f6!!J];- ..........~-

SEC~TARlAT FOR INFR:ASTRUCTUl\E

DEVELOPMENT AND INVESTMENT

GUIDELINES

FOR

BOOiBOT PROJECTS

MINISTRY OF POLICY PLANNING AND IMPL~mNTAT1ON

PUBLIC-PRIVATE PARTNERSHIP ININFRASTRUCTURE DEVELOPMENT

GUIDELINESFOR

BOO/BOT PROJECTS

SECRETARIAT FOR INFRASTRUCTUREDEVELOPMENT AND INVESTMENT

MINISTRY OF POUCY PLANNINGAND IMPLEMENTAnON

FEBRUARY 1993

TABLE OF CONTENTS

TABLE OF CONTENTS . .. .. .. .... .... . . .. . . . i

FOR B W 0 RD. . . . . .' . . . . . . . . . . . . • . . . . . . . iv

1. BACKGROUND AND GENERALPOLICY . . . . . . . . . . . . . . . . . . . . . .. 1

2. MAIN FEATURES OF THEBOO/BOT PROJECTS . . . . . . . . . . . . .. 2

3. INSTITUTIONAL FRAMEWORK 3

4. ELIGIBLE INFRASTRUCTUREPROJECTS AND SECTORS ...•..•.•. 4

s. INTEGRATION CF PROPOSEDPUBLIC/PRIVATE PROJECTSWITH TRADmONAL PUBLICSECTOR INFRASTRUCTUREACTIVITIES . . . . . . . . . . . . . . . . . . . .. 5

6. THE PROCESS OF PROJECTDEVELOPMENT AND APPROVAL.. . . .. 6

6.1 Solicited Proposals • . . . . . . . . . .. 66.2 Unsolicited Proposals 7

i

7. BVALUATION OF PROPOSALS:SOLICITED AND UNSOLICITED 9

r

8. LEITER OF INTENT (LOI) . . . . . . . . .. W

9. PRE-QUALIFICATION CRITERIAAND MINIMUM STANDARDS . . . . . . .. 11

9.1 Ownership.. . . . . . . . . . . . . . . .. 119.2 Experience or Track Record 119.3 Financial Capability 119.4 Minimum Standard & Specifications . 12

,10. Ec:ONOMICPARAMETERS . . . . . . . . .. 12

11. BID DOCUMENTS . . . . . . . • . . . . . . . . 13

12. BIDDING PROCEDURES . . . . . . . . . . . 14

13. AWARDS ... ,' ...... , .... , ... , .. 14

14. PERFORMANCE BONDS ANDBID BONDS :'.: ~ . . , . . . , . . .'. . . . . . . . 14

t " ••

ii

15. ALLOCA~G RISKS ANDRESPONSIBILITIES:INCENTIVES'; CONCESSIONS ANDOTHER FORMS OF SUPPORTBY THE GOVERNMENT ............ ' 16

15.1 Concessions and Incentives . . '. . . . . 1515.2 Performance Guarantee,s by

Government ................ 1615.3 Financial or Equity Contributions ... 1715.4 Logistical or Physical Facilities

to be Provided by the Government .. 1715.5 Approval of Designs . . . . . . . . . . . 1715.6 Approval of Tolls/Fees/Tariffs/

Charges, etc . . . . . . . . . . . . . . . . 17

15.7 Enhancement of the Security Package 18

iii

FOREWORD

A well developed economic infrastructure in the form of agood network of road and rail transport, an adequate supply of safewater, an adequate and uninterrupted power supply, a modemtelecommunication system, a system of waste disposal which isenvironment-friendly, port facilities which are not congested andother necessary economic infrastructure facilities are essential pre­requisites for higher levels of investment and growth. Inefficientand outmoded systems are counter-productive; they retardeconomic growth, deter investors and have an adverse effect on thequality of life of the people.

The development of tJ,e infrastructure in all the ~tors tothe desired levels and managing them in a cOst effective manner~ for capital and entrepreneurial skills on such a massive scalethat the Government would not be able to mobilise in the short orthe medium-term, without recourse to local or foreign commerci~

borrowing. The Government has therefore, decided to seek privatesector participation in infrastructure development.

The involvement of the private sector in infrastructuredevelopment, wmch has come to be known as the BOO/BOTstrategy, has been resorted to with encouraging ~ults in bothdeveloped and developing countries. The process of projectdevelopment is nevertheless complex. The success of a projectwould depend on the skillful structuring of a partnershiparrangement among the parties involved; the Government, theinvestors and the lenders, while bearing in mind the interests of theusers of the facility, the legal, technical and financial,considerations and more importantly, the impact on the communityand the environment.

iv

These Program Guidelines seek to set out the procedures tobe followed and the considerations which should guide projectsfrom the stage of conceptualisation to execution. It is hoped thatthey would be of use to both the prospective investors and thestate agencies intending to promote BOO/BOT projects in theirrespective sectors.

DrP "RamanujamDirector GeneralSecretariat for InfrastructureDevelopment and Investment87, Horton HaceColombo 7Sri Lanka

Telephone: (94-1) 693761, 696947, 694618Fax: (94-1) 696952, 694601

February 15, 1993

v

PUBLIC-PRIVATE PARTNERSHIP ININFRASTRUCTURE DEVEWPMENT

1. BACKGROUND AND GENERAL POLICY

1.1 There is an urgent need to improve the infraStructure facilitiesin~riLanka to match international standards in order to cope with the higher levels ofanticipated investments in industry, agriculture and the service sectors. Further,it is widely accepted that a well developed economic i,nfrastructure, among otherthings, creates employment, promotes local and foreign investment and transferof~bnology, fuels business productivity and expansion and contributes greatlyto the improvement of the standards of living of the people and their access tosocial. and economic services. Conversely, an inadequately developed orinefficiently performing infrastructure stifles. economic activity and affects thequality of life of every section of the community.

1.2 The ability of the Government to finance the. required infrastructurefacilities is limited by the amount of revenue that can be generated from the.available low income base of the country and increasing world wide competitionfor funds through donor assistance. Also, there are competing demands onGovernment resources arising from the need to maintain a reasonable standardof social welfare. Hence, in pursuance of the accepted policy of the Governmentof encouraging private investment in the economic development of the country,it is now proposed to attract private investment in the development ofinfrastructure facilities.

1.3 The Government therefore, seeks the collaboration of the private sector,local and foreign, on mutually beneficial terms in the development of theinfrastructure on Build-Own-Operate (BOO) and Build-Operate-Transfer (BOT)or other appropriate variants of Public-Private partnership arrangements.

1.4 In promoting private investments, the Government will endeavour tomaintain a proper balance between the need to provide a satisfactory service totho public at reasonable cost while safeguarding (:heir rights to existingalternative services and to ensure P.D adequate retum on investment. . .

,/

Ould.llno. fur BOO/BOT Proj.Ohl

I.S Durina BOOIBOT operations the Government will ex~r.nd allappropriate assistance for the successful operation of the program, in a spirit ofhealthy and beneficial co-operation between the public and the private sector.

1.6 In detel'lDining the terms of the BOOIBOT projects, the Governmentwill negotiate with the objective of providing satisfactory services to the publicat reasonable costs, whil~ providing the private sector owner/operator with arisk-adjusted return. In the case of projecb; initiated by the Government, atendering process will be conducted to secure such services at rewJOnable cOstto the consumer bj' enoouraging competition amoog pot6ntial private sectorparticipants, while ODBU'ring that their retum on investment ill 'Ibsonable but notexcessive.

1.7 ,Power generation, Communications, Transportation, Ports, WaterSupply and Drainage, Shopping Complexes, Industrial Estares nnd WllSteDisposal are SOme areas where the potential exists for such projects.

2. MAIN FEATURES OF'TIIE BOOIBOT PROJECTS

2.1 BOT Projects are contractual arrangements whereby the ContractorundertNces the constnlction, finlll'lcing, opetl'tion and maintenance of a giveninfrastructure facility for a given period of time, during which, the Contractoris allowed to charge the facility users toUs, fees, rentals and other chargessufficient to enable him to recover project costs, operating costs and a' riskadjusted return on his investment; Upon termination of the contract he transfersthe facility to the Government in a condition and at terms determined in theoriginal agreement.

2.2 These projects will normally involve only non-recourse financing andthe funds for the project will be raised without any direct state guarantee ofrepayment. Instead, the investors in and the lenders to the project company mustlook to the revenues and efficient operation of the project for the return onequity and servicing of their loans.

2

auld.lln.. Cor BOO/BOT Projecll

2.3 1n a BOT project. after a period of C1~ration. 6Ubject to terms ofnesotiations. the ntIW filcility lDohy be transferred iI:» tho GOVtimmcnt. Where theGovernment is w:i!lfi~ with the operation ·of th~ project during the concessionperiod by the owner/operator. the Government may consider eltl!ndiDg theconcession on mutually beneficia! and acceptable terms. or re-negotiate .Ot re­tender the project. Alternatively. the agreement between the Govenunont and thepri'/ate sector may stipulate that the project will be pursued ,on a BOO or othersuitable·basis from the outset. i

2.4 Normally ~ the Government will identify a project and invite the privatesector to submit proposals i!l conformity with Program Guidelines and projectiJpecificationstogether with their own technical. organisational and financialapproach. Private &eCtor investors may also advance proposals on their owninitiative. If such a proposal appears to have the potential td ma3ce a significantcontribution to infrasuucture development.wbile meeting the criteria applicableto BOO/BOT projects. the Government may enter into negotiations with a viewto developing a viable project.

3. INSTiTUTIONAL FRAMEWORK

3.1 The focal point of the BoolBOT program is the Secretariat forI1ifrastructure Development and Investment (SID!) established within theMinistry of Policy Planning and Implementation. SIDI is responsible for allaspects ofproject development in collaborationwith key policyand imPlementingMinistries.

The SIDr is primarily be responsible .for:

Identify;lIgappropriate projects and preparing profiles that maybe suitable for implementati~n under BOOIBOT or other basis.in co-operation with implementing agencies and building aninventory of such projects;

3

QuldellOlla for BOO/BOT ProJeota

ii Ensuring that proposed projects meet "Itablilihed socio­economic', technical, and environmental policy criteria;

iii

iv

v

Ensuring that proposed projects conform to the ProgramGuidelines and governing legislation;

Administering, in collaboration with the relevant Ministriesand key implementing agencies, the process of projectdevelopment;

Negotiating with Investors, with input from relevant Ministriesand other implementing agencies, on project proposals andproviding recommendations on decisions to accept or· reject;and, .

I

vi Overseeing and monitoring the progress and assisting in thesmooth execution of projects.

4. ELIGIBLE INFRASTRUCTURE PROJECTSAND SECTORS

4.1 Some infrastructure projects which are deemed to be financially viableand in general confonnity with the Program Guid,elines for execution onBOO/BOT or' other appropriate variants are construction, rehabilitation,modernisation, improvement and expansion in the following sectors:

Telecommunication systems, network and services;

ii Water supply and distribution, sewerage and drainage;

iii Power generation, distribution and services;

iv Highways and expressways including bridges, tunnels,interchanges etc.;

4

Ouldellnog (or BOO/BOT ProjeclJ

v Airports, terminals and related aviation facilities;

vi Port development including terminals, piers, haDdli~g"s~orilleand other services; . .

vii Industrial estates including servic.es to support commercial andnon-commercial activities;

viii Environmental and solid waste management projects includingeomposting plants, collection facilities, incinerators, landfilland other municipal and rural services and faciH .ies;

ix Rail and non-rail based transpoi"".ation systems and facilities;and

.x Other urban, municipal and rural infrastructure that

Government views as priority areas of develo,,,ment to supporteconomic development activities.

S. INTEGRATION OF PROPOSED PUBLIC/PRIVATEPROJECTS WITH TRADITIONAL PUBLIC SECTORINFRASTRUCTURE ACTIVITIES

5.1 In order to ensure that public/private projects are pursued in anintegrated manner with traditional and ongoing infrastructure project activitiesthat cannot be advanced on a BOOIBOT or other basis, SIDI will have anoverview of infrastructure development in the country.

The line Ministries/Agencies traditionally responsible for infrastructurepment will, in co-operation with SIDI seject priority projects that can bed on a BOO/BOT basis and provide technical inputon data, specifications,quirements so that documents and procedure& for solicitation of bids can'eloped. SIDI and the relevant line Ministry/Agency will also develop a

_. _. _ g system so that projects which can be pursued on a BOOffiOT basis

5

Ouldollno. for BOO/BOT Project.

could be ranked in order of priority and potential for impl"mentation. Projectswhich come up witbout Government solicitation, but do not lend themselves toimplementation on BOO/BOT basis may be undertaken by the Government OD

a traditional basis, thereby facilita~ing project development efficiency andeliminating overlap and competition for fmancial and technical resources.

6. THE PROCESS OF PROJECT DEVELOPMENTAND APPROVAL

The process of project development and approval takes two for~~-­

deoodding on whether the proposals are solicited or unsolicited.

6.1 Solicited Proposals

6.1.1 In this type of project, the Governn1ent through SIDI andthe relevant line Ministries/agencies will identify eligible and viable projectcandidates, develop bid documents, and tender eligibli:l projects to the privatesector through a competitive bid process using public advertisement. SIDI andthe relevant line Ministry/agency will then review, evaluate. rank and determineproject candidacy and bidders using established bid evaluation criteria.

6.1.2 After the bid evaluation stage, the best proposal orproposals will be selected and approved in principle, and a Letter Of Intent(LOI) issued by SIDI in consultation with the relevant line agency. LOI willenable the bidder to move to the second stage of the project process. In theseconil stage, the bidder will take the following steps:

Initiate 'action to establish a project company incorporated orregistered in Sri Lanka;

ii Seek required approvals and consents;

iii Initiate an environmental and social impact study;

iv Prepare an .implementation plan;

6

Guideline. tor BOO/BOT ProJeot.

v Finalise and document "'luity and loan arranaements;

vi Prepare and submit the fmal technical and fmancial proposal.

6.1.3 Upon compliance with all aspects of project developmfJntin the second stage, bidders will BO through the ne,otiation sta,lS, at the end ofwhich the Government, if Ilatisfied with regard to project viability andcompliance with eata~lished criteria, may grant approval of terms and conditionsofcontract and execute agreements bindine parties to financial arrangemen" andconstruction of the facility in. qUe&¢iob. ,

6.2 Unsolicited ProposaltJ

b.2.. The second form of Public/Private Pa~thetBhip processinvolves the acceptance of unsolicited proposals from the priV&!e sector toundertake projects on a BOO - BOT or other appropriate variant basis. It isvital for the success of the BOO/BOT program to provide an opportunity for theprivate sector to identify and structure projects on their' own initiative. This isin recognition of the fact that the private sector ProIJOBt'tB may have betterbottom line cost control capability, knowJedge of new L'~huologies, or specialinsight into market solutions to development problems, than ImoWD to the publicsector.

6.2.2 Evaluation ofunsolicited proposals shall be conducted usingthe same rigorous criteria as in the normal government initiated proposals.Unsolicited proposals will be entertaiIl.ed for the eligible sectors listed aboveprovided that they:

are consistent with Government Policy;

ii do not ,conflict with the Government's plan for solicitedproposals; and

7

Quld.lln•• for BOO/DOT ProJ.ot.

iii m(!Qt the 8Ilme threshold level of criturla in order to complywith Proaram Guidelines including minimum technical criteria,economic parameters, environmental and social impact criteria,financial viability, operational viability, marketability, and pre­qualification criteria of the finn in question.

Proposers of unsolicited projects are uried to discuss themat an early stage with SIDI and the relevant line Ministries/agencies, whQ willoffer guidance on whether the projects appear to be in fulfillment of the abovecriteria.

6.2.3 If an unsolicited project meets the initial conditionsdescribed above, and if the proposers are prepared to proceed with thedevelopment of a detailed proposal, SIDI will provide the proposers with aStatement of Proposal Requirements (SPR). SPR will give detailed guidance onthe sectoral specifications lUld requirements that any proposal needs to meet inorder to advance to the second phase of the process. Additionally, guidance willbe given on the format in which the proposal shall be submitted.

6.2.4 At this stage, SIDI will also provide the proposer with al'oltter acknowledging the submission and Terms of Reference (TOR) to preparea detailed proposal. In the interest of promoting program transparency andintegrity, SIDI will register and/or announce publicly the receipt of the J)roposaland that the Government has offered TOR to proceed accordingly.

6.2.5 The issue of TOR, letter of acknowledgement, and rublicannouncement, do not reprenent in any way a commitment ~y the Governmentto the project. Only after a final and more detailed proposal is evaluated and'irproved will the Government provide the proposer of an unsolicited projectwith a Letter Of Intent (LOI).

8

auld.llne. tor DOOIBOT ProJeot.

6.2.6 In the cue ofproposals submitted in response to TOR, SIDIwill consider reimbursing a portion of the cost incurred in carryina out projectfeasibility studies 1I8 .. means to further encouraae the active participation by theprivate sector in the project devolopment cycle.

7. EVALUA1'ION OF PROPOSALS:SOLICITED AND UNSOLICITED

.The evaluation of proposals, solicited or UDsol,icited will be ~ided bythe samo criteria. The initial stage in the evaluation of proposals is to determinewhether:

the bidders or proposers have the technical, financial andoperational expertise and experience to successfully implement,t,he project. Greater weight will be given to bidders orproposers who have experience in the sector in question andwith public/private partnerships;

Ii the project can be successfully financed in conformity with theProgram Guidelines, i.e., on a non or limited recourse basiswith no sovereign financial guarantees of repayment;

iii the project can stand the rigorous test of compliance with allsocial and environmental impact guidelines;

iv the project,can yield significant social, economic, and financialreturns and provide a product or a service to users at the leastcost possible and with acceptable terms and conditi0iU!;

v the project offers some intrinsically unique or valuable assetthat benefits the country and consumers alike. Examples wouldinclude projects that provide highor levels of employment,address key environmental or acute infrastructure needs, intendto train a number of nationals over a given period of time and

9

~ldtlln.. tor 800/801' ProJlOta

projects that, re-invest in the hUmaD, ,financial, and technicalresources of the country.

SIDI would endeavour to avoid takinglODler than sixty days to evaluateIIOlicitf)d and unsolicited proposals; 80 that the private sector receives a

, determination in an expeditious and efficient manner.

8. LETl'ER OF INTENT {LOI)

, 8.1 Once proposals, solicited or UIlS<ilicited, are bvaluated andprojects are ., proved in principle, the next stage is to reach aareement betweenthe Government and the bidders or proposers on ~e terms of issuance- of LOI.

8.~ ,LOI confers on the, project bidders or proposers, IIOme dealof exclu'~ivity in relation to the project for a period of time long enouaheoable tile sponsor to finalizo the project proposal. LOI determines the periodexclusiv.lty, spells out any chang~ ~ lli~ oriainal proposal that must be madeorder to ,remain in compliance, and defin&' what technical inputs are req~ _order to tlw:h pwject fW~u.ation and nea<ltiation.

8.3 LOI 1.'rovid~ the ~toposer and/or successful bidder with---urances, for a ~jfic peric.d of time, that the Government will not re-invite

ICCept any competing projeots thereby penalizing entrepreneurship and risk.the other 1uuld, in cases where the proposer and/or successful bidder cannotaply with the terms of LO: lIr if negotiations are unsuccessful, LOI providesGovernment with t!le right to pursue the project through the public bidding

.....ce88.

8.4 In brief" LOI arants protection to the proposers or biddersagainst any violation of their intellectual and financial investment for. a specifiedperiod of time, thereby rewarding initiative, t>riainality, and creativity. It allIOProvides the Government with an avenue to pursue projects in the event of non­compliance; non-performance and unfruitful neaotiations.

10

auldollne. for BOO/BOT ProJOOtl

9. PRE-QUALIFICATION CRITERIA ANDMINIMUM STANDARDS

In all cases, bidders or proposers wishing to undertake infrastructuredevelopment in partnership with the Government must meet ctlrtain pre­qmdification criteria.

9.1. Ownership

The bidders or proposers can be domestic or foreign or joint ventures• '11 be governed by the same regulations as other enterprises which qualify

,cessions under the Board of Investment (DOl). However, before enteringy contract in Sri Lanka, a foreign venture should acquire legal status inlka by either incorporating a company under the Companies Act ,of Sri

_~_ or registering itself under Part xiii of that Act as a company incorporatedoutside Sri Lanka but having a place of business in Sri Lanka,

9.2 Experience or Tra~ Record

The bidders or proposers must possess adequate experience in the sectorin question as well as with projects structured and operated in this manner.Consortium arrangements will be evaluated on the basis of the individual andcollective experience and expertise of the firms in question. Key personnel mustalso demonstrate experience in managing and implementing projects of tms kind.•

9.3 Financial Capability

In all successful public/private partnerships, financial stamina andstrength of the bidders or proposers are key ingredients to projed success.Successful bidders or proJi"sers will demonstrate the ability andexperieoce tostructure and complete financial packages that are viable and are designed on anon-recourse. or limited recourse basis. Evidence of financial capacity tomobilize domestic and foreign ref{JlOrceB, debt and equity, will be a de rigueurelement in the advancement of any project.

1.1

Guideline. for BOO/BOT Project.

9.4 Minimwn Standard and Specifications

All bidders and proposers must meet certain minimum standardsregarding specifications and performance and the delivery of Cflrtain goods andservices as determined by SIDI and the relevant line Ministries/agencies. In thecase of solicited proposals, 8101 and the relevant line Ministries/agencies willoutline the minimum standards and pe~formance levels that successful biddersmust meet.

10. ECONOMIC PARAMETERS

10.1 In order to evaluate all projects with uniformity and to provide sponsorswith an adequate basis to develop finllDcial and ec<'Dornic proposals, all bids will •.be evaluated on a present value basis. Pre-qualifying project sponsors mustcalculate their financial and economic rate of return with the following economicparameters in mind:

inflation and discounting rates;

ii ,foreign ex~hange rates~

iii IMximum period of project construction;

iv fixed term for project operation and collection of user fees;

v adjustable tables to reflect changes in charges; and

vi minimum period of repayment.

12 .

auldeliM' for BOO/BOT ProJtoli--------..;.----------------10.2 At thisjuncture, the Government programme on BOOIBOT projects willbe auided by pre-qualifyina projects and proposers who provide the proposalwith the least cost basis and that profitability should not be the determiDJ'CODJideration. In this case, a hiaher profit/lower cost bid is preferable to a hicost/reasonable profit bid as long as the discounted value of revenues is lewand satisfies the required design and pe1formanco standards. If. bid with tpossibility of a good retum for a lower cost infrastructure facility is preferr__to a lower retumlbigher cost alternative.

11. BID DOCUMENTS

11.1 In the case of solicited projects, SIDI in cooperation with the relevantline Ministry/agency will p""pare bid documents for the project to auide thebidder in preparing pre-qualification statements and bid proposals. These bidllocumenl:i shall consist of thfl following:

i ' Instructions to bidders;

ii Project purpose and objective;

iii Technical standards and specifications and minimum economicparameters;

iv Statement of proposal requireinents;

v EnviroliUDentai and social compliance assessment;

vi Draft contract;

vii Pre-qualification criteria and procedures;

viii Bid evaluation criteria (and sectoral BEC as,applicab1e).

13

Guideline. (or BOO/BOT Projeoll

12. BIDDING SOCEDURES

1 A pre-bid conference shall be conducted by SIDI at least sixty daysore the deadline ·for the submission of bids. At this 'conference. potentialders will have the opportunity to seek clarifications on the scope of work, bid:uments, bid evaluation procedures. contract terms aud conditions and any

__~er non-proprietary information that mey be required to submit high qualitybids.

12.2 SIDI will be responsible for receiving and publicly opePing the bids atthe stipulated time and place and will evaluate all bids as to their conformitywith the requisite standards. criteria, and prices.

13. AWARDS

13.1 Upon evaluation. SIDI and the relevant line Ministry/agency wmrecommend to the Cabinet for approval. the award of the contract to the bidderthat combines low 'cost and most favourable technical. ecoaomic. and socialvalue approach.

13.2 The Government reserves thl) right to reject any and all bids that are notin compliance with the interests of this program and accept any offer that is mostadvantageous to the Government.' Moreover. if no bids are viewed to be in

,compliance, the bidding could be declared suspended.

14. PERFORMANCE BONDS AND BID BONDS

14.1 In submitting bids for projects. bidders are required to submit authenticbid bonds as specified in the bid documents, which serve to guarantee that thebidder. if selected. will enter into a contract with the Government. according tothe terms and conditions of the tender. '

14

Guldellnee (or BOOIBaJ' ProJOOIi

In some cases, performance bonds will be required in order to ensureU'8Iltee compliance with meeting certain project milestones by the,or throughout the life of the concessions.' In other ClIIJC8, performancegoverned by fluid' arrangements, whereby penalties and rewards areually II part of meeting or failing to meet. pre-determined project

___ !l8Dce standards.

IS. ALLOCATING RISKS AND RESPONSmJLITIES:INCENTIVES, CONCESSIONS AND OTHER FORMS OFSUPPORT BY THE GOVERNMENT

On .a case by case basis, thf Government is willing to provide thesucce68ful bidder or proposer with so~ or ell of the following concessions and,incentives with a view to providing high quality and low cost infrastructure tothe pubHc of the country:

15.1 Concessions and Incentives

15,1.1 In order to pursue BOOIBOT, or other techniques in theeligible sectors, the Government is willing to consider granting fiscal incentives,concessions supportive of of the unique nature of infrastruc~ investments,and/or franchises. In view of the compelling technical and financialcharacteristics, the long-term nature of BOOIBOT projects, and the variety ofrislcsharlng involved betWeen all parties, project companies may be eligible fora variety of incentives and concessions as determined by the contract. The lengthof the concession period will be determined by the characteristics of eachindividual project.

. .15.1.2 BOO/BOT projects, depending on the merits of each case,

may be eligible for the following tax incentives and concessions which are to benegotiated and agreed with projectS individually: .

i Tax Holiday;ii Concessionary rate of income tax based on turnover;

15

Ouldellne. for BOO/BOT Projeot.

iii Bxemptaon from income tax on dividends to non-residentshareholders;

iv Bxemption from income tax o~ dividends to residentshareholders during tax holiday;

v Bxemption from income tax on royalties;vi Bxemption from capital gains;vii Bxemption from customs: duties, turnover tax and excise

duties at point of importation in respect of project relatedgoods for the exclusive use of the project; arid

viii Others to be negotiated.

15.2 Perfonnance Guarantees by Government

In order to ensure project viability, certain performances byGovernment agencies may be required. These include performance in the supplyof goo<1s or services, to grant certain licences, purchasing of certain goods orservices, conversion or exchange of Rupees into convertible currency, and/orprovision of any other necessary inputs vital to the success of the project. TheGovernment ofSri Lanka will consider providing any or all ofth~performanceguarantees only if they would facilitate the selection of viable least cost projectsin the interest Qf the public good.

16

.,I

C;,ldeUne. for BOO/BOT ProJOCli

15.3 Financial or Equity Contributions

Depending on the nature of the project and the structuring of thesecurity package to ensure project success, it may be in the interest of the pubHcgood as well as the project, to have the Government provide certain levels offmancial support, direct or indirect, or equity participation in projects on a caseby case basis.

15.4 Logistical or Physical Facilities .to be Provided b>' the Govemnent

In somi3 cases the Project may require the Government of Sri Lankato provide certain logistical/physical facilities or support to contribute to projectsuccess. This can include, but is not limited to rights of way and other

. servitudes, part of a physical structure, donation of certain land or assets, etc.

IS.S Approval of Designs

The Government will approve appropriate designs and plans preparedby bidders or proposers and/or other contractors, if SIDI and the relevant LineMinistry/Agency are satisfied with their conformity to program and projectobjectives.

15.6 Approval of TollslFeeslTariffs/Charges, etc

'rhe Government will approve all tolls and fees deter.mined as fair andappropriate to project viability in accordance with the least c.()stlhigh profitconcept of the bid award. Moreover, in recognition that long term arrangementsrequire adjustments in fees and tolls, the Government will provide, in thebidding documents and contracts, a formula where adjustments to tolls, fees,charges, etc., can be instituted as required.

17

Guideline. for BOO/BOT ProJeot•..._------.....;;....------------------IS.7 Enhoncwent of the St.'Curity Package

As noted above, all public/private projects must be undertal:en withlirmted or no recourse to project lenders In the occurrence of project failure orabandonment. While, project risk "Uoeatlon must be agreed to on a case by ca..~~

basis, the Government will consider enhancing the security pllCkage provided tolenders/investors in order to realize viable projects and successful long terniresults. The Government, OD a case by case basis, is prepared to enhance thesecurity package by assuming or providing protection against certain risks suchas:

Protection against force majeure;

ii Protection against changes in tax regimes;

iii Allow adjustments in tolls, charges, and fees and mitigatenegative movements affecting such rates;

iv Ensure convertibility of local currency and remittance offoreign exchange to cover imports, debt service, dividends andcapital; and

v Provido 'performance guarantees in conc~rt with theperformance guarantees provided by the private sector. ,.

18