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Template 9 - 1

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Template 9 - 1

Module 3 Template 9 Drafting notes to the large cap tourism PPP agreement

    Module 3 Template 9 Drafting notes to the large cap tourism PPP agreement 2.

    Table of contents

     Page

    1. Relationship with the Standardised Public Private Partnership Provisions 4 2. Project Finance ................................................................................................ 4

    3. Generic nature of the PPP Agreement ............................................................ 4

    4. Clause 1.1.1 definition of "the Act" .............................................................. 5

    5. Clause 1.1.29 definition of "Independent Expert" ....................................... 5

    6. Clause 5.3.1.-- ownership and return of the Project Site and the Facility .... 6 7. Extent of the Project ........................................................................................ 6

    8. The situation where the Facility is already erected on the Project Site ....... 6 9. Sale of Institution Assets................................................................................. 7

    10. Rights of access, traversing rights and sharing of common facilities ......... 8 11. Clause 7 Institution assistance and rights and limitations on liability ...... 9 12. Clause 8.3.2 and Schedule 7 ........................................................................... 9

    13. Clause 11 Key Personnel and removal of personnel .................................. 9 14. Clause 13 Access to documents, copyright and related matters .............. 9 15. Clause 17 Performance Bond and Final Bond .......................................... 10

    16. Clause 18 Commencement and Completion of Works ............................. 10 17. Operator .......................................................................................................... 11

    18. Clause 20.4 marketing ................................................................................ 12

    19. Clause 21 PPP Fee ...................................................................................... 12

    20. Clause 22 User charges in respect of Operation and Maintenance ......... 13 21. Clause 23 Penalties ..................................................................................... 13

    22. Clause 24 Default interest ........................................................................... 13

    23. Clause 27 Consequences of a Relief Event ............................................... 13

    24. Termination Amount on Private Party Default ............................................. 14

    25. Clause 31 and a direct agreement with a lender to the Private Party ......... 14

    Module 3 Template 9 Drafting notes to the large cap tourism PPP agreement 3.

    26. Clause 31.3 Equity and Shareholder Loan compensation on Institution

    Default ....................................................................................................................... 15

    27. Clause 38.2 certificate of indebtedness ..................................................... 15 28. Institution's right to step in ........................................................................... 15

    '23 Institution Step-in ........................................................................................... 16

    29. Capital grants by the Institution or a Responsible Authority ...................... 17 30. Final Bond ...................................................................................................... 17

    31. Documents to be included in Project Documents ....................................... 18 32. Sale of business upon termination or expiry ............................................... 18 33. Schedule 4 - Environment and heritage obligations .................................... 18 34. Schedule 5 Black Economic Empowerment obligations .......................... 21 35. Schedule 12 - Penalties ................................................................................ 21

     Module 3 Template 9 Drafting notes to the large cap tourism PPP agreement

    1. Relationship with the Standardised Public Private Partnership Provisions

    The PPP Agreement is based on the Standardised Public Private Partnership

    Provisions ("the Standardisation") issued as National Treasury PPP Practice

    Note number 01 of 2004, available on www.ppp.gov.za. It is not the intention to

    repeat the provisions of the Standardisation in these Notes but to supplement

    them. Accordingly, it is advised that persons using the draft PPP Agreement for

    large cap tourism PPPs and these Notes consult the Standardisation in

    conjunction with these Notes and the PPP Agreement.

    2. Project Finance

    The draft PPP Agreement for tourism PPPs assumes that finance is raised by the

    Private Party in the form of corporate finance supported by the balance sheets of

    its shareholders. In the event that project finance is used, relying on the cash flows

    of the project, (limited or non-recourse debt) then this PPP Agreement must be

    amended in accordance with the Standardisation, making suitable provisions for

    the lenders. Institutions are advised in such circumstances to seek the advise of

    National Treasury's PPP Unit.

    3. Generic nature of the PPP Agreement

    3.1 The draft PPP Agreement is relatively generic and non-project specific. It

    should be more closely moulded to the specifics of the Project if, and once,

    decisions have been taken on Project specific issues. Once decisions in

    respect of the Project have been taken, then the following clauses in the PPP

    Agreement must be amended:

    3.1.1 clause 1.1.15 (definition of "Development Period"), clause 1.1.20

    (definition of "Expiry Date"), clause 1.1.36 (definition of "Long Stop

    Date") and clause 4.1.2 (the time period of the Development Period) ;

    3.1.2 clause 1.1.44 (definition of "Operation and Maintenance"): definition

    should describe the Operations that the Private Party is required to

    provide at the Facility in respect of the Project;

    3.1.3 clause 1.1.61 (definition of "Protected Area"): this definition should

    include a description of and the name of the site where the Project is to

    Module 3 Template 9 Drafting notes to the large cap tourism PPP agreement 5.

    take place, such as (for example) the name of the relevant dam or river

    or park or Protected Area;

    3.1.4 clause 1.2.2 and wherever else the phrase "month and year in which

    the Signature Date appears": the month and year in which signature of

    the PPP Agreement occurs should be inserted as they will form the base

    date off which inflationary increases will happen; 3.1.5 clause 2.2: the description of the physical structures and the activities

    that the Private Party is to provide and undertake must be inserted into

    this clause;

    3.1.6 clause 3.2 and clause 7.2: whether the Private Party will have exclusive

    use of the Institution Assets and the Project Site will depend on the

    nature of the Project and what other uses the Institution wants to make of

    the Project Site. If the Private Party is not to have exclusive use of the

    Project Site, then the wording in square brackets in clauses 3.2 and 7.2; 3.2 In certain clauses, numbers of days or amounts are either in square brackets,

    bold and italics or have not been filled in. The Institution and the Transaction

    Advisors must fill in these numbers of days and amounts after considering

    what would be appropriate in respect of the Project to which the PPP

    Agreement relates.

    4. Clause 1.1.1 definition of "the Act"

    This definition should refer to any legislation that specifically governs the Institution

    and permits the Institution to undertake the PPP and enter into the PPP

    Agreement. If there is no such legislation and/or the Institution derives its

    Institution, power and capacity from the common law or a statute such as the

    Constitution, then this definition may not be necessary.

    5. Clause 1.1.29 definition of "Independent Expert"

    A Project may require different experts to determine a dispute between the Parties.

    For example, a Project in respect of a water PPP may require a financial expert to

    determine certain financial issues and an expert in riverine biology and Project in

    respect of a game reserve may require experts in respect of flora and fauna. The

    Module 3 Template 9 Drafting notes to the large cap tourism PPP agreement 6.

    clause contains 4 types of experts but the number and type of the experts may

    need to be expanded in respect of a specific Project.

    6. Clause 5.3.1.-- ownership and return of the Project Site and the Facility

    Where the institution is not the owner but has delegated rights from the owner, this

    clause should be used as an alternative to clause 5.3.1.

    The Private Party agrees and acknowledges that the Project Site is registered in

    the name of [insert name of relevant government department or entity in

    whose name the Project Site is registered] and that [insert name of relevant

    government department or entity in whose name the Project Site is

    registered] has delegated to the Institution the power and authority to conduct the

    Project on the Project Site and to grant the rights detailed in this PPP Agreement

    in respect of the Project Site to the Private Party.

    7. Extent of the Project

    It is possible that a Project could require the Private Party to undertake certain

    conservation functions of the Institution in respect of the entire Protected Area. In

    this situation, the RFP documents must clearly specify that the Private Party must

    be required to undertake these conservation functions and the Operation and

    Maintenance Specifications and the Environmental Specifications must specify in

    detail what the conservation functions are and what obligations, duties and

    functions the Private Party is required to undertake and perform.

    8. The situation where the Facility is already erected on the Project Site

    8.1 It is possible that the Facility has already been erected on the Project Site

    when the PPP is undertaken. If this is the case, two situations are possible: 8.1.1 the first is where the Private Party will have to restore, renovate and/or

    refurbish the Facility; and 8.1.2 the second is where the Private Party can use the Facility in the state in

    which it is delivered to the Private Party by the Institution. 8.2 In the first situation, all of the provisions in respect of the undertaking of the

    Works in accordance with the Construction Specifications and to the

    satisfaction of the Independent Certifier, by the Long Stop Date will still be

    Module 3 Template 9 Drafting notes to the large cap tourism PPP agreement 7.

    necessary. In this situation, the definition of Works will need to deal with the

    restoration, renovation and refurbishment of the Facility (rather than the

    design, construction etc) and the Construction Specifications in Schedule 1

    will need to provide the detail of the restoration, renovation and/or

    refurbishment that needs to be undertaken in respect of the Facility.

    Accordingly, the definition of Works should read as follows:

    "Works" - the restoration, renovation and

    refurbishment of the Facility

    pursuant to the Project

    Deliverables but excluding the

    Operation and Maintenance, as

    detailed in Schedule 1.

    8.3 The second situation is anticipated to occur rarely. In this situation, the

    following definitions, clauses and schedules will need to be deleted and the

    transaction advisors will need to pay particular attention to ensuring that the

    PPP Agreement is amended to incorporate consequential changes to the

    provisions of the PPP Agreement and to detail that the Facility has already

    been designed, constructed, commissioned and is completed and is being

    provided to the Private Party in a readily useable state.

    8.3.1 The definitions to be deleted are the following: Completion Certificate,

    Construction Specifications, Development Period, Independent Certifier,

    Independent Certifier Agreement, Long Stop Date and Works. 8.3.2 The clauses to be deleted are clauses 14.2.2, 18, 30.15 and 30.1.7.

    8.3.3 The schedules that may be deleted are Schedules 1, 3 and 11.

    8.3.4 Clause 9 will need to be amended to remove any references to the

    Construction Specifications in the title and by deleting clause 9.2.5. 9. Sale of Institution Assets

    9.1 In certain PPP projects, the Institution may wish to sell certain of the

    Institution Assets to the Private Party. In this situation, the following

    definitions need to be inserted into clause 1.1 in the correct alphabetical

    positions:

    Module 3 Template 9 Drafting notes to the large cap tourism PPP agreement 8.

    "Purchase Price" - the purchase price to be paid by

    the Private Party to the Institution

    in respect of the Sale Assets,

    which price is in the amount of

    R[insert amount];

    "Sale Assets" - those Institution Assets which are

    listed on Schedule [ ] and which

    are sold by the Institution to the

    Private Party;

    9.2 The following clause should be inserted into the PPP Agreement as clause 5:

    'Sale of Sale Assets

    On and with effect from the Effective Date, the Institution sells the Sale

    Assets to the Private Party, who purchases the Sale Assets from the

    Institution. The Sale Assets are sold to the Private Party voetstoots.

    The Purchase Price shall be paid by the Private Party to the Institution

    by way of electronic transfer into the following account [insert account

    details] on the Effective Date and upon receipt of the Purchase Price,

    the Institution shall deliver the Sale Assets to the Private Party by

    granting access to the Project Site to the Private Party.'

    9.3 A new Schedule should be attached to the PPP Agreement and this Schedule

    should list all of the Sale Assets.

    10. Rights of access, traversing rights and sharing of common facilities

    If the Private Party is to be granted specific rights of access to or rights to traverse

    other parts of the Protected Area or is going to be required to share any common

    areas or parts of the Protected Area, then this will need to be specifically provided

    in clause 5 and the following clause can be inserted as clause 5.1.15:

    '5.1.15 The Private Party shall be entitled to [access/cross/have

    common use of, together with any other persons to whom the

    Institution grants similar rights,] the following areas of the

    Protected Area:

    Module 3 Template 9 Drafting notes to the large cap tourism PPP agreement 9.

    [insert list of areas of the Protected Area].'

    11. Clause 7 Institution assistance and rights and limitations on liability The wording in square brackets in clause 7.2 should be deleted if the Institution or

    another Responsible Authority may wish to grant rights to other persons to

    conduct similar PPPs to the Project or may itself wish to conduct a similar project

    to the Project, in respect of the Park or place at which the Project Site is situated.

    If the Institution is prepared not to have the ability to grant such rights to another

    person or itself conduct such a project, then the square brackets can be deleted

    and the wording retained. Whether the Institution undertakes not to grant a similar

    PPP to another Private Party or to operate a similar project itself will depend on

    the quality of the asset on which the Project takes place and whether that asset

    can successfully sustain two similar projects, yielding the required returns. In

    addition, the Institution must also decide whether the exclusivity of rights, if given,

    extends to the Project Site only or to the entire Protected Area.

    12. Clause 8.3.2 and Schedule 7

    The wording in square brackets in clause 8.3.2 and its subclauses and the whole

    of Schedule 7 can be deleted if there are no Consents which the Institution is

    going to obtain.

    13. Clause 11 Key Personnel and removal of personnel If the Institution is going to require the Private Party to take over the employment

    of any employees of the Institution, then section 197 of the Labour Relations Act,

    1995 will be applicable. Specialist legal advice will be necessary in respect of the

    procedures that need to be followed and the requirements of said section 197, as

    well as any legal agreements that may need to be entered into pursuant to the

    transfer of the employment of the relevant employees.

    14. Clause 13 Access to documents, copyright and related matters If intellectual property rights, trade marks and branding are important issues in

    respect of a particular Project, the Institution is advised to consult specialist

    intellectual property attorneys as to advice on these issues and specific provisions

    that may need to be inserted into the PPP Agreement.

    Module 3 Template 9 Drafting notes to the large cap tourism PPP agreement 10.

    15. Clause 17 Performance Bond and Final Bond 15.1 The amount of the Performance Bond during the Development Period should

    not be less than a percentage of the cost of the Works, which percentage

    should be determined with specific reference to the particular Project. In

    addition, the amount of the Performance Bond during that period may also

    cover additional damages and costs that the Institution may incur should the

    Private Party default on its obligations during that period. During the Project

    Term, the Performance Bond amount should not be less than the Minimum

    PPP Fee and may also cover any additional damages and costs that the

    Institution may incur should the Private Party default during that period. The

    Performance Bond will need to be issued in respect of a specific amount in

    respect of each period as financial institutions and corporate entities will not

    issue bonds in respect of potentially unlimited amounts. 15.2 The amount of the Final Bond and when the Final Bond should be provided

    for the first time should reflect the financial costs of the maintenance to be

    done in the last few years of the Project and when the final maintenance

    should commence. For example, if there are large replacements of

    equipment (such as kitchen equipment) required 5 years before the Project

    Term expires, then the amount of the Final Bond will be larger than and it will

    be required to commence sooner than, the Final Bond in respect of a Project

    where there is no major maintenance in the last 5 years of the Project and the

    routine maintenance is of relatively low value.

    16. Clause 18 Commencement and Completion of Works 16.1 The PPP Agreement is drafted on the basis that an Independent Certifier who

    has the expertise to monitor and sign off the Works will be appointed. This is

    to avoid the situation where the Institution monitors and signs off on the

    Works as this may result in the transfer back to the Institution of the risk in the

    design and construction of the Facility, which is to be avoided. It will be

    necessary for the Institution and the Private Party to enter into an agreement

    with the Independent Certifier, who will be appointed by both the Parties and

    will be paid by both the Parties in equal portions. A draft Independent

    Certifier Agreement is attached to the PPP Agreement as Schedule 11.

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