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Submitted by Jeff on

Great comments and really important observations, and my apologies for taking so long to respond.
Continuing with our marriage metaphor, the imbalance is exactly the challenge. Normally the advisers do not represent the couple, but rather each partner has its own adviser. However, the weaker partner (typically the Government in developing countries) rarely spends much on their advisers, which exacerbates the imbalance. This is where donors come in, to provide funding and technical assistance. Still, the Government needs to listen to the advice given. I am a keen advocate of using a mediator, representing the project (like a disputes review board but during contract negotiation and financial close), to try to create more balance, but this costs more money, in an already costly enterprise, so not very popular except for the largest projects.
The PPP Contractual Provisions give different options, not one set of terms, but allowing for difference in context. For less risky countries, private investors and lenders will take much more risk. For more risky countries, and those less familiar with PPP, the Government will need to take a lot more risk. This is true even in the more developed countries. Chile is now the darling of investors, but in the early days of its PPP program it had to give comprehensive guarantees to attract investors. Similarly in Korea, the early projects required guarantees to attract investment (even local investment); such government backstopping is no longer required.
The public interest issue is an interesting one. Government is always in control. No PPP can stop Government from implementing policy changes (law always prevails over contract), but a PPP might require Government to pay if there is damage to the investor. Governments like to see the business world as flexible enough to respond to such changes in policy. In some cases this is true, but a PPP is not a normal business. It is specifically, and intentionally limited to the one single business on somewhat fixed terms. The PPP company cannot diversify or change its business model to adjust to the new policy context, since that business model is fixed by contract. Using the marriage metaphor, given that PPP is a fixed universe, one spouse can decide unilaterally without considering the implication on the other, how the partnership works (we will not buy a new car, we will not get a new washing machine), but they cannot escape the implications of that decisions. In marriage, the impact of the decision is never really known until it hits the fan, in PPP the implication is clear and ideally quantifiable when the decision is contemplated, which should be a big advantage.
It would indeed be wonderful to convince all Governments to agree to complete transparency on all issues relevant to PPP. With each engagement, we seek to achieve this, and more generally we provide advice on transparency, its importance and some of the mechanisms that can be used. But we cannot force Governments to do this, merely encourage and incentivize. On fiscal commitments, the world bank has a little more influence, and we are working with the IMF to use this influence effectively, but this is not an easy discussion with Governments, whether developed or developing.
Local law is pretty universal in PPP agreements, but lending agreements and other sub-contracts are often under different legal regimes, as local law may not be well adapted to the kind of risk allocation sought, and financiers need to refer to a legal regime that syndicate members and secondary markets understand, otherwise the financing gets much more expensive and the project will be much less affordable for Government. Dispute resolution is different. Unfortunately few countries have court systems and procedures that foreign investors might perceive as reliable or fair. International arbitration was developed for such purposes and is used even in developed countries to protect investors from the vagaries of certain court systems, and as important from the perception of bias. Going back to the marriage metaphor, imagine if in your marriage your mother in law was given the power to decide any marital squabble. In some cases, that might be OK. But in most, it would be unwelcome.
Thanks again for these comments, really helpful and interesting.
Jeff Delmon