Making 'PPP' Bankable

Having been directly involved in numerous tender negotiations within the PPP environment, we see that one of the critical enablers to a successful negotiation is making projects ‘bankable’.

The importance of the bank’s role in the tender process is often not well understood. In many respects, there are not two partners in the process (public and private partners), there are actually three – the third being the bank providing the majority of the required project finance. The importance of the bank’s role and the obvious critical importance of its funding is probably the key reason why, in the UK, the term ‘PPP’ (implying only 2 partners) was replaced with the term ‘PFI’ (Private Finance Initiative). This reflects the ‘make or break’ nature of the bank’s participation in terms of successful project realisation.

The attached PDF explores and discusses this issue in some detail and explains the critical finance requirements that must be agreed during the negotiation to ensure bank participation. Areas covered include:

• Achieving real but balanced ‘risk-share’ and the significance of this to all parties involved.
• Issues of risk related to the public partner’s PSDR (Public Sector Debt Ratio).
• Contractual terms and conditions that can secure bank involvement – or lead to the bank’s withdrawal; this includes issues such as:
  • Different forms of required security
  • The importance of the termination clause;
  • How ‘demand’ and ‘availability’ risk is managed and detailed within the contract
  • And other important contractual issues impacting project ‘bankability’.

Ultimately, achieving a successful negotiation is about compromise and achieving a necessary commercial balance. If the scales are tipped too far in the favour of any one party then the negotiation will fail and the project will likely be abandoned.

Saritor frequently talks at international PPP seminars about ‘how to make PPP work’ - and achieving project ‘bankability’ is an important part of this. Our experience of negotiation success (or failure) comes not from a theoretical perspective, but from the ‘real-world’ perspective of having negotiated numerous ‘live’ PPP contracts. Focusing on achieving a commercial balance, acceptable to all parties involved, is critical – this is what allows project ‘bankability’.

Please download the available PDF document for more information.