• Body of Knowledge:
    PPP Introduction and Overview
    8. Causes of Project Failure: The Need for Sound Process Management and Preparation of Projects
    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...
  • Body of Knowledge:
    PPP Introduction and Overview
    8.1. What is Project Failure? Types of Project Failures
    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...
  • Body of Knowledge:
    PPP Introduction and Overview
    8.2. Threats to a Sound Process Management
    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...
  • Body of Knowledge:
    PPP Introduction and Overview
    8.3. Examples of Project Cancellation due to Improper Process Management [112]
    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...
  • Body of Knowledge:
    PPP Introduction and Overview
    8.4. The Private Sector's (prospective bidders') Interest and Concerns about the Entire PPP Process
    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. The projects have to be commercially...
  • Body of Knowledge:
    PPP Introduction and Overview
    9. Introduction to the PPP Framework Concept and Initial Framework Considerations. Private Sector Concerns About Frameworks and Markets.
    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 involve complex process management on a number of fronts (...
  • Body of Knowledge:
    PPP Introduction and Overview
    10. An Overview of the PPP Process Cycle: How to Prepare, Structure and Manage a PPP Contract
    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...
  • Body of Knowledge:
    PPP Introduction and Overview
    Appendix A – Introduction to Project Finance
    Please see separate document Appendix B ­– Introduction to Islamic Finance Please see separate document. [40] The main reports cited are “PFI: Construction Performance. Report by the Comptroller and Auditor...
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix A - Project Finance
    1. Introduction
    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...
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix A - Project Finance
    2. Basic Considerations of PPP Project Finance
    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...
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix A - Project Finance
    3. Ideologies of Project Finance
    The concept of project finance requires the sponsors to adopt a unique organizational structure in the form of a stand-alone project company (that is, a special purpose vehicle, SPV) which will enter into a PPP agreement with the government to design, build, and operate the project. This SPV has a...
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix A - Project Finance
    4. A Basic Description of Major Sources of Funding
    There are three basic sources by which a PPP project can be financed: debt, equity and government support[4]. Debt Senior debt enjoys priority in terms of repayment over all other forms of finance. Mezzanine debt is subordinated in terms of repayment to senior debt, but ranks above equity both for...
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix A - Project Finance
    5. Project Finance — Benefits and Limitations
    Financing infrastructure projects through the project finance route offers various benefits such as the opportunity for risk sharing, extending the debt capacity, the release of free cash flows, and maintaining a competitive advantage in a competitive market. Project finance is a useful tool for...
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix B - Sharia Finance
    1. Introduction
    Islamic financing of PPP projects is becoming more common for a number of reasons, including: the creation of Islamic banks (such as the Islamic Development Bank) that are able to provide Islamic financing products for PPP projects, the reduced availability of non-Islamic financing in the aftermath...
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix B - Sharia Finance
    2. Traditional Istina'a
    A traditional istina’a (‘istina’a’) is an agreement between two parties (the Islamic funder and the construction contractor) whereby the Construction contractor agrees at the outset to construct/manufacture a clearly described/specified PPP project asset for the Islamic funder. The price for...
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix B - Sharia Finance
    3. Procurement Istina'a
    A procurement istina’a (‘procurement agreement’) is also an agreement between two parties, however the parties are the Islamic funder and the PPP project’s special purpose vehicle (SPV). Under the procurement agreement, the SPV is required to procure the PPP project asset by a specified date. The...
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix B - Sharia Finance
    4. Ijara
    An ijara is a lease of the PPP project asset, granted by the Islamic funder to the SPV. It is possible because under the istina’a, the Islamic funder has received title to the PPP project asset. An ijara is effective during the Operations Phase of the project. Under the arrangement, the SPV will...
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix B - Sharia Finance
    5. Supporting Agreements
    It is usual for a supporting agreement, known as a services agreement, to be entered into between the SPV and the Islamic funder. As the Islamic funder has title to the PPP project asset, it therefore has a responsibility to operate, maintain and insure that asset. This will take time and money....
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix B - Sharia Finance
    6. Making Payment to the Islamic Funders
    The SPV will use the unitary charge and/or user revenues it receives to make the ijara lease payments.
  • Body of Knowledge:
    PPP Introduction and Overview - Appendix B - Sharia Finance
    7. Reversion of the PPP Project Asset to the SPV
    The other principle supporting agreement that is entered into under an Islamic financing is the purchase agreement. Under this agreement, the PPP project asset reverts to the SPV at the end of the PPP Project term.