Structuring Public Private Partnerships

---
name: structuring-public-private-partnerships
description: Designs PPP structures with risk allocation, availability payment mechanisms, and value-for-money analysis for public sponsors. Use when structuring PPPs, analyzing risk allocation, or evaluating VfM for public sector clients.
tags:
  - infrastructure-and-project-finance
  - risk
metadata:
  author: casemark
  practice_areas:
    - Project Finance
    - Infrastructure Investment
    - PPP
  document_types:
    - Report
  skill_modes:
    - Analysis
---
# Structuring Public Private Partnerships

Designs PPP structures with risk allocation, availability payment mechanisms, and value-for-money analysis for public sponsors.

## When To Use

- A public sponsor is evaluating whether to procure an infrastructure project through a PPP versus traditional public procurement
- Structuring the contractual and financial framework for a new PPP concession (transport, social infrastructure, utilities, digital)
- Analyzing or revising risk allocation between public authority, SPV, and private consortium members
- Building or reviewing an availability payment mechanism, demand-risk model, or hybrid revenue structure
- Conducting a value-for-money (VfM) assessment comparing the PPP option to a public sector comparator (PSC)
- Advising on bankability concerns raised by lenders or rating agencies during financial close preparation

## Inputs To Gather

- **Project description**: asset type (road, hospital, school, water treatment, etc.), capacity, location, estimated capex
- **Procurement stage**: pre-feasibility, outline business case, preferred bidder, or financial close
- **Public sector comparator (PSC)**: raw cost estimate, discount rate, and risk-adjusted figures if available
- **Risk register**: identified project risks with preliminary allocation (construction, demand, availability, regulatory, force majeure, FX)
- **Revenue model preference**: availability-based, demand-based, or hybrid; any affordability ceiling set by the public authority
- **Concession term**: proposed duration and basis for determination (asset life, debt tenor, fiscal constraints)
- **Fiscal and legal framework**: applicable PPP law or enabling legislation [VERIFY], any sovereign guarantee or viability gap funding constraints
- **Lender requirements**: target DSCR, debt tenor limits, reserve account expectations, step-in rights expectations

## Workflow

1. **Define the PPP model**
   - Select structure type: DBFOM, DBFM, BOT, concession, availability PPP, or joint venture
   - Map the delivery scope — design, build, finance, operate, maintain, transfer — to the chosen model
   - Confirm alignment with the jurisdiction's PPP legal framework [VERIFY]

2. **Build the risk allocation matrix**
   - List all material risks: construction (cost overrun, delay), demand/volume, availability/performance, regulatory change, inflation/FX, force majeure, residual value
   - For each risk, assign to the party best able to manage it (public authority, SPV, constructor, operator, insurer)
   - Flag risks where allocation is contested or non-standard and note bankability implications
   - Document retained risks that remain with the public authority and quantify their expected cost

3. **Design the payment mechanism**
   - For availability-based PPPs: define the unitary charge, availability standards, performance deduction regime, and payment frequency
   - For demand-based concessions: set toll/tariff structure, minimum revenue guarantee (if any), and revenue-sharing thresholds
   - For hybrid models: specify the fixed availability component versus the variable demand component and their relative weighting
   - Build in adjustment mechanisms for inflation indexation, benchmarking/market testing of soft services, and refinancing gain-share

4. **Conduct value-for-money analysis**
   - Construct the PSC: base cost + transferable risk value + retained risk value + competitive neutrality adjustments
   - Construct the PPP reference model: expected unitary charge stream (or net public cost) discounted at the same rate
   - Compare NPV outcomes; sensitivity-test the discount rate, risk valuation, and optimism bias assumptions
   - Present qualitative VfM factors: innovation incentives, whole-life costing discipline, output specification flexibility

5. **Assess bankability and fiscal impact**
   - Verify target DSCR coverage (typically 1.20x–1.40x for availability PPPs [VERIFY]) against the payment mechanism
   - Check concession term against asset useful life and debt amortization profile
   - Quantify the public authority's contingent liabilities: termination compensation, minimum revenue guarantees, government step-in obligations
   - Confirm fiscal treatment — on/off balance sheet under applicable accounting standards (IPSAS 32, ESA 2010, or GASB [VERIFY])

6. **Document the structure**
   - Produce a structure diagram showing contractual relationships (public authority, SPV, EPC contractor, O&M contractor, lenders, equity investors)
   - Compile the risk allocation matrix in tabular form with rationale for each allocation
   - Summarize payment mechanism terms, VfM conclusions, and bankability assessment

## Output

Deliver a **PPP Structuring Report** containing:

- **Executive summary**: recommended PPP model, headline VfM result, and key risk allocation decisions
- **Structure diagram**: visual map of all contractual parties and fund flows
- **Risk allocation matrix**: tabular risk-by-risk allocation with rationale and residual public exposure
- **Payment mechanism specification**: unitary charge formula or tariff structure, deduction regime, indexation, and gain-share terms
- **VfM analysis**: PSC versus PPP NPV comparison with sensitivity tables
- **Bankability assessment**: DSCR coverage, debt sizing implications, and lender-flagged issues
- **Fiscal impact note**: contingent liability quantification and accounting classification
- **Key assumptions and limitations**: discount rate, risk pricing methodology, data gaps marked with [VERIFY]

## Quality Checks

- Risk allocation reflects the "allocate to the party best able to manage" principle — no risk is left unallocated or double-counted
- Payment mechanism deductions are calibrated to incentivize performance without creating a bankability gap (deductions do not erode DSCR below lender minimums)
- PSC and PPP cash flows use the same discount rate, project timeline, and inflation assumptions for a like-for-like comparison
- Concession term is justified by reference to asset life, debt tenor, and equity return expectations — not arbitrary
- All jurisdiction-specific legal requirements, accounting standards, and procurement thresholds are flagged with [VERIFY]
- Contingent liabilities are explicitly quantified — not hidden in qualitative commentary
- Report distinguishes clearly between confirmed data and assumptions/estimates