Risk Management in Transport PPP Projects
In the Islamic Countries
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Box 24 Contract termination: the Beira Railway Company Concession
In the 2012 World Bank Implementation Completion and Results Report No: ICR2154 of the
Companhia dos Caminhos de Ferro da Beira (Beira Railway Company) the World Bank comments
on the appropriateness to avoid as far as possible the termination of a PPP contract due to the
costs this implies for the involved parties in terms of undergoing an arbitration procedure (WB,
2012).
In their Assessment of Public-Private Partnerships in Mozambique, Fischer & Nhabinde
recommend in this respect the opportunity of defining conflict resolution mechanisms at the
general level in the PPP law and not at the contractual level as this reduces the transaction costs
associated with the contract termination procedures (Fischer & Nhabinde, 2012).
Considering that according to the legislation PPP contracts in Mozambique have a fixed and
variable concession fee, the use of bonus/malus schemes may be considered for the
management of the variable fees as an incentive to maximize the throughput of the different
concessions. On the other hand, the implementation of such solutions requires strong
Regulatory Authorities and should be preferably associated to schemes where the public and
private party are clearly separated on the client and provider sides in order to avoid conflicts
within the SPVs for the possible responsibilities in terms of possible underperformance of the
projects in generating demand and/or revenue premium target volumes.
Contract renegotiation
Amendments or changes to the contract terms shall take the form of contractual addenda and
require undergoing the same approval process followed for the signature of the original
contract. Changes shall be mutually agreed by both parties. Contractual changes are deemed
possible to reflect the impact of causes independent from any of the contracting parties that
could be reflected in an extension of the contract duration or modification of the construction
or operation phases. Risk-benefit allocation clauses or the economic-financial performance
parameters or prices and tariffs should not be changed.
Changes in the ownership/contract assignment are possible specified that the criteria requested
at the tendering stage are also met by the replacing entity and subject to express agreement by
the procuring authority. The transfer of a PPP contract is in any case considered an exceptional
measure that needs to be justified as beneficial to the national society. The replacing entity has
also to explicitly assume contractual obligations in front of the procuring authority and the
operation shall occur under financial guarantee by the transferee. The legislation on PPPs allows
for the restructuring of an SPV due to financial problems, specified that lenders are not allowed
to take control of the PPP project (lender step-in rights) in the event of default by the private
partner or underperformance of the contractor.
Dispute resolution mechanisms are also appropriately considered by law which are to be
included in PPP contracts, mediation and arbitration measures include international arbitration