Common Legal Issues In PPP Projects From

Common Legal Issues In PPP Projects From The Perspective Of Government Contracting Agency, Private Partners And Lenders Overview - Introduction - Typical PPP project structure - Common legal issues from an international investor / lender perspective Traditional vs. PPP Procurement - Traditional Procurement: • Government ∼ Design ∼ Construction ∼ Operation ∼ Asset Renewals - PPP Procurement: • Government ∼ Project Company o D&C o O&M o Insurance Different Degrees Of Private Sector Involvement And Risk Transfer Degree of Private Sector Risk (From High to Low): 1. Design/Build/Finance/Operate-Real Toll/Fares 2. Design/Build/Finance/Operate-Shadow Tolling/Fares 3. Design/Build/Finance/Operate¹ - Availability Payments 4. Design/Build/Operate Traditional Procurement Models: 5. Contracting Out Ops/Maintenance 6. Design/Build 7. Public Sector - Pay as You Go/Public Debt Common Legal Issues From An International Investor / Lender Perspective • Project structure o Commercial structure of the underlying project o Legality of key aspects underlying commercial structure o Identities of key public sector contracting parties • Regulatory framework o Sufficiently robust and predictable to support a complex structure o Specific regulatory issues (e.g. Government support) o Predictability of framework to support lenders' security package o Dispute resolution Lenders' Appetite in Project Finance General Overview on Project Development and Project Finance in Indonesia - Project • - Impacts to the Project Development Mitigation • Have the impacts been successfully mitigated? What Is Project Finance? The Concept: - The financing of a project in which the lenders agree to make 'long term' finance available based on the expected cash flow from the operations of the project - The lenders do not primarily look to the creditworthiness of the sponsors of the project or the resale value of the project assets and the land on which they are situated - The lenders closely review the merits of the project itself - the key principle is that project cash flows should be available in all circumstances for servicing the long term debt, to pay other operating costs and to generate a return for the project sponsors - This requires: • In depth rigorous due diligence: technical, environmental and social, financial (focused on operating revenue) and legal; and • Complex and detailed documentation, precisely addressing all eventualities over the life of the loan Why do Project Finance? - - Advantages • Mobilizes private sector capital for public infrastructure • Beneficial lending terms • Limit financial exposure of Sponsors - transfer of risk • Keep financing obligations off balance sheet Disadvantages • High degree of complexity • Voluminous documentation • High thresholds for bankability - prolonged negotiations Lenders' Appetite in Project Finance Overview: • Lenders have fixed expected returns - their upside is limited • Consequently, very risk-averse - main concern is debt service through certain, stable and predictable project revenue streams • Will seek to limit or eliminate any threat or risk to the Project Company of any decrease or interruption of the project revenue stream • Control and monitoring rights will be built into the finance documentation through e.g., reserved discretions and reporting covenants and defaults • Control over cash flows - accounts agreement and payment waterfall • Full security package over project assets and Project Company shares and direct rights vs. key project counterparties Indonesia - Lenders' Appetite o Different lenders have different risk appetite and requirements o During the Covid-19 pandemic some lenders has applied more stringent approach o Control over cash flows - CAMA o What can be offered as part of the security package o Industry of the project company o Bankability Critical Success Factors For PPP In Indonesia 1. Proper project selection 2. Proper project preparation 3. Market sounding 4. Government support 5. Having consultant(s) with good reputation 6. Sufficient knowledge of GCA 7. Coordination between stakeholders