Strategic risk

Natural gas distribution Natural gas distribution

Description (What is the Risk)

Change in shareholding of Private Partner.
Conflicts of interest between shareholders of Private Partner.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

Bids are awarded on the basis of the Private Partner's technical expertise and financial resources. The Contracting Authority will often want to ensure that the sponsors, particularly founding sponsors, to whom the project is awarded remain involved for a minimum period of time.

Mitigation Measures (What can be done to minimize the risk)

Contracting Authority will limit Private Partner's ability to change shareholding for a specified minimum period (i.e. lock-in for construction period) and thereafter may impose a regime restricting change in control without consent or where pre-agreed criteria cannot be met.

Pre-tender proposal should set out proposals for governance of Private Partner.

Where Private Partner proposes a change in shareholding within that lock-in time, Contracting Authority may consent where the new owners meet specified criteria regarding equivalent technical expertise and financial resources.

Comparison with Emerging Market

In developed markets, the lock in periods and conditions are typically less restrictive than in developed markets with Contracting Authorities' being more comfortable with changes in shareholding to equivalent owners.

In some situations the Contracting Authority will rely upon the ROT project retaining an investment grade status following any share transfer.

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Description (What is the Risk)

Change in shareholding of Private Partner.
Conflicts of interest between shareholders of Private Partner.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

Bids are awarded on the basis of Private Partner's technical expertise and financial resources. The Contracting Authority wants to ensure that the sponsors, particularly founding sponsors, to whom the project is awarded remain involved for a minimum period of time.

Mitigation Measures (What can be done to minimize the risk)

Contracting Authority will limit Private Partner's ability to change shareholding for a specified minimum period (i.e. lock-in for construction period) and thereafter may impose a regime restricting change in control without consent or where pre-agreed criteria cannot be met.

Pre-tender proposal should set out proposals for governance of Private Partner.

Where Private Partner proposes a change in shareholding within that lock-in time, Contracting Authority may consent where the new owners meet specified criteria regarding equivalent technical expertise and financial resources.

There may be express restrictions on changes to the constitution of the Private Partner or shareholder arrangements.

Comparison with Developed Market

In emerging markets, the lock in periods and conditions are typically more restrictive and longer than in developed markets.

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