The creation of a special purpose/project vehicle (SPV) is a key feature of most PPPs. The SPV is a legal entity that carries out a project. All contractual agreements between the different parties are negotiated between them and the VPS. SPLs are also a preferred type of PPP project implementation in limited or no-recourse situations where lenders rely on cash flow and project security on its assets as the only way to repay debt. The following figure shows a simplified PPP structure. However, the actual structure of a PPP depends on the type of partnerships. A special purpose/project vehicle (SPV) is a legal entity that carries out a project. All contractual agreements between the different parties are negotiated between them and the VPS. An SPV is a commercial company established under the relevant law of a country through an agreement (also known as an association protocol) between shareholders or sponsors. The shareholders` agreement sets the basis for the incorporation of a company and contains information such as the name, ownership structure, management control and matters relating to the company, the authorized share capital and the amount of liabilities of its members. The SPV concludes the project agreement, receives funds from investors and contracts with construction and O&M contractors. The consortium will be aware of its key role during the tender phase and in the formation of the VPS.
Therefore, it imposes an important responsibility on the consortium to ensure that the PPP project is structured in a robust manner and protects its interests. Often, there is a direct link between one of the shareholders of the SPV and the construction and/or O&M contractors. If such a link exists, the relationship must be managed carefully, as there is a potential conflict of interest between the interests of the SPV shareholder and the related contractor. In practice, this could mean that one of the shareholders of the SPV might not be able to agree with the remaining shareholders of the SPV to accept a provision of the project agreement because they know that their associated contractor will not be able to comply with the obligation. Financing the PPP project through project financing means that developers need to be protected from the risks of the PPP project. They require a limited recourse structure that includes the creation of an SPV. All or most of the risks of the PPP project set out in the project agreement are assumed by the construction and O&M contractors. These contractors assume the risks of the PPP project by “transferring” the VPS it takes over from the procurement authority under the project agreement in the construction and O&M contracts. .