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36 The US-Israel Legal Review 2019
ISRAEL: INFRASTRUCTURE, ENERGY & PROJECT FINANCE
O
ver the past 20 years and especially in the past
decade, Israel has made enormous progress in
the field of initiation and performance of large-scale,
capital-intensive, infrastructure projects utilizing
the PFI/BOT Projects model.
BOT (“Build Operate Transfer”) and PFI (Private
Finance Initiative) are twomain types of PPP (Public
Private Partnership) projects which have been
extensively and successfully implemented in the
past years as a more efficient method of execution
and finance of large-scale infrastructure projects.
Pursuant to the PPP model, the governmental
body assigns a project incorporating
finance,
design,
construction,
operation
and
maintenance, in the respective infrastructure
field
, to an entity or, more commonly, to a joint
venture (usually comprising of foreign and local
entities) which is selected as the winning bidder
following a pre-qualification and tender process
1
.
Performance of PPP projects became highly
common and successful,
inter alia
, due to the
relatively optimal risk allocation between a
governmental authority (on behalf of the State)
and the private sector – the Concessionaire (and
the EPC contractor and O&M contractor engaged
thereby) associated with increasing the efficiency
and quality, and benefiting from the relative
advantages of the private sector.
Risk allocation in those projects and the
rationale behind them has a relatively simple
underlying principle: the risk should be allocated
to the party who has control over the field of the
potential risk and the ability to mitigate (and
sometimes even prevent) it. Allocation to the party
that manages the risk means that it also assumes
the respective financial cost, which naturally
incentivizes the party to mitigate the risk.
Risk allocation constitutes a critical element
in achieving the goal of the PPP projects and
optimizing the performance thereof. It allows
the State to transfer risks to the party which
has a relative advantage in addressing them, for
instance, in respect of the construction phase and
operation and maintenance phase, and allows the
private sector to enter into long term concession
agreements (quite often for a period of 25 years).
RiskAllocationand
Management inPPPProjects
froma Legal Perspective
Nadia Davidzon outlines some of the most common major risks
in the Public Private Partnership / Private Finance Initiative /
“Build Operate Transfer” projects field.
The risk should be allocated to
the party who has control over
the field of the potential risk
and the ability tomitigate (and
sometimes even prevent) it.