The Renegotiation of PPP Contracts An Overview of its

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The Renegotiation of PPP Contracts,An Overview of its Recent Evolution in. Latin America1,Discussion Paper No 2014 18,Prepared for the Roundtable on. Public Private Partnerships for Transport Infrastructure. Renegotiations how to approach them and economic,27 28 October 2014 OECD Paris. Jos Luis GUASCH2,Daniel BENITEZ,Irene PORTABALES,Lincoln FLOR. Revised December 2014,Correspondent email guaschjl gmail com.
Jos Luis Guasch Professor of Economics University of California and San Diego and former Head of the World. Bank Global Expert Team of PPP Daniel Ben tez Senior Economist at the World Bank Lincoln Flor Senior. Transport Economist at the World Bank and Irene Portabales Transport Operations Analyst at the World Bank. THE INTERNATIONAL TRANSPORT FORUM, The International Transport Forum at the OECD is an intergovernmental organisation with 54 member. countries It acts as a strategic think tank with the objective of helping shape the transport policy. agenda on a global level and ensuring that it contributes to economic growth environmental. protection social inclusion and the preservation of human life and well being The International. Transport Forum organises an annual summit of Ministers along with leading representatives from. industry civil society and academia, The International Transport Forum was created under a Declaration issued by the Council of Ministers. of the ECMT European Conference of Ministers of Transport at its Ministerial Session in May 2006. under the legal authority of the Protocol of the ECMT signed in Brussels on 17 October 1953 and. legal instruments of the OECD, The Members of the Forum are Albania Armenia Australia Austria Azerbaijan Belarus Belgium. Bosnia and Herzegovina Bulgaria Canada Chile the People s Republic of China Croatia the Czech. Republic Denmark Estonia Finland France the Former Yugoslav Republic of Macedonia Georgia. Germany Greece Hungary Iceland India Ireland Italy Japan Korea Latvia Liechtenstein. Lithuania Luxembourg Malta Mexico the Republic of Moldova Montenegro the Netherlands New. Zealand Norway Poland Portugal Romania the Russian Federation Serbia the Slovak Republic. Slovenia Spain Sweden Switzerland Turkey Ukraine the United Kingdom and the United States. The International Transport Forum s Research Centre gathers statistics and conducts co operative. research programmes addressing all modes of transport Its findings are widely disseminated and. support policymaking in member countries as well as contributing to the annual Summit. Discussion Papers, The International Transport Forum s Discussion Paper Series makes economic research. commissioned or carried out at its Research Centre available to researchers and practitioners The aim. is to contribute to the understanding of the transport sector and to provide inputs to transport policy. ITF Discussion Papers should not be reported as representing the official views of the ITF or of its. member countries The opinions expressed and arguments employed are those of the authors. Discussion Papers describe preliminary results or research in progress by the author s and are. published to stimulate discussion on a broad range of issues on which the ITF works Comments on. Discussion Papers are welcomed and may be sent to International Transport Forum OECD 2 rue. Andr Pascal 75775 Paris Cedex 16 France, For further information on the Discussion Papers and other JTRC activities please email.
itf contact oecd org,The Discussion Papers can be downloaded from. www internationaltransportforum org jtrc DiscussionPapers jtrcpapers html. The International Transport Forum s website is at www internationaltransportforum org. This document and any map included herein are without prejudice to the status of or sovereignty over any territory to the. delimitation of international frontiers and boundaries and to the name of any territory city or area. THE RENEGOTIATION OF PPP CONTRACTS AN OVERVIEW OF ITS RECENT EVOLUTION IN LATIN AMERICA. Table of Contents,Abstract 4,1 Introduction 5,2 Definitions What is Renegotiation 9. 3 Renegotiations Typology 10, 4 Why Renegotiation is an Important Issue Implications 11. Evidence 12,5 Evolution 2005 2013 19,Drivers of renegotiation requests 19. 6 Platform for Addressing Renegotiations and Measures Taken. to Tackle this Issue 20,7 Some Reflections 22,References 23.
J L Guasch et al Discussion Paper 2014 18 OECD ITF 2014 3. THE RENEGOTIATION OF PPP CONTRACTS AN OVERVIEW OF ITS RECENT EVOLUTION IN LATIN AMERICA. This paper analyzes the experience high incidence lesson learned and reflections on the issue. renegotiations in Latin America based in the evolution of PPP contracts through the last 25 years The. paper also shows how countries via new PPP laws regulations norms and specific platforms can. reduce the incidence and the incentives to renegotiate contracts Based in experience in the last two. decades many countries in the region have improved renegotiation practices and. regulations framework through their PPP legislation and associated regulations such as Peru 2008. Chile 2010 Colombia 2011 or Mexico 2012 The preliminary findings show advances in the. implementation of platforms to address renegotiations and new trends in the renegotiations of. contracts particularly in complex projects and where governments are providing financial or credit. enhancement such as sharing risk or co financing, Keywords Renegotiation PPP Latin America Concession Contracts Procurement Incomplete. Contracts Economic Regulation Co Financing and Value for Money. 4 J L Guasch et al Discussion Paper 2014 18 OECD ITF 2014. THE RENEGOTIATION OF PPP CONTRACTS AN OVERVIEW OF ITS RECENT EVOLUTION IN LATIN AMERICA. 1 Introduction, Over the last 25 years more than 6 0003 public private partnerships PPP projects have reached. financial closure in developing countries this number the benefits secured and the trends of the PPPs. suggest that private participation in infrastructure has become a good and viable option to complement. public investments for the development of infrastructure and the provision of public services As well. as to support economic growth improve quality of life and contribute to poverty reduction and as an. alternative to finance infrastructure, Number of PPP Transport Projects by Type and Region 1984 2013 Figure 1 Number of PPP. 600 transport projects in,500 developing countries by. 300 type and region,200 1984 2013 Source Own,0 elaboration with PPI.
East Asia and Europe and Latin America Middle East South Asia Sub Saharan Database data. Pacific Central Asia and the and North Africa,Caribbean Africa. Greenfield project Brownfield project Management and lease contract. The transport sector concentrates 25 of the total PPP contracts of the developing world Three. regions and countries lead this process Latin America Brazil South Asia India and East Asia and. Pacific China all large emerging economies with high economic growth rates These 3 regions. concentrate almost 90 of the PPP transport projects in the world in the last 30 years About 78 of. the total investment commitments in projects in the transport sector in the developing world in 2013. were concentrated by Brazil and India, By contract type brownfield projects are predominant in transport PPP projects although the amount. of these has had a fluctuating behavior associated with economic cycles while the number of. greenfield project has remained relatively constant the last twenty years In general brownfield. projects are usually easier to implement than greenfield projects which are more risky complex and. have more uncertainty in particular in traffic forecasting in this context we should expect a greater. proportion of potential contract renegotiations associated to greenfield projects As well as the low. number of management contract can suggest the importance of the infrastructure gap in developing. countries that has been tried to reduce mainly by a high number of build operate transfer BOT PPP. Consulted on the 24th of September 2014 World Bank and PPIAF PPI Project Database http ppi worldbank org has. data recorded from 6224 projects in 3 key sectors transport energy water and sewage. J L Guasch et al Discussion Paper 2014 18 OECD ITF 2014 5. THE RENEGOTIATION OF PPP CONTRACTS AN OVERVIEW OF ITS RECENT EVOLUTION IN LATIN AMERICA. Figure 2 Number of PPP transport projects by type and year in developing countries. Number of PPP Transport Projects by Type and Year, Greenfield project Brownfield project Management and lease contract. Source Own elaboration with PPI Database data, A big legacy and a significant concern of PPP contracts in Latin America LCR along the last 25. years is a very large number of renegotiations Overall in the transport sector the incidence of. renegotiated contracts is over 75 of the contracts And in some countries the incidence including. repeated renegotiations of the same project is astonishing For example in road PPPs Colombia. between 1993 2010 Bitran et al 2012 and Guasch 2014 showed seven times the number of. renegotiation in Chile or Peru part of them associated to additional investments in infrastructure that. were not included in the original PPP contract suggesting poor project preparation studies critical to. assess the real dimension scope of the infrastructure projects poor contract management and. significant consented opportunism and abuse In addition as outcomes of the negotiation process. additional payment commitments increased the fiscal impact and reduced considerable the value for. money of the PPP project estimate on the basis of the original contract Bitran et al 2012. In this context a poor project preparation studies by the government scope of the project level of. investment improper and ambiguous risk allocation minimum requirements selection criteria and. PPP procurement procedures and lack of effective contract monitoring can lead to potential contract. renegotiation from both parties public and private Political reasons to accelerate the implementation. of PPP projects with limited or lack of project preparation and proper filters for example without. feasibility studies and proper evaluations by experts can lead to consecutive renegotiations to. accommodate the continuity of the PPP contract and the implementation of the contract. commitments4 There is no reliable systemic data collected on PPP contract renegotiations The most. complete study is Guasch 2004 and updated in 2014 where it shows that between 1980 2002 78 of. the PPP contracts in transport infrastructure in Latin America were renegotiated with and fairly. quickly after the signature of contract 3 1 years, For example in 2005 3 PPP roads Interoceanic 2 3 and 4 were awarded in Peru without cost benefit analysis The.
governments approved avoid this important step In 2006 a third amendment was signed to allow the financial close of. the projects As well as in 2009 and 2010 based in the global financial crisis the government decided to avoid or relax. the cost benefit analysis and reduce the filters value for money analysis was postponed during these years and the. deadlines during PPP project preparation for a selected group of candidate projects. 6 J L Guasch et al Discussion Paper 2014 18 OECD ITF 2014. THE RENEGOTIATION OF PPP CONTRACTS AN OVERVIEW OF ITS RECENT EVOLUTION IN LATIN AMERICA. Important lessons learned in PPP renegotiations in Latin American countries were accumulated and. motivated Latin American countries to introduce key changes in the PPP legislation in countries with. PPP experience Peru 2008 and Chile 2010 and recently Colombia 2011 and Mexico 2012 The. new regulations set ups a freeze for renegotiations for the first three or more years clarifies risk. allocation compensations rate of return and states that any contract modification cannot alter the risk. allocation matrix etc Renegotiations also occur in other countries with large PPP experience such as. France USA or United Kingdom, Table 1 Percentage of renegotiated contracts by region and sector. of renegotiated,Region country Sector source,Electricity 41. Latin America and,Guasch 2004 2012,Transport 78,Engel Fischer Galetovic. US Highways 40,Highways 50 Atthias and Saussier 2007. Parking 73 Beuve et al 2013,UK All sectors 55 NAO 2001.
Source Estache Antonio and St phane Saussier Public Private Partnerships and Efficiency A Short. Assessment CESifo DICE Report 12 3 2014 08 13, Even under a context of renegotiation the PPP programs have proven quite effective on average to. bring about the desired benefits and reduced the infrastructure gap that most countries face While the. benefits have been quite significant they could have been even higher had the program and project. been better designed and implemented There have been issues and problems most related to the post. contract award management of projects, While the ex post contract award management of PPP projects is indeed critical for securing the. expected benefits of PPP project it has in general not been an important priority for governments or. treated lightly or as a sort of residual to be taken care somehow It is indeed surprising when noting. that most PPP contracts have durations of 15 30 years or for PPP in social sector which can involve. more complexity for example PPP in the health sector where set up the level of services and its. The Renegotiation of PPP Contracts An Overview of its Recent Evolution in Latin America The Renegotiation of PPP Contracts An Overview of its Recent Evolution in Latin America1 Discussion Paper No 2014 18 Prepared for the Roundtable on Public Private Partnerships for Transport Infrastructure Renegotiations how to approach them and economic outcomes 27 28 October 2014 OECD Paris

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