Business case
Our client, a private health services provider, entered into a public-private partnership (PPP) with the ministry of health of a South American country to finance, build, operate and maintain two 250-bed hospitals. However, a dispute arose, centred on differing economic interpretations of the contractual escalation mechanism used to update the operator’s annual remuneration.
We highlighted the critical role of proper risk allocation mechanisms in maintaining economic and financial stability in long-term PPP contracts. We established the interdependence of macroeconomic risks, specifically inflation and exchange rate variations, and advocated for their simultaneous management due to the client’s USD revenue and local currency expenses. We also delivered clear, practical explanations of inflation mechanics and their effect on compensation during the hearings.
We analysed the mechanism’s purpose and functioning in a multi-currency contract, focusing on economic and commercial aspects. Our analysis considered typical PPP risk allocation, macroeconomic principles and a benchmark of similar contracts. We also quantified our client’s financial loss resulting from an incorrect application of the escalation formula.