JUly 2014

Transcription

JUly 2014

Issue 4: JUly 2014
Public contracts and concessions: the new EU rules
by Euan Burrows and Donald Slater
Project bonds reinvented: a phoenix-like resurrection
by Derwin Jenkinson, Patrick Boyle and Carloandrea Meacci
Mersey Gateway: a bellwether for future road pricing?
by David Jardine and Nicholas Ross-McCall
Australian public infrastructure:
a shake-up down under
by Sarah Ross-Smith and Steve McKinney
US public infrastructure:
New York’s P3 experience
by Jason Radford and Matthew Neuringer
Indonesian seaports:
the current legal landscape
by Noor Meurling, Priyatna Yoopie,
Avinash Panjabi and Indra Dwisatria
Image: Copyright © 2011 Mersey Gateway Project
An overview
of this issue
I am delighted to introduce the fourth issue of InfraRead, our biannual publication, in which we
cover a range of legal and transactional issues relevant to the infrastructure sector, from our
offices across the globe. In this issue, we look at:
PUBLIC CONTRACTS AND CONCESSIONS: THE NEW EU RULES Euan Burrows and Donald Slater
review the new directives designed to modernise the EU public procurement regime, and the
likely impact of these changes.
PROJECT BONDS REINVENTED: A PHOENIX-LIKE RESURRECTION Derwin Jenkinson and
Patrick Boyle in London take a look at the resurrection of the project bond market in the UK, with
Carloandrea Meacci from our Milan office reporting on similar trends taking place across mainland
Europe. Does this herald a return to the pre-credit crunch halcyon days for infrastructure financing?
MERSEY GATEWAY: A BELLWETHER FOR FUTURE ROAD PRICING? One of the most interesting PPP
projects to close this year in the UK, this article reviews the Mersey Gateway Project and its range
of unique financing features. David Jardine (a lead partner on the project) and Nicholas Ross-McCall
offer their views on how this landmark deal delivered solutions to a unique set of circumstances.
AUSTRALIAN PUBLIC INFRASTRUCTURE: A shake-up down under Following the 2014–15
Budget announced in May, Sarah Ross-Smith and Steve McKinney examine the Australian
Government’s plans to invest in new infrastructure, as well as its proposals to divest a number
of its largest infrastructure assets to fund this investment programme.
US PUBLIC INFRASTRUCTURE: NEW YORK’S P3 EXPERIENCE The current state of the US Public
Private Partnership (P3) procurement model is reviewed by Jason Radford and Matthew
Neuringer who discuss the reasons why the State of New York has, so far, not passed its own P3
Enabling Legislation, as well as introducing the new advocates for this legislation.
INDONESIAN SEAPORTS: THE CURRENT LEGAL LANDSCAPE As one of the fastest growing
markets in Asia and with a total sea area of three million square kilometres, Indonesia’s
shipping sector is an exciting prospect for investors. Noor Meurling, Priyatna Yoopie, Avinash
Panjabi and Indra Dwisatria take an in-depth look at the implementation of the country’s
Shipping Law and recent Presidential Regulation on foreign ownership of seaports.
I hope that you find InfraRead useful and that you enjoy reading this issue. Please let me know
if you have any feedback on this issue or if there are any topics which you would like us to cover
in future editions.
Mark Elsey
Global head of Energy, Real Estate,
Resources and Infrastructure
T: +44 (0)20 7859 1721
E: [email protected]
2 • InfraRead • Issue 4 • July 2014
Public contracts and concessions
The new EU rules
by Euan Burrows and Donald Slater
Following a lengthy
negotiation process, the
directives comprising
the new EU public
procurement regime
finally entered into force
on 17 April 2014 and
must be implemented
by Member States by
18 April 2016.
The new EU public procurement regime
consists of three new directives:
• the directive on public procurement,
which repeals Directive 2004/18/EC
on public works, supply and
service contracts;
• the directive on procurement by entities
operating in the water, energy, transport
and postal services sectors, which repeals
Directive 2004/17/EC on procurement in
these sectors; and
• a new directive on the award of
concession contracts.
The new regime does not contain changes to
the existing rules on the remedies available to
losing bidders seeking to challenge awards1,
while the current procurement regime for
defence contracts will also remain in force2.
Overview of key changes
In December 2011, the European
Commission proposed “modernising” the
EU public procurement regime. It indicated
that recent economic, social and political
trends, together with budgetary constraints,
had shown the need to update the legal
framework dating from 2004.
The goals were to simplify the EU
procurement regime, introduce more
flexibility and establish better access to
EU procurement markets. The European
Parliament and the Council of the
European Union substantially amended
the Commission’s initial proposals and
agreed compromise texts in July 2013,
which were formally adopted on 11 February
2014. Member States have two years to
implement the regime at national level
1
2
Set out in Directives 89/665/EEC and 92/12/EC, as
amended by Directive 2007/66/EC.
Set out in Directive 2009/81/EC on defence and
sensitive security procurement.
(subject to a short extension period).
Notably, the UK has indicated it will seek to
produce national implementing regulations
within a year.
The result of the changes is a substantial
set of new rules, which introduce changes
and codify a number of principles established
by case law (see box 1).
Box 1: Key aspects of the reforms
•The introduction of a new procurement
regime for concession awards
•New award procedures, giving scope for
more negotiation between contracting
authorities and bidders
•An extension of the grounds for
disqualification of bidders
•Clarification of permissible award criteria
•New provisions on the modification of
contracts post-award
•A switch to fully electronic communication
in all procurement procedures
This article now considers each of these
key aspects in detail.
InfraRead • Issue 4 • July 2014 • 3
New regime for
concession awards
Under the former rules, service concessions
were excluded from the public procurement
regime. Works concessions were subject
only to a narrow set of specific rules under
Directive 2004/18 and were excluded
altogether from the utilities regime (Directive
2004/17). Concession awards were, however,
subject to the general EU principles (such as
transparency and equal treatment) where
there was a potential cross-border interest.
The Commission considered that the
former framework was fragmented and
lacked certainty, based as it was on complex
case law and divergent national legislation.
As such, the new EU concessions directive
seeks to set out a basic framework for the
award of works and services concessions in
the public and utilities sector.
The concept of a “concession” itself
is clarified, allowing stakeholders to
distinguish between concessions and
public contracts or unilateral acts, such as
authorisations or licences. The rules specify
that the main feature of a true concession –
i.e. the right to exploit the works or services
– must always involve the transfer to the
concessionaire of an economic risk that it
will not recoup the investment made and
the costs incurred in operating the works
or services covered by the award. This risk
need not be a substantial one; for example,
a concession may still arise in sectors such
as those with regulated tariffs, to the extent
that an operating risk, however limited, can
still be transferred to the concessionaire.
The new regime leaves the choice of the
most appropriate procedure for the award
of concessions to individual contracting
entities, but will require basic procedural
guarantees, including:
• the publication of a “concession notice”
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in the Official Journal of the EU (OJEU)
advertising the opportunity;
certain minimum time limits for the
receipt of applications and tenders;
the selection criteria must relate
exclusively to the technical, financial
and economic capacity of operators;
the award criteria must be objective
and linked to the subject matter of the
concession; and
limitations on acceptable modifications
to concessions contracts during their
term, in particular where changes
are required as a result of unforeseen
circumstances.
New award procedures
Under the new EU regime, the open and
restricted procedures will remain available.
The competitive dialogue procedure
remains flexible and broadly defined,
and will be available in a range of cases
requiring negotiation in respect of design,
financing or technical aspects of the award.
The negotiated procedure without prior
publication also remains theoretically
available, but only in a narrow range of
specified circumstances (essentially, where
an advertised procurement is not possible).
However, the new rules introduce two new
procedures for public sector procurements
(see box 2).
A wide choice of procedures remains
available for utilities, which will also have the
option of the innovation partnership procedure.
The new regime also maintains
and simplifies the use of framework
agreements, dynamic purchasing systems,
electronic auctions and catalogues, with
a view to supporting the use of electronic
procurement procedures.
In addition, the new rules provide more
scope for preliminary market consultation
Box 2: New procedures for
public sector procurements
Competitive procedure with negotiation
This is available in the same
circumstances as competitive dialogue,
i.e. where the authority is in a position
to specify the minimum requirements
but needs to carry out negotiations
with all the bidders who have been
selected to remain in the procurement.
This procedure provides a good deal
of flexibility and, in practice, reflects
the procedure currently adopted in
many procurements in the UK, where
the authority pre-selects bidders, is in
a position to specify basic minimum
requirements, negotiates with each
remaining tenderer to improve each of
their solutions, and then invites final
bids which are assessed against the
criteria originally specified.
The innovation partnership
This procedure is to be restricted to
circumstances where solutions are
not already available on the market
and require innovative approaches,
although the exact criteria determining
the availability of this procedure has
been left to Member States to decide
at national level. This procedure allows
contracting authorities to set a broad
goal for the satisfaction of their needs
and, where appropriate, to select a
single negotiating partner to work with
(potentially under contract) to develop
the final solution. It is envisaged that
such partnerships will take place in
stages and, again, reflect processes
currently in operation in the UK where
authorities often choose to work with a
number of selected bidders at the design
stage (thus maintaining competitive
pressure) prior to the selection of a final
award partner.
between buyers and suppliers to prepare
the procurement process and to inform
the market of procurement plans and
the contracting authority’s upcoming
requirements.
This all takes place against the
background of a general theme, which is to
give contracting authorities more scope for
negotiation with bidders and more flexibility
in the conduct of the award procedure.
Grounds for exclusion
The new regime makes it clear that the
power to exclude bidders can apply
throughout the procurement process –
not just at pre-qualification stage – and
may also extend to subcontractors and
consortia members.
The new rules extend the mandatory
grounds on which contracting authorities
are required to exclude a tenderer from a
procurement process to include a failure to
pay taxes or social security contributions
(where there has been a final judgment).
However, Member States may confer
upon contracting authorities a discretion
to derogate from the mandatory grounds
on an exceptional basis for “overriding
reasons relating to the public interest”
or where an exclusion would be “clearly
disproportionate”.
The new directives leave open to
Member States to decide whether to make
mandatory or discretionary a number of
grounds for exclusion, including where a
bidder is “guilty of professional misconduct,
which renders its integrity questionable”;
where a bidder has shown significant or
persistent deficiencies in the performance
of a prior contract; or where the bidder is in
breach of tax or social security obligations
(even where there has been no final
judgment). Essentially, these changes could
allow contracting authorities effectively to
blacklist companies and to prevent them
from bidding for public contracts.
However, the new rules also allow
bidders to provide evidence of “selfcleansing”, i.e. that the bidder has adopted
measures that demonstrate its reliability
despite the existence of a relevant ground
for exclusion.
awarded solely on price or cost, it is clear
that the Commission wishes to prioritise
evaluation criteria that have due regard to
the quality and effectiveness of the solution,
rather than just being limited to a price or
cost-based approach.
In this regard, the Commission notes
expressly that the cost-effectiveness
approach may include the use of a “best
price–quality ratio”. Examples of various
characteristics that may determine quality
are identified in the package of directives,
although these examples are not intended
to be exhaustive. According to the examples,
relevant characteristics include technical and
qualitative merit, experience and qualification
of the staff assigned to the contract and aftersales service. They also include environmental
and/or social aspects, provided that (as with
all other criteria) they are linked to the subject
matter of the contract.
There is a clear intention (subject
to the need for criteria to be linked to
the subject matter of the contract) for
authorities to be able to evaluate bids with
reference to broader parameters in support
of societal goals which could include, for
instance, lower energy expenditure, use of
environmentally friendly materials or the
employment of disadvantaged people. This
is also reflected in the adjustment to the
traditional “cost-effectiveness” approach,
which is now required to demonstrate an
evaluation of certain costs over the lifecycle
of a product, service or works, such as:
• acquisition costs;
• use (e.g. consumption of energy);
• maintenance;
Award criteria
The requirement imposed on public
authorities to award contracts on the basis
of the “most economically advantageous
tender” (MEAT) remains. The MEAT must
be based on “price or cost” criteria, using
a “cost-effectiveness” approach. While
Member States are permitted in some
circumstances to allow a contract to be
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end of life (e.g. collection and recycling);
and
environmental externalities which can
be valued (e.g. emission of greenhouse
gases or other pollutants).
Under the new directives contracting
authorities may take into account the
characteristics of the production process
of the works, goods or services to be
purchased, such as working conditions and
staff health protection.
While this will no doubt provide a
further impetus in the direction of “green”
procurement, such criteria will need to be
specified in the tender documents, along
with the weightings to be applied to them.
Modifications to contracts
post-award
The new rules seek to codify existing
EU case law and Commission decisional
practice which regulates the modification
of contracts during their term, by specifying
when modifications are acceptable without
a new tender procedure – an issue that has
given rise to much debate and litigation.
The new rules define a “substantial”
modification – which will require a new
award process – as one that renders the
contract substantially different from the
one initially concluded, i.e. one which would:
• result in the selection of other
operators, or the award of the contract
to another tenderer;
• change the economic balance of the
contract in favour of the contractor; or
• include supplies, services or works
which were not covered by the original
OJEU process.
The new rules provide for a “safe harbour”
within which minor modifications would
not require a new award process. The safe
harbour is, however, set at a low level: viz.
where the value of the change does not
exceed the value of the thresholds for the
application of the procurement regime and
is below ten per cent of the initial contract
price (15 per cent for public works contracts).
It is unclear how the safe harbour will
be applied to modifications that are not
financial (e.g. a change in technology).
Furthermore, the safe harbour is only
available if the modification does not alter
the overall nature of the contract.
More helpfully, the new rules provide for
certain circumstances where a modification
will not require a new procurement to be run.
These include where contract modifications
are not considered substantial where they
have been provided for in the procurement
documents in clear, precise and unequivocal
review clauses or options. Such clauses or
options must state the scope and nature
of possible modifications as well as the
conditions under which they may be
exercised, and may not alter the overall
nature of the contract. It is likely that review
clauses, to be compliant, will require some
agreed upfront form of pricing mechanism.
The new regime also allows
modifications in circumstances where,
despite reasonably diligent preparation
of the initial award by the contracting
authority, the modifications are required
as a result of unforeseeable circumstances.
In such cases, a new procurement
procedure will not be required provided
the modification(s) do not alter the overall
nature of the contract, and any resulting
increase in price is no greater than 50 per
cent of the value of the original contract.
In addition, a new award procedure will
not be required in the event that additional
works, services or supplies up to 50 per
cent of the value of the original contract
are necessary, provided it can be shown
that a change of contractor cannot be
made for technical or economic reasons or
would cause significant inconvenience or
duplication of costs.
Furthermore, the new regime expressly
allows a successful tenderer to undergo
structural changes during the performance of
the contract, such as internal reorganisations,
merger acquisitions or insolvency, without
giving rise to a requirement to conduct a new
award process.
Contracting authorities may be required
to publish a special OJEU notice when
a modification has been made without
conducting a new tender, in line with some
of the exceptions noted above.
E-procurement
The directives take an important step
forward as regards digital procurement in
that contracting authorities will be obliged
not only to offer full access free of charge
by electronic means to all procurement
documents (from the date of the publication
of the contract notice) but also to conduct
electronically all communications and
information exchanges throughout the
tender processes.
There are limited exceptions to the
use of electronic communications; for
example, where the specialised nature
of the procurement requires a file format
that cannot be supported by generally
available applications.
Full implementation of all the electronic
communications requirements will not
become mandatory until 18 October
2018, although the requirement to make
procurement documents, including the
proposed conditions of the contract,
available electronically will be subject to
shorter timescales.
Conclusions
Although the package of directives contains
important changes, it does not constitute
a complete reworking of the former legal
framework. A number of improvements can
nonetheless be highlighted.
Generally, the new directives encourage
interaction between contracting authorities
and bidders throughout the procurement
process; for example, by affording bidders an
opportunity to make good defective bids, seek
information on the progress of negotiations
or dialogue with tenderers, and demonstrate
their reliability despite the existence of a
ground for exclusion. The minimum time
limits within which authorities must allow
bidders to respond to notices or to submit
tenders have been shortened, in order to
speed up award procedures.
The new directives also recognise the
need to introduce more flexible award
procedures, such as the competitive procedure
with negotiation, which seeks to address the
long-standing complaint that overly rigid
procedures actually prevent authorities from
refining and obtaining maximum value from
the bids put before them. This is clearly a
welcome step although, in practice, many
tenders are currently run along such lines in
any event. However, it will be interesting to
see whether with greater flexibility comes
greater scope to make errors in respect of
the basic principles of procurement law. It
may prove that, going forward, challenges
are increasingly based upon allegations
of infringement of general procurement
principles under the Treaty on the Functioning
of the EU, such as transparency and nondiscrimination, rather than a narrower
allegation that a specific aspect of a procedure
identified in the directives has been breached
(given the wider scope for interpretation now
available in many of those procedures).
More generally, it is helpful that many
aspects of the case law have now been
clarified and codified, with the provisions
on post-award variations being particularly
welcome. It is also worth noting that the
general principles established in the Teckal
and Hamburg waste judgments3 on in-house
procurement have also been clearly set out in
the directives – another helpful step.
Finally, while the new rules do not change
the remedies regime, Member States are now
required to ensure that:
• the application of the procurement rules
is monitored; and
• concerned stakeholders who do not
have legal standing under the remedies
regime (this will include any taxpayer
– including action groups) have open
to them the possibility of complaining
about procurement breaches.
Whether the above requirements will
lead to greater enforcement is yet to be
seen, but is doubtful. In practice, it is likely
that genuine third parties with the desire
3
Teckal SrL -v- Commune di Viano and Aziena Gas
(Case C-107/98) and Commission -v- Federal
Republic of Germany (Case C-480-06).
Euan Burrows
Partner, London
T: +44 (0)20 7859 2919
to engage in procurement infringement
actions will remain few and far between,
with case law continuing to be generated by
those would-be, disappointed, contractors
prepared to risk the ire of a potential
customer through a challenge.
With regard to monitoring, European
Commission data currently suggests that
direct cross-border procurement (i.e. public
contracts awarded to operators from other
EU Member States) accounted for only 1.6
per cent of awards or 3.5 per cent of the total
value of public contract awards between
2006 and 2009. Indirect cross-border
procurement, via corporate affiliates or
partners situated in the Member State of the
contracting authority, accounted for 11 per
cent of awards or 13.4 per cent by value over
the same period. There could be no clearer
demonstration of the very limited success
that the procurement regime has played
in opening up the supply of services to
authorities across different Member States,
and it remains to be seen whether the new
regime proves more effective at opening up
the EU public procurement market.
Next steps
As noted above, EU Member States have
two years to implement the new directives
into their respective national legal systems.
The EU directives give considerable scope to
Member States to make policy choices in the
implementing regulations, and it remains to
be seen what position individual Member
States will adopt. For instance, Member
States must determine the maximum
duration of an exclusion (up to a maximum
of three years for discretionary grounds and
five years for mandatory grounds).
The UK Government has expressed
enthusiasm for the recent reforms and
expects the new regime to contribute to
the stimulation of growth and the tackling
of the country’s debt problem. With this in
mind, the UK Cabinet Office has adopted
an ambitious seven-month target for the
implementation of the new directives and a
series of informal consultations, on several
aspects of the legislation for which Member
States enjoy discretions on whether or how
to implement, have already taken place.
The UK Cabinet Office also intends to hold
a formal consultation on implementation,
and the UK regulations are expected to be
adopted before the end of 2014.
Donald Slater
Partner, Brussels
T: +32 2 626 1918
Project Bonds Reinvented
A phoenix-like resurrection
by Derwin Jenkinson, Patrick Boyle and Carloandrea Meacci
Recent changes to the infrastructure debt markets
have been dramatically sudden by the standards of
project finance. In the aftermath of the credit crisis
until 2013, the market for project bonds in the UK and
in Europe was non-existent. At the same time, many
of the traditional project finance lending banks were
no longer active. That meant project finance debt was
difficult to source from all but a few specialist lenders
or from multilaterals and the public sector.
So what has changed? Partly, this is a
lesson in history: when one or two products
have such a dominant position, they are
vulnerable to systemic risks that undermine
those delivery models. In this case, the UK
and much of the European project finance
market was dominated by monoline project
bonds and bank funding.
“The dominance of the wrapped bond
execution in the UK is illustrated by the fact
that from 1997, when the first PPP project
financed through the capital markets was
closed, through today, only two early projects
were funded with bonds that did not bear a
monoline guarantee.” 1
In the absence of a tried and tested
alternative, the project bond market came
to a juddering halt as the ratings of the
monolines declined. At the same time, many
1
Capital markets in PPP financing: Where we were
and where are we going? European PPP Expertise
Centre, March 2010.
of the European project finance banks could
no longer lend at the same pricing levels or
for the same long-dated maturities, largely
as a result of changes in capital adequacy
rules, but also due to repairs being made
to bank balance sheets, and in some cases
refocusing on “core banking” (of which
project finance was not seen as a part).
Analysis
There followed five years of analysis,
plenty of initiatives, but not a lot of action.
Every conference in the sector identified
a funding crisis. All that has changed, but
interestingly not in the ways that many
might have predicted.
Four factors were commonly cited as
obstacles to the re-emergence of project
bond financings:
• a concern that bondholders would not
take construction risk;
• negative carry (i.e. the higher cost
of debt service compared to interest
earned by holding the upfront bond
proceeds on deposit);
• implementing effective decision-
•
making procedures for bondholders
(which was also, of course, a paramount
concern for sponsors); and
project procurement models that
favoured the pricing certainty offered
by lending banks.
This is not to say that these were the only
challenges, but only those most commonly
identified. So how has the market
responded to these challenges in relation to
the funding options that have emerged?
Private placement market
Private placement funding by institutional
investors of small- to medium-sized projects
has been a key development. Whereas
previously the bond markets tended to be
used for the largest projects, much of the
headway is now being made in this form of
bilateral funding.
Construction risk
While a few of the project bonds which
closed in the last 12 months have benefited
from a monoline financial guarantee from
Assured Guaranty (for example, Edinburgh,
Brunswick and North Tyneside), there
are signs that institutional investors are
increasingly willing to take construction
risk in return for higher yields (such as M8,
Alderhey, Pendleton and Royal Liverpool).
Furthermore, some institutional investors
are willing to consider unlisted and unrated
bond transactions, which suggests the
introduction of more flexible investment
criteria in search of yield. Whether credit
enhancement is needed and is cost-efficient
depends, in part, on the level and liquidity
of the support package that contractors are
willing to provide – and that varies across
sponsors and projects.
Negative carry
A feature of a number of private placements
(e.g. M8 and North Tyneside) is a deferred
drawdown schedule. This mitigates the
cost of negative carry by allowing for a
drawdown mechanic which is similar to
bank utilisations, meaning funds are being
advanced and carry a real interest cost only
when they are scheduled to be needed.
Decision-making procedures
The private placement market has also
responded to this concern. Solutions range
from the introduction of a monitoring
adviser to surveil the project and make
amendment and waiver recommendations,
through to introducing a majority/lead
bondholder concept whereby the initial
investor, or any subsequent majority
bondholder, controls most decisions
(subject to entrenched right protections).
Crucially, both of these options mean that
a holder of 100 per cent of the debt is not
prevented from selling down its position in
the secondary market.
Procurement
Early involvement of an institutional
investor also gives additional certainty
during the procurement phase. By providing
firm or strong indicative pricing guidance
at the early stages of procurement,
sponsors have a competitive advantage
during the bid phase. Investor support at
this stage is an increasingly important
feature in consortia’s bid strategy. Authority
procurement support for capital markets
funding has improved, but there is still a
sense that more could be done, such as
taking spread risk, as was the case when the
monolines dominated the market.
UK Guarantees scheme
The Infrastructure (Financial Assistance) Act
2012 put in place a legislative framework
for the issuance of financial guarantees by
Her Majesty’s Treasury (HMT) in relation to
eligible projects, so-called UK Guarantees.
The terms of those guarantees are very
similar to the monoline guarantees, being
a full guarantee of the timely payment of
scheduled principal and interest. In May
2014, the Mersey Gateway Bridge project
was the first public bond to come to market.
The issuance of c. £260m of guaranteed
bonds represented approximately 50 per
cent of the debt. The remaining debt was
provided by various senior and junior funders,
including project finance lending banks. We
examine below how the key challenges were
mitigated on that transaction.
Construction risk
The bonds achieved a rating equivalent to
the UK sovereign rating (Aa1 from Moody’s).
Achieving full credit substitution means
that, although HMT itself and the other
lenders are taking project risk, bondholders
(representing both credit and rates
investors) were not exposed to construction
or, indeed, operating phase risk.
Negative carry
The fact that only half of the debt was
funded by the capital markets helped limit
the negative carry costs, with the remaining
bank and subordinated debt made available
on a deferred drawdown basis. The more
traditional method for capital markets’
funding of using a guaranteed investment
contract (which provides a fixed rate of
return) was also used in order to help
further mitigate these costs.
Any multicreditor transaction involves
a degree of intercreditor complexity in
relation to decision-making procedures
for amendments, consents and waivers, as
well as enforcement. The arrangements
on this transaction were bespoke and
calibrated to take account of the respective
debt exposures of the banks and HMT
(as well as including protections for the
hedge counterparties and junior creditors).
In part, this involved adapting some of
the intercreditor mechanics which have
well-established precedent in bond and
bank whole business securitisations, with
appropriate adaptations for project finance
and for more varied categories and classes
of creditors. Although complex, these
arrangements do mean that decisionmaking is not dependent on bondholder
voting (other than in relation to any matters
directly affecting bond economics).
Procurement
A decision was made by Halton Borough
Council (as the procuring authority) at an
early stage in the bid process to specifically
identify to bidding consortia as a funding
mechanism for this project the availability
of a guarantee under the UK Guarantees
scheme. It also imposed limits on the
amount of debt that could be raised in
this way. Even though the product was
at this stage untested, the enlightened
approach by the authority meant that
this bond financing solution would not be
discounted for deliverability or pricing risk,
and we understand each bidding consortium
proposed to take up this option.2
EIB 2020 project bonds
Just as with the UK Guarantees scheme,
the EU Commission and the European
Investment Bank (EIB) identified an
infrastructure funding gap. Their response
was the EIB 2020 Project Bond initiative.
While the development and pilot phase
took some time in getting a deal to market,
the first transaction (the underground gas
storage project in Spain, Project Castor)
closed in mid-2013. Unlike the UK Guarantees
scheme, which is modelled on full credit
substitution, the EIB product provides credit
enhancement in the form of a funded or
unfunded first-loss debt tranche. The Project
Castor transaction (following the unfunded
model) involved EIB making available a letter
of credit to be drawn to meet construction
and debt service shortfalls.
Construction risk
Moody’s analysis on loss-given default
recoveries indicated that losses typically
averaged in the region of 20 per cent,
which was consistent with assumptions
underpinning the ratings. Helpfully, the
level of EIB credit enhancement was also
sized at up to 20 per cent. While this does
not rule out bondholder losses during
2
Readers interested in knowing more about the
Mersey Gateway Project, on which Ashurst
advised, may wish to read the article “Mersey
Gateway: a bellwether for future road pricing?”
in this issue of InfraRead.
the construction phase or life of the
project, clearly bondholders can take a
view on the real level of risk that they are
taking. Moreover, the Project Bond Credit
Enhancement product brings with it not
only an improved loss-given default position
but also reduces the probability of default.
Negative carry
Unlike more traditional EIB lending, the
EIB 2020 Project Bond model does not in
itself provide any additional protection for
negative carry (at least in the case of the
unfunded variant). However, the unfunded
model does have the advantage that, apart
from EIB’s fees, full debt service costs for
these additional commitments are not
incurred prior to drawdown.
The terms of the 2020 Project Bond
initiative include the concept of a
controlling creditor. The approach and
structure varies, but Bishopsfield Capital
Partners is performing this role on
Project Castor. This requires it to make
recommendations on amendments,
consents and waivers on behalf of
bondholders, and is designed to provide
an effective decision-making procedure
without disenfranchising bondholders.
Procurement
More EIB project bonds have been issued
and are in the pipeline. The EIB’s role as
project bond credit enhancement provider
means that it can become involved at
an early stage of a project procurement
(which may also involve support from
one or more cornerstone bond investors).
This early involvement, combined with a
proven delivery model, helps to mitigate
any perceived deliverability risk in pursuing
a bond-financing solution during the
procurement. In fact, their due diligence
requirements may be seen as a positive
for the robustness of the transaction. In
addition, a number of authorities (e.g.
the National Roads Authority (NRA) in
Ireland) are now mandating the EIB 2020
Project Bond model as the only financing
solution for bidders to consider and price,
so we expect to see this product become
increasingly common in the market.
Portfolio financings
A particularly notable development has
been portfolio or aggregated funding
models. University Partnerships Programme
(UPP) refinanced its portfolio of student
accommodation projects in the first quarter
of 2013 and the Education Funding Agency’s
“Aggregator” is in the final stages of
procurement. Both transactions use direct
or indirect forms of cross-collateralisation
and other structural features to finance or
refinance individual projects that would not
be financed through the bond markets on
a standalone basis – for example, because
of the limited debt quantum required and/
or for ratings, pricing and value-for-money
considerations.
Construction risk
Portfolio financings do not directly protect
against default of an underlying project.
However, cashflows from performing
projects are directly or indirectly available to
“subsidise” one or more underperforming
projects. This means that investors are
not exposed to the same concentration
risk of investing in a single project which
subsequently defaults.
Negative carry
Negative carry should not be an issue
for refinancing a portfolio of operating
projects. For greenfield projects, a portfolio
financing might, at least in theory, offer
more financing drawdown flexibility. Of
course, any upfront debt proceeds can also
be invested in a guaranteed investment
contract, either on a project-by-project basis
or at an aggregated level.
Inherent in a portfolio of projects is the
likelihood of increased monitoring and
surveillance requirements. There is an
obvious parallel with the servicer role on
Commercial Mortgage Backed Securities
(CMBS) transactions, albeit that the
specialist sector and technical expertise
that is required is very different. For this
reason, a monitoring adviser was appointed
on both the UPP and the Campus Living
Villages (CLV) transactions.
Procurement
A portfolio transaction is far more likely to
have its own procurement framework and,
therefore, the usual considerations are less
likely to arise. However, if an established
portfolio bond funding platform can be
used to finance new assets, then clearly that
may offer more certainty in procurement
terms than project financings on a standalone basis.
Monoline credit enhancement
Monoline financing terms are too well
known to necessitate summarising here.
However, what is absolutely evident is that
a good number of institutional investors
rely on Assured Guaranty (as the sole active
monoline) to access the project bond
market. Furthermore, modifications have
been made to the standard terms to provide
additional bondholder protections to take
into account concerns that were identified
during the credit crisis.
Bond/bank financings
Other structures have also been proposed
and implemented which seek to address
the issues described above. In particular,
the involvement of lending banks alongside
project bonds (e.g. in the Pebble–Commute
model) can be beneficial in terms of
managing construction risk, negative carry,
decision-making and procurement in each
case because of the flexibility and active
engagement that they can provide, as
mentioned above. We are also seeing more
use of alternative bank facilities to enhance
credit and transaction features, such as
credit support facilities.
So, in summary, there have been four
key developments: (i) a broader range of
credit enhancement/substitution funding
models (as well as a continuation of the
traditional monoline model provided by
Assured Guaranty); (ii) the introduction
of a monitoring adviser, combined with
more frequent use of “snooze/lose” voting
Derwin Jenkinson
Partner, London
T: +44 (0)20 7859 1790
mechanics; (iii) the use of aggregation and
cross-collateralisation techniques to enhance
project portfolio financings; and (iv) more
varied multicreditor bond/bank financings.
Although these developments are
more widespread in the UK market as
compared to most other EU countries,
overall trends in Europe are clearly
consistent. Northern Europe remains
more liquid and in many respects similar
to the UK, and has seen a number of
transactions following the funding models
described above. Southern Europe is also
seeing significant developments, including
the first EIB 2020 Project Bond, Project
Castor, as described above. A number of
infrastructure bond deals, such as Snam
and Endesa Gas, have successfully closed
in Italy and Spain respectively, and the
pipeline suggests we will see more project
bond funding of infrastructure (e.g. toll
roads) and energy (e.g. renewables and
gas distribution).
In conclusion, whereas the monolines
dominated before the credit crisis (and
continue to have a critical role to play for
many investors accessing the market), no
single model has established a stranglehold
on the market in this second wave of project
bond financings. This is hopefully a sign of a
more sophisticated funding environment. But
Patrick Boyle
Partner, London
T: +44 (0)20 7859 1740
with only 12–18 months of growth, it remains
very much in its infancy. In contrast to previous
concerns about the lack of debt finance, as
mentioned above, the hot topic at more recent
infrastructure conferences has been the
relatively thin project pipeline. But a note of
caution: both the EIB and the UK Guarantees
schemes are time limited, with the initial
phases being to 2016, so the challenge will
be to ensure that the new project bond
market is sufficiently well established by the
time governmental support falls away. This,
in our view, will almost inevitably involve
institutional investors taking more project
risk in return for well-calculated, risk-adjusted
returns. As Arnold Palmer put it: “The road to
success is always under construction”.
A version of this article was originally
published in InfraNews.
Derwin Jenkinson and Patrick Boyle have
been at the forefront of developments in
this market, having advised on many of
the transactions described above, including
Brunswick, Edinburgh, M8, Project Castor,
UPP, North Tyneside, the Aggregator, Mersey
Gateway Bridge and others that have yet to
come to market. Carloandrea Meacci provides
specialist knowledge on the implications for
the European markets.
Carloandrea Meacci
Partner, Milan
T: +39 02 85423462
Mersey Gateway
A bellwether for
future road pricing?
by David Jardine and Nicholas Ross-McCall
Ashurst recently advised the sponsors, Macquarie Capital,
Bilfinger Berger and FCC (as Merseylink) on the successful
close-out of the Mersey Gateway Project (Project), which
reached financial close on 28 March 2014 and bond
settlement on 2 April 2014. The Project will deliver a new
free-flow tolled bridge over the River Mersey between
Runcorn and Widnes, and related approach roads. The
c.30-year concession with forecast revenues of c.£2bn was
procured by Halton Borough Council (Halton).
The Project is one of the most interesting PPP
projects to close in the UK in recent times. At
its heart, the Project is an availability-based
PPP, in many respects following SOPC/PF2
principles. However, the Project included a
range of features which stood out from the
run-of-the-mill, including:
• the imposition of user tolls by Halton;
•
•
a unique dual contract/SPV structure,
combining a PPP contract for the bridge’s
construction, finance, maintenance
and operation, with a shorter-term
operational service contract for the
toll-collection functions;
a multi-source financing package,
including a combination bond and
•
•
bank financing;
the first example of a government
wrapped bond under the UK
Guarantees scheme; and
a unique arrangement provided by
Her Majesty’s Treasury (HMT) to the
project vehicle, to support Halton’s
payment obligations.
This article focuses on two of the more unusual
features of the project document structure –
the free-flow tolling structuring arrangements
and the HMT support arrangement – and
considers their impact for future projects.1
Structuring issues –
free-flow tolling
The Project involved an innovative dual
contract structure for the tolling service
1
Readers interested in bond financing and the
UK Guarantees scheme may wish to read the
article “Project bonds reinvented: a phoenix-like
resurrection” in this issue of InfraRead.
arrangements. The project agreement
scope of work included:
• a requirement to set up an end-to-end
free-flow tolling system solution on the
new bridge and on the existing Silver
Jubilee Bridge; and
• a unique “live testing” regime where
Merseylink must prove the tolling
system under live traffic conditions.
Therefore, under subcontracting
arrangements with Merseylink, French
tolling specialist Sanef will design and
construct an end-to-end free-flow tolling
system (involving lasers and cameras, as
opposed to booths and queues) and test the
system under live traffic conditions.
After project completion, however,
Sanef will operate the tolling system under
a contract with Halton, entirely separate
from the project agreement.
As a result of the dual contracting
structure, it was essential to put in place
detailed interface arrangements between
Merseylink and Sanef to govern the tolling
system’s operations. Agreeing an interface
risk profile between the project vehicle and
a party outside the project finance structure
was quite unique for a UK PPP, and was
further complicated by Halton’s position
that, with some limited exceptions, it would
not have liability to either Merseylink or
Sanef for the actions of the other.
The dual contract structure was
developed by Halton in recognition of the
difficulty in procuring and funding a full
revenue/demand risk PPP in the current
market, while still providing incentives to
ensure that the private sector sought to
maximise toll revenue. The structure also
allows flexibility to revise the entire tolling
system/arrangements at a natural “refresh”
point (after seven years), as compared to the
typical restrictions of a 30-year PPP.
The unprecedented live testing
requirement was designed to ensure a high
degree of confidence that the system would
work and – crucially, given Halton’s small size
compared to the size of the Project – collect
tolls before Halton was obliged to make
project payments. It required Merseylink
to wrap a highly unusual combination of
technology risk and operational risk.
A bellwether for
future road pricing?
The Project is only the third proposed
free-flow tolling regime in the UK, after
the London congestion charge zone and
the forthcoming changes to the Dartford
Crossing. It also involves toll charges in
an area of the country not accustomed to
them, and in relation to a river crossing
point which could previously be used free
of charge, via the Silver Jubilee Bridge. The
new arrangements will involve the creation
of a bespoke regime of crossing point
enforcement notices and actions. The lack of
a physical barrier, and the requirement that
motorists take positive steps to pay their
tolls (by opening an account or contacting
the toll operator) raise the possibility of
toll evasion, either intentionally or through
neglect. This is a common concern when
free-flow tolling is first introduced to a new
market, or where new tolls are imposed
on existing routes which were previously
free. International experience has shown
that, especially in developed nations, these
concerns can usually be mitigated by
effective management, and that the level of
intentional toll evasion is generally less than
feared. Perhaps this is because the public
has some sympathy with the argument that
users should pay (at least in part) for the
cost of new infrastructure, or perhaps, more
practically, because most members of the
public abide by the rules if they are properly
educated as to what those rules are.
In either case, the Project will provide a
useful illustration of the public’s reaction to
free-flow tolling and the imposition of new
charges on existing routes. The possibility
of new toll roads or, indeed, a broader road
pricing scheme, waxes and wanes on the UK
political agenda. Nevertheless, as recently
as 2012, David Cameron suggested that tolls
could be an answer to funding new road
construction, with the Institute of Fiscal
Studies suggesting the more radical step of a
comprehensive road-pricing system. Industry
participants will watch the Mersey Gateway’s
success with interest as a bellwether for
these more intriguing possibilities.
Central government support
While the Mersey Gateway Project was not
procured under the PFI, and so does not
use PFI Credit funding, central government
provides the Project with very similar
funding support from the Department for
Transport (DfT). However, there are two
unusual features to the central government
support: a contingent promise by DfT to
“top-up” Halton’s project toll revenues, and
a parallel support letter issued directly from
HMT to Merseylink.
DfT support and the
contingent “top-up”
The DfT has issued Halton with a support
letter, under which it agrees to provide
funding to the Council. Like PFI Credits, the
cornerstone of the DfT funding is a series of
grant payments paid to Halton during the
operational phase.
However, the DfT support includes an
additional element not seen in typical local
authority PFI funding structures. The allocated
grant funding from the DfT was not sufficient
to meet the total project cost so in order to
secure the additional funds needed, tolls were
required for traffic using the bridge. Thus,
unusually for a UK infrastructure project,
Halton’s main funding source for the project
will be user charges. This exposes the Project
to an element of revenue risk: if traffic volume
is lower than expected, toll revenues will also
be lower. This could create a funding shortfall
for the council, possibly compromising its
ability to make availability payments under
the PPP contract. This possibility would
complicate any credit analysis of the Project
as, although the PPP contract is structured
as an availability payment regime, a funder
might perceive that the PPP contractor has an
exposure to revenue shortfalls and traffic risk.
The additional element of the DfT
support letter is aimed at addressing this
issue. The support provides that, should toll
revenues fall below a specified modelled
curve, the DfT will provide Halton with
additional funding to meet its payments
under the PPP contract. This additional
“top-up” support is capped at the level of
the curve. Our understanding is that both
Halton and DfT are confident that traffic
levels will exceed this level, and so the
“top-up” support will never need to come
into play. However, as would be expected,
the support letter includes governance
arrangements to regulate this situation,
should it ever occur.
Direct HMT support for the
project vehicle
Merseylink is not a direct party to the DfT
support letter, as the letter is addressed to
Halton. This approach is consistent with the
typical PFI Credit structure; i.e. the PFI Credit
letter is issued by central government to
the local authority, and the PPP contractor
is not directly party to it. Despite this, in the
UK market, project sponsors and funders
usually take comfort from the issue of the
letter that central government will provide
the intended funding support.
However, the Mersey Gateway Project
is not a typical local authority PFI scheme.
The Project’s capital value and availability
payments considerably exceed most local
authority PFI schemes: it is usually only the
larger city councils who take on projects
of this size. This fact highlighted to project
participants the importance of the central
government support arrangements and, as
a result, HMT agreed to deviate from the
norm and provide a letter of undertaking
addressed directly to Merseylink, as PPP
contractor. The letter of undertaking, in
essence, parallels the commitment from
DfT to “top-up” Halton’s funds should toll
revenues fall short of modelled levels.
Although direct support from central
government to PPP vehicles is highly
unusual in a UK local authority PPP, there
is precedent in the health sector, on several
large NHS Trust hospital PPP projects. These
projects were of similar, or greater, capital
values to the Mersey Gateway Project.
Similar investor concerns about the Trust’s
financial capacity, when viewed against
the project’s capital value, had led central
government (through the Department
for Health) to enter into a direct “Deed of
Safeguard” with the PPP vehicle. The Deed
of Safeguard was essentially a commitment
by the Department for Health to meet
payments under the PPP contract if the
Trust failed to do so.
Although there are obvious parallels
between the Deed of Safeguard structure
and the HMT support on Mersey Gateway,
there are some key differences. In terms of
form, the Deed of Safeguard is a formal legal
deed, while the HMT support is stylistically
closer to an intra-government commitment.
In terms of technical substance, the Deed
of Safeguard is (generally) a promise to pay
the PPP contractor directly if the Trust does
not do so, whereas the HMT support is a
promise to the PPP contractor that it will
provide Halton with the funds. Finally, the
HMT support includes the important caveat
that the “top-up” payments are limited to the
modelled revenue curve. Therefore, ensuring
that this amount was sufficient to meet
project payments became a due diligence
issue for the private sector.
Despite these differences, the HMT
letter is a much stronger form of central
government support than is usually seen in
David Jardine
Partner, London
T: +44 (0)20 7859 1255
UK local authority projects, and provided the
necessary comfort to allow this ambitious
project to reach financial close.
The future?
Does this direct support from HMT represent
a precedent supporting the development
of future similarly ambitious schemes by
the UK’s local authorities? As tempting
as the possibility may be from a pipeline
perspective, we doubt this will be the case.
Mersey Gateway was a unique project
in many ways. An unusual geographic
situation created the rationale for the Project
and, without this, there are probably few
examples where a local authority of Halton’s
scale would have the need to develop a
single capital asset of this value. For most
local authority PPP schemes, there seems
little reason to expect that either local
authorities or central government will see
the need to deviate from the well-trodden
template now represented by PF2. For larger
schemes, central government has indicated
that it is willing to support infrastructure
development through its UK Guarantees
scheme. Whether any such support is similar
to that offered on Mersey Gateway remains
to be seen, and would presumably be
evaluated in the context of a specific project
and its particular needs.
Despite this, the support arrangements
put in place for Mersey Gateway do stand as
testament to the ability of the UK’s public
and private sector infrastructure participants
to develop solutions that are outside the
mould, allowing completion of projects that
cannot be described as “cookie-cutter”. In this
respect, perhaps it is the “top-up” support
arrangements which were put in place that
are the more intriguing. This arrangement
has allowed Halton to develop a user revenue
source that will largely fund the Project, while
procuring it in the market as an availabilitybased regime. We have mentioned above that
it will be interesting to follow the Project’s
operational track record as a bellwether for
the development of other user-pays schemes
in the road sector. Industry participants
will be just as interested in seeing if other
authorities use the Mersey Gateway example
as inspiration to develop mixed-funding
approaches to their projects.
Nicholas Ross-McCall
Senior Associate, London
T: +44 (0)20 7859 1782
AUSTRALIAN PUBLIC INFRASTRUCTURE
A shake-up down under
by Sarah Ross-Smith and Steve McKinney
The development and management of public
infrastructure in Australia is in the spotlight following
a recent independent government review and the
Australian Government’s 2014–15 Budget.
The Budget, announced by the Government
on 13 May 2014, includes a robust agenda
to invest in infrastructure development in
Australia, with new infrastructure funds
committed, as well as the establishment
of an infrastructure “Asset Recycling
Fund”, which would see the proceeds
of privatisations and divestment being
committed to new infrastructure projects.
The Asset Recycling Fund implements
the COAG (Council of Australian
Governments) agreement reached in early
May 2014 between the Commonwealth
and the States and Territories, under which
the States and Territories may receive
additional Commonwealth investment in
infrastructure where States and Territories
privatise existing infrastructure assets.
“Recycling” infrastructure funds may lead
to increased State and Commonwealth
investment in the infrastructure space – and
to increased opportunities.
The Budget has committed nearly
A$10bn to transport infrastructure
through the Infrastructure Growth
Package, bringing total Commonwealth
infrastructure investment to more
than A$50bn in the period up to
2020–21 – unprecedented in the view of
Infrastructure Partnerships Australia.
The Budget followed the recent report
(NCOA Report) of the National Commission
of Audit (NCOA) released on 1 May 2014. The
NCOA is an independent body established
by the Australian Government to examine
the scope, efficiency and sustainability of
the Commonwealth Government.
The NCOA Report contains 86 wideranging recommendations, including
the potential privatisation of some of
Australia’s largest infrastructure assets
and a significant overhaul of the funding
framework for both Commonwealth
and State projects. Some of these
recommendations are being implemented
by the Budget, while others are likely to be
given effect to in the near term.
New Commonwealth spending
on infrastructure projects
The Budget announced the
Commonwealth’s intention to finance
additional transport infrastructure projects
across Australia, including the WestConnex
(stage 2) road project (New South Wales);
the East West Link (stage 2) road project
(Victoria); Perth Freight Link (Western
Australia); Toowoomba Second Range
Crossing (Queensland); and the North-South
Road Corridor in Adelaide (South Australia).
The Budget identifies, among other
measures, A$3.7bn over the next five
years for these transport infrastructure
projects as part of the Infrastructure
Growth Package. This, together with
the Asset Recycling Fund and the recent
announcement of major road and airport
projects (including the second Sydney
Airport), would – as noted above – bring
total infrastructure investment to more
than A$50bn for the period up to 2020–21.
Privatisation and divestment
of infrastructure assets
The NCOA recommended that a number
of Commonwealth bodies which hold a
substantial proportion of Commonwealthowned infrastructure be privatised over
the short, medium and long term, as set
out below.
The Budget confirmed that the
Government would undertake a scoping
study for the privatisation (in the near term)
of DHA (see below). The Government has
not yet committed to privatising the other
infrastructure assets noted below.
Short term: 2014–16
Defence Housing Australia (DHA)
DHA provides housing for defence personnel.
DHA owns 3,800 properties worth around
Defence Housing Australia –
scoping study announced
in the Budget
A$1.45bn and manages a further 18,300
properties valued at around A$10bn.
Snowy Hydro Ltd (SHL)
SHL owns one of the most complex
integrated water and hydroelectric power
schemes in the world. The Commonwealth’s
share is valued at A$233m.
ASC Pty Ltd
A Government-owned shipbuilder, currently
constructing Canberra Class Air Warfare
Destroyers and providing sustainment
support for Collins Class submarines.
Possible contender for future submarine
builder construction contract.
Medium term: post-2016
Australian Postal Corporation
Australia Post owns a network of postal
depots, mail sorting centres and related
infrastructure worth an estimated A$1.6bn.
Moorebank Intermodal Company
The company’s role is to develop and
operate an intermodal terminal as a flexible
and commercially viable common user
facility available to rail operators and other
terminal users.
Australian Rail Track Corporation Ltd (ARTC)
ARTC owns and manages railway track
and related infrastructure. Its assets are
estimated at A$4.47bn.
Long term
NBN Co Ltd
The national broadband network, still
under construction, which aims to
deliver world-class broadband services
to the Australian public. NBN Co owns
broadband infrastructure assets worth
an estimated A$2.5bn.
The NCOA Report identified
infrastructure on the Commonwealth’s
balance sheet with an estimated value of
approximately A$57bn. Compared to the
States and Territories, the Commonwealth’s
ownership of infrastructure is limited and
principally consists of a network of rail
lines and communication assets, held in
state-owned corporations. This reflects the
Constitutional division of responsibilities
between the States and the Commonwealth,
with the Commonwealth’s primary role being
in the areas of telecommunications, interstate
freight and aviation, with the States having
responsibility for roads, intra-state transport,
utilities and social infrastructure.
Notwithstanding past asset sales
processes at the Commonwealth level, the
NCOA found a reasonably large amount
of capital locked up in Commonwealth
commercial and semi-commercial entities.
The NCOA Report recommended that
Commonwealth bodies operating in
contestable markets should be privatised.
Consistent with prior Commonwealth
privatisations, the privatisation processes for
these entities would involve two phases: a
scoping study followed by implementation
of the sale, with sales of major entities
likely to take 12–18 months (or longer where
legislation is required). These processes,
which differ from private infrastructure
developments, allow ample time to
assess the palatability and bankability
of potential projects.
The timetable for the full
implementation of the Government’s
privatisation agenda is yet to be detailed.
Two of the more significant potential
divestments for the infrastructure market,
ARTC and DHA, are described in more
detail below. These entities own significant
infrastructure, which may be attractive
to investors (according to the Treasurer,
particularly Australian superannuation
funds) and which may be more efficiently
run by the private sector .
DHA is a government business enterprise
established in 1987. DHA’s main function
is to provide housing and related services
to Australian Defence Force members and
their families. DHA undertakes property
management, tenancy management,
development/construction, property
acquisition and divestment functions. DHA’s
current property portfolio has a market
value of approximately $A2.6bn. DHA also
manages a portfolio of properties owned by
the Department of Defence with a market
value in excess of $A1bn.
The NCOA concluded that the property
ownership and management industry is a
competitive and commercial market, and
that it is highly likely the private sector
could meet the housing needs of the
Australian Defence Force members and
their families. The NCOA recommended
that the Government commission a scoping
study to consider the privatisation of DHA.
In the 2014–15 Federal Budget, the
Australian Government allocated funding
to undertake a scoping study into future
ownership options for DHA. We expect that
any scoping study will consider various
options for the full or partial privatisation of
DHA’s operations.
Australian Rail Track
Corporation – medium term
(post-2016)
Australian Rail Track Corporation (ARTC)
was incorporated in February 1998 to
manage Australia’s interstate rail network
and currently has responsibility for the
management of over 8,500 route kilometres
of standard gauge interstate rail track in
South Australia, Victoria, Western Australia,
Queensland and New South Wales. ARTC
also manages the Hunter Valley coal rail
network, and other regional rail links. While
some of the track managed by the ARTC in
New South Wales, Victoria and Queensland
is leased from the States, other rail corridors
are owned by the ARTC. ARTC’s assets are
estimated by Infrastructure Partnerships
Australia to be worth A$4.47bn.
The ARTC will also be responsible for the
delivery of the Inland Rail project, which will
involve the redevelopment of the interstate
rail link between Queensland and Victoria.
The NCOA has suggested that the
Commonwealth could privatise either all
of ARTC, or just the Hunter Valley coal rail
network, which could be attractive to current
users because it is a central component of
the New South Wales coal supply network.
We expect that, should this privatisation
proceed, the Government will implement an
appropriate access regime to regulate the
ARTC’s monopoly, much the same as airport
and electricity distribution monopolies.
The proceeds from these privatisations
will be reinvested into the Government’s
“Asset Recycling Fund”, to help build new
productive infrastructure.
Commonwealth
Asset
recycling
pool
Private Sector
Investor
sales
proceeds
Commonwealth contribution
States &
territories
New Infrastructure
Development
Reinvested
sales proceeds
Asset Recycling model
One of the consistent themes of the
NCOA Report and the Budget in relation
to public infrastructure is that States and
Territories, rather than the Commonwealth,
are best placed to identify projects that
best suit local needs. This is reflected in the
infrastructure funding models outlined in
the Budget.
As mentioned above, as part of
the Budget, the Commonwealth will
establish a funding pool (known as the
Asset Recycling Fund) to promote the
privatisation of existing State and Territory
infrastructure, with the proceeds being
reinvested or “recycled” in new productive
infrastructure. The Treasurer has indicated
that the intention is to release the “lazy
capital” that the States and Territories
currently have invested in existing
infrastructure, and redirect that capital
(together with a contribution from the
Commonwealth from the Asset Recycling
Fund) into new productive infrastructure.
The existing infrastructure that may be
sold include:
• electricity generation/transmission
assets;
• water infrastructure/desalination plants;
• airports; and
• rail infrastructure.
Under the Asset Recycling model,
where a State or Territory sells existing
infrastructure assets and reinvests the
proceeds into new productive infrastructure,
the Commonwealth will contribute an
additional 15 per cent of the amount
reinvested from the Asset Recycling Fund.
The new infrastructure must meet certain
requirements, including that it:
• demonstrates a clear net positive benefit;
• enhances the long-term productive
capacity of the economy; and
• where possible, provides for enhanced
private sector involvement in both
funding and financing of infrastructure.
The Asset Recycling Fund will initially
comprise A$5.9bn drawn from uncommitted
funds currently in two already established
infrastructure funds, but will then be
Existing
infrastructure
supplemented by the proceeds of sale of
Medibank Private (the Government-owned
private health insurer, which is the subject
of a current privatisation process) and any
future privatisations.
The Commonwealth hopes the Fund
will help States and Territories strengthen
their balance sheets through recycling
capital into a dedicated funding source to
build new infrastructure (see above).
The agreement requires the States and
Territories to decide upon the existing assets
to sell by 30 June 2016, and to sell the existing
assets and commence completion of the new
infrastructure on or before 30 June 2019.
Funding and management of
Commonwealth infrastructure
Despite the NCOA’s finding that the
States are best placed to make decisions
and deliver infrastructure projects most
needed by local communities, the NCOA
Report does suggest that there is a role
for the Commonwealth to play in the
co-ordination of “nationally significant
infrastructure” (which includes energy,
transport, communications and water
infrastructure, in which investment or
further investment will materially improve
national productivity).
Importantly, the NCOA also
recommended that, to the extent that
the Commonwealth directly invests in or
finances infrastructure, the Commonwealth
only invest in projects that have been
subject to a rigorous and transparent
cost-benefit analysis. This recognises the
by-product of the Commonwealth focus
on financing projects that are in the public
interest – that is, the Commonwealth will
Sarah Ross-Smith
Partner, Canberra
T: +61 2 6234 4040
only invest in assets that are not likely to
attract private investment.
The Budget also clearly signalled the
Commonwealth’s intention to use “alternative
financing” to complement traditional grant
funding. Alternative financing arrangements
could include the provision of loans,
guarantees and/or equity. This may be used
to mitigate private sector risk where projects
are exposed to revenue risk (e.g. toll road
projects). The A$2bn concessional loan for the
WestConnex project confirmed in the Budget
is such an example.
Complementing the Australian
Government’s focus on overhauling the
current public infrastructure framework,
the Productivity Commission (an
independent research and advisory body
to the Government) has also been asked to
undertake an inquiry into public infrastructure
in Australia. The Productivity Commission
released a draft report on 13 March 2014
with a final report expected to be publically
released later in the year. The Government has
requested that the Productivity Commission
provide advice on alternative models for
financing public infrastructure.
Conclusion
The 2014 Budget, implementing as
it does parts of the first tranche of
recommendations of the NCOA and the
COAG agreement, presents significant
opportunities for investment in
infrastructure in Australia over the coming
years. This, coupled with the Government’s
commitment to spend significant additional
amounts on infrastructure, suggest that
the next three years could see a substantial
growth in infrastructure activity in Australia.
Steve McKinney
Partner, Canberra
T: +61 2 6234 4028
US PUBLIC INFRASTRUCTURE
New York’s P3 experience
by Jason Radford and Matthew Neuringer
In the United States, each state is responsible for instituting its own legal
framework for procuring public infrastructure. Therefore, in order to establish the
legislative authority necessary for Public Private Partnership (P3) procurements,
states must pass legislation that: (i) authorizes design, build, finance, operation and
maintenance (DBFOM) contracts to be awarded on a “best value” basis to a single
entity; (ii) overcomes existing organized labor protections that are incompatible
with P3 procurements; (iii) eliminates prohibitions on investing public funds in
privately operated projects; (iv) authorizes leasing or granting concessions of
public infrastructure to private entities; and (v) authorizes the establishment of
procurement guidelines and the engagement of professional advisors to manage
the complexities of a P3 procurement (P3 Enabling Legislation).
Status of enabling
legislation in the US
Currently, 33 states and Puerto Rico have
enacted P3 Enabling Legislation for
surface transportation projects and social
infrastructure1. Through discussions with a
1
Figures obtained from the National Conference
of State Legislatures Updates and Corrections to
A Toolkit for Legislators (February 2014). (Note that
fewer than 15 of the 33 states have enacted social
infrastructure authorizations.)
number of key stakeholders across several
states, we have established that the most
common barriers to passing P3 Enabling
Legislation include: organized labor’s
resistance to P3s; an unwillingness by state
officials to cede control to the private sector;
and public misconception and distrust due
to a handful of P3 deals in the US having
been restructured. Not by coincidence, each
of the foregoing reasons has contributed
to New York’s (the State of NY) inability to
pass its own P3 Enabling Legislation. This
is particularly troubling for a state such
as NY, where it was recently reported that
$47bn in infrastructure improvements are
needed in New York City alone over the next
four to five years2 and that over one-third
of the State’s 17,000 bridges are deemed
2
Crain’s New York Business, NY’s Crumbling
Infrastructure (11 March 2014).
“functionally obsolete or structurally
deficient”3.
Recent efforts
Recognizing the need to explore alternative
procurement delivery options, NY’s most
recent P3 advocates include State Senator
Gregory R. Ball, who has introduced P3
Enabling Legislation in the State Senate4,
and the Dormitory Authority of the State
of New York (DASNY), which is a quasigovernmental agency established through
an act of the State Legislature to provide
financing and construction services to
public and private universities, not-for-profit
healthcare facilities, and other institutions
serving the public good. This spring, DASNY
introduced legislation to procure, on behalf
of the State’s Department of Health, a
DBFOM long-term concession agreement for
the State’s Wadsworth Laboratory facilities
(the Wadsworth Labs Project or Project).
The Project, valued at $650m, includes the
consolidation of three different campuses
which house 20 research laboratory facilities,
medical school classrooms, and a 3D Electron
Microscopy Facility.
NY broad-based P3
enabling legislation
Senator Ball, who represents several
counties just north of New York City, began
advocating for P3 Enabling Legislation in
September 2012. His initial steps included
developing consensus through a series
of public hearings with concessionaires,
organized labor representatives and
governmental leaders, to discuss the
necessary elements of a successful P3
program. From these hearings he developed
a P3 advisory committee to provide
legislative recommendations to Senate
staffers, and developed legislation capable
of garnering political and industry support.
The legislation, which was introduced in
May 2013, garnered an Assembly sponsor
in September 2013, was endorsed by the
Chairman of Transportation Committee in
December 2013, and received support from
a number of industry organizations in the
spring of 2014. The enabling legislation
includes provisions which: (i) establish
a P3 oversight committee comprised
of appointees from the Legislature and
Governor Andrew Cuomo’s (the Governor)
office; (ii) authorizes transportation and
3
4
Citizens Budget Commission Report, How
Public–Private Partnerships Can Help New York
Address its Infrastructure Needs (November 2008);
Center for an Urban Future Study, Caution Ahead:
Overdue Investments for NY’s Aging Infrastructure
(March 2014).
Senate Bill S.5501.
social infrastructure projects; (iii) empowers
all governmental entities within the
State to utilize P3 procurements; and (iv)
establishes procedures for accepting and
evaluating unsolicited bids from proposers.
Summary of key provisions
Oversight committee
The proposed oversight committee will
be tasked with establishing procurement
guidelines, providing resources and
advisory services to procuring authorities
or local governments, approving P3
projects with construction costs valued
at more than $500m and ratification of
all P3 procurement procedures to ensure
uniformity across the State.
Transportation and social infrastructure
The legislation provides for one legislative
solution which authorizes P3 procurement
for both social and transportation projects.
This is in contrast to other states which
have traditionally tested the P3 waters
with transportation projects and then,
after successful implementation, have
authorized social infrastructure projects.
Given that the P3 market in North America
has matured over the past several years,
and the sophistication of many of NY’s state
agencies such as DASNY, NY should be well
positioned to accomplish both types of
projects simultaneously.
Granting broad authority
Only a handful of states currently
authorize P3 procurement by local
governmental entities. Most states,
in order to retain autonomy over P3
procurements, will authorize several state
departments (typically, a transportation
and/or a housing authority) to act as
procuring authorities on behalf of other
governmental entities within the state.
NY’s legislation provides the flexibility
to have both local authorities and local
governments acting as their own procuring
authority, as well as to utilize state
resources if required. Additionally, under
existing NY law, local governments are
authorized to establish local development
corporations for the purpose of engaging
in activities which “lessen the burdens of
government”. The proposed legislation
authorizes local governments to establish
bespoke local development corporations
for the purpose of procuring P3 projects,
entering into concession agreements and
issuing tax-exempt revenue bonds to
finance the relevant infrastructure.
Unsolicited bids
In order to unlock the private sector’s
creative capability, the legislation devotes
a provision to the receipt of unsolicited
bids. The legislation requires the lead
public entity for the proposed project to
commence a preliminary evaluation of the
unsolicited proposal and to hold a public
hearing as required under State law. The
lead public entity may charge a reasonable
fee for evaluating unsolicited proposals and
is required to solicit other bidders, but is not
required to receive a qualifying bid in order
to move forward with the project.
Additional components of the legislation
Further components of the NY P3 Enabling
Legislation include the following:
• Payment to unsuccessful bidders:
Unsuccessful, qualifying shortlisted
bidders may be entitled to a stipend of up
to 0.25 per cent of the total project cost.
• Organized labor commitments: Prior
to passing P3 Enabling Legislation,
Maryland and Pennsylvania entered into
lengthy negotiations with their states’
strong and influential labor unions and
ultimately passed legislation, including
a number of protections, for those
constituencies. Similarly, in NY, without
organized labor’s support, P3 Enabling
Legislation would not be feasible.
Accordingly, the current legislation
requires all existing public sector
employees to retain their positions and,
among other protections, provides for
private sector employees to receive a
prevailing wage.
• Eminent domain powers: Local and
State procuring authorities are able
to exercise eminent domain power to
acquire essential property to develop an
approved P3 project.
venture into P3. In February 2014, as part of the
Governor’s budget proposal, specific enabling
legislation was introduced to the State
Legislature authorizing DASNY to potentially
procure the Wadsworth Labs Project as a
P3. However, due to a lack of understanding
by, and miscommunication between, the
legislature and the relevant stakeholders, the
legislation was not ultimately ratified. In order
to revitalize the effort, DASNY is co-ordinating
with Ashurst and AECOM to develop a series
of educational meetings with Legislators
and State Department staff members in the
coming weeks and months. These sessions
will be critical to educating Albany’s5 key
decision-makers on the benefits of P3
and the mechanics for implementing an
effective program.
Next steps for broader P3 projects in NY
Senator Ball’s legislation is still awaiting
committee approval, but may receive a
significant boost after recently completing
several months of negotiations with NY’s
leading organized labor unions. Should the
legislation achieve public endorsement
from any of these organizations, the
5
DASNY P3 legislation
DASNY began exploring P3 as a mechanism
for procuring social infrastructure projects
in 2011 and engaged KPMG and AECOM to
act as its advisors. After reviewing a number
of potential projects, DASNY selected the
Wadsworth Labs Project to serve as its first
The state capital of New York.
Jason Radford
Partner, New York
T: +1 212 205 7006
legislation will stand a significant chance
of being passed6. Senator Ball recently
announced his retirement from the Senate,
and will probably pass the P3 reins to the
chair of either the Senate Transportation
Committee or the Senate Infrastructure
Committee before year-end. It should
also be borne in mind that this year is an
election year for the Legislature and the
Governor. Such electoral uncertainty can
act as either a deterrent or an accelerant,
depending on a variety of political variables.
As a result, it is difficult to predict clearly
whether the legislation will become a
campaign year issue and pass during a
special session7 or will be delayed until the
2015 session when less volatility is in the air.
In either scenario, it is anticipated that NY
will probably begin P3 procurements in 2015,
which will be a significant milestone for
the industry and represents the continued
strength and growth of the US P3 market.
6
7
New York’s legislature is a part-time body, and
is scheduled to be in legislative session from 1
January through 19 June of each year (although
occasionally the legislature can be called back
for a special session between 20 June and 31
December by request of the Governor).
For example, Design-Build legislation passed
during a special session in December 2011.
Matthew Neuringer
Associate, New York and
Chairman of Senator Ball’s P3
Advisory Committee
T: +1 646 457 8838
Indonesian Seaports
The current legal landscape
by Noor Meurling, Priyatna Yoopie, Avinash Panjabi and Indra Dwisatria
Indonesia has been identified as one of the most
exciting and rapidly growing markets in Asia. As the
world’s largest archipelago with a total sea area of about
three million square kilometres and 17,508 islands, and
with container freight volumes projected to at least
double between 2012 and 2020, shipping and seaports
form a fundamental part of Indonesia’s commerce.
Enabling seaport infrastructure and the efficient
functioning of Indonesian seaports is therefore seen
as a key element to the country’s prosperity.
To this end, the Indonesian Government
moved in 2008 to reinvent its seaport and
shipping sectors through Shipping Law
Number 17/2008, dated 7 May 2008 (the
Shipping Law). Most notably, the Shipping
Law disbanded the long-held monopoly of
seaport services by Indonesia’s state-owned
entities, and separated the functions of
the Government and the operator, thereby
opening the seaport industry to private
sector participation.
Against this background, this article looks
at the key regulations in Indonesia’s seaport
industry and the main issues which arise.
Regulatory regime
Indonesia’s federal structure
Indonesia’s regulatory regime provides
for a central government and a system of
local government representation from its
some 34 provinces and 508 regions and
municipalities. This system of government
was introduced in 1999 as part of the
decentralisation programme and is now a
fundamental part of Indonesian government.
At the central level, seaports fall within
the ambit of the Ministry of Transport (MOT).
At the provincial and regional levels, seaports
fall within the ambit of the local governments,
led by a Governor/Regent (Bupati)/Mayor
(Walikota) and an executive structure.
State port corporations
Prior to the enactment of the Shipping Law,
the operation of Indonesia’s seaports was
based on an effective monopoly enforced
throughout the archipelago and operated
by, or via, four state-owned enterprises:
Pelindo I, Pelindo II, Pelindo III and Pelindo IV
(the Pelindos). The Pelindos were established
in 1983 to manage some 91 public
commercial ports, and changed status in
1991 to become private limited companies
owned by the Government of Indonesia.
Until the introduction of the Shipping
Law, the Pelindos acted as both operator
and port authority. The policy intent of the
Shipping Law was to increase investment in
the country’s seaport infrastructure (which
is evidenced by, among other things, the
operating procedures which have now been
introduced, aimed at increasing efficiency
and reducing congestion) and to introduce
competition into Indonesian seaports
by removing the state monopoly on the
operation and development of seaports.
When the Shipping Law was introduced,
foreign investment in the seaport sector
was restricted to 49 per cent ownership.
This lack of majority shareholding was a
problem for foreign investors otherwise
prepared to invest in this sector following
the enactment of the Shipping Law.
Signalling again the Government’s intent to
reinvent Indonesia’s seaports and to boost
private sector investment in the country’s
seaport industry, the latest Negative
List1, issued on 24 April 2014 (Presidential
Regulation Number 39 of 2014) extends
foreign investment in seaport development
and operations to 95 per cent.
Current regulatory framework
As is not uncommon in Indonesian
legislation, the Shipping Law itself was
issued as a generic document, leaving
the details of some key concepts to be
expanded in subsidiary (implementing)
legislation. Implementing regulations to the
Shipping Law, issued as of May 2014, are:
• Government Regulation Number 61 of
2009 on Port Affairs (GR 61/2009);
• MOT Regulation Number KM 62 of 2010
on the Organisation of Port Administrator
Unit (as amended by MOT Ministerial
Regulation Number PM 44 of 2011); and
• MOT Ministerial Regulation Number
PM 35 of 2012 on the Organisation of
Main Port Authorities and the MOT
Ministerial Regulation Number PM 36
of 2012 on the Organisation of Harbour
Masters and Port Authorities.
The Shipping Law introduced jurisdictional
port authorities (Port Authorities), and
changed the status and scope of the
Pelindos to port operators (Port Business
Entities). Both the Shipping Law and GR
61/2009 authorise the Pelindos to continue
operations at their respective seaports,
subject to the requirement to adjust their
legal mechanisms to comply with the
Shipping Law.
Ministry of Transport
The MOT is responsible, under the Shipping
Law, for co-ordinating sea transport
by issuing relevant licences, managing
1
The Negative List sets out the industry sectors
open to foreign investment and the percentage
of permitted foreign ownership in these sectors.
and supervising commercial and noncommercial ports, and approving plans
submitted by the Port Authorities for the
development of seaports within their
jurisdiction, as well as the critical role of
issuing some of the regulations required to
implement the Shipping Law. The MOT is
also responsible for the long-term planning
of seaports and issues the National Seaport
Master Plan (see below).
Port Authority
The Shipping Law and GR 61/2009 provide
that seaport construction, expansion and
operation are to be conducted by a Port
Authority2. The Port Authority is charged
with the authority to grant concessions
to a Port Business Entity in respect of the
development and operations of seaports; to
prepare the Port Master Plan; to prepare plans
for the development of seaports within its
jurisdiction in respect also of work, interest
and recreational areas of the seaports; and to
propose the tariff structure for the utilisation
of water and/or land areas, as well as for the
utilisation of seaport facilities and services.
2
A Port Authority should be distinguished from a
Port Administrator Unit, the former being found
in the larger, more commercial, seaports. Currently,
there are around 100 Port Authority offices and
186 Port Administrator Unit offices throughout
Indonesia. The term “Port Administrator” covers
both Port Authorities and Port Administrator Units.
Port Business Entity
A Port Business Entity is charged under the
Shipping Law with providing facilities and/
or services in respect of:
• vessel berthing and/or anchorage;
• fuel and clean water supply;
• embarkation and disembarkation of
passengers and/or vehicles;
• loading and unloading of goods,
containers and equipment;
• warehousing;
• terminal facilities for loading containers,
liquid bulk and dry bulk;
• roll-on and roll-off terminals;
• stevedoring services;
• provision of goods distribution and
consolidation centres; and
• towage services.
A private entity, whether wholly domestic
or an Indonesian incorporated foreign
investment entity, may now participate in
the provision of services at public seaports
in Indonesia, subject to obtaining the status
of a Port Business Entity by obtaining a
licence from the MOT3.
3
Under GR 61/2009, the MOT or a Governor or
Mayor, as applicable, may issue the port business
licence granting Port Business Entity status.
Licence
(Construction,
Expansion & Operation)
Ministry of
Transportation
Concession (by tender)
Port Authority
Port Business Entity
Port Business Entity Licence
Types of seaports in Indonesia
There are four types of public seaport in
Indonesia:
• main ports;
• collecting ports;
• regional feeder ports; and
• local feeder ports.
National Seaport Master Plan
As part of the initiative for integrated
seaport planning, promoted by the Shipping
Law, the construction of new seaports or
the expansion of existing ones must be part
of a National Seaport Master Plan (NSMP).
Article 71 of the Shipping Law stipulates that
the NSMP must be issued for a period of 20
years but may be revisited once every five
years. Additionally, Article 73 of the Shipping
Law provides that every seaport must have
its own seaport master plan which must
include a land and sea allotment plan and
which must be based, among other things,
on the NSMP.
Concessions
A Port Business Entity may operate a
public seaport pursuant to a concession
granted by the relevant Port Authority by
way of a tender process (Article 74.2 of
the GR 61/2009) in accordance with the
prevailing regulations. The Shipping Law
allows for a concession period which will
be determined, based on an agreed return
on investment plus an appropriate profit.
The concession agreement must specify,
inter alia, the term of the concession and
the tariff formula. On the expiration of the
concession period, the right to operate the
seaport is returned to the relevant Port
Authority. Concessions which have been
issued by Port Authorities, pursuant to the
Shipping Law, include:
• a concession for the Development and
Operation of the Belawan Container
Terminal Phase II (Pelindo I);
• a concession for the Construction and
•
Operation of the Kalibaru Terminal of
the Tanjung Priok Port (Pelindo II); and
a concession to provide Channel
Services in the West Surabaya Sea
Channel (Pelindo III).
GR 61/2009 specifies that a Ministerial
Regulation pursuant to the Shipping Law,
specifying the procedures in respect of
granting of concessions, should be issued as
implementing legislation. This regulation has
not been issued to date. The delay in issuing
this regulation has been of some concern to
investors as, pending the issuance of clear
directions on the procedures for granting
concessions, investors will need to agree with
the relevant Port Authority and, as applicable,
the MOT, the interpretation of the provisions
in the Shipping Law and GR 61/2009 relating
to the granting of a concession. Acceptance
by lenders and other stakeholders of the
position taken by the investors in this regard
will also be fundamental .
Private ports
Besides the four categories of public
seaports in Indonesia, there are also two
types of private port: a special terminal
located outside a seaport area, and a private
interest terminal which is located within a
seaport area.
These terminals may be developed
and operated by a private company or
government and are limited to specific
uses, i.e. government activities (research,
education or training) or business (mining,
forestry, oil and gas). Private entities,
including Indonesian foreign investment
entities, may, therefore, develop and operate
private ports.
Conclusion
While continuing issues on the
implementation of the Shipping Law
remain, there have been clear signals of
positive private sector interest in Indonesia’s
seaports. Investors can now choose to invest
in Indonesian seaport development through
the public private partnership (PPP) model
or to establish joint venture companies with
a Pelindo. There will also be the opportunity
to buy shares in the Pelindos once they are
listed on the stock market.
In the next five years, the Indonesian
Government plans to expand at least 26
seaports. The Government sees its role
in developing the seaports of Indonesia
diminishing as 2030 draws closer, with
that of the private sector increasing,
and acknowledges that the underlying
challenge will be to source the huge
investment needed from the private sector.
The Government’s concern in this regard is
reflected in the recent expansion of foreign
equity allowed in Indonesia’s seaport
industry from 49 per cent to 95 per cent.
Time will tell whether this strategy has
been a successful one.
Oentoeng Suria and Partners (in association with Ashurst), Jakarta
Noor Meurling
Avinash Panjabi
Senior Foreign Legal Counsel, OSP/
Partner, Ashurst
T: +62 212 996 9202
Senior Associate, OSP
T: +62 212 996 9235
Priyatna Yoopie
Indra Dwisatria
Counsel, OSP
T: +62 212 996 9235
E: priyatna. [email protected]
Senior Associate, OSP
T: +62 212 996 9222
Stop press:
Ashurst advises on award-winning deals
At award ceremonies held earlier this year, Ashurst has been
acknowledged in eight prize-winning deals at the Project Finance
Europe and Africa Deals of the Year Awards and the Project Finance Latin
America Deal of the Year Awards. In addition, we have been awarded an
“Advisor of the Year” award for Renewables at the Infrastructure Journal
Awards. Commenting on Ashurst’s success, Global head of Energy, Real
Estate, Resources and Infrastructure Mark Elsey said: “We are delighted
to have been involved in some of the most complex and ground-breaking
projects to have successfully closed over the last year. These deals
demonstrate the breadth and quality of our practice and they reinforce
our position as operating at the forefront of the market.”
Case Study: Brebemi toll road PPP, Italy
Ashurst has been recognised at the Project Finance International
Awards 2013 for having advised the lenders on the Brebemi toll
road PPP, which was named European Infrastructure Deal of the Year.
Ashurst advised the lenders on the €1.8bn deal, which was
the first green-field toll road project financing to reach financial
close in Italy. Noted for its complexity in the context of continued
market difficulties, the deal was also highlighted as providing a
blueprint for the funding of other toll road projects.
Ashurst adds further depth to Australian infrastructure team
Two partners are set to join Ashurst’s highly
successful infrastructure practice in Australia.
Angus Foley will join Ashurst from Clayton Utz, and
Harvey Weaver will be relocating from Ashurst’s Tokyo
office to Sydney. Both will take up their new positions
in the infrastructure and transport practice from
1 July. Angus will bring a diversity of legal and commercial expertise
from his time at Clayton Utz and, prior to that, with Crédit Agricole
CIB, one of the world’s leading project finance banks where he led a
series of transactions across the infrastructure and transport sectors.
Harvey has extensive international experience in the
development of large scale infrastructure projects
from working in the UK, Hong Kong and Tokyo. He
has worked on PPP and concession-based projects
around the world, with particular expertise in
transport and energy projects. He advises on both
project development and financing.
Lee McDonald, head of Ashurst’s transport practice in Australia,
commented: “We see a growing demand for infrastructure in
the Australian market and a commitment by federal and state
governments to adopt clever and innovative delivery models for major
projects. Harvey and Angus will further reinforce our Australian delivery
capability by building on our model of providing our clients with the
very best combination of domestic and international expertise.”
Vice-Chairman of Ashurst Australia-based Mary Padbury said:
“Our infrastructure team has enjoyed significant success recently and
is now working on projects of national significance – from the $8bn
Alpha Coal and $18.5bn Gladstone LNG projects to the $1.6bn light rail
PPP in Sydney, just to mention a few. There is no doubt that our clients
and our infrastructure team will benefit enormously from the arrival of
Angus and Harvey.”
This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred
to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For more
information please contact us at Broadwalk House, 5 Appold Street, London EC2A 2HA T: +44 (0)20 7638 1111 F: +44 (0)20 7638 1112 www.ashurst.com.
Ashurst LLP and its affiliates operate under the name Ashurst. Ashurst LLP is a limited liability partnership registered in England and Wales under
number OC330252. It is a law firm authorised and regulated by the Solicitors Regulation Authority of England and Wales under number 468653.
The term “partner” is used to refer to a member of Ashurst LLP or to an employee or consultant with equivalent standing and qualifications or to an
individual with equivalent status in one of Ashurst LLP’s affiliates. Further details about Ashurst can be found at www.ashurst.com.
© Ashurst LLP 2014

JUly 2014

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