This section provides a summary of the data analysis related to insolvency. The full data analysis is available in Appendix A (Data Analysis).
The study confirmed that insolvency of the Project Company is relatively rare. The study identified six examples in which insolvency of the Project Company had occurred, in a sample size of 204 projects globally, including examples such as a power plant in Brazil and a trans-national rail link between France and Spain. Previous experience in Australia, the United Kingdom and other regions indicated that Project Company insolvency has been more common in PPPs that are based on user-pay arrangements (as opposed to government-pay, availability-based arrangements), where the revenue generated by the project was significantly below the revenue forecast. It should be noted that the study was limited to projects that reached financial close between 2005 and 2015 (inclusive), and only one project had completed its full operations period by the time of the study. The earliest projects have now reached a maximum of 13 years after financial close, and there may be further insolvencies in the future as the projects continue. This means that the prevalence figures here will be lower than they would be had the study taken place when the projects were completed.
The study found that insolvency of the construction contractor is more frequent than that of a Project Company, albeit still not a common event. The study found 10 examples of contractor insolvency from a sample size of 204 projects in the UK, the Netherlands, Germany, Ukraine, South Africa and Brazil, and another in Mexico, where the contractor plans to file for bankruptcy while it is still liable for repairs on completed construction works. There was also one example of an equity investor in the Project Company going insolvent, and two examples of key suppliers to the project going insolvent.
The insolvency of a contractor will generally be managed by the Project Company without leading to insolvency of the Project Company itself, although the study identified an example in Brazil in which insolvency of the contractor was coupled with eventual insolvency of the Project Company.
Some markets experienced challenges when equity investors’ insolvencies were linked to corruption (e.g. Brazil and Spain), creating the need for a change of ownership and/or leading to increased risk of project termination.
The prevalence of insolvency events in the data collected is shown in Figure 1. It should be noted that the results for individual regions are based on sample sizes too small to enable any conclusions to be drawn on trends or any region specific issues.
Figure 1: Insolvency events, based on 204 projects with data available
