States increasingly finance infrastructure together with private investors through partnership contracts, in which the investor funds, builds and operates a project over a long term in return for an agreed revenue. The long duration of these contracts puts the balance between the parties under strain.
The nature of a PPP contract
A PPP contract sits between administrative and commercial contracts: the state keeps powers required by the public interest, while the investor holds financial rights that must remain protected throughout the term.
Key protective clauses
- Economic equilibrium and renegotiation when circumstances change.
- Stabilisation, or compensation for legislative change.
- Early termination and the compensation due in each case.
- Dispute resolution, choice of arbitration and its seat.
Careful drafting at signing costs far less than a dispute during performance.
Conclusion
Investor protection in PPP contracts starts at the negotiating table, and the contract should be reviewed against national investment law and applicable bilateral treaties.