• An agreement to complete the project and a commitment to provide all the funding necessary to complete the project;
• Established demand for the project outputs such that the project will generate sufficient cash to meet all its operating expenses and debt servicing requirements, even if the project fails to perform on account of force majeure or for any other reason. This could also be in the form of an agreement by a party purchasing the project output; and

This appendix introduces some basic features of project finance. It also identifies some different approaches to, and the principles of, financing PPP projects. It provides an explanation of major sources of funding and outlines some benefits and limitations of project finance. This appendix should be read in conjunction with chapter 1 as not all the issues, complex and often project-specific, relevant to PPP financing structures are discussed in this summary.

Please see separate document

This section describes the overview of the PPP project process which is then developed in detail — phase by phase — in chapters 3 to 8 of this PPP Guide.

The intention of this description is to give the reader a general view of the whole process, providing a preliminary description of its main phases. It also illustrates how the process may differ in some countries, depending on the tender route or modality selected (when there is more than one available in a country). See figure 1.13.

A framework is defined by the Oxford English Dictionary as “a basic structure underlying a system, concept or text”.

The Spanish dictionary defines framework as “limits or circumstances that surround an issue or a period of story”.

PPPs require the existence of private agents willing to enter into a long-term contract assuming significant risks, as well as financial investors willing to invest equity (and sometimes debt) in the projects, and banks willing to lend to those projects.

8.3.1. Arising during Pre-Tender and Tender Phases

The following are common examples of poor management during the pre-signature phase of the project process that reflect errors and risks of project failure (to be regarded as a non-exhaustive list).

The appraisal may conclude that the project should be aborted as a PPP because it was not properly screened or its economic sense was poorly assessed.

Examples:

A project may fail for many reasons. A good number of them are naturally related to the PPP characteristics and even to the essence of the project itself. Many risks which can affect a project are unavoidable (typically force majeure, and a broader category sometimes known as unforeseen circumstances). But the contract should be ready to tackle those situations in the most effective and efficient manner.

For a PPP to be successful, the government must protect and maximize VfM throughout the preparation and implementation process and the life of the contract. A failure to achieve the expected VfM constitutes a project failure.

Success in managing the PPP process is achieved by avoiding project failure risks occurring or minimizing their consequences (that is, in essence, effective risk management). This means that:

Section 4 (Motivations for using PPPs) described the features and value drivers of a PPP, that is, those characteristics that allow the government and the taxpayer to benefit from incremental efficiency when procuring suitable projects as PPPs. But the section also signals some conditions necessary to access those benefits, as well as some disadvantages and potential pitfalls.