Strategic risk

Water Desalination Water Desalination

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

The Contracting Authority wants to ensure that the Private Partner to whom the project is awarded remains involved.

Any bid will be awarded on the basis of the Private Partner's technical expertise and financial resources and for this reason the sponsors of the Private Partner should remain involved in the project.

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

The Contracting Authority will limit the Private Partner's shareholder's ability to change their shareholding for a period (i.e. there is typically a lock-in for at least the construction period) and thereafter may impose a regime restricting change in control without consent or where pre-agreed criteria cannot be met.

The tender documentation should set out proposals for any restrictions on the shareholders of the Private Partner.

Comparison with Emerging Market

In developed markets the Private Partners' desire for certainty of involvement of key participants will need to be balanced with the private sector's requirements for flexibility in future business plans, particularly in the equity investor markets.

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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 remains involved (for sometimes up to 7 years after commercial operation).

The Contracting Authority will typically enter into a shareholders' agreement or founders' agreement with the Private Partner. Often Government entities will take a shareholding in the project company. In some jurisdictions there is an obligation on the project company to offer a certain percentage of its shares to the public via an initial public offering.

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

Contracting Authority will limit Private Partner's ability to change shareholding for a period (i.e. lock-in for construction period).

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

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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