The term public-private partnership (PPP) refers not to a single form of contract, but rather to a broad range of contractual arrangements that allow public entities to pursue economic activities with the long-term participation of the private sector. Even though there is no uniform statutory definition (for those jurisdictions in which there is a statute governing this type of transaction) or scope of the parties’ roles throughout jurisdictions, the common features that can be found in transactions designated as PPPs include a long-term contract for a combination of design, construction, finance, operation or maintenance activities related to infrastructure that is, or will become, the property of the government and to be performed by a private party. Notwithstanding the above, the scope of roles typically delegated by the public authority to the private entity through PPP agreements varies among jurisdictions. In particular, in some jurisdictions it is common for the public sector to play a significant role in arranging the financing of the projects. For example, in the United States a significant portion of the financing of transportation projects takes the form of loans arranged by the procuring authority under the Transportation Infrastructure Finance and Innovation Act federal loan programme and tax-exempt public activity bonds issued by states, the proceeds of which are onlent to the project company. In Brazil, historically, prearranged financing by the Brazilian Development Bank (BNDES) at very attractive rates constituted a significant source of funds for PPP projects, although some people see BNDES’ role waning in the short to medium term owing to Brazil’s current sociopolitical and economic circumstances.
While social infrastructure (eg, hospitals, schools, government buildings, etc) has been a staple of the most developed PPP markets, such as the United Kingdom and Canada, for a long time, this type of project has only taken centre stage in other jurisdictions in recent years. However, the future of the UK’s PPP market has become uncertain after the collapse of the construction firm Carillion, which resulted in a major political backlash against and ending the use of the PFI/PF2 delivery model. Other European countries, such as Belgium, Germany and the Netherlands, have been successful in implementing social infrastructure projects in recent times, including schools, museums and government offices. In South America, Brazil, Chile and Peru have started a significant push for social infrastructure PPP projects, but with mixed results. In some of these latter cases, public opposition has arisen because of a misunderstanding of social PPP projects as the abandonment by the public sector of some of their traditionally allocated public service roles in favour of the private sector. Similarly, Japan is exploring the development of education and housing facilities as part of its PPP and PFI Promotion Action Plan (amended in June 2019) along with transportation and water infrastructure. In order to establish long-term programmes and assure developers that projects will not encounter significant opposition in markets beginning to explore social infrastructure, the authorities need to make a bigger effort to educate people about the meaning of PPP projects and how they fit within the standing public policy related to the provision of services by the state.
Environmental and other social development laws in different jurisdictions are key in developing PPP projects, particularly those with a large footprint. Some of those laws require not only performing environmental assessments and seeking governmental approvals, but more and more community input regarding the execution of the project is also required. Whether required by law or not, community outreach has become a significant element in the development of PPP projects as PPP programmes become more prominent. It has become common for non-governmental organisations to observe the development of projects very closely, which encourages the authorities to be more careful with the preparation, awarding and execution of PPP projects, with corresponding increased lead times for a project to come to the market.
Although the current prevailing trend throughout jurisdictions appears to be the enactment of PPP-specific statutes, it is not uncommon to still find PPP programmes that rely on per-sector legislation. Furthermore, there are jurisdictions, such as Mexico, that have enacted PPP-specific statutes, but have made only limited use of them, continuing to procure PPP projects through traditional concession laws applicable to each sector. One of the most prominent uses of the Mexican PPP statute is the procurement of a national wholesale wireless broadband network. Argentina is the most recent example in Latin America of a major push towards reshaping the PPP market. It has enacted a new PPP statute and implementing regulation in late 2016 and early 2017 respectively, as well as outlining a major programme of infrastructure projects, and is currently performing the procurement of a significant number of projects in the transportation sector. However, recent political and regulatory changes, including the introduction of currency controls, may significantly slow down the implementation of Argentina’s programme. In Europe, most members of the European Union have implemented the directives on public procurement and procurement by entities operating in the utilities sector and on the award of concession contracts, and it will now be interesting to see if this framework results in more efficient and effective procurement under the PPP model.
A common theme, following the 2008 economic crisis, has been a concern for access to adequate financing. However, it seems that in the past few years, long-term private lenders have returned to some of the most stable and mature markets, as can be observed by the trend of the increasing number of PPP projects achieving financial close. It has been particularly interesting to follow the development of the European Union Project Bond Initiative to finance PPP projects, which has shown some signs of success. During 2016, two highway projects achieved financial close with the support of this initiative. The final report on the pilot phase of the Europe 2020 Project Initiative was completed in December 2015 and the European Commission prepared a Commission Staff Working Document, published in March 2016. One of the report’s conclusions is that the programme’s main objective, to develop capital markets as an additional source of financing for infrastructure projects, has been achieved. The number of PPP projects in the United States market continues to grow, particularly for social infrastructure projects. Debt private placements have become a more common alternative for funding PPP projects in the United States, as more projects that are unable to benefit from federal loan programmes or tax exempt bond financing come to market.
This edition of Getting The Deal Through – Public-Private Partnerships seeks to provide a general understanding of the regulation of PPP projects in 13 jurisdictions among the currently most active or more closely followed ones, as well as touching upon some of the customary approaches taken in the execution of PPP agreements in each such jurisdiction, considering the local practice-intensive nature of PPP agreements.