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Body of Knowledge:
PPP Introduction and Overview - Appendix A - 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...
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Body of Knowledge:
PPP Introduction and Overview - Appendix A - 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...
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Body of Knowledge:
PPP Introduction and Overview - Appendix A - Project Finance
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...
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Body of Knowledge:
PPP Introduction and Overview - Appendix A - Project Finance
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...
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Body of Knowledge:
PPP Introduction and Overview - Appendix B - Sharia Finance
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...
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Body of Knowledge:
PPP Introduction and Overview - Appendix B - Sharia Finance
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...
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Body of Knowledge:
PPP Introduction and Overview - Appendix B - Sharia Finance
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...
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Body of Knowledge:
PPP Introduction and Overview - Appendix B - Sharia Finance
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...
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Body of Knowledge:
PPP Introduction and Overview - Appendix B - Sharia Finance
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....
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Body of Knowledge:
PPP Introduction and Overview - Appendix B - Sharia Finance
The SPV will use the unitary charge and/or user revenues it receives to make the ijara lease payments.
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Body of Knowledge:
PPP Introduction and Overview - Appendix B - Sharia Finance
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.
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Body of Knowledge:
PPP Introduction and Overview - Appendix B - Sharia Finance
The combined use of an istina’a and ijara can be illustrated in figure B1. as follows.
FIGURE B1: Combined Use of Istina’a and Ijara
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Body of Knowledge:
PPP Introduction and Overview - Appendix B - Sharia Finance
Islamic financing of a PPP project normally assumes an asset-based project financing that requires the transfer of tangible/real assets. However, there may be some situations where the transfer of tangible/real assets is not permitted. For example, if a PPP project asset is of cultural and/or...
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Body of Knowledge:
Establishing a PPP Framework
A PPP framework is best understood as the established procedures, rules and institutional responsibilities that determine how the government selects, implements and manages PPP projects. By setting procedures and rules, good PPP practice can be established within the government. This has the effect...
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Body of Knowledge:
Establishing a PPP Framework
A good PPP framework aims to ensure that the right projects are selected as PPPs, and that they are developed, delivered and managed in a structured, transparent and efficient way. Equally, a good framework minimizes the risks that a PPP project will not deliver Value for Money (VfM).
PPPs involve...
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Body of Knowledge:
Establishing a PPP Framework
A PPP framework should guide governments and private partners through each step in developing a PPP, ensuring that projects are well structured and delivered in line with expectations. The PPP framework will achieve this by outlining procedures and decision rules for various institutions, and by...
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Body of Knowledge:
Establishing a PPP Framework
As introduced in chapter 1.9, governments should adopt a structured and programmatic approach if they want to rely significantly on the PPP model for new infrastructure development. This is a way to attract stronger and more consistent interest from the private sector. In this sense, a PPP program...
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Body of Knowledge:
Establishing a PPP Framework
The scope of the PPP framework indicates the types of projects for which the framework will apply. Scopes are generally defined by jurisdiction, sector, size, and contract type. It is good practice for designers of a framework to consider each of these dimensions, and to be explicit in the...
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Body of Knowledge:
Establishing a PPP Framework
To be effective, PPP frameworks need to be documented. They also have to have some enforcement mechanisms. Governments need to make the following decisions.
How will the PPP framework be made binding on government officials?
How will the PPP framework be communicated to all stakeholders?
What will...
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Body of Knowledge:
Establishing a PPP Framework
Countries vary widely in how they document and give force to PPP frameworks. Countries with “common law”[27] legal systems tend to rely on policy documents and administrative guidance materials. Countries with “civil law”[28] legal systems are more likely to enact the PPP framework in statute law,...
