The IIPP Model Law is a legal initiative that aligns with the African Union’s 5% Agenda and the COP 26 and COP 27 Presidencies, to support the goals of the Paris Agreement, Agenda 2063, the SDGs and the just energy transition.
IIPP Model Law +
At COP26, Africa’s (and, generally, emerging markets’) current legal and regulatory frameworks were stated as a key investment barrier by global and domestic institutional investors. In certain jurisdictions, it can take many years for Governments to procure complex infrastructure projects. Either PPP Laws and Procurement Laws do not permit the following or they are not administered in a manner which facilitates:
- procurement at speed and at scale;
- early engagement with the private sector, including institutional investors;
- negotiation with bidders before submission of final tenders;
- the set-up of qualification systems and frameworks;
- cross-border collaboration; and
- the provision of incentives by Government (e.g. tax and customs exemptions, subsidies and grants).
The objectives of the Model Law are to create a legislative framework that:
1. Incentivises collaboration between institutional investors and the public sector in respect of the development and implementation of climate-focused infrastructure investment programmes and projects to deliver NDC commitments.
The collaboration of institutional investors and the public sector, “Early Investor Involvement”, has been embedded into the Model Law via various mechanisms including preliminary market engagement with institutional investors and the award of an IIPP Collaboration Agreement to a Qualified Investor to identify priority Climate Projects (pre-procurement) by reference to criteria such as:
- Strategic importance to the delivery of a country’s NDCs and its Net Zero planning;
- the level of economic, environmental and social benefit which a particular Climate Project would deliver to a country;
- prospects of successful delivery (including feasibility from a technical, financial and/or legal perspective, and the management and mitigation of risk);
- the ability for a Climate Project to be scaled up; and
- whether delivery of a Climate Project has the opportunity to unlock further potential funding.
The IIPP Collaboration Agreement includes provisions on collaborative working to;
(i) encourage the Climate Procurement Authority and the Qualified Investor to work in mutual co-operation to fulfil their agreed roles and responsibilities under the IIPP Collaboration Agreement,
(ii) to minimise and give early warning to one another of any proposed matter which is likely to or will have a material impact on the Climate Project, and
(iii) to ensure the success of the Climate Project.
2. Facilitates private sector investment into Climate Projects in accordance with best international practice
In order to incentivise investment in Climate Projects, countries will need to provide a transparent, stable and predictable investment climate, which allows for transparent and efficient contracting processes, contract enforcement and respect for property rights, embedded in sound macroeconomic policies and institutions that allows the private sector, both domestic and international, to operate efficiently and profitably and with maximum development impact.
Therefore, promoting and protecting investments requires special emphasis on the part of governments to ensure that appropriate regulatory and policy frameworks are in place which encourage public and private sector initiatives to foster effective resource mobilisation. Environmental, Social and Governance factors also play an important role in a country’s investment readiness.
Governments will need to consider if, in addition, to the implementation of the Model Law, introduction of additional new laws or amendment of any further existing laws (included as part of the implementation of the Model Law) are required in order to facilitate a country’s investment readiness.
3. Utilises fast-track procurement processes to award Climate Projects in an efficient and streamlined manner, avoiding high procurement costs and delays to project implementation
Procurement Laws are generally structured towards the procurement of works, services and supplies – not the procurement of Climate Projects. Even PPP Laws are often not drafted in a manner which would facilitate the efficient and streamlined procurement of Climate Projects.
The Model Law features a range of procurement procedures which include:
- the establishment of an Investor Qualification System. Once established, the need to advertise each Climate Project and have a prequalification process is removed (thus saving time and costs), and contracts for IIPP Collaboration Agreements and Climate Contracts can be awarded to Qualified Investors pursuant to fast-track mini-procurement competitions amongst Qualified Investors, on a direct award basis by the Climate Procurement Authority to Qualified Investors or in response to an unsolicited proposal received by the Climate Procurement Authority from a Qualified Investor;
- the establishment of Framework Agreements in respect of, for example, legal services, financial services, technical services, modelling, surveys and enabling works which will enable the speedy appointment of consultants which will be very useful in terms of accelerating the procurement of Climate Projects; and
- for the purpose of seeking Bids in respect of a proposed Climate Project or a proposed Climate Contract (in addition to, or an alternative to the award of Climate Contracts pursuant to the Investor Qualification System), the Climate Procurement Authority may use one of the following procurement methods:
- competitive dialogue;
- negotiated procedure;
- direct procurement; or
- restricted procedure.
The Model Law ensures fairness and transparency in the procurement processes by setting out rules on each of the procurement procedures as well as provisions dealing with prequalification selection criteria, confidentiality, conflict of interest, fraud and corruption, and transparency requirements.
4. Delivers demonstrated value for money for governments through the participation of Qualified Investors, in the implementation and delivery of the Climate Projects, on the basis of internationally recognised and bankable risk allocation
As part of the process of standardising documents and processes in respect of the procurement of Climate Projects, a suite of Model Climate Contracts should be prepared in order to assist the Climate Procurement Authority with their Climate Procurement Procedures. This will also provide the market with clarity in respect of the standard provisions in Climate Contracts which will be applied by the Climate Procurement Authority (including in respect of risk allocation), ensure key Government policy drivers are appropriately to the fore and save time and costs to the Climate Procurement Authority in the development of the Climate Contracts for each Climate Project.
Some examples of Climate Contracts which should become Model Climate Contracts have been included in Chapter Ten of the Model Law. However, in practice, many more types of Model Climate Contract will need to be developed on country-specific and sector-specific bases to match the requirements for the types of Climate Project which a country will need to procure in order to fulfil its NDCs. For example, a standard power purchase agreement in the context of renewable energy projects.
As an alternative to many different types of Model Climate Contract being described in the Law, the types and detailed content for any Model Climate Contracts (including those Model Climate Contracts already mentioned in Chapter Ten and/or any additional contracts) could be included in secondary legislation (which should be more flexible than primary legislation) or the Climate Procurement Authority could choose to go straight to drafting the required Model Climate Contracts based on its requirements.
Qualified Investors should be consulted in respect of the draft form of the Model Climate Contracts to ensure the Model Climate Contracts reflect internationally recognised and bankable risk allocation.
Provides for an effective and efficient contract management framework, with easy access to international dispute resolution, if required.
The Model Law includes provisions to ensure that each Climate Contract is properly administered and enforced in accordance with its terms and conditions, and this includes fair and effective mechanisms and transparent procedures for matters such as governance, performance and managing stakeholder engagement.
The methodology for the development of the Model Law has included:
- use of extensive stakeholder engagement to understand the particular challenges and objectives which needed to be addressed in the Model Law together with the lessons learned from previous projects. Stakeholders, including representatives from the public sector, the development finance community, domestic and global investors, and consultancies advising these entities, were consulted;
- identification and consideration of key issues associated with the development of a Model Law, including what the potential ‘blockers’ were to the implementation of the Model Law and investment in Climate Projects by institutional investors; and
- a comparative legislative review from a range of jurisdictions to review international best practice and lessons learned in the context of public procurement, PPP and strategic investment laws.
The document which includes the Model Law has been structured as follows:
- Introduction (description of the objectives of the Model Law, the methodology for development of the Model Law, the structure of the Model Law, the implementation of the Model Law and next steps);
- Assessment of a country’s readiness for investment: identification of risks (discussion of the common types of issue or risk which will be considered by investors as part of their country due diligence prior to investing in Climate Projects);
- Legislative, regulatory and institutional sector reform to achieve the implementation of Climate Projects (a discussion of the types of sectoral reform which will be necessary to achieve the implementation of Climate Projects); and
- the Model Law (split into twelve chapters comprising Articles and notes reflecting guidance, international best practice and examples of the model documents and guidelines which will need to be developed to support the operation of the provisions of the Model Law in practice).
In order to incentivise investment in Climate Projects, countries will need to provide a transparent, stable and predictable investment climate, which allows for transparent and efficient contracting processes, contract enforcement and respect for property rights, embedded in sound macroeconomic policies and institutions that allow the private sector, both domestic and international, to operate efficiently and profitably and with maximum development impact.
Therefore, promoting and protecting investments requires special emphasis on the part of governments to ensure that appropriate regulatory and policy frameworks are in place which encourage public and private sector initiatives to foster effective resource mobilisation. Environmental, Social and Governance factors also play an important role in a country’s investment readiness.
Potential investors will assess the domestic legal and regulatory environment in the relevant country before deciding to invest in, or otherwise participate in, any Climate Project. Each country will have their own legal and regulatory considerations and risks which will naturally impact the nature and extent of any investment that may be provided for a specific Climate Project. Any such assessment will be carried out by potential investors on a case-by-case basis, and each investor will have their own specific requirements which will need to be satisfied before any investment is contemplated.
A list of the common types of issue or risk which will be considered by investors as part of their country due diligence prior to investing in Climate Projects is set out in the Model Law. Governments will need to consider if, in addition to the implementation of the Model Law, introduction of additional new laws or amendment of any further existing laws (included as part of the implementation of the Model Law) are required in order to facilitate a country’s investment readiness.
On a sector basis, legislative, regulatory and institutional reform will be critical to how national governments translate high-level pledges on climate change into credible policy programmes and, ultimately, progress. This will begin by developing or updating NDC implementation plans and assessing whether existing laws and regulations in respect of a sector which is the subject of NDCs will support the achievement of those plans. This will involve conducting a gap analysis of what is required for the delivery of the NDCs against the existing policy, legislative and institutional landscape for that sector, developing specific proposals to meet those gaps, attracting support for their implementation from stakeholders and establishing governance structures and capacity to deliver progress.
The sector reforms required to achieve NDC implementation and wider progress against COP26 and COP27 commitments will differ from country to country, but may include developing new legislation and/or strengthening existing climate, environmental and/or conservation legislation, including drafting secondary legislation (regulations), procedures and guidelines. Such sector reforms could relate to a broad range of areas including:
- Energy production, including accelerating the phase-out of coal and deployment of clean power generation;
- Implementation of energy efficiency measures;
- The regulation of energy-intensive industries;
- Enabling green financing, including facilitating investment from third parties and permitting innovative financing arrangements;
- Enabling the switch to electric vehicles; and
- Curtailing deforestation and introducing adaptation measures to protect communities and natural habitats.
Sectoral reform may also be required to facilitate investment in particular types of project. For example, developing a water regulatory framework to facilitate investment in water projects will need to consider issues such as:
- The nature and capability of the existing regulatory framework and the team which administers that framework;
- The need for establishment of an independent regulator.
- Can the private sector be involved in the provision of water supply or waste water/sewage treatment services? If so, what are the controls?
- Tariffs and subsidies – how are these set and managed?
- Water supply and quality – are there appropriate technical standards which can be applied?
- Waste water and sewage – are there appropriate technical standards which can be applied?
- Pollution control – what are the controls and penalties?
General principles relating to the development of an appropriate regulatory environment and a case study showing how legislation can support the development of renewable energy projects are set out in the Model Law.
The Model Law includes the following chapters:
- Scope and General Principles
- Institutional Framework and Powers
- Permitting and Property Rights
- Procurement Principles and Methods
- Early Investor Involvement
- Framework Agreements
- Climate Procurement Procedures
- General Procurement Rules and Climate Procurement Documents
- Evaluation
- Climate Contracts
- Standstill Notices, Contract Award Notices, Information, Documentation and Reporting Requirements and Remedies
- Miscellaneous Provisions
Annexes have been included which set out flow diagrams showing the operation of a selection of the Climate Procurement Procedures described in the Model Law.
Key innovations of the Model Law include:
Depending on national requirements, a government may elect to implement some or all of the Model Law, or implement the Model Law as a ‘bolt on’ to a country’s procurement or PPP law.
It is suggested that the required process for legislative reform and implementation of the Model Law should be undertaken as follows:
- the Government’s policy objectives for the legislative reform and the realisation of its NDCs need to be considered together in order to scope out the requirements for the reform and implementation of the Model Law, as the reform may require a number of new laws in addition to the amendment of existing laws;
- consideration of key issues associated with the legislative reform and implementation of the Model Law, including:
- is a new law required to implement the Model Law or is amendment of an existing law or laws required?
- what other new laws or amendments to existing laws are required in order the support the realisation of Climate Projects from a general (e.g. fraud and corruption laws) or sector-specific basis? See the sections below which discuss ‘Assessment of a country’s readiness for investment: identification of risks’ and ‘Legislative, regulatory and institutional sector reform to achieve the implementation of Climate Projects’
- what secondary legislation (regulations) and supporting documents (procedures, guidelines and Model Climate Contracts and Model Climate Procurement Documents) are required?
- what is the timescale for the legislative reform and implementation of the Model Law?
- what are the potential ‘blockers’ to the legislative reform and implementation of the Model Law?
- what are the steps in the legislative process which need to be followed?
- use of stakeholder engagement (within Government entities – wider, if required) to understand the particular challenges in the jurisdiction which need to be addressed in the legislative reform and implementation of the Model Law;
- review of relevant existing legislation to identify potential conflicts and gaps;
- where appropriate and available, understanding lessons learned from the experience of other jurisdictions by analysing legislation related to the legislative reform and implementation of the Model Law from those other jurisdictions;
- considering what would work from a practical perspective in the specific jurisdiction, as well as compliance with the underlying principles of local legal system (e.g. compliance with the principles needed in the context of a civil law jurisdiction); and
- presenting the drafts of the legislation to the relevant Government Ministries and institutions, civil society and institutional investors for comment and input.