Concession Contracts
Concessions may be awarded to a concessionaire under two types of contractual arrangements:
1. Build, operate, transfer (BOT) contracts.
2. Franchise: Under a franchise arrangement, the concessionaire provides services that are fully specified by the franchising authority.
Build, Operate, Transfer (BOT)
A build-operate-transfer (BOT) contract is a model used to finance large projects, typically infrastructure projects developed through public-private partnerships. BOT projects are usually large-scale, greenfield infrastructure projects that would otherwise be financed, built, and operated solely by the government. Under a BOT contract, an entity—usually a government—grants a concession to a private company to finance, build, and operate a project for a period of 20 to 30 years, hoping to earn a profit. After that period, the project is returned to the public entity that originally granted the concession.
Build, Own, Operate, Transfer (BOOT)
In a BOOT project, the contracted company maintains ownership of the subsidiary for many years or decades to recoup the costs of construction. After the contracted period is over, ownership is then transferred. BOOT is mainly used by governments for large infrastructure projects.
Build, Own, Operate (BOO)
A project delivery mechanism in which a government entity sells a private sector party the right to construct a project according to agreed design specifications and to operate the project for a specified time.
Engineering Procurement Construction and Finance PPP (EPC+F) & EPC
The EPC and EPC+F are prevalent in practice in PPP and other complex public and private projects. The EPC is an Engineering, Procurement, and Construction (EPC) contract used primarily in complex industrial and infrastructure projects like power plants, bridges, dams, etc. EPC contracts involve a deal between the owner and a contractor, who is required to deliver certain design, construction, logistics, transport procurement, and finance to complete the project for the owner. The PPP facilitators submit their experience and financial capability documents and place a performance security in favor of the project owner. The project owner pays a minimum of 20% and a maximum of 40% as an advance payment to the PPP facilitator. The PPP facilitator will be responsible for completing the project within a fixed time and delivering it to the owner. The owner and PPP facilitator agree on suitable wages and investment return duration. The owner will also be responsible for providing reasonable security to the PPP facilitator to ensure the refund of the principal investment of the PPP facilitator.
Bank Instruments Services Agreement
To obtain loans or financing for any project or business, both private and public sectors generally need to have valued bank security. To manage such situations, the private or public sectors typically sign a Bank Instruments Service Agreement (BISA) under a special legal DBA contract.
Bank Securities Management and Utilization
The public or private entity converts/exchanges its cash funds into a bank instrument such as MTN, LTN, SBLC, BG, or CD, and the owner retains ownership while granting managing rights to a PPP facilitator to utilize it to earn or generate target funds for the subject humanitarian project within a fixed time. The advantages for the cash owner, whether a public or private entity, include the ability to purchase 100 million or 1 billion MTN at 30% to 40% of the value and subsequently place it with a PPP facilitator under a management contract for a defined project, with defined profits and within a specified timeframe. The instrument will be returned to the owner at maturity, at which point the owner can call or withdraw it. Thus, the owner can obtain funds via the instrument and complete its project(s) through dividends from the instrument(s), and ultimately, the instrument will also be returned to the applicant.
BBO (Buy-Build-Operate)
In this model, the government sells the facility to the private entity. The private party renovates and operates the facility.
DB (Design-Build)
DB is a type of PPP model in which the private party has the additional responsibility of designing the project’s framework. It reduces time and complications and helps the public entity save money, as only a single party is involved. However, it places an additional burden on the private party.
DBF (Design-Build-Finance)
DCMF (Design-Construct-Maintain-Finance) is a framework in which the private party designs and constructs the project, which is then leased back to the property. DCMF is similar to EPCF, but it is considered a modern PPP model.
Management Agreements
Under a management agreement, the public entity transfers the management of the asset, business, property, etc., to the private party for a specific period.
O&M (Operations and Maintenance)
The O&M is an arrangement in which the private party takes responsibility for maintaining and operating the public property/project for a specific period with certain obligations specified in the operation and maintenance agreement.
Non-refundable Project Funding
The PPP Facilitator and project owner enter into a humanitarian project execution agreement, and the owner provides/delivers an agreed bank instrument in favor of the PPP Facilitator to obtain a credit line, complete the project, and return the instrument to its owner upon execution of the project.
CFD (Contracts)
These types of PPP are contracts between investors and financial institutions in which investors take a position on the future value of an asset. The difference between the opening and closing trade prices is cash-settled.
Subsidy PPP Contracts
Several forms of subsidy commonly adopted in PPP projects have been considered and examined. A subsidy contract means that the PPP Facilitator supplies strategic goods to public or private entities at a special discount/less price. Such subsidy ratios or percentages range from a minimum of 20% to a maximum of 50%. The PPP subsidy contracts can be signed with the public or private sector only for the following products:
– Flour or wheat
– Sugar
– Edible oil
– Supplies for education students
– Rice
– Beans
– Peas
– Gas, diesel, and petrol only for social use
The main structure of such subsidy contracts is that the public sector places or delivers a one-year and one-day security or payment guarantee in favor of the PPP Facilitator, and the PPP Facilitator will be responsible for supply.
PPP Union