What is a concession, and how does it differ from a PPP?
Degree and counterparty. A concession is a grant from a public authority to build and operate an asset and collect its revenues for a defined period. A public-private partnership is the broader family of structures in which public and private parties share the delivery and risk of infrastructure, and a concession is one form of it. The European PPP Expertise Centre and the APMG International PPP Certification Guide both treat the family this way, and the vocabulary varies by jurisdiction more than the substance does.
The distinction that matters commercially is not the name but who pays. In a user-pays structure the private party collects from the public who use the asset, and it carries demand risk directly. In a government-pays structure the authority pays for the asset being available to a standard, and demand risk stays with the public sector. Everything about the financing follows from which of those two the procurement chose, and the sponsor did not choose it.
This is the point sponsors coming from corporate transactions most often miss. In a merger or an acquisition the buyer negotiates the terms. In a procurement the authority publishes them, and the bidder's freedom is largely confined to price, technical solution and the parts of the risk allocation the authority has explicitly opened for comment. The negotiation happened before the tender, in the authority's own structuring, and the only leverage a bidder has over it is the clarification process and the willingness of the market to bid at all.
Which clauses in the granting documents decide the financing?
Four, and a sponsor should be able to find all four before deciding whether to bid. The payment mechanism comes first: what triggers payment, what deductions apply for unavailability or poor performance, how deductions are capped, and whether they can be cured. That mechanism is the revenue line in the financial model, and its downside behaviour is what lenders size against, not its base case.
Termination compensation comes second and is frequently the most consequential single provision in the package. What the authority pays on termination for authority default, for contractor default, for force majeure and for voluntary termination determines whether lenders are made whole in the worst case. A structure in which senior debt is fully compensated on most termination events supports materially more leverage than one in which it is not, and no amount of coverage improves a weak compensation regime.
Change in law and relief events come third, because a twenty-five year contract will meet a legal environment nobody drafted for. And the step-in and lenders' direct agreement comes fourth: whether lenders may replace a failing operator without the authority's veto, on what notice, and for how long. Those four clauses, read together, describe how much debt the asset can carry. A bidder who reads them after pricing the bid has priced a different project.
| The provision | What it allocates | What it does to the debt |
|---|---|---|
| Payment mechanism | Whether the project is paid for use or for availability | Sets whether the revenue line is a forecast or a contract, and so the coverage target |
| Deduction and abatement regime | Performance risk, and how far it can travel | Uncapped or uncurable deductions become the binding downside case |
| Termination compensation | Who bears loss on each termination event | Full senior compensation on most events supports materially more leverage |
| Change in law and relief events | Legal and political risk over a multi-decade term | Determines whether a mid-life change is a pass-through or an equity loss |
| Lenders' direct agreement and step-in | Control of the asset on default | Without workable step-in, lenders price for having no remedy |
| Concession term against debt tenor | Residual and refinancing risk | A tail between final maturity and expiry is what lenders look to beyond the loan |
“Every bid team reviews the technical requirement in detail and the termination compensation regime in a single meeting. The financing is decided in the second document, and it is the one that gets read last.”
How does an availability structure change what a project can borrow?
It removes the variable lenders discount hardest. Under an availability structure the project is paid for being ready to perform to a defined standard, and the number of users is somebody else's problem. That converts the revenue line from a forecast into a contract, and the credit question shifts from whether demand materializes to whether the asset performs and whether the authority pays.
The APMG guide states the consequence directly: projects with significant demand risk and less predictable cash flows show lower leverage, while availability payment structures with stable cash flows show high leverage, and government-pays partnerships based on availability payments usually benefit from higher levels of debt because they require lower coverage. That is the mechanism behind almost every gearing difference a sponsor will encounter between two otherwise similar assets.
Two cautions travel with it. First, availability is not risk-free, it is a different risk: the deduction regime becomes the whole downside, and a deduction mechanism with no cap and no cure period can produce a revenue shortfall as severe as a demand shortfall. Second, the payment obligation is only as good as the counterparty, and a sub-sovereign or municipal authority is a credit that lenders will assess on its own terms rather than treating as government paper by association.
How should a sponsor run the bid?
With the financing built alongside the technical solution rather than behind it. The bid price is a function of the capital structure, and the capital structure is a function of the risk allocation the authority published, so the three have to be solved together. A consortium that fixes its technical solution, then prices it, then asks lenders what they will fund has already committed to a number it cannot support.
That means running lender engagement through the bid rather than after preferred bidder status. Lenders reading the procurement documents early identify the clauses that will not fund, which is the only moment at which a bidder can raise them through the clarification process and possibly change them. After award, the same objection is a request to reopen an agreed position, and authorities are rarely obliged to entertain it.
It also means being honest about bid cost. Procurement processes consume technical, legal, financial and insurance advisory work over many months, with no recovery for an unsuccessful bidder, and the process is designed that way to filter the field. The decision to bid is therefore a capital allocation decision in its own right, made against a probability of winning, and the discipline that matters most is the willingness to decline a process whose risk allocation the consortium would not accept even if it won. Reading the termination regime in week one is the cheapest work in the entire pursuit.
What happens between preferred bidder and financial close?
The gap where deals are lost. Preferred bidder status is not an award and not a financing; it is an exclusive negotiation with a counterparty that no longer has competitive tension to keep it moving. The consortium meanwhile has committed capital, a construction contractor holding a price and a lender group holding an approved credit, all of which have expiry dates.
Three things routinely move in that window. The authority's requirements clarify, usually in one direction. The construction price is re-tested against a schedule that has slipped. And the debt terms are re-approved, because credit committee approvals are given as at a date and markets change. A consortium that has not built the ability to absorb movement in all three has built a structure that only closes if nothing happens.
Which is why the protections against that window are worth as much as the headline economics. Interest rate hedging arrangements that fix the cost of debt at or before award rather than at close. Contractor price validity that matches the realistic timetable rather than the optimistic one. Lender commitments with market-flex provisions a sponsor has actually read. And a clear position, taken before preferred bidder status, on which changes the consortium will absorb and which it will price. The bid is won on price. It closes on the terms nobody negotiated because everyone assumed the process would be quick.
As of September 2026
Sources: no market figures are quoted in this article. The definitions of concession and public-private partnership, the user-pays and government-pays distinction, and the statement that demand-risk projects show lower leverage while availability payment structures show higher leverage, are from the European PPP Expertise Centre, Guide to Public-Private Partnerships (European Investment Bank, 2021) and the APMG International PPP Certification Guide, read 6 September 2026; the APMG pages carry no publication date. The clause-by-clause effects on a financing, the preferred bidder to financial close sequence, and the bid cost discipline described are standard project finance and procurement market convention. No bid cost, procurement duration, bidder count or gearing figure is stated, because none is published as a general series. Nothing here describes a transaction, engagement, procurement or public authority.
This position sits within our project finance practice.