3.2. Nomenclature – Other Names used for the PPP Concept

TABLE 1.3: Nomenclature for PPP Contracts Related Mainly to New Infrastructure or Infrastructure Upgrades Developed with Private Finance[28]

DBFOM (Design, Build, Finance, Operate and Maintain), DBFM (Design, Build, Finance and Maintain)/DCMF (Design, Construction, Maintain and Finance) and DBFO (Design, Build Finance and Operate)

Some jurisdictions refer to the contract types by describing the functions transferred to the private party by the contract, or by using acronyms for these descriptions. For example, a contract may be described as a Design, Build, Finance, Operate and Maintain contract, or DBFOM.

For the purpose of this PPP Certification Guide, all the nomenclatures listed here are synonyms for a private finance PPP.

Sometimes (for example, when the term DBFO is used) the “maintain” function is considered implicit in the operations. Similarly, for those contracts with no operations in the strict sense of the word (interface with users, especially collecting fees), the O “operation” is sometimes omitted.

These concepts may equally refer to government-pays PPPs and user-pays PPPs.

It should be mentioned that a DBOM is a type of infrastructure PPP but with no private finance involved, so it is not a private finance PPP.

BOT (Build-Operate-Transfer), BOOT (Build-Own-Operate-Transfer), BTO (Build-to-Order), ROT (Rehabilitate-Operate-Transfer) and similar terms

This type of definition captures the concept of legal ownership and control of the asset.

In some jurisdictions, legal ownership by the private partner in complete terms is not possible (for example, in some civil code countries) except in very specific projects: generally the private partner is regarded as the owner only in “economic terms”, but the asset remains in legal terms under the ownership of the government (this is the public domain concept used in most civil code countries). Hence, the use of these acronyms is not useful in these geographies. In any case, there are many dimensions of ownership (legal, economic, tax) and these acronyms may create unnecessary confusion as to which form of ownership is being referred to.

BOT and BOOT may be considered redundant. BTO refers to contracts in which legal ownership of the asset is on the private side of the contract only during construction. ROT simply replaces the “build” element with “rehabilitate” and is used for some contracts in some jurisdictions where the capital investment is associated with the rehabilitation or upgrading of the infrastructure asset.

These concepts may equally refer to government-pays PPPs and user-pays PPPs.

This PPP Certification Guide considers all these names as a synonym of the DBFOM group of terms.

PFI (Private Finance Initiative)

An alternative name introduced by the UK, mainly to refer to DBFOM PPPs of the government-pays type.

Concession (of public works)

Concession is a traditional legal term in civil code jurisdictions. A concession is in essence the legal title or institution that in an administrative law jurisdiction entitles the government to transfer economic rights of use in a public asset to a private partner.

Originally this term was only used for DBFOM-type contracts based on user revenues. It was also used in some jurisdictions for long-term O&M contracts where there is a transfer of economic rights to collect user fees, together with a clear responsibility for maintaining the infrastructure in the long-term on an integral basis (that is, the life-cycle cost risks are transferred).

On many occasions, the term is further defined by adding a reference to public works to distinguish the contract from those concessions where the only objective is the transfer of the operation of a public service.

Some civil code countries also use the term to refer also to DBFOM contracts based on public service or performance-based payments (for example, in Chile and Spain), while other civil code countries reserve the term only for user-pays contracts.

Leasing of public works (under a grant of public land), known as arrendamiento in Spanish.

This term is used in civil code countries to refer to a procurement option for buildings/facilities.

Arrendamiento can be used as a legal alternative to government-pays DBFOM contracts when the land on which a facility will be constructed is not land reserved for public use, but instead is real estate that can be disposed of by government.

The contract is deemed to be a private contract subject to civil jurisdiction rather than being subject to administrative law (while the tender process will remain subject to public law).

PPPs (APP in Latin America) – as a legally-defined term rather than a concept

As noted, a number of civil code countries have defined legally those DBFOM contracts based on government-payments as PPPs, on some occasions creating a specific law to regulate them.

In those contexts, the legal term is usually used for any PPP contract in which the majority of the revenues come from the budget or public service payments. This is also the case in EU national accounting standards (ESA 2010). Some countries however (such as Brazil) treat as PPPs any contract of a DBFOM type that includes any level or amount of public payments.

Joint Ventures or “empresas mixtas”

A JV is a structure where the contracted party is a company owned by public and private shareholders. It is referred to as “empresa mixta” in Spanish-speaking countries (usually as a defined legal term and a procurement method).

The public investor may be an existing SOE that wants to partner with a private economic operator to jointly develop and operate a new or existing project.

On other occasions, there is no existing public company and the government wants to promote a PPP where it will reserve certain percentage of economic and voting rights (or even control the company, the arrangement then being regarded as an institutional PPP – see below).

In these structures, the private shareholder is selected under a competitive process and the SPV is jointly created by public and private parties.

These legal structures can be used for DBFOM contracts and for O&M/service contracts.

Mixed equity companies are rarely seen in government-pays PPP schemes.

Public service contact plus a project support agreement

These are terms coined by the EBRD to refer to a particular structure developed by a Multilateral Development Bank (MDB) in some PPPs in eastern Europe (mostly for water supply projects). The public service contact would act as a PPP contract between the private operator/partner and the procuring agency. The project support agreement is a contract signed by the procuring authority with the EBRD, by which there is an expressed direct commitment to “cover the resulting financial revenue shortfall[29]”. This is also explicitly structured in the project support agreement in the form of service payments, or in some way conditioned to performance.

Institutional PPPs

This term refers to PPPs where the government controls the PPP company and usually owns the majority of the shares.

This PPP certification guide considers that an institutional PPP may be regarded as a true Private Finance PPP when the private sector is involved significantly as an equity investor, (with a significant portion of the equity shares) therefore assuming project risks, and the debt financing is at risk of performance.

Service contracts or contracts for the management of existing infrastructure may also be institutional PPPs, in addition to DBFOM types of contracts.

TABLE 1.4: Nomenclature Used for PPP Contracts which Relate Only or Mainly to the Management of Existing Infrastructure or Only to the Operation of Public Services

Concession (of services)

The term concession may also refer to an O&M type of contract with no significant or material initial investment. It is generally only used as a legal term for contracts where all or most of the revenue comes from users, and mostly in reference to businesses related to public services and public utilities.

Concessions may also be used for PPPs to contract out the operations of an existing asset with charges to users (typically the concession of an existing road or airport) with the expectation of receiving an upfront fee from the private partner (a situation sometimes referred as “monetization”).

Leases

As with concessions, leases refer to the legal institution that allows the government to grant economic rights over the infrastructure or the economic ownership of the asset.

Leases will be more commonly seen with O&M contract types on the basis of existing infrastructure (that is, with no material capital needs) and more normally applied to user-pays PPPs (including asset monetization structures). In some countries, the term “lease” may be reserved for project contracts where the government remains responsible for capital expenditures, and the private partner is only responsible for ordinary maintenance and operation.

Affermage

Affermage is a French term used within that jurisdiction to refer to contracting out the right to economically operate existing infrastructure, with the operator retaining the operator fee out of the receipts and paying the remainder to the procuring authority. The term is never linked to government-pays contracts.

Franchise

Franchise is similar to affermage, lease or concession of services, but mostly used in a transportation context. A franchise rarely includes the requirement for infrastructure investment, and the infrastructure is usually managed directly by the government or under a separate agreement.

A franchise may involve the right to operate a rail corridor on an exclusivity basis, or the exclusivity may only refer to pre-defined service slots under a regulated basis.

O&M

An O&M contract (that is, a contract in which the scope or functions include operations and maintenance, but not capital investment) should only be regarded as a PPP when the contract is clearly long-term and life-cycle cost management is transferred to some extent. This is in addition to the transfer of cost-related risks and a clear performance orientation.

In general terms, it may be said that only a few O&M contracts will ‘deserve’ to be regarded as PPPs.

Service contracts

A service contract is a legal term in civil code jurisdictions. It usually refers (and in some jurisdictions only refers) to a transfer of the operation of a public service in the strict legal sense (for example, a service related to water or transport of passengers, rather than maintaining or operating a road). In common law jurisdictions, the term “service contract” does not have a specific legal meaning and is used for a wide variety of outsourcing contracts, usually contracts for relatively short periods. Only a few service contracts will be regarded as PPPs.

Management contracts

Management contract is an alternative name used for many O&M contracts where the core or the only object/function transferred to the private sector is the long-term maintenance of equipment or infrastructure assets. In other cases, it may refer to a “service only” contract with no implications for infrastructure management (life-cycle costs), especially in water.

As with O&M and service contracts, a management contract will only deserve to be considered as a PPP if the contract covers a long-term time period, and there is a risk, as well as a performance orientation.