Vietnam’s Country Profile by ERIA, Vietnam Tries PPP by the Voice of America and the Vietnam PPP Update by the Norton Rose Fulbright
123
•–
CLURCOCW
•
•
• PPP• PPP
•
124
Sources – Vietnam’s Country Profile by ERIA, Vietnam Tries PPP by the Voice of America and the Vietnam PPP Update by the Norton Rose Fulbright
Cambodia – Overview • Nik Nasir Majid (a senior researcher in the ERIA):
“Economic growth needs to be sustained to provide employment opportunities for the almost two-thirds of the population which falls in the economically active age group (15 64)”age group (15-64)
• Advantages of PPP implementation in Cambodia:
• Political commitment
• Positive investment climate
• Substantial scope for efficiency improvement
Source : Cambodia PPP in Infrastructure – by Dean Hethington 125
–• ERIA
15-643 23 2
PPP• PPP•
•
•
126Source : Cambodia PPP in Infrastructure – by Dean Hethington
Cambodia – General PPP Structure • Usually structured as BOTs
• Power SectorPower Sector
-Government guarantee
S• Energy Sector
-Take-or-pay provision
• Transportation Sector
-Exclusivity clauseExclusivity clause
Source : Cambodia PPP in Infrastructure – by Dean Hethington 127
– PPP• BOT
••
•••
••
128Source : Cambodia PPP in Infrastructure – by Dean Hethington
Cambodia – Funding for PPP projects• Methods of Funding:
• Foreign Direct Investmentg
• Owner’s equity
U f• Users fees
• Family funds:
– Only for small electricity PPP
– Accounting for 22%Accounting for 22%
• Successful bidders are required to set up their own local Special Purpose Vehicle for implementationlocal Special Purpose Vehicle for implementation
Source : Cambodia PPP in Infrastructure – by Dean Hethington 129
– PPP•
•
•
•
•
– PPPPPP
– 22%
•
130Source : Cambodia PPP in Infrastructure – by Dean Hethington
Cambodia – Opportunities in the PowerCambodia – Opportunities in the Power Sector
Sector Sub-sector Number of projects Total Investment(in million in USD)
• Total PPP projects from 1990 to 2011
Energy
Electricity 16 2,677
Natural gas 0 0
Total 16 2,677
Telecom Telecom 7 882
Airports 3 272
Railroads 1 85.5
Transport Roads 2 13
Seaports 0 0
Total 6 370.5
Water and Sewerage
Treatment plant 0 0
Utility 0 0
Total 0 0Total 0 0
Total 29 3,930
Source : Cambodia PPP in Infrastructure – by Dean Hethington 131
–1990 2011 PPP
( )
• 1990 2011 PPP
16 2,677
0 0
16 2,677
/ 7 882
3 272
1 85.5
2 13
0 0
6 370.5
0 0
0 0
0 00 0
29 3,930
132Source : Cambodia PPP in Infrastructure – by Dean Hethington
Cambodia – Risks for Foreign Investors• Business environment ranked 138 out of 183
countries on the Ease of Doing Business Index
• Legal system not yet fully mature
• High corruption risk due to lack of transparencyHigh corruption risk due to lack of transparency
• Lack of skilled labor and manpower to work on PPP projectsprojects
Source : Asia Circle Magazine, Cambodia Public – Private Partnerships in Infrastructure
133
–• Ease of Doing Business
183 138
•
••
• PPP
Source : Asia Circle Magazine, Cambodia Public – Private Partnerships in Infrastructure
134
Myanmar – Overview• In a joint statement after the Japan-Myanmar summit in May
2013, it was announced that through the public and private sectors Japan would provide assistance for the developmentsectors, Japan would provide assistance for the development of Myanmar
• The key to national development is creating basic• The key to national development is creating basic infrastructure
• For the past 60 years, Myanmar's development depended p y , y p psolely on state funding
• Now with the extensive economic reform and new investment law, Myanmar is attracting new investment from within and aboard in transportation, electricity and water
135
–• 2013 5
•
• 60
•
136
Myanmar – Opportunities in the AviationMyanmar – Opportunities in the Aviation Sector
Currently has a total of 69 airports of which only 32 are operational• Currently has a total of 69 airports, of which only 32 are operational• There are 3 international airports - in Yangon, Mandalay and Nay Pyi
Taw• Capacity of Yangon International Airport to be doubled from 2.7 million
to 5.5 million passengers a year • The government plans to transform some existing domestic airports g p g p
into international airports• Annual International Air Passenger Traffic into Myanmar
Source : MegaProject 68: Myanmar awards two airport PPP projects by Miguel Rubio from InfraPPP World
137
–69 32• 69 32
• 3
270 550• 270 550
•
••
Source : MegaProject 68: Myanmar awards two airport PPP projects by Miguel Rubio from InfraPPP World
138
Myanmar – Projects in the pipeline• Projects awarded recently
1. Hanthawaddy International Airport:y p
– Awarded to the South Korea’s IncheonInternational Airport Corporationp p
– Cost: USD$1.1 billion
2 Mandalay International Airport:2. Mandalay International Airport:
– Awarded to Japan’s JALUX Inc., Mitsubishi Corporation and SPA Project Management LtdCorporation and SPA Project Management Ltd
– Concession period – 30 years
Source : MegaProject 68: Myanmar awards two airport PPP projects by Miguel Rubio from InfraPPP World
139
–•
1.-
- – 1111
2.JALUX SPA Project- JALUX SPA Project
Management Ltd
- - 30
140Source : MegaProject 68: Myanmar awards two airport PPP projects by Miguel Rubio from InfraPPP World
Myanmar – Opportunities in the EnergyMyanmar – Opportunities in the Energy Sector• Myanmar’s per capita electricity consumption is the
lowest among the ASEAN-10 countries:
• Estimated at 100 kilowatt hours (KWh) in 2010 which is approximately one-twentieth of that in Thailand
• Estimates say that less than 25 percent of the y pcountry has access to electric power:
• Of the already low installed capacity of around y p y3500 megawatts (MW), only about 60 percent is reliably available
Source : Powering up for growth: An assessment of the power sector in Myanmar – KPMG from InfraPPP World
141
––
• ASEAN10
• 2010 20 1 100KWh
• 25
3500 MW• 3500 MW60
142Source : Powering up for growth: An assessment of the power sector in Myanmar – KPMG from InfraPPP World
Myanmar – Japan InternationalMyanmar – Japan International Cooperation Agency’s participation • JICA plans to utilize Japan’s expertise and knowledge to assist in the
following social infrastructure buildings in the Yangon Metropolitan region:
Water supply• Water supply
• Sewer works
• Urban water discharge• Urban water discharge
• Urban transportation
• Work has already begun on forming urgent and high-priority projectsWork has already begun on forming urgent and high priority projects
• Assistance is underway using grant aid to repair the water distribution pipes in Yangon, an urgent issue for supplying safe water
• A Japanese ODA loan has been provided to restore the aging thermal power station and transformer stations in the Yangon metropolitan area
143
– JICA– JICA
• JICA
••
•
••
•
•
•
•ODA
144
Myanmar– Risk for Foreign Investors• Corruption
• Reputational damageReputational damage
• Human rights abuses / Forced labour
• Difficulties in finding local partners / Continuation of• Difficulties in finding local partners / Continuation of economic sanctions
• Ethnic and communal violenceEthnic and communal violence
• Lack of institutional capacity to draft and implement reformsreforms
Source: McKinsey Global Institute Myanmar Report (2013); Risk advisory “Assessing Myanmar’s opportunities and risks” (June 2013); Committee on workers’ capital 145
–•
•
• /
• /• /
•
•
Source: McKinsey Global Institute Myanmar Report (2013); Risk advisory “Assessing Myanmar’s opportunities and risks” (June 2013); Committee on workers’ capital 146
Part 2: Special Issues in PPP ConstructionSpecial Issues in PPP Construction Contracting
Phillip Georgiou, Singapore OfficeStephen O'Neal San Francisco OfficeStephen O Neal, San Francisco Office
147
2PPPPPP
148
Typical PPP Construction Structureyp
Government Body
Project Company
ContractorContractor
Designers, Engineers,
Subcontractors and Material
Suppliers
Designers, Engineers, Subcontractors’
and Material Suppliers’Guarantors
Insurers
PPP
Key Principle – Avoid Gaps in RiskKey Principle – Avoid Gaps in Risk Allocation• Isolate risk allocation issues in Concession
Agreement and EPC (Engineer, Procure, Construct) or other Construction Contract
• Ensure that those flow-down to subcontractors without gaps
151
––
• EPC
•
152
Basics• Scope/Performance Specification/Testing
• TimeTime
• Price
153
• / /
•
•
154
Scope/Performance Spec/Testing • Ensure that no scope gap exists in subcontracts for
design, engineering, construction, or material supply
• Performance Spec/Testing issues – obligate all subs to comply with relevant performance/testing specifications
155
/ / •
• / –
156
TimeEnsure that provisions for time extensions flow-down
• Force majeureForce majeure
• Changes to the work – flow-down all notice and entitlement provisionsentitlement provisions
• Concurrent delay (apportionment) and schedule float ownershipfloat ownership
– Clarify at contracting stage/obtain required baseline schedules from subsbaseline schedules from subs
• Review for inconsistency
157
•
• –
•
– /– /
••
158
PriceRegardless of contract pricing format, e.g., stipulated sum, guaranteed maximum price, etc., ensure flow-down of
• limits on price increases
• opportunities for price increases
claims submission agreements/pass throughs– claims submission agreements/pass-throughs
159
•
•
/– /
160
Governing Law• Beware of inconsistencies in governing law of
Concession Agreement, EPC contract, and statutory requirements re subcontracts
161
• EPC
162
Insurance and Indemnification• Unified scheme for entire project to avoid gaps –
critical to conduct risk review prior to contracting
– Beware of limits on indemnification in particular jurisdiction
– Defense obligation separate from indemnification
• control of litigation
163
•–
–
–
••
164
Warranties• Ensure subcontractor and material supplier
warranties match obligations of contractor
• Tiered warranties for more/less critical components
Intellectual PropertyIntellectual Property• Obtain warranties and indemnification from
subs/suppliers as to any IP you must deliver
Site conditionsSite conditions• Ensure differing site condition risk flows down
165
•
•
• /
•
166
Termination rights• Triggers
• Automatic termination of subcontractor/supplierAutomatic termination of subcontractor/supplier agreements on termination of main contract
• Termination for convenienceTermination for convenience
– Ensure that pricing scheme on convenience termination flows downtermination flows down
167
•
• //
•
–
168
Liquidated Damages• Delay damages
• Performance guarantee damagesPerformance guarantee damages
• Reasonable good faith estimate of damages/avoid penalty-unenforceability issuepenalty-unenforceability issue
• Security for performance
– Ensure that subs and suppliers post security for allocable share of risk
169
•
•
• /
•
–
170
Liability Caps• For key subcontractors and material suppliers,
ensure that their liquidated damages obligations are sufficient to cover yourssufficient to cover yours
• Waiver of consequential damages
– Flow-down
– Lost profits issuep
171
•
•
–
–
172
Dispute Resolution• DRB/DAB
• MediationMediation
• Arbitration
C• Joinder Clause
– Executed by subs and their parents/guarantors/security providers
• Obligation to continue working/provide materials in event of dispute (tied to security for performance)
173
• DRB / DAB
•
•
•
– / /
• /
174
Thank youa you
Questions?
175
?
176
Phillip Georgiou
ContactBill NapierPhillip Georgiou
Jones Day - [email protected]
Bill NapierJones Day - Sydney
Stephen V O'Neal
61.2.8272.0730
Maria Tan PedersenStephen V. O NealJones Day – San Francisco
Maria Tan PedersenJones Day – Hong Kong
[email protected] 3189 73541.415.875.5780
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