Risk Management in Transport PPP Projects
In the Islamic Countries
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Specifically, about contract renegotiation, the Turkish Authorities consulted as part of the study
report that in order to mitigate the risk of contract renegotiation, which may require lengthy
and complicated negotiations, provisions are included in the contracts that relate to possible
adjustments of the contractual terms, without affecting the validity of the contract itself. In the
event a contract should be renegotiated to maintain its validity, this would anyway require
undergoing the same authorization steps for its approval at the stage of its original signature.
5.7.7. End of contract
Contract return
Compared to the total PPPs in the transport sector the number of completed projects is very
limited and mainly related to the airport sector. No cases of early termination due to the
underperformance of the contractor at the construction and or operation stages appear to have
occurred, whereas one case of early contract termination has been identified based on existing
literature, which relates to the Sabuncubeli Tunnel PPP initiative, due to bankruptcy of the
contractor.
Early termination of PPP contracts is possible as per Turkish legislation in the event of severe
circumstances, such as grave underperformance or misconduct or negligence of the contractor
resulting in the violation of the PPP contractual provisions, bankruptcy, insolvency of the PPP
company and debt composition. Early termination may also be associated with force majeure
events. According to Turkish legislation and practice, these are also to be specified in the PPP
contract.
In case of early termination because of default of the contractor, the debt-based compensation
mechanisms has been recently adopted in some Turkish PPP transport projects, which as
described in previous sections above represents an incentive measure to attract foreign
investors and ensure bankability of PPP projects (European PPP Expertise Centre, 2013). If early
termination is determined by default of the public party resulting for instance in the lack of
payment of subsidies and or availability payments by the procuring authority, the latter retains
liabilities for the payment of financial compensations (European PPP Expertise Centre, 2013).
Box 48 Early termination: the case of Sabuncubeli Tunnel
Sabuncubeli Tunnel is a 4 km long tunnel acting as by-pass for the existing Izmir – Ankara
motorway in the mountainous region of Sabuncubeli, where the gradient of the motorway
increases, the speed decreases and road closures are possible in winter. The tunnel aimed to solve
these problems, increase road safety and reduce travel time by 30 minutes.
The contract was signed in 2011 with Kocoglu Construction, within the scope of a BOT contract,
with a total investment of 56.9 million USD in 2015 value. The total contract period was almost 13
years and the remuneration scheme of the project guaranteed also a minimum revenue for the
contractor (Özcan, 2018); tunnel opening was expected to be in 2015.
Nevertheless, in 2014 the private partner went into bankruptcy. KGM was forced to end the BOT
contract and retendered the project through traditional public procurement procedures (Özcan,
2018). Sabuncubeli Tunnel was finally opened to traffic in June 2018, 3 years later than expected.