The prevalence of renegotiation across the entire dataset is shown below in Figures 3 and 4. Figure 3 shows the prevalence of renegotiation in any individual year after financial close (for example 7% of projects had a renegotiation in the third year after financial close). Figure 4 shows the prevalence of renegotiation up to that point in time (for example 20% of projects experienced a renegotiation within the first four years after financial close). It should be noted that the number of projects on which this information is based reduces for later years. This is because, in order to calculate the prevalence of an event in a certain year, we can only assess projects which have been running for at least that length of time.
It should also be noted that all the projects in this case study are ongoing, and may have renegotiations in the future. This data will therefore underrepresent the prevalence of these events.
In total, our study found 48 examples of renegotiation out of the 146 projects for which this data was available, which is an incidence of 33%. This included 12 in Europe, 25 in Latin America, five in India and single examples in the other regions. The prevalence of renegotiation in Latin America is partly due to the approach taken in that region with ‘rebalancing’. This approach blurs the distinction between renegotiation and adjustments, which was not distinctly picked up in the data collection process. Consequently, for the purpose of this data analysis, the study results do not differentiate between renegotiation and rebalancing in Latin America.
It should be noted that the prevalence of renegotiation results is heavily influenced by the timeframe that was selected for this research (i.e. reaching financial close between 2005 and 2015).
While all projects in the sample have been running for at least two years, this reduces for each year after, and only 50 projects have been in progress for over eight years. The influence of this is clear in Figure 4, showing the prevalence of renegotiation, by year N after financial close. While only 33% of projects experienced renegotiation in the entire sample, the data indicates that almost 20% of the ongoing PPPs had experienced renegotiation by their fourth year after financial close, and 45% of PPPs by their tenth year after financial close. This suggests that the true prevalence of renegotiation is likely to be higher due to the timescales involved, noting also that renegotiation prevalence does not appear to increase substantially after year nine. The timescales also means that any potential handback issues are not captured in the data.
Had the same set of projects been used for each year after financial close, Figure 4 would have been cumulative. A different set of projects is used for each year (year N) after financial close as not all of the projects have reached year N at the time of completing this study. The prevalence drops off in later years due to the different set of projects.
A large number of renegotiations took place between two and four years after financial close. Our study suggests that, it takes some time for issues or challenges to arise on a project before a renegotiation is initiated. The existing literature suggests that there can be a tendency in some jurisdictions to sign a PPP contract and renegotiate very soon after. Figure 3 shows that renegotiation is more likely in year one than in year two, although given the small number of occurrences involved it is not possible to draw any strong conclusions.
The causes of renegotiation in our study were varied. In 17 cases it was due to increased costs (two during design, 12 during construction and five during the operational phase). Although increased construction costs and increased operation costs are termed as causes of renegotiation, in reality they were the consequences of an underlying cause which has not been identified during the study. The underlying cause which led to increased construction or operation costs is, at times, related to the Procuring Authority’s breach of, or non-compliance with, its contractual obligations (e.g. failure to complete land acquisition, grant site access, secure third-party approvals, etc.). Another 18 were due to a change in regulation or policy change, split evenly between regulation and policy changes. Four were due to incorrect demand forecasts, including in the Queen Alia International Airport Expansion Case Study where the actual volumes were higher than predicted. The remaining instances were due to external factors, such as delays in gaining access to worksites.
The party initiating the renegotiation was split evenly between the Project Company and the Procuring Authority, however we have to be careful drawing any conclusions from this outcome. In some cases a renegotiation was needed due to external changes. For example, on the Perpignan Figueras High Speed Rail Link project between France and Spain, the non-PPP rail project connecting the rail PPP to Barcelona was delayed. In other situations, only one party was been interested in engaging in a renegotiation, such as the Sao Paulo Metro Line project, where the Procuring Authority initiated the renegotiation due to delays in the construction phase.
The most common outcome of the renegotiations in this study was a change in tariff, and there were 13 examples of an increased tariff, mostly in the projects in Europe and Latin America. There were another 10 examples of a decrease in tariff, however six of these were in Brazil and another was a similar unilateral reduction in feed-in tariff on a project in Romania. The other contract change was in Portugal where the payment mechanism changed entirely.
A change in scope occurred 10 times in the construction phase and six times in the operations phase. The construction scope changes ranged from reductions in scope on the Baixo Highway project in Portugal, to changes in tunnelling works due to ground conditions on projects in Brazil and the Netherlands, to the large increase in investment in the Queen Alia International Airport Expansion Case Study.
It was also common for the contract duration to be extended as a form of compensation for the Project Company. For example, the PR-22 highways in the USA was extended by 10 years. Where the contract duration was extended to account for construction delays, the extension period was much shorter, generally one to two years.
There were eight instances of renegotiation with other results, such as a change to the construction schedule in Brazil, an increased government contribution in Greece and a new project site in Mexico.