A study on special purpose vehicle (SPV) of independent power producer (IPP) projects in Asia

Creation of Special Purpose Vehicle (SPV) is the seminal step in any Public Private Partnership (PPP) infrastructure projects. The main purpose of SPV is to facilitate financial transaction, to establish legal rules and regulations and to frame contracts between the parties involved in the concerned project. Ambitious and improper setup of SPV may cause delay and cost overrun to project completion, force restructuring debt mechanism and may even lead to bankruptcy to giant companies. Many infrastructure PPP projects have suffered set-back due to failure in identifying in advance the potential barriers that the SPV would face, its legal and financial dimensions with long term uncertainties and wide risk sharing portfolios. The objective of this research has three major dimensions. First, identify critical legal and financial factors for establishing sustainable SPV of Independent Power Producer (IPP) projects in Asia. A questionnaire survey is conducted to identify the most important factors in setting up SPV for IPP projects from a wide range of experts involved in the PPP projects in Asia. The questionnaire survey examines the relative importance of seventy-five critical financial and legal factors for establishing SPV of IPP projects in Asia. Given that all the factors are nominally seen critical in the literature, factor analysis is used to determine the principal critical factor groupings that dominate the setup of SPV for IPP projects in Asia. Factor analysis reveals fifteen factor groupings of critical financial and legal factors for establishing SPV for IPP projects in Asia. They are: (1) output contract; (2) input contract; (3) parties creditworthiness; (4) regulatory framework; (5) host country business environment; (6) concession agreement; (7) guarantees on off-taker, supplier and SPV; (8) guarantees on tariff; (9) government’s financial guarantees; (10) credit guarantees by financial institutions; (11) credit enhancement by shareholders; (12) credit enhancement by government; (13) credit enhancement by MDBs, ECAs and other parties; (14) capital structure mechanism; and (15) credit enhancement by commercial banks. Second, set a legal strategy for the government in order to implement IPP projects in Asia. It should be noted that government’s involvement in an IPP project is a prerequisite for its development and it significantly influences the financial structure of the project. Here, the researcher discusses the findings from selected case studies and identifies various issues that the government needs to deal with. Four IPP projects from Asian countries, namely, India, Pakistan, Indonesia and China, are evaluated and examined. The issues examined are related to sovereign support policy, involvement of financial institutions and export credit agencies, purchase agreements, and credit enhancement mechanism. This part constitutes an attempt at providing a competitive strategy that will help government to develop a legal framework for IPP project financing. Third, identify the key stakeholders, their power and position, intermediaries and obstacles in IPP structure, and the structural and hierarchical pattern and characteristics of the structure. Though numerous research studies have been conducted to establish and justify the structure of IPP projects based on contractual agreements between participating stakeholders and on existing legal frameworks of a host country, there are still questions left unanswered. Examples are: What are the factors that influence the structuring of IPP? Who are the key stakeholders? And what are the roles of participating partners in an IPP project? However, not much work has been done yet. The researcher found that application of network theory can help fill these gaps and identify and distinguish potential stakeholders in IPP affiliation and can effectively contribute to an in-depth analysis of the relationships between participating partners. Two IPP projects from Pakistan and Bangladesh are selected for network analysis. It identifies important features like core–peripheral stakeholder(s), influential intermediary participants and their interdependence, and influences on an IPP structure for its substantive outcome. With the introduction of the network theory, a more thorough analysis of IPP structures can be achieved which may provide valuable information to project sponsors as well as legal and financial advisers associated with IPP projects.Doctor of Philosophy (CEE