Introduction
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June 2014 Introduction Welcome to the inaugural edition of our Infrastructure Insights newsletter which reviews a wide range of issues impacting the global infrastructure sector. This edition provides insights on: Pay up or pay out: a warning to Terminating a FIDIC Contract: what’s head contractors: Highlights the in a notice? Questions whether a effects of insolvency throughout the notice has to comply with contractual construction industry contract chain requirements as part of the Page 2 termination process Page 10 Private airport management in Indonesia: Reviews the private airport Saudi Arbitration Law 2012: the management tenders the Indonesian positive impact projected? Considers airport industry can expect in 2014 the reality of the highly anticipated Page 3 2012 Arbitration Law Page 12 Institutional investors and the infrastructure investment paradox: The challenge of energy Examines institutional investment infrastructure: energy security, as a solution to the global shortfall of decarbonisation and affordability: investment in infrastructure Explores the challenges faced by the Page 6 UK energy system Page 14 Public private partnerships in Tanzania: Evaluates the country’s Top tips: Drafting and reviewing existing PPP legislation following the terms of a contract, collateral Finance Act 2013 warranties and third party rights Page 8 Page 16 Stop press: Latest news and updates from across the firm Page 18 We hope you findInfrastructure Insights an informative and useful read. Should you have feedback or suggestions for future topics, please contact [email protected]. Similarly, to hear more from our global projects & construction group, email us providing your area(s) and region(s) of interest. Pay up or pay out: a warning to head contractors Private airport management in Indonesia: tenders By Beth Cubitt and Paul Morgan expected in 2014 In the last two years, more than 1,000 construction companies have entered into external By Michael Horn administration in New South Wales. The effects and impact of insolvency in the construction Last year, Indonesia announced it would offer regional airport management contracts industry are not just restricted to the failed company. The effects are felt by many parties, to the private sector under a public-private partnership (PPP) scheme, beginning with 10 especially those further down the contract chain, who may be ill-equipped to deal with existing airports. Taking the next step in realizing this new policy, the Indonesian Ministry persistent delays in cash flow. of Transportation recently announced that tenders for the management of three airports – The findings of the Inquiry into Construction Insolvency In addition, Head Contractors should be aware located in Lampung, Komodo and Palu, Sulawesi - will commence in August/September 2014. noted an industry-wide concern with a number of key that penalties will be introduced in order to ensure problems: transparency in the payment practices operating in the This announcement hints at the potential for big changes Singapore, two from Spain, two from Australia and one industry and to incentivise Head Contractors to pay. in the Indonesian airport sector. The sector has long from each of New Zealand, Malaysia, United Arab Emirates – Subcontractor payment cycles are unacceptably long been dominated by the state through public ownership and South Korea. One multilateral lending institution may – Delayed/reduced payments to sub-contractors increase If a Head Contractor: and management by the Ministry of Transportation and also throw its hat in the ring. financial pressure down the contracting chain state-owned operators Angkasa Pura I and Angkasa Pura – fails to supply a supporting statement with their Foreigners may soon be in the hunt for local partners, II. Indonesia is now looking to airport management by – The resulting financial stress on subcontractors leaves payment claim to a principal that includes a declaration as regulations limit airport management to Indonesian the private sector to address the twin challenges of rising them in significant risk of insolvency that all subcontractors and suppliers (if any) have been companies with no more than 49% foreign ownership. paid in full demand on airports, many operating beyond design Against that backdrop, the NSW Government proposed to capacity, and anticipated growth fueled by open access In addition to airport management opportunities, – supplies a statement that is false or misleading; then change the law and has drafted a bill* to make changes to mandated from 2015 by the ASEAN Open Skies Policy. the private sector may soon be offered a role in they will face a maximum fine of AUD 22,000 or three the Security of Payment Act 1999 (NSW). airport ownership and development. The Ministry of months imprisonment or both It is hoped private airport management will also deliver Transportation is planning to offer several new airport Key changes will include provision that: budget savings, freeing funds to develop other airports. In order to preserve compliance with these amendments, PPP projects. These new airports may include Karawang “Pioneer” airports in remote areas have been cited as the – Principals will be required to pay Head Contractors no the Bill will also give power to authorised public service International Airport near Jakarta, Kulonprogo Airport in intended beneficiaries of increased state investment out of later than 15 days after a payment claim is submitted to employees to make written requests that a Head Yogyakarta, Kertajati Airport in West Java and Buleleng reallocated funds. a Principal Contractor provide information and all documents related Airport in North Bali. As of May 2014 these projects are – Head Contractors will be required to pay Subcontractors to the payment of subcontractors. Local news sources report 38 investors (13 local and 25 still in the preparation stage. Clyde & Co will soon publish (and likewise Subcontractors to pay Suppliers) no later foreign) have already expressed interest in the 10 airport analysis of the Karawang International Airport and Failure of a Head Contractor to comply with these requests than 30 days after a payment claim is submitted to a management PPPs. The local investors are said to include Kertajati Airport projects. will also incur a maximum fine of AUD 22,000 or three Head Contractor (or to a Subcontractor in the case of a Garuda Indonesia, Lion Air and the Bakrie Group. The months imprisonment or both. We set out a summary of the 10 airports proposed for the payment claim from a Supplier) foreign investors’ names have not been formally disclosed, PPP management scheme, as follows: – Where the works are in respect of a residential property but appear to reflect broad global interest. They are Beth Cubitt rumored to include 13 investors from Japan, three from where the principal resides at the property, payment to Partner, Perth Subcontractors or Suppliers must be by the contractually T: +61 8 6145 1720 agreed date, or if none is specified, by no later than 10 E: [email protected] Airport Location and status Information days after the payment claim is submitted Paul Morgan Radin Inten II – Bandar Lampung, – Recently renovated The Bill provides that parties to any applicable contract Senior Associate, Sydney Lampung Selatan Lampung Province, – Currently managed by the Department of Transportation will be free to agree shorter timeframes, but not longer T: +61 2 9210 4431 Airport – Domestic airport, – Annual passengers of up to 1 million timeframes. E: [email protected] domestic routes – Garuda Indonesia, Lion Air and Sriwijaya Air currently service The payment requirements will not apply to principals – Single 2,500m runway where the principal resides at the property where the – Local government has set aside Rp. 2 billion (approximately USD 173,684) to works are taking place. further renovate the airport and extend the runway to 3,000m – Local government has expressed its intention to introduce international service * Since this article was first published, the relevant amendments have come into force, applying to contracts entered into from 21 April 2014 Infrastructure Insights June 2014 2 3 Airport Location and status Information Airport Location and status Information Komodo Airport – Near Labuan Bajo, – Currently managed by the Technical Management Unit of the Directorate Tjilik Riwut Airport – City of Palangkaraya, – Currently managed by the Technical Management Unit of the Directorate Flores Island, East Nusa General of Air Transportation Central Kalimantan General of Air Transportation Tenggara Province – Annual passengers of up to 800,000 Province – Airlines currently operating include Garuda Indonesia, Lion Air, Citylink and – Domestic airport, – Airlines currently operating include Garuda Indonesia, Sky Aviation, – Domestic airport, Aviastar domestic routes Transnusa and Wings Air domestic routes – Single 2,600m runway – Single 2,150m runway – In January 2014, the local government announced its plan to relocate to a new – Garuda Indonesia has filed an expression of interest to manage the airport airport at Hampalit Village since the current airport can no longer be expanded due to its tourism potential. Labuan Bajo is the departure point for tours to H.A.S – Tanjung Pandan, Belitung – Currently managed by the Technical Management Unit of the Directorate Komodo National Park, home of Komodo dragons Hanandjoeddin Regency, Bangka Belitung General of Air Transportation – The airport has