InfrRead Sept 15

Issue 6: SEPTEMBER 2015
Transportation financing in
the US: expanding the options
available for P3s
by Charles Williams, Erin Tobin and Katayoun Sadeghi
Dispute boards: the long-awaited panacea

for disputes on infrastructure projects?
by Georgia Quick, Dyfan Owen and Ashleigh Vumbaca
Infrastructure Act 2015: a road map for

investment in Englands Strategic Road Network
by Nicholas Hilder
Turning waste into power: opportunities

and developments in the GCC
by Cameron Smith, Jennifer Moore and Alice Cowman
Road infrastructure in Africa: a step-by-step

guide to avoiding potential potholes
by Michel Lequien and Jacques Dabreteau
Philippines PPP:
prospects and challenges
by Matt Rickards and Anna Hermelin
An overview
of this issue
I am delighted to introduce this sixth issue of InfraRead, our biannual publication covering a
range of legal and transactional issues within the transport and infrastructure space. This is a
truly global issue, with commentary and insight from our offices right across the world looking at:
TRANSPORTATION FINANCING IN THE US (p3) The US federal government and various state
governments have been encouraging the development of transport infrastructure by passing
enabling finance-related legislation, expanding the menu of funding options for developers. Charles
Williams, Erin Tobin and Katayoun Sadeghi examine the current funding landscape for publicprivate partnerships (P3s) in the US, as well as giving their thoughts on what the future may hold.
DISPUTE BOARDS (p8) A prudent foresight in preparing for the inevitable or a costly additional
overhead? Georgia Quick, Dyfan Owen and Ashleigh Vumbaca investigate the pros and cons of
using dispute boards on infrastructure projects.
INFRASTRUCTURE ACT 2015 (p13) A step-change in road investment? The Infrastructure Act
2015 marks a change in the UK Governments approach to funding Englands Strategic Road
Network. Nicholas Hilder explains the key changes as he outlines the Governments new Road
Investment Strategy.
Turning waste into power (p16) Waste-to-energy (WtE) projects offer a solution to two
problems faced by governments globally: managing waste and providing alternative sources of
power. Cameron Smith and Jennifer Moore, together with Alice Cowman, Senior Energy Consultant
at Adam Smith International, consider the role of WtE projects in the Gulf Cooperation Council region.
ROAD INFRASTRUCTURE IN AFRICA (p21) Modern, safe and future-proofed road infrastructure
is essential for Africas continued economic development. Michel Lequien and Jacques
Dabreteau highlight the legal and institutional issues which infrastructure investors need to be
aware of in this diverse and colourful continent.
Philippines PPP (p25) The establishment of a PPP Center and a healthy pipeline of projects
has made the Philippines an attractive destination for overseas investors. Matt Rickards and
Anna Hermelin describe the steps which the Philippines Government has taken to embed PPP
into its national infrastructure strategy.
I hope that you enjoy reading this issue of InfraRead and that you find it useful. Please do get in touch
if you have any feedback or if there are any topics you would like us to include in future editions.
Mark Elsey
Global Head of Infrastructure
T: +44 (0)20 7859 1721
E: [email protected]
2 InfraRead Issue 6 September 2015
TRANSPORTATION FINANCING IN THE US
Expanding the options available for P3s

by Charles Williams, Erin Tobin and Katayoun Sadeghi
The rehabilitation and further development of transportation infrastructure

in the US is widely recognized as an important part of the countrys continued
economic success. To facilitate this, the federal government and a number of state
governments have taken steps to pass various types of legislation to enable the
use of public-private partnerships (P3s) for transportation infrastructure projects.
This article provides an overview of some of
the primary sources of financing available
in the US for transportation infrastructure
projects developed as P3s, including:
(i) Transportation Infrastructure Finance
and Innovation Act (TIFIA) financing;
(ii) private activity bonds (PABs);
(iii) taxable bonds;
(iv) commercial bank loans; and
(v) monoline insurance.
TIFIA financing
Under the TIFIA program, the US
Department of Transportation (the US
DOT), acting by and through the Federal
Highway Administrator, provides loans, loan
guarantees and standby lines of credit to
finance large-scale transportation projects.
TIFIA loans have been a critical source of
funding for many major transportation
projects in recent years. Qualifying projects

must meet certain statutory eligibility
criteria (e.g. relating to their impact on the
environment and their significance to the
national transportation system) and must
undergo review by, and obtain the approval
of, the US DOT.
TIFIA financing can be attractive to P3
developers (and procuring authorities) given
the magnitude of credit available, loan
tenors which are significantly longer than
those currently available from commercial
banks (typically, the length of the underlying
concession minus two years) and favorable
interest rates (especially for projects in rural
areas, which may be eligible for significantly
reduced interest rates).
Utilizing TIFIA financing also presents
certain unique challenges for procuring
authorities and investors. For example,
because the term sheet for a TIFIA financing

is agreed between the US DOT and the
procuring authority during the bid phase,
developers typically have limited input
into this exercise and must assume that
reasonable covenants and other terms
can be negotiated post-award which
introduces certain risks relating to the
predictability of financing terms.
Also, it can take much longer to
negotiate and reach financial close for TIFIA
financing than it would for other forms of
financing, such as commercial bank loans
or PABs, due in part to the amount of time
needed for the loan to receive US DOT
internal credit committee approval. While
developers are typically explicitly allowed
extra time by procuring authorities to
achieve financial close on account of delays
attributable to finalizing TIFIA financing,
InfraRead Issue 6 September 2015 3
such delays can be undesirable from the

perspective of both the procuring authority
and the developer.
There also is not, as yet, a standardized
approach to closing TIFIA financing
alongside other sources of debt, which can
inject uncertainty around the timing and
process for achieving overall financial close
of the project.
Finally, TIFIA debt has traditionally been
subordinated to commercial financing
provided to the developer in terms of
priority of payment and certain intercreditor
decision-making, subject to a statutory
requirement that TIFIA debt springs to
senior parity upon the occurrence of certain
bankruptcy-related events. There is currently,
however, a certain lack of predictability
regarding the extent to which the US DOT
will continue to subordinate itself,
potentially impacting the developers
access to commercial debt and the rating
given by the rating agencies to such
commercial debt.
PABs
Historically, tax-exempt PABs have
proven to be a cost-effective source of
long-term financing for certain types of
infrastructure projects, particularly in the
transportation sector.
Under the US Internal Revenue Code
(the Code), interest earned on tax-exempt
bonds, including PABs, is exempt from
federal and, in most cases, state income tax
in the state in which the bonds are issued.
Due to this tax savings, bond investors
are able to accept lower interest rates on
such instruments than would apply in
the taxable bond market to achieve an
equivalent after-tax return, resulting in
lower borrowing costs for the borrowing
developer and therefore a decrease in its
overall project costs. This tax exemption is
policy driven intended to encourage the
financing of certain types of facilities (e.g.
airports, docks, wharves, roads and transit)
which benefit the public and stimulate
economic development, but which typically
also have significant private involvement.
Under the Code, the interest tax
exemption does not apply to PABs unless
they are qualified bonds. Most PABs issued
in the US to finance infrastructure projects
will qualify for tax exemption as Exempt
Facility Bonds. Within the Exempt Facility
Bond category, there are 15 subcategories,
including qualified highway and surface
freight transfer facilities. Qualified highway
and surface freight transfer facilities were
the subject of specific federal legislation
(the Safe, Accountable, Flexible, Efficient
Transportation Equity Act (SAFETEA)) which

amended 142 of the Code to add this
category of qualified PABs. SAFETEA also
provided a US$15bn funding allocation to
be disbursed among the states by the US
Secretary of Transportation and exempted
this category of qualified PABs from state
volume caps. Other types of qualified
PABs are subject to state volume caps,
which are generally based upon a states
population; SAFETEA exempts issuers
from such limitations thereby broadening
issuers access to this category of PABs. To
date, in 2015 alone, Ashurst has represented
sponsors and underwriters in connection
with the issuance of just under US$1bn of
this type of PABs.
In a typical infrastructure transaction
utilizing PABs, the PABs will be issued by
a conduit issuer (the Issuer), which must
be a state or local government entity
under the Code (i.e. a state or political
subdivision, or a legal entity acting either
as an instrumentality or on behalf of
a state or political subdivision), and the
Issuer will loan the proceeds of the PABs.
The obligation of the Issuer to repay the
principal and interest to bondholders is
documented in a bond indenture entered
into between the Issuer and a trustee acting
on behalf of the bondholders. However,
the underlying credit on the PABs is that of
the entity borrowing the proceeds of the
PABs which, in the case of an infrastructure
project, is the developer. Under the
loan agreement with the developer, the
developer agrees to pay the principal and
interest on the PABs to the Issuer.
Notwithstanding potential costefficiencies, the use of PABs poses certain
challenges. In particular, investors seeking
to access such financing will need to comply
with both complex regulations under the
Code (in order to preserve tax exemption
throughout the life of the transaction)
and certain Securities and Exchange
Commission (SEC) rules and regulations.
Although PABs are exempt from
registration with the SEC, as a security they
are still subject to certain SEC regulations
and to monitoring by the Municipal
Securities Rulemaking Board (MSRB). Rule
15c2-12 of the Securities Exchange Act of
1934 (the Exchange Act) places obligations
on the underwriters of municipal securities
(including PABs), which are in turn passed
on to the developer and sponsors. These
include certain disclosure obligations
prior to the issuance of the PABs, as well
as continuing disclosure obligations. A key
disclosure requirement prior to the issuance
of PABs is the creation and distribution
of an official statement to prospective

investors. In an official statement, all of the
primary entities involved in a transaction
(including the developer, the procuring
authority, the government of the state
in which the project is being developed,
sponsors, contractors and operators) are
required to disclose information about
themselves and the project, including risks
to bondholders, project costs, the form of
revenues supporting the project and the
projects payment schedule. Additionally,
each obligated person, which may include
the procuring authority but will almost
always include the developer, must provide
continuing financial and operational
disclosures, as well as periodic disclosure of
any material events affecting bondholders,
until such time as the PABs mature or are
otherwise redeemed in whole or defeased.
If an entity provides misleading material
information or omits to disclose material
information in the official statement, it
could result in liability under Rule 10b-5
(Rule 10b-5) of the Exchange Act. Proving a
Rule 10b-5 cause of action and identifying
which entity is ultimately responsible for
statements made to investors are beyond
the scope of this article, but sponsors and
developers should be aware of this potential
liability, and of the importance of ensuring
the accuracy of required disclosures to
investors in PABs transactions.
In addition to compliance with SEC
regulations, the Issuer and ultimate
borrowers of the proceeds of PABs must
comply with certain Code regulations in
order to maintain the tax-exempt status of
the bonds. Before issuance of the bonds, the
Issuer must hold public hearings (known as
TEFRA hearings) which are subject to certain
notice requirements and public approval.
There are limitations on the use of proceeds
from bond issuances (e.g. 95 per cent of the
proceeds must be allocated to a qualifying
use working capital does not qualify
but interest during construction qualifies
until the project is placed into service).
This requirement regarding interest during
construction can cause complications with
phased projects, where parts of a project
are already in operation while construction
on other parts continues. An Issuer may
risk losing the tax-exempt status of bonds
should certain project costs not count as
qualifying uses of proceeds. Accordingly, in
such scenarios, equity will typically have to
fill the gap in order to avoid such adverse
treatment under the Code.
Finally, the Code places arbitrage
restrictions on the proceeds of bonds.
Essentially, one cannot borrow in the tax-
exempt market and reinvest the proceeds

of the bonds in the taxable (higher rate)
market. Any arbitrage proceeds must be
rebated to the US Government, unless an
exception under the Code applies. Therefore,
investments of bond proceeds prior to their
disbursement to finance construction of
the project must be carefully monitored to
ensure they do not violate the arbitrage rules.
Unless taxable rates of interest fall at or
below tax-exempt rates, qualified PABs will
remain a significant source of financing for
transportation infrastructure projects in the
US for the foreseeable future.
Taxable bonds
Although PABs, TIFIA loans and commercial
bank debt have been the primary sources
of financing for US transportation
infrastructure projects, depending on
fluctuations in interest rates, the market
for taxable bonds may continue to grow.
This will largely depend on the yield spread
and the yield ratio. The yield spread is
the difference between the interest rate
on taxable bonds (i.e. corporate bonds or
treasury bonds) and the interest rate on taxexempt municipal bonds of equivalent risk
and maturity. The greater the yield spread,
the greater the savings to a developer
looking to finance a project with PABs. The
yield ratio is measured as the average rate
on tax-exempt bonds divided by the average
rate on taxable bonds of like term and risk.
A lower ratio implies a greater savings to

developers which utilize PABs relative to
taxable debt. As the ratio approaches 1:1,
the taxable rate and the tax-exempt rate
begin to converge and a developer may
consider the use of taxable bonds
to finance a project. Additionally, a
developer may seek to use a combination
of PABs and taxable bonds if certain project
costs are not considered qualifying uses
and thus would not comply with the
qualifying use rules referred to above (i.e.
that 95 per cent of PABs proceeds must fund
qualifying purposes).
Should a developer decide to finance
a project using taxable bonds, provided
that such bonds are issued and sold in
a private placement thereby exempting
the securities from registration with
the SEC, the developer would avoid the
burden of complying with the complex
Code regulations and the SECs continuing
disclosure rules applicable to PABs, as
referred to above. In certain instances,
the issuance of registered securities by a
developer is not viable because of the cost
and time involved in registering securities
with the SEC. While the SEC has established
a variety of registration exemptions, the
ones most commonly used by issuers are
private placement exemptions provided
by Section 4(a)(2) (Section 4(a)(2)) of the
Securities Act of 1933 (the Securities Act)
and Rule 506 of Regulation D, which
supplements Section 4(a)(2) by providing

guidance to issuers on how to conduct a
private placement.
Section 4(a)(2) provides a transactional
exemption and only exempts the particular
offering and sale of securities from
registration. Sales of securities under
Section 4(a)(2) are limited to sophisticated
investors which would include qualified
institutional buyers (QIBs) and accredited
investors. Resales of securities must either
be registered or benefit from an available
registration exemption, the most commonly
used resale exemption being Rule 144A
under the Securities Act, which provides
that resale must be to QIBs. Generally, a QIB
is an institution (rather than an individual)
which owns and invests, on a discretionary
basis, at least US$100m in securities. For
certain entities, such as broker-dealers,
banks, and savings and loans associations,
the investment threshold is lower.
Accredited investors, however, includes
individuals whose net worth is more than
US$1m or who have an annual income in
excess of US$200,000 (or US$300,000
jointly with a spouse) and certain other
institutions or trusts with assets exceeding
US$5m. The SECs main objective in
restricting the types of investors to whom
issuers may advertise and sell private
securities is to protect unsophisticated
investors from purchasing securities
which are subject to less disclosure than is
required for registered securities. Issuers of

securities in a private placement should be
aware that under SEC rules and regulations:
(i) there may be a limit on the number of
investors to whom an issuer can market
and sell the securities;
(ii) there will be a prohibition on general
solicitations and general advertising
of the securities;
(iii) there may be an information
requirement (as discussed below); and
(iv) there will be transfer restrictions on
the securities.
Additionally, certain investors must
represent whether they are purchasing
securities for their own account and not
with a view to resale.
If a developer decides to issue taxable
bonds through a private placement,
there are certain precautions it should
take to ensure compliance with the
exemptions under the Securities Act and
the rules governing transfer. For example,
issuers usually receive a letter from each
investor providing the issuer with certain
representations as to, among other things,
their net worth and status in order to verify
their qualification as either a QIB or an

accredited investor. In addition, the actual
bond should contain a conspicuous legend
stating the transfer restrictions on the face
of the bond in order to avoid an improper
transfer of the security, which could then
subject the security to registration with
the SEC.
The issuer will generally be required
to make extensive disclosures to investors,
normally entailing the production of a
private placement memorandum (PPM)
which will include disclosures similar to
those included in an official statement for
PABs. However, the developer and any other
obligors will not be subject to the same
continuing disclosure rules as required with
a PABs issuance. Even so, developers and
sponsors should be aware that the same
Rule 10b-5 anti-fraud provisions addressing
material misstatements or omissions in a
disclosure document presented to investors
will also apply in the case of a PPM.
With taxable bonds (as opposed to
with PABs), the developer may also directly
issue bonds rather than entering into a
loan agreement with a conduit issuer,
eliminating the need to negotiate and agree
documentation with an additional party.

Overall, the reduced level of regulations
and restrictions associated with taxable
bonds in contrast with PABs makes taxable
bonds an attractive financing solution, but
only to the extent that taxable interest rates
are low enough in comparison with taxexempt interest rates to offset the savings
of tax exemption. Of note, taxable bonds
and PABs use different benchmark interest
rates: for taxable bonds US treasuries of
equal maturity; and for PABs a benchmark
municipal index (the specific index selected
may vary based on whether the bonds are
fixed or variable interest rate). Because
of this difference in benchmark interest
rates used, over time, the attractiveness
of taxable bonds versus PABs will vary in
line with fluctuations in such benchmark
interest rates.
Commercial bank loans

A form of debt commonly used to finance
transportation infrastructure in the US,
as in other parts of the world, is the
provision of loans from international and
domestic commercial banks. While such
loans are not accompanied by extensive
US Transportation Infrastructure P3s

(July 2014July 2015)
Deal
Bank financing
I-4 Ultimate
Portsmouth
Bypass
US$484.2m
(short term)
PABs
financing
Monoline
Taxable
bond
TIFIA
financing
N/A
N/A
N/A
(short term and
Bridges
US$103.5m
US$1,537.2m
US$48.9m
US$484.4m
long term)
(short term and
US$208.1m
US$23.7m
N/A
N/A
N/A
N/A
US$58.5m
US$780m
N/A
N/A
US$189m
US$248.4m
US$537.4m
long term)
Pennsylvania
Total
US$949.5m
US$227.4m
N/A
Equity
(short term)
US$721.5m
N/A
(short term and

long term)
I-77 HOT Lanes
N/A
US$100m
disclosure requirements or other onerous

regulatory restrictions, they often carry a
higher interest rate than other forms of
debt available, so may be a less attractive
financing solution for developers. Other
considerations, such as tenor and ease of
negotiation, also play into whether sponsors
are likely to use commercial bank debt; this
is discussed further below.
In the current post-financial crisis
market, commercial banks are typically
unwilling to provide financing for a
tenor of longer than five to seven years.
This is in contrast with other sources of
financing (PABs, for example, may have
final maturities of 30 to 40 years, thereby
matching the entire lifecycle of a project).
Therefore, in order to finance a long-term
P3 concession most efficiently, bank debt
would usually need to be combined with
some other form of long-term funding
(e.g. a TIFIA loan or PABs). In such instances,
bank debt has frequently been used to
fund construction, and is then repaid at
project completion from the proceeds of
any milestone or completion payments that
the developer is entitled to receive from the
procuring authority.
One significant benefit of commercial
bank debt is that it is not subject to the
SEC rules and regulations applicable to
PABs or taxable bonds, or to the complex
Code regulations applicable to PABs on
an ongoing basis. While some form of
Charles Williams
Partner, New York
T: +1 212 205 7014
disclosure document may be prepared for

commercial bank lenders, developers will
not be obligated to provide disclosure
(or incur statutory disclosure-related
liability) prior to lending or on an ongoing
basis (other than that which the developer
contracts to provide in the loan agreement
or other agreements with lenders).
Monoline insurance
Monoline insurance (also known as
financial guarantee insurance) is a potential
enhancement product for transactions
involving PABs financing. While many
of the prominent monoline insurance
companies have not been active in the
market since the global financial crisis
due to their exposure to certain financial
products, there still remains a market for
monoline insurance in the US, albeit a more
limited one. Some of the five main legacy
monolines still maintain relatively strong
ratings and, in certain transactions, may
help establish more favorable financing
terms through wrapping risk on certain
bonds. Although this credit enhancement
adds another financing party and, as such,
some additional complexity to associated
negotiations and documentation, such
difficulties are manageable.
The most important consideration
will be whether the credit enhancement
brought about by the monoline insurance
is beneficial from a pricing and marketing
Erin Tobin
Senior Associate, New York
T: +1 212 205 7024
perspective. It should also be kept in

mind that a significant number of bond
purchasers may prefer to purchase bonds
that are not wrapped (and, thus, have a
lower credit rating) given that such bonds
generally carry a higher yield.
Conclusion
Investors seeking to establish themselves
in the US infrastructure market should be
aware of the various funding solutions
available in addition to traditional
commercial bank debt. This holds true
for the transportation sector and for
infrastructure projects more generally.
While the processes involved in obtaining
TIFIA financing or issuing PABs or taxable
bonds may be comparatively onerous, each
of these forms of financing presents unique
benefits and, in the case of TIFIA financing
and PABs in particular, will continue to
be important sources of financing for
procuring authorities and for any investor
seeking to be competitive in the US market.
While each project presents its own set
of unique challenges (depending on a
variety of factors including the approach
of the procuring authority and legislative
requirements in the relevant state),
if developers have a solid understanding
of the various forms of financing available
to them, their prospects for success will be
significantly improved.
Katayoun Sadeghi
Associate, New York
T: +1 212 205 7088
DISPUTE BOARDS
The long-awaited panacea for

disputes on infrastructure projects?
by Georgia Quick, Dyfan Owen and Ashleigh Vumbaca
The infrastructure industry is increasingly looking at new means of

dispute resolution in an attempt to resolve the large number of disputes
that arise in the sector. The use of dispute boards is one of the more
recent approaches being taken.
As these boards have the advantage of
being informed about the parties and
their potential dispute, they can provide a
cost-effective resolution of the issues before
positions become entrenched. However,
against this must be balanced issues of
procedural fairness, a lack, at present, of
legislative frameworks or accreditation
guidelines, together with limited
mechanisms for enforcement. This leads
one to ask: can these boards live up to all
that they promise?
It is not unusual for commercial parties
to be involved in a dispute at some point
during the course of a contract. In the
construction industry, it is said, the disease
is most advanced.1
1
Justice D. Byrne, The future of litigation of

construction law disputes, Building and
Construction Law Journal, 23 (2007).
A number of factors linked to the largescale nature of infrastructure projects have

led to the proliferation of disputes:
construction projects often involve
complex technical issues and
sophisticated commercial players
dealing in a complicated area of law
which must attempt to regulate the
parties relationship over the extended
period of the projects life;
the complex nature of infrastructure
projects requires specialised expertise,
with scope for disagreement between
experts and legal advisers alike;
the competitive tendering process
common on infrastructure projects may
lead contractors to tender with smaller
margins, and subsequently attempt
to claim contract price adjustments in
order to recoup losses; and
l ate or disputed progress payments

may cause financial pressures to be felt
further down the contracting chain,
resulting in an increased frequency
of claims.
Participants in the 2014 report of our

Scope for Improvement series,2 which
have since 2006 reported on the obstacles
and pressure points in the Australian
construction and infrastructure sectors,
found that disputes are increasing both in
number and value. In addition, participants
indicated that an increase in the size of the
project leads to an increase in the size of the
dispute. In projects where delay costs run to
millions of dollars a day, even a small delay
2
Scope for Improvement 2014: Project pressure

points where industry stands, ashurst.com
(2014).
becomes a claim of considerable value.

According to participants in the Scope
for Improvement reports, the most common
issues in dispute are variations to scope (47
per cent), contract interpretation (38 per
cent), extension of time claims (33 per cent)
and site conditions (19 per cent).
A recent study3 found that the direct
costs of resolving construction disputes
in Australia is between AU$560m and
AU$840m per year. When the indirect costs
of disputes, such as delay and opportunity
costs are included, this figure rises to
AU$7bn annually.
It will therefore come as no surprise
that the construction and infrastructure
industries have been relatively quick to
embrace alternate means of resolving
disputes. One of the latest attempts is
through the use of dispute boards.
What is a dispute board?

Dispute boards are creatures of contract,
described as on-the-run and real-time
procedures. 4 They generally consist of three
independent members jointly selected by
the parties at the beginning of the project.
The parties may also choose to constitute
a dispute board only at the time of a
dispute. This will lower the cost of a dispute
board, but result in a less on-the-run
recommendation. Members are generally
selected on the basis of their experience,
technical qualifications, impartiality and
independence from the project.
Throughout the life of the project, the
members of the dispute board regularly
attend the site with the parties and are
provided with relevant documents, such
as monthly progress reports. The dispute
board continues to operate throughout the
life of the project, attempting to resolve, on
an informal basis, any disputes which the
parties are unable to resolve for themselves.
The contractual arrangement will
determine the specifics of how a dispute
board will function and the procedure to be
adopted but, generally speaking, there are
three main types:
1. Dispute Review Boards (DRBs)
When a dispute cannot be resolved between
the parties, the DRB will hold an informal
meeting. This meeting is more akin to a site
meeting than a trial and generally will not
involve lawyers or experts. Both parties are
usually given the opportunity to present
3
P. Gerber and B. Ong, 21 today! Dispute review

boards in Australia: Past, present and future,
Australasian Dispute Resolution Journal,
22/3 (2011).
D. Jones, Building and Construction Claims and
Disputes, Construction Publications (1996).
their position on the matters in dispute and

may provide the DRB with materials which
will assist it in reaching a conclusion.
The DRB will then issue a non-binding
determination, typically within a short
time-frame. If neither party expresses
dissatisfaction with the recommendations
within a stated period of time, the parties
are generally required to give effect to
the recommendations.
2. Dispute Adjudication Boards (DABs)
DABs first appeared in the International
Federation of Consulting Engineering (FIDIC)
design and build contract (the Orange Book)
in 1995. The main difference between a
DRB and a DAB is that a dispute referred
to a DAB will result in an immediately
binding decision, rather than a non-binding
recommendation. However, parties may also
agree that the recommendations of a DRB
are to be binding if no objections are raised
within a specified time period. For example,
under article 4 of the International Chamber
of Commerces Dispute Board Rules, a DRB
makes recommendations which are binding
provided there is no objection within 30 days.
3. Combined Dispute Boards (CDBs)
CDBs are an amalgamation of DRBs and
DABs. Unlike DRBs and DABs, CDBs are able
to make both binding and non-binding
recommendations. The default position of
a CDB is that it may make a non-binding
recommendation. However, either party
may submit a request for a CDB to make
a binding decision. Unless the other party
objects, the decision will be binding on
both parties.5
The increasing popularity of

dispute boards
In 1996, the Dispute Resolution Board
Foundation was established with the aim
of promoting the use of dispute boards
worldwide. According to the Foundation,
a number of large infrastructure projects
globally have used a dispute board during
the construction phase, including:
the Channel Tunnel project between the
UK and France (US$15.7bn);
the Chek Lap Kok Airport in Hong Kong
(US$10bn); and
the Oresund Fixed Link Bridge in
Denmark (US$820m).
An independent study into the use of
dispute boards in the US found that they
have most frequently been used on highway
projects, as opposed to tunnelling and more
general building projects.6 The use of DRBs
in Australia has followed the same trend,
with State highway departments (especially
in New South Wales) being early adopters.
The Queensland Department of Transport
and Main Roads became the first Australian
organisation to include optional dispute
board clauses in its standard design and
construction contracts.7
According to the Dispute Resolution
Board Foundation, there are currently 52
projects in Australia utilising a dispute
board. These projects range in value
from AU$60m to AU$1.8bn and include
the Sydney Light Rail project and Pacific
Highway upgrade in New South Wales, and
the M5 Legacy Way in Queensland. However,
the extent to which the dispute boards are
6
International Chamber of Commerce, Dispute

Board Rules (in force from 1 September 2004),
art. 6.
C. Menassa and F. Pea Mora, Analysis of

Dispute Review Boards Application in U.S.
Construction Projects from 1975 to 2007, Journal
of Management in Engineering, 26/2 (2010).
P. Gerber and B. Ong, DAPs: A flash in the pan
or here to stay?, Australian Construction Law
Bulletin, 23/8 & 9 (2011).
Dispute
board
Litigation
Arbitration
Expert
determination
Available outside of the contract terms?
Available before a dispute has arisen?
Procedure determined by the parties?
Are costs front-loaded?
Possibly
Possibly9
Possibly10
Possibly11
Consideration
Dispute heard by an industry expert?
Is the court, tribunal or expert(s)

familiar with the project prior to the
dispute being referred?
Formal, more lengthy process?
Ability to formally submit evidence
which can be cross-examined?
Ability to obtain relevant documents
through discovery?
Confidential outcome?
Binding decision?
Decision enforceable as a court
judgment?
actively being used by the parties to these

projects is unclear.
891011
Dispute boards in comparison

to more traditional forms of
dispute resolution
While most dispute resolution procedures
only become relevant once a dispute has
arisen, one of the primary functions of a
dispute board is to avoid disputes in the first
place by actively engaging with the parties
throughout the construction process.
The table above compares dispute boards
to more traditional methods of dispute
resolution. These comparisons are based on
general observations and, in practice, each
method of dispute resolution is unique
to the terms of the contract provisions
establishing that procedure.
Why would you use

dispute boards?
Encouraging party communication and
co-operation
A successful construction project requires a
constructive working relationship between
the parties, especially between the project
8
9
10
11
This is dependent upon the arbitrator(s) selected

by the parties.
This is dependent upon the contract provision
giving the expert the authority to determine a
dispute.
This is dependent upon whether the parties
adopt a DRB (non-binding) or a DAB (binding)
dispute board.
This is dependent upon the contract provision
giving the expert the authority to determine a
dispute.
sponsor and the contractor, and between

the contractor and any subcontractor.
However, poor communication,
misunderstandings and misinterpretation
of the contract can lead to adversarial
attitudes being adopted.12
The site visits and meetings conducted
by the dispute board, which occur on site
and in real time, can assist in promoting
communication between the parties,
which may lead to the clarification of any
misunderstandings before these become
actual disputes or claims.
As a result of being familiar with the
project, dispute boards may be able to
intervene to provide solutions at the early
stages of any differences of opinion before
the issue gains further momentum and
positions become entrenched.
The effectiveness of dispute boards in
resolving conflict has been the subject of a
number of independent studies, which are
summarised below:
In a study of 1,042 construction projects
in the US begun between 1975 and 2007
which made use of dispute boards,
810 projects were complete as at 30
December 2007. Of these 810 projects,
51 per cent had resolved all their
disputes during site meetings without
requiring a formal dispute board
hearing and 97 per cent were completed
without having to resort to any formal
12
P. Gerber and B. Ong, DAPs: When will Australia

jump on board?, Building and Construction Law
Journal, 27/1 (2011).
dispute resolution procedure.13

Between 1994 and 2008, the Florida
Department of Transport had 262
instances of disputes on its projects
progressing to a dispute board hearing.
All except one of these disputes were
resolved without requiring formal
dispute resolution.14
These figures are impressive, but it should

be borne in mind that factors besides
the operation of the dispute board may
have influenced these results. The largescale nature of the projects assessed
means that dispute boards were probably
adopted as part of a more formal dispute
resolution process that may have included
partnering and other forms of alternate
dispute resolution.
In addition, given the political and
financial pressures associated with these
projects, the incentive to resolve disputes
quickly and progress the project will have
been strong. Participants in these projects
are also more likely to have been aware
of the operation of dispute mechanisms
prior to the project commencing, enabling
parties to be dispute ready and able to
articulate their position as early as possible,
should any issue arise.
Dispute boards as an insurance policy
Litigation and arbitration can be timely
and expensive. The cost of these forms of
dispute resolution are usually in the realm
of eight to ten per cent of the total project
cost.15 This is largely due to the extensive
fact-finding operation required and the
difficult task of recreating events which may
have occurred a number of years previously
for the benefit of the court or tribunal.
Dispute boards can be viewed as a form
of insurance against the costs of disputes
which proceed to arbitration or litigation.
That is, the value of dispute boards lies in
the litigation and arbitration costs which
they avoid by preventing disputes from
escalating to the point where litigation or
arbitration is required. For projects with
a contract value greater than AU$20m to
AU$30m, the costs of a dispute board are
generally between 0.05 per cent to 0.3 per
cent of the contract value.16 Conversely, the
13
14
15
16
As footnote 6.
F. Arif, M.E. Bayraktar and C. Cinkilic, Analysis of
Disputes in Transportation Projects, Journal of
Risk Analysis and Crisis Response, 2/4 (2012).
P. Chapman, Dispute Boards for Major
Infrastructure Projects, Paper presented at
Seminar on The Use of Dispute Boards in
Australia, Queensland, 30 November 2006.
G. Peck and P. Dalland, The benefits of Dispute
Resolution Boards for issue management of
medium to large construction projects, The
Arbitrator & Mediator, 26/1 (2007).
smaller the value of the contract, the higher

the dispute board costs are in comparison.
The costs associated with dispute boards
may mean that they are not economic
for smaller or less complex projects. Of
course, if the dispute board fails to resolve
a dispute, then these costs become
additional to the more conventional
dispute resolution costs.
What are the issues to

consider before setting up
a dispute board?
The cost of maintaining a dispute board
The direct costs of a dispute board are
typically borne equally by the parties.
However, dispute boards also incur indirect
costs, as outlined in the table to the right.
The costs of a dispute board can be
greater than other methods of dispute
resolution due to the requirement to
keep dispute board members aware of
construction progress throughout the life
of the project. This cost is incurred even
if the dispute board is never required to
make a recommendation. Despite the
characterisation of dispute board costs as
valuable insurance, these costs can be
substantial and should be an important
consideration for parties prior to the
adoption of a dispute board mechanism.
Issues with dispute board determinations
The failure of a party to adhere to a binding
determination of the dispute board can be
enforced through litigation for breach of
contract. However, this requires parties to
undertake the same litigious course which
they had sought to avoid through the use
of a dispute board. There is also the risk
that a court may require the subject matter
of the dispute to be reheard17 which will
increase the time and cost associated with
enforcement proceedings.
Parties who are unhappy with a binding
determination face the difficult alternatives
of either:
(a)seeking the consent of the other
party/parties to not adhere to the
determination;
(b)commencing proceedings seeking a
declaration that the dispute board
determination be set aside for reasons
such as the dispute board having acted
outside its jurisdiction; or
(c)adhere to the determination.
These alternatives will require the parties to
17
As was the case in CRW Joint Operation -v- PT

Perusahaan Gas Negara (Persero) TBK [2011]
SGCA 33.
Direct costs

The legal costs of establishing a dispute
Indirect costs

Employees of both parties preparing for
Employees of both parties participating
Keeping dispute board members
board requiring legal counsel to draft the

contract provisions.

dispute board meetings.
A retainer for each member of the dispute

board (which is typically two to three
in dispute board meetings.
times their daily rate) in order to secure
informed of construction progress
their involvement for the course of the
between site visits.
project.

A daily fee payable to each member of

the dispute board for site visits, meetings,
hearings, preparation for these meetings/
hearings through reviewing documents
and correspondence.
Other expenses incurred by the dispute

board such as travel costs.
expend further costs despite having already

paid the costs of maintaining and operating
a dispute board.
Furthermore, if a party loses confidence
in the dispute board, there is usually no
mechanism for replacement of the dispute
board. The dispute board procedures will
still have to be followed and costs incurred,
irrespective of whether it has become
somewhat obsolete.
The quality of a determination will
be dependent upon the members of the
dispute board selected by the parties. When
selecting dispute board members, parties
should not only consider their expertise,
experience and independence but also
factors such as commercial awareness
and an appreciation of the context within
which a party operates. This is particularly
important where government bodies are
involved, as probity requirements may
necessitate a legal entitlement having
been established before public funds can
be released as payment in accordance with
a determination. This is in contrast to a
contract involving two commercial parties,
as they may be able to agree to a payment
being made in order to progress the project,
despite there having been a relatively
limited discussion of legal entitlement.
Is the referral of a dispute to a dispute
board a condition precedent to other forms
of dispute resolution?
There is some authority on whether the
referral of a dispute to a dispute board
must occur before the parties can consider
other forms of dispute resolution under
their contract. In A___ S.A. -v- B___ S.A.
4A_124/2014, a decision of the Federal
Supreme Court of Switzerland, the court
held that generally a procedure under a
dispute resolution clause is mandatory
and so parties should not bypass the
mechanisms in place and attempt to refer

a dispute directly to arbitration. However, in
this case, the parties had failed to appoint a
DAB after the contracts had been executed
and, in these circumstances, the court ruled
against requiring the parties to proceed
with an ad hoc DAB.
In contrast, the English High Court in
Peterborough City Council -v- Enterprise
Managed Services Ltd [2014] EWHC 3193
held that, given that the relevant clause
provided for ad hoc DAB appointments,
the contract required the referral of the
dispute to the DAB prior to any litigation.
The court held that, as the parties had
agreed to incorporate the FIDIC DAB
machinery into their contract, it would
have been foreseeable that this machinery
would be required. In coming to this
decision, the court relevantly stated that
[a]s the authorities clearly show, there is a
presumption in favour of leaving the parties
to resolve their dispute in the
manner provided for by their contract.
It seems courts are willing to enforce the
requirements of dispute resolution clauses,
provided that these requirements are
sufficiently certain.
The need to draft carefully the dispute
boards structure and procedure
In situations where claims are particularly
complex and technical, it may be preferable
to involve a dispute board member with
a legal or judicial background, to ensure
that procedural fairness considerations are
observed throughout the life of the dispute
boards operation. It will also facilitate the
legal consistency of determinations made
throughout a project.
In 2007, the Dispute Resolution Board
Foundation released its DRBF Practices and
Procedures manual for DRBs and DABs. This
manual incorporates recommendations
The future of dispute boards
for best practices and procedures for the

operation of a dispute board, such as [t]he
DRB gives each party ample opportunity to
fully convey its position. When drafting the
relevant clause in their contract, parties may
consider making reference to this manual
as a means of regulating the conduct of the
dispute board.
Apart from this manual, there is little
guidance available as to the role and
function the dispute board must play.
This may be prescribed in the agreement
between the parties and the dispute board,
but these agreements usually give the
dispute board a reasonable amount of
discretion. Also, like expert determination,
there is no legislative basis for dispute
boards under either Australian or English
law, and currently no accreditation schemes.
As previously mentioned, there is usually no
mechanism for replacement of the dispute
board during the life of the project.
Finally, dispute boards often perform
both a without prejudice and a with
prejudice function. Having obtained certain
information from a party in more candid
moments, this party may feel somewhat
uncomfortable about the dispute board
then making a determination which
could be binding upon it (depending upon
the wording of the contract). This may
Georgia Quick
Partner, Sydney
T: +61 2 9258 6141
undermine the effectiveness of a dispute

boards role in facilitating communication
between the parties.
Interaction with other legislation
The statutory adjudication regime under
Security of Payment legislation in Australia
prevents parties opting out of the regime.18
To the extent that a dispute does not fall
within the application of the regime,
there will be no conflict between the
dispute board and the legislation.
However, if the dispute relates to
payment claims, a dispute board may
result in an unnecessary parallel process.
Further, there is as yet no authority on the
interaction of these two mechanisms.
Under English law, the Housing Grants,
Construction and Regeneration Act 1996
(the Act) provides a statutory right for
disputes under all construction contracts
(as defined in the Act) to be referred to
adjudication irrespective of the subject
matter of the dispute (i.e. unlike the
Australian Security of Payment regime
where statutory adjudication only applies
to payment claims).
18
For example, see Building and Construction

Industry Security of Payment Act 1999 (NSW),
section 34.
Dyfan Owen
Partner, Dubai
T: +971 (0)4 365 2000
Dispute boards are increasing in popularity

in the international project landscape.
However, the use of dispute boards,
particularly outside the construction
sector, remains in its infancy. Further, no
current standard form building contracts
in Australia incorporate any dispute board
provisions at present. However, recognising
the growing trend among parties towards
agreeing less adversarial dispute resolution
mechanisms, Standards Australia has
prepared a draft AS 11000: General
Conditions of Contract which is intended to
supersede AS 2124:1992 and AS 4000:1997.
This draft provides parties with the option
of adopting a Dispute Resolution Board.19
The procedures relevant to the operation of
this dispute board will be contained in AS
11001: Dispute Avoidance, Management and
Resolution under Construction Contracts.
This draft standard is yet to be released by
Standards Australia.
With the increased use of dispute
boards, it is likely that dispute boards will
become subject to more scrutiny and
guidance on their use, enforcement and
procedure (such as in the Peterborough
City Council case referred to above). It will
also be interesting to observe their use
not only within the infrastructure sector,
but also in a general commercial context.
They may be well suited to other industries
where long-term contracts are prevalent,
such as telecommunications, shipping,
maintenance agreements or the aerospace
and defence industries.
Dispute boards are, however, not a
panacea for all disputes on an infrastructure
project. When considering whether to
use a dispute board and the form of any
dispute board, parties should give careful
consideration to the specific nature of the
project (its size, cost and whether multiple
disputes are likely) and use careful drafting
to ensure that the intention of the parties in
respect of costs, formation and members of
the dispute board, the binding nature of
any decisions, enforcement, consistency of
procedure and the operation of security of
payment legislation, is clearly reflected
in the contract.
19
Standards Australia, DR AS 11000:2015 General

conditions of contract (23 January 2015), clauses
45.14 to 45.16.
Ashleigh Vumbaca
Lawyer, Sydney
T: +61 2 9258 5941
INFRASTRUCTURE ACT 2015
A road map for investment in

Englands Strategic Road Network
by Nicholas Hilder
As its name suggests, the Infrastructure Act 2015

deals with infrastructure; specifically, how to make
it quicker and easier to get Britain building the kind
of cost-efficient infrastructure that is central to the
Governments long-term economic plan to increase
competitiveness and deliver jobs and growth.
The full scope of the Infrastructure Act is
too broad to cover in this short article
including, as it does, measures to boost
energy security and domestic growth
through the extraction of shale gas, give
local communities the right to invest in
renewable infrastructure projects, and
streamline the regime for nationally
significant infrastructure projects by
making a number of amendments to the
Planning Act 2008.
As well as these changes, one of the
most highly publicised aspects of the
Infrastructure Act is its impact on Englands
Strategic Road Network. Headline grabbers

have included the creation of Highways
England as the Strategic Highways
Company and the allocation of a war chest
of approximately 15bn to deliver more than
100 road improvement schemes over a fiveyear investment period.
In this article, we focus on those parts
of the Infrastructure Act that relate to
the Strategic Roads Network. We explore
the need for reform, the key changes
introduced by the Infrastructure Act, the
regulatory framework and what we can
expect in the future.
The Strategic Road Network

and the need for change
The Strategic Road Network is a key part
of Englands national infrastructure. It
comprises approximately 4,300 miles of
motorway and trunk A-roads. Although
4,300 miles of road accounts for only some
two per cent of all roads in England, that
same 4,300 miles of Strategic Road Network
carries approximately 33 per cent of all
traffic and approximately 66 per cent of
all freight traffic. When compared against
locally managed roads, the Strategic Road
Network carries on average four times
as many vehicles a day per mile. As these
statistics show, the Strategic Road Network
is vitally important both in keeping the
general population connected by facilitating
travel and in keeping the economy moving.
Against this backdrop of the national
importance of the Strategic Road Network
it may perhaps come as something of
a surprise to learn that as traffic has
increased, road investment has reduced. The
Strategic Road Network in place today was
largely built in the 1960s and 1970s and,

while the intervening decades have seen
significant increases in traffic volume and
car ownership, investment in the network
has reduced, falling significantly behind
that of the UKs international competitors.
Not only has there been a lack of
investment generally, there has also
been uncertainty as to what funding was
available and when. The National Audit
Office and the House of Commons Public
Accounts Committee have both criticised
the stopstart nature of funding for road
maintenance and improvement works, and
the short termism that, up until now, has
pervaded road investment policy. Without
the necessary funding certainty, the
Department for Transport has struggled to
draw up holistic long-term road investment
plans that addressed the needs of the
network in a co-ordinated manner. Instead,
funds have been used as they became
available which, combined with the need to
spend the money within the same financial
year, has meant that the majority of
maintenance work has taken place between
September and March each year. While
this minimises disruption for road users, it
is less efficient than carrying out work at
other times of the year, as materials can
be more difficult to handle in cold and wet
conditions and daylight hours are shorter.
Faced with the reality that parts of
the Strategic Road Network have already
reached capacity and that congestion

currently costs 2bn each year, investment
in roads has slowly moved up the political
agenda. With traffic volumes expected to
grow steadily in coming years, the existing
network will be put under more and more
pressure, with the annual cost of congestion
expected to rise to 10bn by 2040 unless
action is taken. The Infrastructure Act
embodies Parliaments approach to meeting
these challenges.
The key changes

Strategic Highways Companies and
Highways England
The Infrastructure Act allows the Secretary
of State for Transport to appoint one or more
companies as a highway authority. Such a
company is known as a Strategic Highways
Company. The appointment of a Strategic
Highways Company must specify the area in
respect of which the company is appointed,
and the highways in that area for which the
Strategic Highways Company is to be the
highway authority. A Strategic Highways
Company must be limited by shares and
be wholly owned by the Secretary of State
for Transport: if the Strategic Highways
Company ceases to be wholly owned by
the Secretary of State, its appointment as a
highway authority terminates.
By the Appointment of a Strategic
Highways Company Order 2015 (S.I.
2015/376) (the Order), the Secretary of
State appointed Highways England as the

highway authority for the whole of England.
The Order provides that Highways England
is appointed as the highway authority for
all highways within the area for which
the Secretary of State was the highway
authority immediately before the Order
came into force, with the exception of the
M6 toll road and certain approach roads to
the Severn crossings (which are operated
under private concessions).
In practical terms, the Highways
Agency (which had previously been an
executive agency of the Department for
Transport and the custodian of the Strategic
Road Network) has been turned into
an autonomous state-owned company:
Highways England. The justification for
having an arms length company is that it
promotes a long-term approach to planning
infrastructure and securing funding. Not
everyone supports the move, however,
with a cross-party transport group saying
last year that it was not convinced that
the change in status was needed. Unions
too have been opposed, with some 3,500
Highways Agency staff losing their status
as civil servants on 1 April 2015 when they
transferred to the new government-owned
company.
The Road Investment Strategy
The Infrastructure Act gives the Secretary
of State the power, at any time, to set a
Road Investment Strategy or to vary a Road
Investment Strategy that has already been
set. A Road Investment Strategy relates
to whatever period the Secretary of State
considers appropriate. The legislation
stipulates that it must set out the objectives
to be achieved by the Strategic Highways
Company during the specified period and
the financial resources to be provided by
the Secretary of State for those purposes. A
Strategic Highways Company must comply
with the Road Investment Strategy which is
applicable to it.
The first Road Investment Strategy,
published in March 2015, consists of three
parts:
(i) the Strategic Vision;
(ii) the Investment Plan; and
(iii) the Performance Specification.
The Strategic Vision is for the Strategic Road
Network to be smoother, smarter, safer and
more sustainable.
The Investment Plan for the first Road Period
(i.e. the period between 2015/2016 and
2020/2021) involves 15.2bn of capital being
committed to over 100 major schemes

(including tunnelling part of the A303 as
the road passes Stonehenge). The funding
for these improvement schemes has been
described as ring-fenced, the assumption
being that by taking it outside the normal
departmental budget decision-making
process there will be greater certainty that
the funding will be committed as set out
in the Investment Plan. While this is a step
in the right direction aimed at stimulating
supply chain engagement and investment,
it should be remembered that, legally, the
Secretary of State retains the right to vary
the Road Investment Strategy at any time.
Of course, having the legal right to amend
or scale back the Road Investment Strategy
and the political will to exercise that right
are two very different things, but with the
Government having recently frozen parts of
its 38.5bn five-year investment plan for rail
infrastructure (vaunted as the biggest since
Victorian times), nothing can be certain.
The Performance Specification contains
the key performance indicators against
which Highways England will be judged,
and focuses on eight specific areas:
(i) safety (a 40 per cent reduction in the
number of people killed or seriously
injured);
(ii) user satisfaction (overall satisfaction of
at least 90 per cent);
(iii) traffic flow (97 per cent network
availability, i.e. reducing the impact of
roadworks and clearing 85 per cent of
incidents within one hour);
(iv) economic growth (monitoring time lost
per vehicle per mile to illustrate the cost
of delay);
(v) the environment (reducing noise and
improving biodiversity);
(vi) cyclists and pedestrians (new and
upgraded crossings);
(vii) efficiency; and
(viii) improving network condition (so that
95 per cent of the road surface is in an
adequate condition).
Transfer Schemes
In order to properly manage the Strategic
Road Network and deliver against the
Performance Specification, Highways
England needs to be able to administer,
and benefit from, the myriad of existing
contracts and land rights that the Secretary
of State has entered into and enjoys in
relation to the Strategic Road Network; for
example, the various design, build, finance
and operate contracts with the private
sector which were a feature of earlier
upgrade schemes across the network.
The Infrastructure Act makes provision
for this and allows the Secretary of State to

create one or more schemes for the transfer
of property, rights and liabilities from the
Secretary of State to a Strategic Highways
Company. Schedule 3 to the Infrastructure
Act provides further detail on how Transfer
Schemes work and confirms that the property,
rights and liabilities that may be transferred
by a scheme include property rights and
liabilities which would otherwise not be
capable of being transferred or assigned.
Furthermore, Schedule 3 provides that a
scheme may provide that transfers are to take
effect irrespective of:
(a) any requirement to obtain a persons
consent;
(b) any liability in respect of contravention
of another requirement; or
(c) any interference with any interest or
right which would otherwise apply.
The Office of Rail and Road performs

the role of monitor. It is responsible for
tracking the activities of Highways England
and holding it to account. The Infrastructure
Act gives the Office of Rail and Road the
power to carry out investigations, publish
reports and give advice to the Secretary of
State on whether, how and at what cost a
Strategic Highways Company has achieved
its objectives under a Road Investment
Strategy. If Highways England does not
meet the requirements set out in a Road
Investment Strategy, fails to comply with
a direction, or to have regard to guidance
issued by the Secretary of State, the
Office of Rail and Road can either require
compliance or levy fines payable to the
Secretary of State.
This means that Transfer Schemes can

effectively ignore the carefully crafted
restrictions on transfer/assignment which
are a common feature of commercial
contracts. This may come as something
of a shock to counterparties to contracts
with the Secretary of State who will have
taken a view as to the covenant strength
of the Secretary of State. Many of those
counterparties will have sought to further
protect themselves against the covenant
risk of a successor entity by making any
such transfer subject to that counterpartys
consent and/or the provision of acceptable
guarantees that the successor entitys
obligations will be performed.
Despite reassurances to the contrary

from ministers and senior figures in
Highways England, there has been some
concern that the creation of Strategic
Highways Companies is a vehicle for the
future privatisation of the Strategic Road
Network and the introduction of more toll
charges. Sceptics believe that the current
arrangements amount to an orchestrated
attempt, at the taxpayers expense, to
bring the Strategic Road Network up to a
standard that would be attractive to the
private sector. Once this standard had
been achieved, the private sector would be
invited to bid for franchises modelled on
the rail industry, with tolling as the primary
income stream. Graham Dalton, former
chief executive of the Highways Agency,
has stated that there is no intention of
privatising Highways England, pointing out
that 90 per cent of its budget already goes
to private sector contractors.
Under the terms of the Infrastructure
Act, we know that if a Strategic Highways
Company ceases to be 100 per cent owned
by the Secretary of State, its appointment
as highway authority terminates. Given
these safeguards around share ownership,
privatisation of the Strategic Road Network
would not be possible without further
legislative intervention.
It will be interesting to see what the next
decade has in store for Englands road sector,
and whether the conspiracy theorists are
proved right or wrong.
Oversight
The Infrastructure Act provides that
the activities of Strategic Highways
Companies will be subject to scrutiny by
both a consumer watchdog and a separate
monitoring body.
Representing consumers is Transport
Focus (previously Passenger Focus), with
a mandate to protect and promote the
interests of highways users. Transport Focus
has the power to conduct investigations,
publish reports and advise the Secretary
of State. In June 2015, Transport Focus
launched its Road User Panel a forum
meeting every couple of months and
bringing together a representative crosssection of road user groups including
the Department for Transport, the Local
Government Association, the Office of Rail
and Road (as monitor) and Highways
England. The panel is part of Transport
Focuss commitment to understanding the
priorities and aspirations of a wide range of
bodies and groups interested in roads.
A step towards privatisation of

the Strategic Road Network?
Nicholas Hilder
Counsel, London
T: +44 (0)20 7859 1020
TURNING WASTE INTO POWER
Opportunities and
developments in the GCC
by Cameron Smith, Jennifer Moore and Alice Cowman
The continued use of landfill and uncontrolled dumping of waste is a

global problem from which the Gulf Cooperation Council (GCC) region
is not immune. In this context, waste-to-energy (WtE) projects can
present an opportunity and solution which holds significant benefits
for governments, local communities and international investors.
This article examines the key drivers behind
the growth in WtE, the state of the market
in the GCC region, and the commercial and
regulatory issues that are key to the success
of such projects.
The waste issue

The GCC countries are among the highest
per capita producers of municipal solid
waste (MSW) in the world (see figure 1).
Today, residents of the UAE produce an
average of 2.5 kg of waste a day per person,
which amounts to 2.5m kg of MSW daily in
the emirate of Sharjah alone.1 This can be
compared to just 0.5 kg per person per day
in New Delhi or 0.85 kg per person per day
in Beijing.
1
Beeah, UAE.
MSW Generation (in kgs)

per person per year
GCC
India
UK
US
0
500
1000
Figure 1 (Source: Frost and Sullivan)
Across the GCC, rapid economic growth,

industrialisation and modernisation
have given rise to: (a) greater volumes
of municipal, commercial and industrial
waste; (b) waste of a different complexity
and composition, such as different types of

plastics, agricultural wastes and residues,
and electrical and electronics equipment
waste; and (c) increasing demands for
energy.
The majority of waste in the Middle
East is sent to landfill, which is spaceintensive and uses up valuable land that
could be put to better use. Uncontrolled
disposal of untreated or inadequately
treated waste causes health and sanitation
issues, as well as environmental pollution
such as air pollution from the uncontrolled
burning of waste, and contamination of
groundwater and surface water by leachate.
In other jurisdictions (particularly across
Africa), the uncontrolled and unregulated
dumping and landfilling of waste has led to
widespread disease and death.
The recycling rate in the GCC region

is as low as ten per cent compared with
a current average of 22 per cent or higher
in other high-income countries,2 but the
region is working hard to improve this
statistic.
What is waste-to-energy?
WtE facilities create energy in the form of

electricity or heat from the treatment of
waste products. The use of waste to produce
biogas and electricity dates back to the
early twentieth century. However, due to
dwindling fossil fuel resources, a greater
awareness of the social and environmental
hazards of poor waste management, a
reduction in available landfill capacity and
a global focus on reducing greenhouse
gases, the development of WtE projects has
increased significantly over the last 20 to
30 years. There are different types of WtE
processes, the main ones being:
LFG capture
Landfill gas (LFG) emissions from landfill
can be flared or captured and utilised to
minimise pollution, or can be captured to
generate power or fed into the gas network.
Combustion
Combustion (or incineration) is the burning
of waste to recover the energy content of
waste as either heat or electricity.
Gasification
Gasification is the thermal treatment of
waste in a low oxygen environment so that
full combustion cannot occur, resulting in
the production of electricity, heat or syngas
(which can be converted into high-quality
diesel biofuel) and far less production of ash
and residue.
Anaerobic digestion
Anaerobic digestion is the non-thermal
treatment of biological waste, such as food,
which produces digestates that can be used
as fertiliser and biogas which can be used to
generate heat and electricity.
Why waste-to-energy?
Waste diversion is the most preferred option
for dealing with the waste issue after the
three Rs: reduce, reuse or recycle. Although
incineration is a less favoured option in
terms of the preferred options of dealing
with waste, it is, nonetheless, a viable and
attractive option for the following reasons:
Incineration can reduce up to 90 per cent
of the disposed waste going to landfill.
2
The World Bank.
nergy from waste can be costE

competitive as compared with other
renewable technologies in certain
circumstances. A 2012 US energy
administration study placed WtE ahead
of solar PV and solar thermal in terms of
cost-efficiency.
Even well-managed sanitary landfills
emit LFG, which is a mixture of
methane, carbon dioxide and trace
constituents. Methane emissions from
landfill represent 12 per cent of total
global methane emissions and, with 12
times the potency of carbon dioxide,
are significant contributors to climate
change. LFG capture is required in many
jurisdictions and generating energy
from captured LFG makes sense for
current landfills.
WtE can be part of the solution to
meet the future energy demands of
the MENA regions rapidly growing
population through renewable energy.
Worldwide WtE market revenues (which

accounted for US$19bn at the end of 2012)
are expected to reach US$29bn by 2016.3 The
market in the GCC has grown from 20 to 25
per cent in the last three years. 4
What is the current market

interest in the region?
An overview of developments and
programmes in the region
Although the GCC is widely considered to
have huge potential for WtE technology, the
sectors development is still relatively small,
with only 0.25 to 0.3 TWh of energy currently
being produced from waste across the region.
Qatar was the first GCC country to
implement WtE on a large scale with
its Domestic Solid Waste Management
Centre (DSWMC) (see below). However,
3
Frost & Sullivan, 2014.
Ibid.
other countries are rapidly following suit.

Abu Dhabi is expected to follow Qatars
approach by developing its own 100
MW WtE plant through an engineering,
procurement and construction (EPC) model,
and several municipalities in Saudi Arabia
are considering projects. The emirate of
Sharjah is also reportedly in discussions
with technology providers.
Nearby, in South East Asia, Singapore
is at the forefront of the WtE industry
with the National Environmental Agency
(NEA) currently procuring Singapores sixth
incineration plant, the second plant to be
offered to the private sector as a PPP. The first
WtE plant PPP was tendered in 2004 and
was awarded under a design-build-ownoperate scheme. The plant can treat up to
900 tonnes of solid waste daily and generate
approximately 22 MW of green electricity. NEA
collects the gate fees from waste collection
and pays the developer an availability payment
for the facility, for the amount of waste
accepted and for the electricity generated.
Significant projects
Kuwait Kabd MSW facility
On average, per capita waste generation
is approximately 1.4 to 1.5 kg per day in the
State of Kuwait, making it one of the largest
per capita waste generators in the world. The
Kuwaiti Government (advised by Ashurst LLP,
PwC and Fichtner GmbH & Co. KG) invited
bidders to qualify to tender in March 2015 for
the development of an ambitious WtE plant
that will treat 50 per cent of Kuwaits MSW
and is due to announce which bidders have
qualified. The WtE plant, to be procured on a
build-operate-transfer basis, will benefit from
an availability payment and will generate
its own electricity, selling the excess power
generated to the Kuwaiti Government under
an offtake agreement.
Case study:
Swedens waste management success
Sweden is a global leader in recovering energy from waste. With a waste strategy of
reduce, reuse, recycle, recover, only one per cent of its waste is sent to landfill. In 2009,
49 per cent of all Swedish household waste was converted into energy. In the last decade,
WtE has expanded at a rapid rate in Sweden, as the country changed its policies to
become more environmentally friendly and achieve a more diversified energy mix.
From 1999 to 2010, waste incineration with energy recovery increased from 39 per
cent to account for 49 per cent of the countrys waste treatment methods. In 2009,
through approximately 32 Swedish WtE facilities, 13.9 TWh of energy was produced
through incineration, of which 12.3 TWh was used for heating and 1.6 TWh for electricity.
This amounted to 15 per cent of Swedens district heating needs and 2.45 per cent of the
countrys total energy needs.
Jordan MSW facility tendered in Amman

Greater Amman Municipality has recently
issued a request for proposals to bid for
the contract to design, build, operate
and transfer a MSW facility in Amman
in March 2015. The project will have an
initial processing capacity of 1,2001,500
tonnes per day of MSW with at least two
processing lines. The facility will be designed
to allow further expansion to process
additional MSW disposed in landfills to a
level of approximately 2,500 tonnes per
day. It is anticipated that the facility will be
commissioned in April 2018.
Bahrain bids received for WtE project
Bahrains Municipalities and Urban Planning
Affairs Ministry is currently evaluating bids
received earlier this year for a 390,000
tonnes per year WtE facility. This project
was first tendered in 2008, but was later
cancelled before its recent retendering. The
project is planned to be developed as a 25year build-operate-transfer scheme, which
will include the following components: (i)
initial pre-sorting/recycling; (ii) processing
for the treatment of domestic waste;
(iii) recycling of construction waste; (iv)
composting of green and garden waste; (v)
thermal treatment plant for the elements
no longer able to be reused or recycled; and
(vi) a sanitary solid waste landfill. The plant
will process 100,000 cubic metres a day.
Qatar Domestic Solid Waste
Management Centre
One of the most promising developments in
the GCC has been the creation of the DSWMC
at Mesaieed which was built on an EPC basis.
Receiving waste transported by about 300
trucks per day, the DSWMC is helping Qatar
achieve its goals to reduce waste sent to
landfills from 92 per cent to 64 per cent, and
raise recycling rates from the current eight per
cent to 20-25 per cent.
The facility consists of a solid waste
management centre that sorts waste,
separating out anything that can be
recycled and removing organic waste to
make compost. The remainder, about 40
per cent, is burnt in an incinerator and
the energy emitted is used to produce
electricity. Only the leftover ash needs to
go to landfill; this is estimated to be five
per cent of the volume of waste that was
previously dumped.
Dubai Warsan WtE plant
Dubai Municipality has invited companies
to pre-qualify for the project to develop a
WtE project, located at a site behind the
landfill site in Warsan, with an estimated
processing capacity of 6,500 tonnes per day

of MSW. The project will involve the design
of the WtE scheme and other associated
facilities, the EPC of the plan, and the
commissioning and testing of the facility.
Dubai Al Qusais Landfill Site
The LFG flaring project, located at the Al
Qusais Landfill Site in Dubai, is a trailblazer
for LFG capture in the GCC. This small-scale
project has twin goals: (i) direct reduction
of harmful LFG, odours and volatile organic
compounds; and (ii) power generation. The
52-hectare landfill has been operational since
1989 and is still active. It demonstrates the
UAEs fantastic potential to make use of LFG;
the countrys low rainfall means gas trapped
in the landfill is not pushed down into the
water table by rainwater. This makes it easy
to extract the gas. The Al Qusais landfill
project is mitigating the potential damage
caused by over 350,000 tonnes of carbon
dioxide a year, which is equivalent to taking
60,000 cars off the road. Its power capacity
is currently at 12 MW, with the potential to be
expanded to 20 MW.
This project is the first of its kind in the
UAE and the legislative framework still needs
to be developed to support it. This means that
although the plant is producing electricity, it
cannot yet be connected to the grid. A small
portion of the flared gas produced is currently
used to power an engine that provides for all
the electrical needs of the landfill and Dubai
Municipalitys site offices. It is hoped that
surplus power will in future be connected
to Dubai Electricity and Water Authoritys
network once an appropriate legislative
framework is in place.
Sharjah Waste Management Centre
at Al Sajah
Beeah, a PPP company established in 2007,
has a mission to tackle waste in the region
and lead Sharjah as the first city in the
Middle East to achieve zero waste going to
landfill by 2015. Beeahs Waste Management
Centre consists of facilities to treat and
process waste for reuse in the economy, and
includes the third largest material recovery
facility in the world. This has an annual
capacity of 500,000 tonnes, of which 60
per cent can be recycled via facilities at the
Waste Management Centre (such as a tyre
recycling facility and a construction and
demolition waste recycling facility). It also
features a liquid waste processing centre
and a compost plant.
Beeah is also planning to build a WtE
facility which will treat up to 400,000 tonnes
per day of non-recyclable waste using stateof-the-art gasification technology.
Oman potential WtE plant

Oman Environmental Services Holding
Company, which is overseeing the
management and eventual privatisation of
the solid waste sector in Oman, is currently
studying the feasibility of establishing
Omans first-ever WtE project, aimed at
converting part of the colossal quantities of
municipal waste generated daily to produce
electricity for a seawater desalination plant.
It is proposed that suitably sorted waste will
be converted for use as an industrial fuel
source in place of natural gas. The feasibility
study concluded that 2,100 tonnes per day
of recycled calorific waste could produce
73m cubic metres of portable water
annually, representing around 30 per cent of
the countrys installed desalination capacity.
What are the barriers to

development of WtE in
the GCC?
Economics
Costs
Given the cost of developing WtE plants,
these facilities are usually not financially
competitive in their own right as pure
electricity generating facilities (in
competition with gas-fired plants, for
example) without a strong regulatory
and enforcement regime, and appropriate
financial incentives.
Where the option of simply dumping
waste or flaring LFG (or not installing any
system at all) exists, investors are unlikely
to put forward the capital for LFG capture
or other WtE schemes unless it will be
sufficiently profitable to justify the set up
and maintenance costs of a WtE facility.
Waste disposal in the GCC is generally carried
out at low or no cost to the local population
and at little cost to the relevant municipal
authority, particularly where waste can
be landfilled or dumped, and there are no
overriding policies or macroeconomic drivers
to avoid landfill. However, this is changing
and certain countries now charge gate
fees (although some argue that these are
still at too low a level to be effective). High
gate fees can make landfill costs prohibitive
and energy recovery a more economical
alternative means to dispose of waste. Gate
fees also provide an additional revenue
source for WtE projects.
In the UK, gate fees were introduced
and ratcheted up by the UK Government
over a period of years to ensure that
landfilling became progressively more
expensive in comparison to other waste
treatment and disposal routes. This has
been a very effective way to create market
incentives for the development of WtE
facilities. However, these steps have been

taken in conjunction with other measures
to prevent the unlawful disposal and
dumping of waste.
Price of power
Prevailing electricity and gas rates may not
be sufficient to incentivise the development
of WtE projects in their own right, but may
provide additional revenue for WtE facilities
which have a dependable long-term gate
fee revenue stream.
Uncertainty in carbon markets
Certain WtE projects have in the past
relied on revenue from the sale of Certified
Emission Reduction certificates (CERs)
where a project has been able to obtain
registration under the Clean Development
Mechanism. However, following falls in CER
prices, confidence in the sale of CERs as a
long-term stable revenue stream has been
reduced. Where such green certificates
are priced properly and provide a reliable
revenue stream, the finance ability of these
projects is enhanced.
Policy
Untested regulations
Investment regimes and legal frameworks
to encourage the development of WtE and
other renewable energy projects need to
be developed and implemented. Change in
the law, risk and untested implementation
also remains a concern for investors.
WtE facilities are easier to develop in
jurisdictions where the management of
MSW and commercial waste is highly
regulated and illegal dumping is punished.
Lack of awareness
Policymakers and managers of solid waste
sites may not be aware of the existence of
landfill emissions, their harmful effects, or the
potential fuel value and uses of the lost waste.
Furthermore, any attempt to introduce
landfill taxes and charges associated
with waste collection and disposal need
to be accompanied by public awareness
campaigns to educate the public about the
benefits of better treatment of waste.
Electrical system interconnection for offtake
Inconsistent, complicated or poorly devised
standards for connecting small-scale
renewable or WtE projects to the grid
infrastructure are a major obstacle, particularly
for projects that lack the resources to handle
expensive or lengthy connection processes.
Solid waste sites typically consume small
amounts of electricity and need to sell the
excess power generated to the grid to be viable.
Land
Some of the GCC countries, such as Saudi
Arabia, Oman and the UAE, have vast
amounts of undeveloped land, meaning
there is no immediate pressure to cut back
on landfill as land is readily available at little
to no cost. By contrast, WtE schemes have
been very successful in jurisdictions where
landfill capacity is not readily available, such
as in the Netherlands, Singapore or the UK.
What can policymakers and

the public sector do to
encourage the development
of WtE projects?
Improving the economics financial
policy support
Generation incentives
Generation incentives offered consistently
over a specified number of years (i.e. which
give long-term, reliable revenue certainty)
can encourage large WtE investments that
would otherwise prove too costly. Tying the
incentive directly to generation rather than
the construction of a plant ensures that the
motivation is to produce power in a timely,
efficient manner.
Subsidies
Subsidies can come in many forms, such
as production grants, tax holidays and
exemptions (for example, on import
customs duties on equipment), feed-in
tariffs (FITs) and low interest/preferential
loans to producers. In Europe, a range of
measures have been employed in order
to drive forward the development of WtE
projects. These measures include:
FITs and the availability of green
certificates (in a variety of forms);
renewable heat incentives (such as
the renewable heat incentive scheme
in the UK);
enhanced capital allowances and other
tax incentives; and
the imposition of landfill taxes and
landfill allowance trading schemes.
In Europe and Asia, the incentives have,
to date, focused on the renewable energy
production side of the equation, although,
given the pressures to reduce landfill in
some jurisdictions, there has also been
increasing attention given to issues of
waste supply and waste reduction.
Feed-in tariffs
FITs are a proven method of incentivising
the generation of energy. Although there are
some variations in FIT schemes around the
world, the central premise of a FIT scheme
is that a renewable energy generator is
guaranteed a certain level of payment for

its electricity, over a fixed long-term period.
The obligation to buy the electricity at the
set tariff is usually imposed on the utility/
supply company(ies). Different rates are
typically set for individual technologies,
such as solar, wind and biomass/biogas. The
costs of paying higher rates for renewable
energy is typically passed on to the
consumer. FITs are set for a certain number
of years to ensure long-term predictability
for investors. Each year, the rates offered to
new projects are lowered as more projects
are built and, theoretically, their economic
competitiveness and technological
efficiency increases. The aim of the policy is
that, once a FIT scheme has been in place for
some time, the industries will outgrow the
need for government support and will be
able to stand on their own in the market.
Tipping fees and landfill restrictions
Waste collection and disposal is expensive
and has other costs. Charging little or
nothing for waste disposal within the
GCC neither encourages waste diversion
nor private sector efforts at better waste
disposal. Although Sweden, for example,
has an abundance of land relative to its
population, its landfills are expensive. As of
2005, average tipping fees were equivalent
to 135 per tonne. In contrast, Abu Dhabi
currently charges just AE$250 (approximately
50) per tonne and in Dubai it is free
(although there is talk of introducing a
charge for commercial users similar to Abu
Dhabis). With cheap landfill disposal, there is
little chance of either public or private sector
engagement in better waste management or
WtE development.
Energy purchase requirements
The cost structure of a WtE project changes
dramatically when there is a requirement to
produce or purchase energy from renewable
sources, and when WtE is defined by the
relevant authorities as a renewable source.
For example, in the UK, electricity retailers
have a statutory obligation to source a
defined portion of their electricity from
renewable sources (although the current
Renewables Obligation scheme is being
phased out and being replaced with a new
Contracts for Difference regime5 involving
top-up payments above the wholesale
electricity price). In the UK, WtE generation
is deemed to be a renewable energy source
if it also includes the generation of heat as
5
For more information on Contracts for Difference

see the article on Electricity Market Reform in
issue 15 (July 2015) of EnergySource, Ashursts
sister energy publication to InfraRead.
well as electricity. Such highly efficient WtE

plants therefore get the benefit of green
certificates, which can be sold to electricity
retailers, or a Contract for Difference (under
the new regime).
Non-financial policy support
In addition to financial support, the
following elements need to be present as
part of the overall policy and regulatory
environment to facilitate WtE projects:
Access to the grid
As for any generation project, third
party access to the grid is essential. WtE
projects are likely to be smaller-scale than
conventional thermal power, and are
therefore more likely to connect to the
distribution network. A well-defined regime
for access to the distribution network, with
transparent terms, is key.
Connection standards for distributed
generation
Well-planned connection standards make
connecting to the grid an attractive option
for small-scale WtE systems without
compromising on the safety and reliability
of the overall system. To design effective
standards, a number of factors should
be considered to address the needs and
concerns of all stakeholders. These include
promoting broad participation during
standards development, addressing a
range of technology types and sizes, and
taking into consideration existing barriers
to connection.
Regulatory framework for thermal
treatment of waste
It is important that the regulatory framework
contemplates the thermal treatment of waste
to avoid uncertainty, particularly in terms
of environmental and planning consents. A
transparent licensing and planning regime
which is capable of enabling all key consents
and permits to be efficiently obtained in a way
which is incapable of subsequent challenge is
an essential ingredient.
Dispute resolution
It is also important to note that investors
and banks will look for a legal framework
which facilitates dispute resolution and the
enforcement of any awards or decisions
which arise.
Cameron Smith
Partner, London
T: +44 20 7859 1125
Regulation of waste collection

Also key is an organised waste collection
industry, and a developed regime regulating
it, that facilitates the centralised collection
of municipal and commercial waste and
discourages illegal, unregulated disposal of
such waste.
Ownership of the waste stream
Projects need creditworthy, long-term
suppliers of waste, which may mean
municipal authorities/local government
or, alternatively, financially stable and
technically proficient corporate entities.
Heat/power offtake
Last, but not least, a project needs to secure
creditworthy long-term power and/or heat
offtakers, which may be public utilities or
corporate offtakers of good financial standing.
What the private sector can do

to encourage the development
of WtE projects
International companies have long been
cognisant of reducing waste, not only for
their environment conscience but also
to save costs. In the US, Dr Pepper has
committed to recycling 80 per cent of solid
waste in its manufacturing facilities. CocaCola has been using recycled plastic since
1991, and Evian now have 50 per cent of
recycled material in its bottles. The private
sector driven as it is by profit margin can
make change happen, often more efficiently
than the public sector.
In the UK this year, there has been the
first example of a private sector company
not just recycling but supporting its
own WtE plant. The supermarket chain
Sainsburys has a store now entirely
powered by its own food waste. Sainsburys
delivers food to an anaerobic digestion
plant and the energy generated through
bio-methane gas is delivered back to them.
Although this is also spurred on by high
electricity costs and a higher cost of landfill
disposal in the UK than the GCC, this eyecatching project might become the first
model for future private sector development
of WtE in this region. Even if some
government support is required, the tariff
and costs could be lowered for the public
sector if the private sector can see economic
benefits from such a project.
Jennifer Moore
Associate, Dubai
T: +971 (0)4 365 2013
Private sector companies in the waste

management industry have also been
at the forefront of many of the public
education campaigns, designed to inform
the public about the benefits of recycling
and reuse of waste, as well as the perils
of landfilling waste. Those companies in
the waste management sector that have
embraced new technology and invested in
WtE facilities have benefited from higher
returns, due to their enhanced ability to
profit from trading in recyclable products
and shifting their focus towards renewable
energy generation.
Conclusion
Due to such a high production of waste
in the GCC, there is great opportunity and
scope to turn waste into recycled products,
captured LFG and valuable green energy to
reduce the ever-growing carbon footprint
of GCC citizens. To do so would be in line
with regional initiatives, such as the State of
Energy Report in Dubai 2014, which sets out
how the Municipality of Dubai is focused on
increasing renewable energy sources and
decreasing waste-to-landfill.
To do this, governments in the GCC will
need to promote awareness and encourage
the diversion of waste from landfill and the
generation of green energy and other byproducts from waste.
This could be achieved by adapting
policies on waste collection and
introducing a gate fee for commercial and
institutional waste collection. Not only will
this provide funding towards incineration
and LFG plants, it will also encourage
companies and individuals in the GCC
to cut down on waste production. To
enable green energy to be seen as a viable
alternative to fossil fuels, policymakers
could also consider providing FITs or other
financial advantages such as low interest
loans and grants.
With the proper planning and
development, WtE initiatives and projects
have the potential to play a significant
role in helping GCC policymakers move
towards an integrated, sustainable waste
management solution for the region,
reducing the carbon footprint of GCC
companies and citizens, and moving
forward into the field of green energy.
Alice Cowman
Senior Energy Consultant,
Adam Smith International
ROAD INFRASTRUCTURE IN AFRICA
A step-by-step guide to avoiding

potential potholes
by Michel Lequien and Jacques Dabreteau
Many African economies have experienced significant growth in recent years.

This growth could have been even greater if the countries concerned had had
appropriate transport infrastructure in place. Transport, of course, is not just about
roads. In Africa, as everywhere else, passenger and freight travel are, for the most part,
intermodal, involving transport by land (road and rail), air and sea.
Over the past 15 years, however, the
road sector in Africa is the one where
most progress has been made in both
institutional and financing terms. The
creation of road agencies and road funds
financed, in many countries, from fuel
levies, has meant that 80 per cent of the
main road network in Africa is now deemed
to be in either good or fair condition.1
While there has undoubtedly been
progress, the challenges remain immense. With
an average of 204 kilometres of roads per 1,000
1
Africas Infrastructure: A Time for

Transformation, World Bank/Africa Development
Forum report (2010).
square kilometres, of which only one quarter

is paved, the density of national roads lags far
behind the world average of 944 kilometres per
1,000 square kilometres, of which more than
half are paved. According to the World Bank, in
addition to the small number of major regional
trunk roads currently linking deep-sea ports to
economic hinterlands, which comprise no more
than 10,000 kilometres, [b]etween 60,000
and 100,000 kilometres of roads are required to
provide intracontinental connectivity in Africa.
Low road density also means that Africas
fast-growing cities are affected by increasing
congestion, which has an adverse impact not
only on economic development but is also a
significant source of pollution and accidents.

With a road traffic injury fatality rate of 32.2
per 100,000 inhabitants2 the corresponding
rate in countries such as Sweden, the UK and
France is between four and eight deaths per
100,000 population African roads are the
most dangerous in the world.
The sub-Saharan African3 road network
is still underdeveloped. Medium- and
long-distance national and international
2
3
Global status report on road safety, WHO (2009).

Africa is a continent comprised of 54 countries
with different economies, legal and political
systems, languages and cultures. Therefore, when
this article refers to sub-Saharan Africa it is for
simplification purposes only.
corridors need to be developed or improved,

to facilitate connectivity between capitals
and other major urban and industrial
centres. Such international corridors will
benefit landlocked countries in particular,
providing them with much-needed road
access to deep-sea ports. There is also a need
to facilitate all-season road connections
between major cities and provincial regions,
in particular higher value agricultural
regions and mining areas, and to decongest
high-density cities by building new, wider
and safer paved roads facilitating access to,
and circulation within, these cities.
The situation is difficult but improving,
and the needs have been identified in
numerous studies and reports. 4 There has
been an increasing number of privatelyfinanced road projects in various parts of
Africa some already completed, some
currently under development indicating
that private financing can and will play
an increasing role in the financing and
development of the African roads network.
Certain legal and institutional issues
must be identified and addressed to ensure
the successful implementation of road
PPPs in Africa. Most of them are, of course,
no different from those encountered when
developing and financing roads in other
parts of the world; the solutions in Africa
will, however, sometimes differ significantly
from those which apply elsewhere.
Legal and institutional issues

Road projects must make sense
Going back to first principles, in the same
way as for any infrastructure scheme, a
new-build, project-financed road project
must make economic sense. It must
be affordable for the public authority
and, where the road is tolled, for users.
Affordability is not only an issue in relation
to the original construction investment
but also relates to the ability from an
institutional, operational and budgetary
perspective to maintain and renew the
road infrastructure in a consistent and
efficient manner. This ongoing obligation
can become a significant issue, particularly
in countries with difficult weather
conditions such as a marked rainy season
or harsh desert conditions. The project
needs to bring clear economic benefits;
for instance, by connecting an urban or
industrial centre to a port or another
4
See, for example, Study on Road Infrastructure

Costs: Analysis of Unit Costs and Cost Overruns
Statistics of Road Infrastructure Projects in
Africa, African Development Bank (2014) and
Africas Transport Infrastructure: Mainstreaming
Maintenance and Management, International
Bank for Reconstruction and Development/World
Bank (2011).
mode of transport infrastructure (such

as an airport) or by de-bottlenecking a
congested urban area and facilitating the
segregation between freight and other
traffic. For example, the Dakar-Diamniadio
Highway project in Senegal5 not only
creates a more rapid, safer and efficient link
between the city centre of Dakar and the
new economic centre of Diamniadio, and
the Blaise Diagne airport, but also operates
as a junction between Dakar port and the
Dakar-Bamako-Ouagadougou-Niamey
trans-West African highway.
Institutional frameworks
Although roads are not the most complex
form of infrastructure to develop and
manage, the proper planning, financing,
management, maintenance and policing
of road infrastructure require a solid
institutional framework. It is generally
acknowledged that countries with road
5
The project (phases 1 and 2) consists of a 48.5

km road connecting Dakar to the Blaise Diagne
airport outside Dakar. The road is partially tolled.
The financing, construction and operation of
phases 1 and 2 of the highway concession were
awarded to Eiffage in 2009 (phase 1) and 2014
(phase 2). Phase 1 started operation in August
2013. Phase 2 is expected to commence operation
during 2016.
funds in particular, those that set fuel

levies at a reasonably high level have
systematically better road funding and are
much more likely to successfully implement
road maintenance requirements than those
which do not.6 Several African countries
(such as Nigeria, Senegal, South Africa and
Uganda) have road agencies with varying
degrees of autonomy and responsibility,
ranging from full independence in road
network management (including the
contracting out of public works) to limited
responsibility for the implementation of
governmental road programmes. Many
African countries also have ring-fenced
funding for the financing of maintenance
and new roads, either funded from fuel
levies (such as in Tanzania and Rwanda) or
from budget allocations (such as in Benin,
Cte dIvoire, Ethiopia, Zambia and Gabon).
Legislation and procurement/contracting
schemes
The creation of institutional frameworks
for road infrastructure goes hand in hand
with the adoption of enabling legislation
to create an appropriate framework
6
Africas Transport Infrastructure, as footnote 4.
provide a robust and stable road regulation

framework. Legislation will be required
to permit and organise toll collection and
enforcement. In several countries, where
specific laws already exist regulating the
establishment of roads (including planning,
land acquisition and contracting), access
to roads and the regulation, operation
and policing thereof, it will often be
necessary to review and amend the existing
legislation to ensure that it allows for
privately-financed projects and provides a
clear, exhaustive and stable framework for
the development and operation of such
projects. This will involve, for example:
improving the enforcement of rules
against encroachment (which is a
widespread issue in many African
countries);
limiting the right of landowners to
build their own access to roads;
authorising private operators to fully
perform their safety and maintenance
functions in order to operate the
road, without competence overlaps or
interference from other authorities; and
clarifying the powers of the roads
authority, in particular in relation
to financing, and toll revenue
management and disposal.
for private sector involvement in the

road sector.
Such enabling legislation will typically
provide for the adoption of appropriate
procurement and contracting schemes,
ranging from fixed-payment, performancebased maintenance contracts to various
forms of privately-financed schemes
typically used for the procurement
of privately-financed roads, such as
concessions or availability-based PPPs. For
example, Uganda has recently adopted
enabling legislation to facilitate the
forthcoming launch of the Kampala-Jinja
Expressway project.7 Ugandas new PPP
law sets out the required tender process to
be followed, and the approvals required in
order to bring PPP projects to fruition.
Regulation framework
Enabling legislation is also often required to
7
The project consists of a 75 km, four-lane, dual

carriageway motorway in Uganda. Ashurst is
currently advising the International Finance
Corporation, which is retained by the Uganda
National Roads Authority to assist in the
structuring and tendering of this project.
Requests for qualification are expected to
be issued by the end of 2015, with the PPP
procurement process expected to commence in
the first quarter of 2016.
Land acquisition and

environmental impacts
Land acquisition is always a sensitive
issue in road projects (as with any linear
infrastructure projects, such as rail and
pipeline projects). Land acquisitions in
sub-Saharan Africa and the safeguarding
of the selected land corridor raise issues
which are common to the development of
infrastructure in most developing countries.
For example, urban road projects crossing
shanty towns raise not only individual
expropriation compensation issues but
also wider social concerns, as they generally
require the displacement and resettlement
of families as well as of economic and
commercial activities. The concession or
PPP contract will often impose certain
specific compensatory obligations on the
private sector concessionaire or the PPP
company which can sometimes extend
beyond the normal scope of obligations
of a roads concessionaire; for example,
noise protection walls, planting of green
spaces, improving sanitation and funding of
community activities.
In rural areas, tribal land ownership
rules can make land acquisition a long
and complex exercise. Similarly, the
environmental impact of the proposed
road must be assessed and taken into
account, including through environmental

mitigation and compensation measures.
For example, the first stretch of the DakarDiamniadio Highway project crosses
the Mbao and Sbikhotane classified
forests, which has resulted in the contract
imposing specific environmental protection
constraints and measures. As in the case
of other infrastructure and power projects,
the identification and proper management
of environmental issues is particularly
important for road projects involving
multilateral agencies and international
commercial lenders, which have increasingly
stringent environmental and social
impact management and compensation
requirements.
Traffic risk and optimal
payment structure
As in the case of privately-financed road
projects anywhere in the world, a key
issue is how to manage traffic risk and to
determine the optimal payment structure.
Common sense would normally lead to the
conclusion that the African roads market is
not sufficiently stable and mature to enable
traffic risk to be transferred to the private
sector. With developed countries recently
experiencing a string of high-profile failures
of revenue risk on toll road projects, how
could such a model be expected to work in
less developed African countries? While it is
probably correct to state that the revenue
risk model is unlikely to be the most
attractive model for sponsors or for lenders,
it has an obvious advantage from the public
authoritys perspective, in that the public
sector does not have to contribute from its
own funds or, at the very least, that such
contributions are minimised.
Revenue risk model
That the revenue risk model can be
successful in Africa is illustrated by the
Dakar-Diamniadio Highway concession
in Senegal, which includes a 25-kilometre
stretch of tolled road.8 With a total cost for
travelling the Dakar-Diamniado Highway
of FCFA 800 for motorcycles, FCFA 1,400
for cars and FCFA 2,700 for trucks, and
average traffic in excess of 40,000 cars per
day,9 the project proves that, where all the
necessary conditions are met, it is perfectly
possible to privately finance a revenue
risk road project in Africa. In fact, for the
8
The tolled section comprises an open toll system

(lump-sum payment) in the urban part of the
highway (Patte dOie Thiaroye) and a closed toll
section in the peri-urban and rural part (Keur
Massar Diamniadio).
Figures extracted from Dakar Diamniadio Toll
Highway (P087304), World Bank Implementation
Status & Results Report (2015).
availability payments, in particular where

the payment is being made by a roads
agency established in the form of a
corporate entity. It will often be considered
necessary for central government to
guarantee the obligations of road
authorities to make the relevant project
bankable. Beyond the natural reluctance
of public authorities to structure their
infrastructure projects on the basis of a
government guarantee, the granting of such
guarantees will often require parliamentary
approval, which is, in itself, another potential
risk factor for the project.
Conclusion
Dakar-Diamniado Highway, using the
tolled section of the road is faster (allowing
saving of up to 75 minutes travel time as
well as on fuel costs), safer and cheaper
than the former route on which drivers
had to regularly pay amounts significantly
higher than the cost of the toll to informal
toll collectors. It is fair to acknowledge,
however, that although the DakarDiamniado Highway project has been
project financed, in strict terms private
finance represents only a limited portion
of the financing package for the project. Of
the 230m financing package, 38m (16.5
per cent) of the financing was provided by
the project co-sponsors, French company
Eiffage (32m in equity) and a Senegalese
commercial bank CBAO (Attijariwafa
Bank) (6m), the rest being provided by
the Senegalese State (120m) funded by
Agence Franaise de Dveloppement (AFD)
and the African Development Bank (ADB),
and by multilateral development banks
(56.5m provided by the International
Finance Corporation, the West African
Development Bank (BOAD) and the
Economic Commission for Africa (ECA)).
Similarly, the 16.5-kilometre extension to
the Blaise Diagne airport required 122m
in total of new investment, primarily
funded by way of a public subsidy and
by development banks.10 Clearly, projectfinanced revenue-risk road projects in subSaharan Africa will continue to require the
support of strong multilateral institutions
and the ECA for a long time to come.
It is likely, however, that, other than
in specific instances where the traffic risk
appears manageable for the private sector
10
The financing structure of the extension is as

follows: 16m equity provided by the sponsor
and 76m of new debt provided by the World
Bank, BOAD, ADB and CBAO to part refinance the
debt of the phase 1 project and part finance the
extension, and approx. 85.5m as a subsidy from
the Government of Senegal, itself financed by a
sovereign loan from AFD.
(such as the Dakar-Diamniado Highway),

revenue-risk-based structures will not be the
norm for road projects in Africa. In any event,
where traffic risk is to be transferred to a
concessionaire, an adequate level of flexibility
in the structure will be required to allow for
adjustments should the project dramatically
underperform or substantially overperform.
Availability risk model
Public authorities and funders will instead
often prefer to opt for the established
availability risk model, a model with which
the market is familiar and for which
lenders have an appetite. The model also
appears more adapted to the financing and
development of non-standard projects in
untested environments, without a reliable
traffic history or any certainty about public
acceptance of road user charging.11 This
does not mean that structures will never
involve real toll but rather that traffic risk
will ultimately be retained by the public
sector (the state and/or the relevant roads
authority) with the private sector operator
being paid by way of an availability payment
and, where a real toll is implemented, toll
revenues being collected on behalf of, and
paid to, the authority.
Government support
In turn, the structuring of availabilitybased projects raises the difficult question
of government support in guaranteeing
11
Beyond toll evasion, a key risk to be dealt with

in this respect is that of traffic diversion onto
competing roads, the existence and maintenance
of which is generally required by roads
regulations.
Michel Lequien
Avocat la Cour, Paris
T: +33 1 53 53 55 77
The challenges to the development of

privately-financed road infrastructure in
Africa are significant. There is still a long
way to go before project finance becomes
the norm for the development of the African
roads network. However, the few completed
African road projects South Africas N3
and N4, Senegals Dakar-Diamniado-Blaise
Diagne Airport Highway have shown
that, where all the necessary conditions are
met, project finance can be a solution, even
for revenue-risk-based projects. Projects
will require strong governmental and
multilateral support to come to fruition but
it is likely that, when availability-based or
other non-revenue risk structures are put
in place for sound projects, the appetite of
private sector players for projects will grow,
and the sponsors and commercial lenders
share in the financing of projects will
progressively increase.
As a closing note, it is worth
mentioning that the improvement of road
infrastructure is only part of the solution.
Economic research shows that, while the
quality of road infrastructure is important,
regulation and the market structure are the
binding constraints on performance in the
international corridors in Africa.12 Therefore,
while improving and developing road
infrastructure is essential, at the same time
it is also necessary to liberalise and regulate
transport services generally, using the new
infrastructure to ensure that the African
economy as a whole (and not just the
haulage and logistics industries) truly reaps
the benefits of better road infrastructure.
12
Africas Infrastructure: A Time for

Transformation, World Bank/Africa Development
Forum report (2010).
Jacques Dabreteau
Avocat la Cour, Paris
T: +33 1 53 53 53 69
PHILIPPINES PPP
Prospects and challenges

by Matt Rickards and Anna Hermelin
Recently recognised in a report by the Economist Intelligence Unit as the most

improved country in Asia-Pacific for public-private partnership (PPP) readiness1
and with an ambitious pipeline of projects, the Government of the Philippines
is seeking to encourage more overseas investors to bid for its PPP projects.
This article examines the prospects and challenges facing investors
who are looking to invest in the Philippines PPP sector.
The need for infrastructure
A comparison of infrastructure
competitiveness by country highlights
the need for continued infrastructure
investment in the Philippines. The table to
the right identifies the quality of overall
infrastructure in selected countries in the
Asia-Pacific region.2 The report ranks each
of the 144 countries reviewed based on
the score achieved by each country (1 =
extremely underdeveloped; 7 = extensive
and efficient) by international standards.
Ranked 52nd of 144, the Philippines
lags behind a number of its Asia-Pacific
neighbours. Worldwide, the Philippines
1
The 2014 Infrascope: Evaluating the environment

for public-private partnerships in Asia-Pacific,
Economist Intelligence Unit.
According to the World Economic Forum Global
Competitiveness Report 2014-15.
features below countries such as

Kazakhstan, Latvia and Barbados. However,
in just three years, the Philippines has
jumped 61 places to 52nd (it was ranked
113th in the World Economic Forums 2011-12
Global Competitiveness Report), testament
to how effective its infrastructure
development has been over the past few
years. Since the current PPP programme
began in 2010, ten PPP deals cumulatively
worth US$4bn have been awarded,
including the Mactan-Cebu Airport Project
and the Cavite Laguna Expressway Project.
This drive for further infrastructure
development shows no sign of abating.
Opportunities
For those considering investing in PPP
projects in the South East Asia region, the
Philippines presents an enticing investment
Country
Rank
Score
Singapore
5.65
Japan
5.47
Hong Kong SAR
5.45
Taiwan
14
5.25
Australia
21
5.16
South Korea
26
4.96
China
28
4.89
Thailand
31
4.66
Indonesia
34
4.57
Philippines
52
4.40
Vietnam
68
4.23
opportunity, given the Governments

demonstrable commitment to PPPs as
evidenced by the establishment of the
countrys PPP Center and the healthy pipeline
of PPP projects coming to market.
The PPP Center
The PPP Center of the Philippines (PPP
Center) is an agency attached to the
National Economic Development Authority
(NEDA, the independent planning agency
of the Government of the Philippines)
which is responsible for facilitating,
co-ordinating and monitoring Government
PPP programmes and projects by acting as
an oversight agency in their programming,
implementation, monitoring and evaluation.
It also serves as an information repository
on PPP contracts and reports annually
regarding the status of the PPP programme.
The PPP Center has been very successful
to date in working with the various
implementing agencies to build a pipeline
of projects. It has also shown a willingness
to listen to the market and the concerns of
market participants, and to adjust its PPP
programme accordingly. The PPP Center has
been increasingly active in marketing the
pipeline of PPP projects to foreign investors
and finance providers. The strength of the
PPP Center has been a key success factor in
building sufficient momentum and interest
to drive forward the Governments PPP
programme.
A healthy pipeline of projects
The PPP Center publishes and regularly
updates the pipeline of current projects
on its website.3 It is currently promoting a
healthy pipeline of projects across a wide
variety of sectors.
Airports: the tendering process is
already underway for the development,
operation and maintenance of
two bundles of regional airports
(Bacolod-Silay and Iloilo and Davao,
Laguindingan, and New Bohol
(Panglao)), with pre-qualification
documents due to have been submitted
in August 2015. In addition, in July
2015, the PPP Center announced that
the Cabinet-level NEDA-Investment
Coordination Committee (NEDA-ICC)
has also now approved the Ninoy
Aquino International Airport (NAIA)
PPP Project. This project is intended
to transform the Philippines main
gateway into a world-class modern
airport facility. While international
interest in the regional airports has
3
ppp.gov.ph
been muted to date, greater interest is

expected in the NAIA PPP. Other airport
projects currently subject to ongoing
studies include the upgrading of the
San Fernando Airport and the operation
of Clark International Airport.
Rail: projects in this sector include
the recently announced North-South
Railway PPP which covers the rail link
from Metro Manila to Legazpi City, Albay,
plus a number of existing and proposed
branch lines totalling approximately
653 kilometres. It consists of both
commuter railway operations and
long-haul railway operations and is
expected to cost US$3.79bn. In the light
rail sector, the LRT Line 4 Project has now
been approved by the NEDA-ICC, while
the larger LRT Line 6 Project, for the
financing, design and construction of
the 19-kilometre rail line from Bacoor to
Dasmarias, Cavite, is pending approval.
Roads: the ambitious US$2.7bn Laguna
Lakeshore Expressway-Dike Project is
currently in procurement. The private
partner will finance, design, construct,
operate and maintain the six-lane
expressway toll road atop a 47-kilometre
flood control dike. Other projects in
the pipeline include the construction,
operation and maintenance of the
NLEX-SLEX Connector road.
Water: in the water sector, the Bulacan
Bulk Water Project for the financing,
design, construction and maintenance
of conveyance facilities, treatment
facilities and water source to provide
treated bulk water is currently in
procurement, and the Kaliwa Dam
Project procurement process is
scheduled to be repeated after all the
prospective bidders were disqualified.
Social infrastructure: the Regional
Prisons PPP Project was launched
earlier in the year and is currently
in procurement. However, interest
in the project which involves the
construction of a facility that can
accommodate 26,880 inmates has
been comparatively muted and there
are only two pre-qualified bidders.
A clear legal and regulatory framework

The implementation of PPP projects is
governed by the Republic Act No. 9, more
popularly known as the Build-Operate-Transfer
Law (as amended, the BOT Law) and its
implementing regulations (the BOT Law IRR).
The BOT Law sets out a number of
prescribed contractual arrangements
including build-operate-and-transfer
(BOT), build-own-and-operate (BOO),
build-transfer-and-operate (BTO) and

rehabilitate-operate-and-transfer (ROT).
Other contractual arrangements which are
not expressly set out in the BOT Law are also
permitted, subject to Presidential approval.
An amendment of the BOT Law to turn
it into a fully-fledged PPP law is intended
to be implemented before the change
of administration in 2016. It is expected
that the amendments will generally be
favourable to investors and will further
institutionalise the process for issuing
awards and the role of the PPP Center.
A transparent bidding process
The BOT Law IRR sets out the process by
which tenders for infrastructure projects are
undertaken. As a general rule, projects to be
undertaken pursuant to the BOT Law must
be awarded after public bidding. Usually, a
two-stage process is followed:
(i) invitation to pre-qualify and bid: the
invitation to pre-qualify and bid sets out
the standards and requirements that
prospective bidders must meet in order
to be permitted to participate in the
bidding process; and
(ii) bid submission and evaluation: the
implementing agency issues the bid
documents to pre-qualified bidders.
Technical proposals are evaluated first.
If acceptable, financial proposals are
then evaluated.
Partnership with foreign participants
Traditionally, the Philippines market has
been dominated by local conglomerates,
who, to this day, are still very active in
bidding for PPP projects. However, where
more substantial projects are being
procured or where there is a lack of local
resources (either due to a lack of experience
in a sector or simply a lack of capacity
due to the number of projects coming to
market), local conglomerates are showing
an increasing willingness to partner with
experienced foreign sponsors and investors.
Incentives
Under the Omnibus Investment Code,
projects in excess of PHP1bn that are
undertaken pursuant to the BOT Law are
entitled to incentives, including an income
tax holiday, upon registration with the
Board of Investments.
Challenges
There remain, however, challenges, both
for the Government in its implementation
of infrastructure projects and for those
considering investing in the Philippines
PPP sector.
Rights of way
The acquisition of rights of way (ROW)
and other interests in real property in
connection with a national government
project is governed by Republic Act No.
8974 which permits various modes of
acquisition of ROW including expropriation.
As expropriation involves a court process,
there have historically been long delays in
the acquisition of necessary ROW and the
incurring of potentially high resettlement
costs (for example, in the North Luzon
Expressway Project). In past projects, the
Government has been willing to take
on some of the burden of obtaining the
necessary ROW, and further amendments
to the law are expected which are aimed at
increasing the efficiency with which land
rights may be obtained for national projects.
Nationality restrictions
Under the constitution of the Philippines,
and as reflected in the BOT Law, where
an infrastructure facilitys operation
requires a public utility franchise (such as
a franchise to operate a railway or airport),
the facility operator must be Filipino or, if a
corporation, must be duly registered with
the Securities and Exchange Commission (of
the Philippines) and owned at least 60 per
cent by Filipinos. This therefore limits the
ability for participation by foreign investors
and sponsors. In previous projects in the
Philippines, this has been managed by
allowing the project company the option of
acting as facility operator itself (if it meets
the ownership requirement) or by appointing
another entity through an operations and
maintenance agreement (if it does not).
While some foreign investors have been
discouraged by such limits on their equity
participation, others have indicated that, for
the right project, such a limitation would not
be a barrier to their investment.
Timelines and resources
The Government and the PPP Center have set
out an ambitious pipeline of projects which
they intend to award prior to the change in
administration in 2016. This has been putting
some pressure on the resources of bidders
(especially those interested in several projects
which may be being bid for simultaneously)
and may help to explain why some projects
have received fewer bids than expected,
as participants become more selective in
choosing which projects to bid for.
Property tax/other local taxes
Depending on the location of a project,
the project company may be exposed to
multiple local tax and consent processes
(with potentially onerous conditions

attached to these consents).
The Government is reportedly
considering including additional mitigants
to such risk in the proposed amendments to
the BOT Law.
Currency of tolls and fees
Where the project company is to be repaid
through the collection of tolls, fees and
charges, it may be exposed to currency risk in
relation to any foreign-denominated loans.
Historical precedent
In spite of the clear legal and regulatory
framework, high-profile issues have arisen on
a few projects which has injected uncertainty
into the bidding process and given some
investors pause for concern. For example,
the Cavite Laguna Expressway (CALAX)
Project has recently been awarded to Metro
Pacific Investment Corporations subsidiary
MPCALA, but only after the project was rebid
due to another bidder having questioned its
disqualification from the original tender for
what it called an inadvertent and harmless
typographical error. 4 The Mactan-Cebu
Airport PPP Project, which was awarded
to the GMR Infrastructure and Megawide
consortium, has also faced delays, in part due
to a dispute between the GMR-Megawide
consortium and the runner-up, the FilinvestChangi Airports consortium.
Change in administration
President Benigno Aquino III is barred from
seeking re-election in the 2016 election
and there will therefore be a change in
government next year. There is some market
uncertainty as to the approach which a new
administration would take to the current
Governments flagship PPP programme.
However, the risk is in part mitigated by the
institutionalisation of the PPP programme
under the BOT Law and also by the
unquestionable need for both improved and
new infrastructure in the Philippines.
Risk allocation
The PPP Center has published a Generic
Preferred Risks Allocation Matrix based on
the results of studies under the PhilippinesAustralia Partnership for Economic
4
Darwin G. Amojela, San Miguel asks Malacanang

to intervene in CALAX bid, InterAksyon.com,
July 2014.
Matthew Rickards
Counsel, Tokyo
T: +81 3 5405 6213
Governance Reforms Facility. It is a guideline

only, and risk allocations may vary from sector
to sector and from project to project, although
the PPP Center has encouraged the use of
precedent risk allocations where appropriate.
However, foreign investors have indicated that
they have withdrawn from projects in the
past due to inappropriate risk allocations and
that the proposed risk allocation for individual
projects will need to be carefully evaluated.
Local bank liquidity
Traditionally, foreign lenders have found it
hard to penetrate the infrastructure market
in the Philippines due to the liquidity of
the local banks and the dominance of local
sponsors with access to, and long-term
relationships with, such banks. Although
single borrower limits apply, the rules were
relaxed for PPP projects that are part of the
Governments official pipeline of projects.
Given the ambitious pipeline of projects and
the increasing interest of foreign sponsors,
foreign lender participation is therefore
expected to increase.
Conclusion
The Philippines, like many other of its AsiaPacific neighbours, still requires a significant
amount of new infrastructure, alongside the
renovation of its existing infrastructure. The
institutionalisation of the PPP Center and
the legal and regulatory framework for PPP
projects, combined with a healthy projects
pipeline, indicates that the Philippine
Government is continuing to tackle its
infrastructure gap head-on.
However, PPP projects in the Philippines
come with a distinct set of challenges,
some of which are typical of infrastructure
projects in emerging economies in the
Asia-Pacific region and some of which are
more specific to the Philippines. With some
significant projects coming to market, such
as the North South Rail Project, greater
interest from foreign investors is expected.
So far, the Government of the Philippines
and its PPP Center have shown a willingness
to listen to the concerns and suggestions
of potential investors and to engage with
multilateral agencies and international
experts to benefit from best practice. While
this continues, we expect it to be a market
that continues to generate significant
investment opportunities.
Anna Hermelin
Senior Associate (England & Wales),
Singapore
T: +65 6416 9520
Stop press:
Ashurst announces
new Managing Partner
for Tokyo office
Rupert Burrows has been appointed Managing Partner of our Tokyo
office. Having worked in Tokyo for over 20 years, Rupert has a wealth
of expertise in international infrastructure projects in the electricity,
oil and gas, chemicals and transport sectors as well as corporate M&A
deals. Rupert replaces project finance partner John McClenahan.
Ashurst achieves US
Chambers ranking for P3s
Ashursts US team, with offices in New York and Washington DC, has
been recognised for the first time by the 2015 Chambers directory
in the US in the PPP Nationwide category. This is a tremendous
achievement for a team that has been operating in this sector for a
relatively short time and reflects the real impact that we have had
on the market. With major programmes including the I-4 highway in
Florida, the PennDOT bridges P3 and the Maryland purple line on our
CV, we are truly embedded in the US infrastructure market acting for
a wide range of clients across the transport, social infrastructure and
renewables sector.
For full details of all Ashursts legal directory rankings, visit the
Chambers website at chambersandpartners.com and the Legal 500
website at legal500.com.
Awards success for Ashursts

infrastructure team
Ashurst was awarded Legal Adviser of the Year Gold Award at
the 17th annual Partnerships Awards, held on 14 May 2015 at the
Park Plaza Hotel in London. Our team was recognised for our work
over the past two years advising on some of the biggest, most
high-profile and most innovative PPP projects across the globe. In
particular, the judging panel considered Ashurst to be a worthy
winner as: Ashursts ability to overcome problems with innovative
solutions has ensured it has been at the forefront of flagship deals
across all sectors in a large number of countries over the course of
2014. Other significant projects to receive awards on which Ashurst
advised included: Mersey Gateway PPP (Best Road Project), Dublin
Waste-to-Energy PPP (Best Waste/Energy/Water Project), Ayrshire
& Arran Acute Mental & Community Hospital (Best Healthcare
Project Silver Award) and North West Rail Link PPP, Australia,
which was the recipient of The Judges Award for Projects Grand
Prix and Best Transit Project.
This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred
to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For more
information please contact us at [email protected] or [email protected].
Ashurst Australia (ABN 75 304 286 095) is a general partnership constituted under the laws of the Australian Capital Territory and is part of the
Ashurst Group.
Ashurst LLP is a limited liability partnership registered in England and Wales under number OC330252 and is part of the Ashurst Group. It is a law
firm authorised and regulated by the Solicitors Regulation Authority of England and Wales under number 468653. The term partner is used to
refer to a member of Ashurst LLP or to an employee or consultant with equivalent standing and qualifications or to an individual with equivalent
status in one of Ashurst LLPs affiliates. Further details about Ashurst can be found at www.ashurst.com.
Ashurst Australia and Ashurst LLP 2015. No part of this publication may be reproduced by any process without prior written permission from
Ashurst. Enquiries may be emailed to [email protected] or [email protected].

InfrRead Sept 15

Uploaded by

Copyright:

Available Formats

InfrRead Sept 15

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

InfrRead Sept 15

Uploaded by

Copyright:

Available Formats

Issue 6: SEPTEMBER 2015

Dispute boards: the long-awaited panacea

Infrastructure Act 2015: a road map for

Turning waste into power: opportunities

Road infrastructure in Africa: a step-by-step

2 InfraRead Issue 6 September 2015

TRANSPORTATION FINANCING IN THE US

Expanding the options available for P3s

The rehabilitation and further development of transportation infrastructure

projects in recent years. Qualifying projects

because the term sheet for a TIFIA financing

InfraRead Issue 6 September 2015 3

such delays can be undesirable from the

4 InfraRead Issue 6 September 2015

Transportation Equity Act (SAFETEA)) which

of an official statement to prospective

exempt market and reinvest the proceeds

A lower ratio implies a greater savings to

supplements Section 4(a)(2) by providing

InfraRead Issue 6 September 2015 5

required for registered securities. Issuers of

6 InfraRead Issue 6 September 2015

their qualification as either a QIB or an

documentation with an additional party.

Commercial bank loans

US Transportation Infrastructure P3s

(short term and

(short term and

(short term and

I-77 HOT Lanes

disclosure requirements or other onerous

disclosure document may be prepared for

perspective. It should also be kept in

InfraRead Issue 6 September 2015 7

The long-awaited panacea for

The infrastructure industry is increasingly looking at new means of

Justice D. Byrne, The future of litigation of

8 InfraRead Issue 6 September 2015

A number of factors linked to the largescale nature of infrastructure projects have

l ate or disputed progress payments

Participants in the 2014 report of our

Scope for Improvement 2014: Project pressure

becomes a claim of considerable value.

What is a dispute board?

P. Gerber and B. Ong, 21 today! Dispute review

their position on the matters in dispute and

The increasing popularity of

International Chamber of Commerce, Dispute

C. Menassa and F. Pea Mora, Analysis of

InfraRead Issue 6 September 2015 9

Available outside of the contract terms?

Available before a dispute has arisen?

Procedure determined by the parties?

Are costs front-loaded?

Dispute heard by an industry expert?

Is the court, tribunal or expert(s)

actively being used by the parties to these

Dispute boards in comparison

Why would you use