Paragraph
Legislative recommendations - 3
Notes on legislative recommendations 1-67 
A. Legal framework for privately financed infrastructure projects 1-27 
1. Constitutional issues 1-4 
2. General and sector-specific legislation 5-8 
3. Elements for an enabling legislation 9-21 
4. Administrative coordination 22-27 
B. Other relevant areas of legislation 28-62 
1. Investment protection 29-32 
2. Property law 33-35 
3. Rules and procedures on expropriation 36-37 
4. Intellectual property law 38-39 
5. Security law 40-45 
6. Company law 46-49 
7. Accounting practices 50 
8. Contract law 51-52 
9. Insolvency law 53-54 
10. Tax law 55-57 
11. Environmental protection 58-60 
12. Settlement of disputes 61-62 
C. National legislation and international agreements 63-67 
1. General agreements on trade facilitation and promotion 64 
2. International agreements on specific industries 65 

LEGISLATIVE RECOMMENDATIONS

Constitutional issues
(1) It is advisable to review existing constitutional provisions so as to identify possible restrictions to private sector participation in infrastructure development and operation, limitations to the use of public property by private 
entities and obstacles to private ownership of infrastructure (see paras. 1-4).

Legislative approaches
(2) General enabling legislation may be usefully supplemented by special laws dealing with specific infrastructure sectors. Where sector-specific laws already exist, it is desirable to review them with a view to ascertaining their 
suitability for privately financed infrastructure projects (see paras. 5-8).

Legislative authority to grant concessions
(3) The law should state clearly the authority of the host Government to award infrastructure projects to the private sector and name those fields of activity or types of infrastructure that may be developed by private entities (see para. 10).
(4) It is advisable for the law to recognize the right of the project company to charge a price for the use of the infrastructure or the service or goods it provides, in accordance with the laws of the country and under the conditions to be provided in the project agreement. It is further advisable for the law to empower the parties to agree on mechanisms for calculating and adjusting those prices (see para. 11).

Legal regime of the project
(5) It may be useful to incorporate into special legislation pertaining to privately financed infrastructure projects those rights and obligations which would otherwise have been applied by implication, and which are found to be 
appropriate in connection with those projects. The enactment of general enabling legislation may provide an opportunity for excluding the application of those rules of law which are found to pose obstacles to the execution of privately financed infrastructure projects (see paras. 12-15).

Ownership and use of infrastructure
(6) The law should authorize the State to transfer or make available to the project company such public land or existing infrastructure that may be required for the execution of the project (see paras. 16-19).

Legal status of public service providers
(7) It is desirable for the law to authorize the State to grant to the project 
company the rights, privileges and facilities that are necessary to build and 
operate the infrastructure and to provide the relevant public services, in its 
own name or as an agent of the host Government, where the operation of public 
infrastructure or the provision of public services is reserved to the State (see 
paras. 20-21).

Administrative coordination
(8) It is advisable for the law to indicate the organs of the host Government, 
including, as appropriate, national, provincial and local authorities that are 
authorized to award concessions for infrastructure projects (see paras. 22-23).
(9) The law might entrust one organ with the authority to receive the 
applications for licences needed for the implementation of infrastructure 
projects, to transmit them to the appropriate agencies and monitor the issuance 
of all licences required at the time of the award of the project and other 
licences that might be introduced thereafter (see paras. 24-26).
(10) The law might also authorize the relevant agencies to issue provisional 
licences and provide a time period beyond which those licences are deemed to be 
granted unless they are rejected in writing (see paras. 24-26).
(11) To the extent that the host Government is not in a position to make 
provisions such as those referred to in (9) and (10) above, it may wish to 
include in the law a provision requiring the awarding authority to use its best 
efforts to assist the project company in obtaining the required licences (see 
para. 27).

Other relevant areas of legislation
(12) In addition to legislation immediately relevant for privately financed 
infrastructure projects, adequate provisions in other areas of law would 
facilitate transactions necessary to carry out infrastructure projects and 
reduce the perceived legal risk of investment in the country (e.g. investment 
protection law, property law, rules and procedures on expropriation, 
intellectual property law, security law, company law, accounting practices, 
contract law, insolvency law, tax law, environmental protection law, settlement 
of disputes) (see paras. 28-62)

National legislation and international agreements
(13) The host Government may wish to consider the desirability of adhering to 
international agreements on trade facilitation or agreements on promotion of 
trade in specific industries and services that would have a positive impact on 
the implementation of privately financed infrastructure projects (see paras. 63-67).

NOTES ON LEGISLATIVE RECOMMENDATIONS
A. Legal framework for privately financed infrastructure projects
1. Constitutional issues
1. The constitutional law of a number of countries refers generally to the duty 
of the State to ensure the provision of public services. Some of them list the 
infrastructure and services sectors which come under the responsibility of the 
State, while in others the task of identifying those sectors is delegated to the 
legislator. Under some national constitutions, the provision of certain public 
services is reserved exclusively to the State or to specially created public 
entities. Other constitutions, however, authorize the State to award concessions 
to private entities for the development and operation of infrastructure and the 
provision of public services. In some countries, there are limitations to the 
participation of foreigners in certain sectors, or there exist requirements that 
the State should participate in the capital of the companies providing public 
services. 
2. For countries wishing to promote private investment in infrastructure it is 
important to review the existing constitutional provisions so as to identify 
possible restrictions to the implementation of privately financed infrastructure 
projects. In some countries, privately financed infrastructure projects have 
been delayed by uncertainties regarding the extent of the State=s authority to 
award them. Sometimes, concerns that those projects might contravene 
constitutional provisions on State monopolies or on the provision of public 
services have led to judicial disputes, with negative impact on the 
implementation of the projects.
3. Another important category of constitutional provisions includes those 
relating to the ownership of land or infrastructure facilities. The 
constitutional law of some countries contains limitations concerning private 
property of land and certain types of means of production. In other countries 
private property is recognized, but the constitution declares all or certain 
types of infrastructure to be State property. Prohibitions and restrictions of 
this nature might be an obstacle to the execution of projects that entail 
private operation, or private operation and ownership, of the relevant 
infrastructure.
4. Irrespective of the choice made by the host Government regarding the 
ownership of infrastructure, it is important for a country wishing to attract 
private investment in infrastructure to ensure that the State is authorized to 
make available to the project company such land or existing infrastructure as 
may be required for the execution of infrastructure projects. In some countries 
it has been found necessary to amend the constitution so as to provide the State 
with that authority.
2. General and sector-specific legislation
5. In some countries, as a matter of legislative practice, it has been 
considered appropriate to adopt specific legislation regulating the execution 
and operation of one or more individual projects. In other countries with a 
well-established tradition of awarding concessions to the private sector for the 
provision of public services, the State is authorized by general legislation to 
award to the private sector any activity carried out by the public sector which 
has an economic value that makes such activity capable of being exploited by 
private entities. General enabling legislation of this type creates a framework 
for providing a uniform treatment to issues that are common to privately 
financed projects in different infrastructure sectors. Countries that consider 
it desirable to adopt general legislation may wish to determine what issues are 
suitable for being dealt with at this legislative level, and what issues should 
be left for specific legislation, regulations or for the project agreement.
6. By its very nature, general legislation is normally not suitable to address 
all the particular requirements of different sectors. In fact, the provision of 
certain public services is in several countries subject to special legislation 
governing specific infrastructure sectors (e.g. telecommunications, power 
generation and distribution, road and railway transportation). One of the 
arguments in favour of the adoption of sector-specific legislation, even in 
countries that have adopted general enabling legislation addressing 
cross-sectoral issues, is that it allows the legislator to take into account the 
market structure in devising regulatory mechanisms for individual infrastructure 
sectors.
7. Sector-specific legislation typically sets forth the policy of the Government 
for the sector concerned, lays down the mechanisms for implementing such policy 
and provides the general rules for the provision of the relevant services. In 
many countries, sector-specific legislation was adopted at times when a 
significant portion, or even the entirety of the national infrastructure 
constituted State monopolies. Recent national strategies for promoting private 
sector investment in infrastructure were often based on the results of extensive 
studies that analysed questions such as the extent of competition that could be 
introduced in the market as a whole or within specific segments of it, and 
considered the potential economic costs and expected benefits of abolishing 
legal monopolies or retaining them in full or in part (see chapter II, ASector 
structure and regulation@, ___). For countries interested in promoting private 
sector investment in infrastructure it is advisable to review existing 
sector-specific legislation so as to ascertain their suitability for privately 
financed infrastructure projects.
8. Sector-specific legislation may further play an important role in 
establishing a framework for the regulation of individual infrastructure sectors 
(see chapter II, ASector structure and regulation@, ___). Legislative guidance 
is particularly useful in countries at the initial stages of setting up or 
developing national regulatory capacities. Such guidance is also useful to 
reassure the lenders and the project consortium that the regulators do not have 
unlimited discretion in the exercise of their functions, but are bound by the 
parameters provided by the law. However, it is generally advisable to avoid 
rigid or excessively detailed legislation, which in most cases would not be 
adequate to the long-term nature of privately financed infrastructure projects.
3. Elements for an enabling legislation
9. The implementation of privately financed infrastructure projects may require 
the enactment of special legislation or regulations authorizing the State to 
entrust the provision of public services to private entities or decentralized 
entities wholly or partially owned by the State. Besides being sometimes needed 
to satisfy national constitutional and other requirements, the enactment of 
express legislative authorization may be an important measure to foster the 
confidence of potential private sector investors, national or foreign, in a 
national policy to promote private sector investment in infrastructure. While it 
is generally not advisable to attempt to regulate through general legislation 
specific aspects of the mutual rights and obligations of the project company and 
the Government, there is a number of core issues that might usefully be 
addressed in general legislation. 
(a) Legislative authority to grant concessions
10. In some legal systems the State is directly responsible for the provision of 
public services and may not delegate such a function without prior legislative 
authorization. For those countries that wish to attract private investment in 
infrastructure, it is therefore particularly important that the law states 
clearly the authority of the Government to entrust to entities other than 
governmental agencies the right to provide certain public services and to charge 
a price for them. For clarity purposes, it is further advisable to identify in 
such general legislation those fields of activity in which concessions may be 
awarded.
11. The law should also empower the parties to agree on mechanisms for 
calculating and adjusting those prices, when they are not established by a 
regulatory body. Such a general provision in the enabling legislation may be 
particularly important in those countries where public services are State 
monopolies, or where it is envisaged to engage private entities to provide 
certain services that used to be available to the public free of charge. In some 
countries the absence of prior legislative authorization has given rise to 
judicial disputes challenging the project company=s authority to require the 
payment of a price for the service provided.
(b) Legal regime of privately financed infrastructure projects
12. In some legal systems belonging to or influenced by the civil law tradition, 
the provision of public services may be governed by a body of law known as 
Aadministrative law@, which governs a wide range of State functions. In most of 
those countries there are well-defined concepts of administrative law that may 
cover certain forms of infrastructure projects, such as Apublic works 
concession@, Apublic services concession@, or Adelegations@, Alicences@ or 
Apermissions@ for the provision of certain forms of public services. Various 
rights and obligations of the parties may derive from statutory provisions, 
judicial precedent or general principles of law, according to the type of the 
project and the nature of the instrument of award (e.g. whether a bilateral 
agreement or a unilateral act).
13. In some of those legal systems, for instance, the Government generally has 
the right to revoke administrative contracts or to modify their scope and terms, 
for reasons of public interest, usually subject to compensation of loss caused 
to its contractors, or additional cost incurred by them. Additional rights might 
include extensive monitoring and inspection rights, as well as the right to 
impose sanctions on the private operator for failure to perform. In some 
countries, there are special provisions for the settlement of disputes arising 
out of Government contracts, and there may be limitations to the right of 
governmental agencies to agree on non-judicial procedures for settlement of 
disputes (see chapter XI, ASettlement of disputes@, ___). At the same time, some 
legal systems recognize certain implied conditions in all Government contracts 
that afford a certain level of protection to Government contractors, such as the 
right to review the terms of the contract following unforeseen changes in the 
circumstances (see chapter VIII, ADelays, defects and other failures to 
perform@, ___). In some countries, however, the ability of the Government to 
revoke or alter the terms under which a private entity provides a public service 
might be limited to those cases where the relevant instrument was issued in the 
form of a unilateral act of discretion.
14. The existence of a special legal regime applicable to infrastructure 
operators and public service providers is not limited to the legal systems 
referred to above. In several countries belonging to or influenced by the common 
law tradition there are special rules for each type of public utility (e.g. 
telecommunications, railways, electricity), which may not always be 
systematically grouped into a broader body of law. In these countries, too, 
particular rules have been developed for Government contracts, often through the 
extensive use of standard forms and terms. Those special rules typically give 
the Government certain powers of termination or modification balanced by an 
obligation to indemnify the contractor against the damage sustained by reliance 
on the contract. In that regard, an important distinction is made in some common 
law jurisdictions between Afranchises@, which create vested rights in the public 
utility to provide the relevant service, from mere Alicences@, which are 
personal privileges usually capable of being revoked by the grantor. However, in 
some countries it is understood that even unilateral acts licensing a private 
entity to carry out a given activity may create vested rights and, therefore, 
they may not be changed by the Government without the consent of the private 
entity, unless such possibility is expressly provided for in the law or in the 
terms of the licence.
15. In countries where Government contracts are subject to a special regime, it 
may be advisable for the legislature to review the adequacy of the existing 
regime for privately financed infrastructure projects and to identify possible 
difficulties that might result from the application of such a special regime. 
For purposes of transparency and to avoid any doubts by potential foreign as 
well as domestic investors, it may be useful to incorporate into special 
legislation pertaining to privately financed infrastructure projects those 
rights and obligations that are implied or are not treated systematically in the 
legal system and which are found to be appropriate in connection with those 
projects. By the same token, the enactment of general enabling legislation may 
provide an opportunity for excluding the application of those rules of law which 
are found to pose obstacles to the execution of privately financed 
infrastructure projects.
(c) Ownership and use of infrastructure
16. A number of countries have extensive provisions on the preservation and 
protection of State property, including special procedures and authorizations 
required for transferring the title to such property to private entities or 
granting to private entities the right to use governmental property. Whatever 
choice is made by the host Government regarding the ownership of the 
infrastructure facility to be built, modernized or rehabilitated, it is 
important for a country wishing to attract private investment in infrastructure 
to authorize the State to transfer or make available to the project company any 
land or existing infrastructure required for the execution of the project for a 
period not less than the duration of the project agreement.
17. The ownership regime for a particular project may be the result of practical 
considerations, such as the operational life of the infrastructure or the 
interest of the Government in retaining title to it. Moreover, in some projects 
the parties may wish to distinguish between assets that are to be owned by or 
reverted to the Government at the end of the concession period, and other assets 
acquired by the project company during that period and which remain the project 
company=s property. In some countries the law expressly provides that title to 
all assets originally furnished by the host Government for the construction of 
the facility, and to the facilities and improvements built thereafter by the 
project company, is vested in the host Government throughout the duration of the 
agreement. Some laws, on the other hand, authorize the transfer to the project 
company of title to the property required for the purposes of the concession or 
provide that the project company will own all assets that are acquired as a 
result of the concession. Other laws, while not authorizing the transfer of 
title to the project company, provide for some other rights in rem and provide 
in detail for their nature and scope (e.g. leasehold, right to use, usufruct). 
18. Whatever form its rights may take, for the project company it is important 
to be assured that they are based on sufficient legislative authority and that 
it will be able to enforce them against third parties. The same concern will be 
shared by the lenders and other project investors. Furthermore, in view of the 
legal restrictions that apply in many countries to the use of public property by 
private entities, the Government may necessitate prior legislative authorization 
to allow the project company to use any additional public property.
19. Therefore, it might be desirable for the relevant legislation to clarify the 
nature of the property rights, if any, that may be granted to the project 
company, taking into account the type of infrastructure concerned. Furthermore, 
it might be useful for the law to authorize the Government to grant to the 
project company the right to use land, roads and other supporting facilities not 
directly related to the project, as required for the construction and operation 
of the infrastructure, under the terms and conditions to be provided in the 
project agreement. 
(d) Legal status of public service providers
20. Public agencies or State organs providing public services are typically 
entrusted with powers designed to facilitate the provision of the service and to 
ensure that the users comply with and observe the pertinent regulations and 
rules. This may include, for instance, the right to issue, or control compliance 
with, safety regulations and the right to suspend the provision of service for 
emergency or safety reasons or because of default or non-compliance by the users 
(see chapter VII, AOperational phase@, ___). Those powers typically derive from 
the overall authority of the State and in some legal systems they are inherently 
governmental.
21. In countries with a well established tradition of awarding concessions for 
the provision of public services, the concessionaire is typically entrusted with 
the necessary powers by a delegation of authority from the State. The extent of 
powers delegated to the concessionaire is usually defined in the project 
agreement and may not need to be provided in detail in general enabling 
legislation of the type discussed in the Guide. However, where the operation of 
public infrastructure or the provision of public services is reserved to the 
State, it is desirable for the law to provide the State with the general 
authority to grant to the project company the rights, privileges and facilities 
that are necessary to build and operate the infrastructure and to provide the 
relevant public services, in its own name or as an agent of the host Government.
4. Administrative coordination
22. Depending on the administrative structure of the host country, privately 
financed infrastructure projects may require the involvement of several 
different governmental agencies, at various levels of Government. For instance, 
the competence to lay down regulations and rules for the activity concerned may 
rest in whole or in part with a governmental agency at a level different from 
the one that is responsible for providing the relevant service. It may also be 
that both the regulatory and the operational functions are combined in one 
entity, but that the authority to award Government contracts is centralized in a 
different governmental agency. For projects involving foreign investment, it may 
also happen that certain specific competences may fall within the mandate of the 
agency of the host Government that is responsible for approving foreign 
investment proposals.
23. Where general enabling legislation is adopted, it is advisable to indicate 
clearly the agencies or levels of government competent to award infrastructure 
projects to the private sector. It may be useful to consider the extent of 
powers that may be needed by authorities other than the central Government to 
carry out projects falling within their purview. General legislation may itself 
provide the procedures for identifying or prioritizing infrastructure projects 
to be awarded to the private sector or it may refer to the rules that will 
establish those procedures. Similarly, the legislation may provide the 
procedures to be followed for the selection of the concessionaire, or indicate 
under which rules the selection is to be carried out (see further chapter III, 
ASelection of the concessionaire@).
24. In addition to clarifying matters relating to the overall authority to award 
projects in a specific sector, the legislation may play a useful role in 
facilitating the issuance of approvals and licences that may be needed in the 
course of a project (such as licences under foreign exchange regulations; 
licences for the incorporation of the project company; authorizations for the 
employment of foreigners; registration and stamp duties for the use or ownership 
of land; importation licences for equipment and supplies; construction licences; 
licences for the installation of cables or pipelines; licences for bringing the 
facility into operation; spectrum allocation for mobile communication). The 
required licences and authorizations may fall within the competence of various 
organs at different levels of the national administration and the time required 
for their issuance may be significant, particularly when the approving organs or 
offices were not originally involved in conceiving the project or negotiating 
its terms.
25. By the time the project agreement is signed, the project consortium will 
normally have spent considerable time and invested significant sums in the 
project (e.g. preparation of feasibility studies, engineering design and other 
technical documents; preparation of tendering documents and participation in the 
tendering proceedings; negotiation of the project agreement, loan agreements and 
other project-related contracts agreements; hiring consultants and advisers). 
The possibility of not obtaining the licences needed for the construction of the 
facility may dissuade serious investors from competing for the award of the 
project. Furthermore, delay in bringing an infrastructure project into operation 
as a result of failing licences is likely to compromise the project=s financial 
viability or cause considerable loss to its sponsors. Where the additional 
financial cost cannot be recovered by means of an extension of the concession 
period, or by raising the tariffs or charging higher prices, the project company 
might turn to the host Government for redress or support. The consequence would 
often be an increase in the cost of the project and in its cost to the public.
26. An early assessment of licences needed for a particular project may 
significantly contribute to avoiding delay in the implementation phase. A 
possible measure to enhance the coordination in the issuance of licences and 
approvals might be to entrust one organ with the authority to receive the 
applications for licences, to transmit them to the appropriate agencies and 
monitor the issuance of all licences listed in the request for proposals and 
other licences that might be introduced by subsequent regulations. The law may 
also authorize the relevant agencies to issue provisional licences and provide a 
time period beyond which those licences are deemed to be granted unless they are 
rejected in writing.
27. However, there might be instances where the host Government, for 
constitutional or other reasons pertaining to its internal organization, might 
not be in a position to assume responsibility for the issuance of all licences 
or to entrust one single body with such a coordinating function. In that case, 
the host Government might wish to consider providing some assurance that 
nevertheless it will as much as possible assist the project company in obtaining 
licences required by national law, for instance as by designating an office or 
agency dedicated to provide information and assistance to project consortia 
regarding the required licences to be obtained, as well as the relevant 
procedures and conditions.
B. Other relevant areas of legislation
28. In addition to issues pertaining to legislation immediately relevant for 
privately financed infrastructure projects, a favourable legal framework may 
include provisions in other areas of legislation. Private investment in 
infrastructure would be encouraged by the existence of legislation that promotes 
private investment in economic activities. The following paragraphs point out 
only a few selected aspects of other fields of law that may have an impact on 
the implementation of infrastructure projects.1 The existence of adequate legal 
provisions in these other fields may facilitate a number of transactions 
necessary to carry out infrastructure projects and to reduce the perceived legal 
risk of investment in the country.
1. Investment protection
29. One matter of particular concern for the project consortia and the lenders 
is the degree of protection afforded to investment in the host country. The 
confidence of investors in the host country may be fostered, for example, by 
protection from nationalization or dispossession without judicial review and 
appropriate compensation. Companies participating in project consortia will also 
be concerned about their ability, inter alia, to bring to the country without 
unreasonable restrictions the qualified personnel required for working with the 
project, to import needed goods and equipment, to have access to foreign 
exchange as needed, transfer abroad or repatriate their profits.
30. For countries that already have adequate investment protection legislation, 
it may be useful to consider expressly extending the protection provided in such 
legislation to private investment in infrastructure projects.
31. In addition to adopting domestic legislation on investment protection, an 
increasing number of countries have entered into bilateral investment agreements 
which aim at facilitating and protecting the flow of investment between the 
contracting parties. Investment protection agreements usually contain provisions 
concerning the admission and treatment of foreign investment; transfer of 
capital between the contracting parties (e.g. payment of dividends abroad, 
repatriation of investment); availability of foreign exchange for transfer or 
repatriation of proceeds of investment; protection from expropriation and 
nationalization and settlement of investment disputes. The existence of such an 
agreement between the host country and the originating country or countries of 
the members of the project consortium may play an important role in their 
decision to invest in the host country. Depending on its terms, such an 
agreement may reduce the need for assurances or guarantees by the Government 
geared to individual infrastructure projects.
32. A multilateral agreement on investment is currently being negotiated under 
the auspices of the Organization for Economic Cooperation and Development 
(OECD). The OECD multilateral agreement on investment is intended to deal with 
dispute settlement, protection of investors and investments, liberalization, 
privatization and monopolies, key personnel, environment and labour issues, 
performance requirements, investment incentives.
2. Property law
33. It is desirable that the property laws of the host country reflect modern 
acceptable standards and contain adequate provisions on the ownership and use of 
land and buildings, as well as moveable and intangible property (e.g. 
copyrights), and ensure the project company=s ability to purchase, sell, 
transfer and license the use of property, as appropriate.
34. Whether the project company owns the land on which the facility is built, or 
is only granted a right to use it, it is important that the ownership of the 
land can be clearly and unequivocally established through adequate registration 
and publicity procedures. The project company and lenders will need reasonable 
proof that ownership of the land will not be subject to dispute. They will 
therefore be reluctant to commit funds to the project if the laws of the host 
country do not provide adequate means for ascertaining ownership of the land. It 
is also desirable to ensure that the project company will be able to create 
security interest on such property, for the purpose of obtaining financing for 
the project (see chapter IV, AConclusion and general terms of the project 
agreement@, paras. 39-45).
35. It is further necessary to provide effective mechanisms for the enforcement 
of the property and possessory rights granted to the project company against 
violation by third parties. Enforcement should also extend to easements and 
rights of way that may be needed by the project company for providing and 
maintaining the relevant service (e.g. placing of poles and cables on private 
property to ensure the distribution of electricity) (see chapter IV, AConclusion 
and general terms of the project agreement@, paras. 13-16).
3. Rules and procedures on expropriation
36. Usually the host Government assumes the responsibility for providing the 
land required for the implementation of the project, which may be either 
purchased from its owners, or, if necessary, acquired through expropriation (see 
chapter IV, AConclusion and general terms of the project agreement@, paras. 
8-12). Many countries have legislation governing expropriation procedures and 
that legislation would apply to any expropriation required for privately 
financed infrastructure projects.
37. Expropriation procedures are usually lengthy and complex. They may also 
involve a number of offices at different ministries or levels of Government. 
Particular delay may be encountered in some countries where the expropriation 
takes the form of court proceedings. The host Government might thus wish to 
review existing provisions on expropriation for reasons of public interest with 
a view to assessing their adequacy to the needs of large infrastructure projects 
and to determining whether such provisions allow quick and cost-effective 
procedures, with due consideration to the rights of the owners. It is 
particularly important to enable the host Government to take possession of the 
property as early as possible, so as to avoid start-up delay and increased 
project costs (see chapter VIII, ADelays, defects and other failures to 
perform@, ___).
4. Intellectual property law
38. Privately financed infrastructure projects frequently involve the use of new 
or advanced technologies protected under patents or similar intellectual 
property rights. They may also involve the formulation and submission of 
original or innovative solutions, which may constitute the proponent=s 
proprietary information under copyright protection. Private investors, national 
and foreign, bringing new or advanced technology into the country or developing 
original solutions, will need to be assured that their intellectual property 
rights will be protected and that they will be able to enforce those rights 
against infringements.
39. A legal framework for the protection of intellectual property may be 
provided by adherence to international agreements regarding the protection and 
registration of property rights. [The Commission may wish to consider whether a 
list of the main international instruments and a brief description of their 
contents, which could be prepared in consultation with the World Intellectual 
Property Organization (WIPO), should be inserted in this paragraph.] 
5. Security law
40. The type and extent of security offered by the project company or its 
shareholders will play a central role in the contractual arrangements for the 
financing of infrastructure projects. The security arrangements may be complex 
and consist of a variety of forms of security, including fixed security over 
physical assets of the project company (e.g. mortgages or charges), pledges of 
shares of the project company and assignment of receivables of the project. 
While the loan agreements are usually subject to party autonomy as to the law 
applicable to them, the laws of the host country will in most cases determine 
the type of security that can be enforced against assets located in the country 
and the remedies available. Differences in the type of security or limitations 
in the remedies available under the laws of the host country may be a cause of 
considerable practical difficulties. It is therefore important to ensure that 
domestic laws provide adequate legal protection to secured creditors and do not 
hinder the ability of the parties to establish appropriate security 
arrangements. 
41. Basic legal protection may include provisions ensuring that fixed security 
(e.g. a mortgage) is a registrable interest and that, once such security is 
registered in the central register of title or other public register, any 
purchaser of the property to which the security attaches should take the 
property subject to such security. Furthermore, security should be enforceable 
against third parties, have the nature of a property right and not a mere 
obligation and should entitle the person receiving security to a sale, in 
enforcement proceedings, of the assets taken as security. Secured creditors 
should enjoy preference to unsecured creditors in insolvency proceedings.
42. Another important aspect concerns the flexibility given to the parties to 
define the debt or debts which are secured and the assets which are given as 
security. In some legal systems, broad freedom is given to the parties in the 
definition of assets that may be given as security. In some legal systems, it is 
possible to create security that covers all the assets of an enterprise, making 
it possible to sell the enterprise as a going concern, which may enable an 
enterprise in financial difficulties to be rescued while increasing the recovery 
of the secured creditor. Other legal systems, however, allow only the creation 
of security that attaches to specific assets and do not recognize security 
covering the entirety of the debtor=s assets. There may also be limitations on 
the debtor=s ability to trade in goods given as security. The existence of 
limitations and restrictions of this type makes it difficult or even impossible 
for the debtor to create security over generically described assets or over 
assets traded in the ordinary course of its business.
43. Given the long-term nature of privately financed infrastructure projects, 
the parties may wish to be able to define both the debt or debts which are 
secured and the assets which are given as security specifically or generally. 
They may further wish such security to cover present or future assets and assets 
which might change during the life of the security. It may be desirable to 
review existing provisions on security interests with a view to including 
provisions enabling the parties to agree on suitable security arrangements.
44. Another form of security typically given in connection with certain 
privately financed infrastructure projects is an assignment to lenders of 
proceeds from contracts with customers of the project company. Those proceeds 
may consist of the proceeds of a single contract (e.g. a power purchase 
commitment by a power distribution entity) or of a large number of individual 
transactions (e.g. monthly payment of gas or water bills). In most cases it 
would not be practical for the project company to specify individually the 
receivables being assigned to the creditors. Therefore, assignment of 
receivables in project finance typically takes the form of a bulk assignment of 
future receivables. However, there may be considerable uncertainty in various 
legal systems with regard to the validity of the wholesale assignment of 
receivables and of future receivables. 
45. Thus far, no comprehensive uniform regime or model for the development of 
domestic security laws has been elaborated by international intergovernmental 
bodies. A model for the development of modern legislation on security interests 
is offered in the Model Law on Secured Transactions, which was prepared by the 
European Bank for Reconstruction and Development (EBRD) to assist legislative 
reform efforts in central and eastern European countries.2 Besides general 
provisions on who can create and who can receive a security right, and general 
rules concerning the secured debts and the charged property, the EBRD Model Law 
on Secured Transactions covers other matters, such as the creation of security 
rights, the interests of third parties, enforcement of security and registration 
proceedings. The solutions proposed in the EBRD Model Law on Secured 
Transactions are intended to achieve the objectives discussed in paragraphs 
41-44 above. [A description of the work done by UNCITRAL in the field of 
assignment of receivables might be inserted in this paragraph, at the 
appropriate stage.]
6. Company law
46. In most projects involving the development of a new infrastructure, the 
members of the project consortium will establish the project company as a 
separate legal entity in the host country (see chapter IV, AConclusion and 
general terms of the project agreement@, paras. ___). It is therefore important 
for the host Government to have adequate company laws with modern provisions on 
essential matters such as establishment procedures, corporate governance, 
issuance of shares and their sale or transfer, accounting and financial 
statements and protection of minority shareholders.
47. The project company=s shareholders are interested in limiting their 
liability to the value of their shares in the company=s capital. If it is 
intended that the project company will offer shares to the public, limited 
liability will be necessary, as the prospective investors will usually only 
purchase those shares for their investment value and will not be closely 
involved in the operation of the project company. It is therefore important that 
the laws of the host country provide adequately for the limitation of liability 
of shareholders. Furthermore, adequate provisions governing the issuance of 
bonds, debentures or other securities by commercial companies will enable the 
project company to obtain funds from investors on the security market, thus 
facilitating the financing of certain infrastructure projects.
48. Modern company laws often contain specific provisions regulating the conduct 
of managers so as to prevent conflicts of interest. Provisions of this type 
require that managers act in good faith in the best interest of the company and 
do not use their position to foster their own or other person=s financial 
interests to the detriment of the company. Provisions intended to curb conflicts 
of interests in corporate management may be particularly relevant in connection 
with infrastructure projects, where the project company may wish to engage its 
own shareholders, at one or the other stage of the project, to perform works or 
provide services in connection therewith (see chapter VI, AConstruction phase@, 
___).
49. It is important for the law to regulate adequately the decision-making 
process both for meetings of the shareholders and meetings of management organs 
of the company (e.g. board of directors or supervisory board). Protection of 
shareholders= rights and in particular protection for minority shareholders from 
abuse by controlling or majority shareholders are important elements of modern 
company laws. It is useful to recognize the right of the shareholders to 
regulate a number of additional matters concerning the management of the project 
company through agreements among themselves. 
7. Accounting practices
50. The adoption of standard accounting practices is a measure taken in many 
countries so as to achieve uniformity in the valuation of businesses. The use of 
modern and internationally acceptable accounting practices may be instrumental 
for ensuring the marketability of bonds and other security issued by the project 
company for the purpose of raising funds in international financial markets. In 
connection with the selection of the concessionaire, the use of standard 
accounting practices may also facilitate the task of evaluating and comparing 
proposals and establishing which proposal offers best value for money over the 
entire concession period (see chapter III, ASelection of the concessionaire@, 
paras. 75-77). Standard accounting practices are further essential for carrying 
out audits of the profits of companies, which may be required for the 
application of tariff structures and the verification of compliance by the 
regulatory body (see chapter VII, AOperational phase@, ___).
8. Contract law
51. It is important that the domestic law on commercial contracts provide 
adequate solutions to the needs of the project company and the lenders, 
including flexibility in devising contracts as needed for the construction and 
operation of the infrastructure facility. Besides some essential elements of 
adequate contract law, such as general recognition of party autonomy, judicial 
enforceability of contract obligations and adequate remedies for breach of 
contract, the laws of the host country may create a favourable environment for 
privately financed infrastructure projects by facilitating contractual 
arrangements likely to be used in these projects.
52. Where a new infrastructure is to be built, the project company may need to 
import large quantities of supplies and equipment. Greater legal certainty for 
those transactions may be facilitated if the laws of the host country contain 
provisions specially adapted to international sales contracts. A particularly 
suitable legal framework may be provided by adherence to the United Nations 
Convention on Contracts for the International Sale of Goods (Vienna, 1980) or 
other international instruments dealing with specific contracts, such as the 
UNIDROIT Convention on International Financial Leasing (Ottawa, 1988). 
9. Insolvency law
53. The insolvency of an infrastructure operator or public service provider 
raises a number of issues that have led some countries to establish special 
rules to deal with those situations, including rules that enable the host 
Government to take the measures required to ensure the continuity of the project 
(see chapter IX, ADuration extension and early termination of the project 
agreement@, ___). Of particular concern for the secured lenders will be 
provisions concerning secured claims, particularly as to whether secured 
creditors may foreclose on the security despite the opening of insolvency 
proceedings, whether secured creditors are given priority for payments made with 
the proceeds of the security and how claims of secured creditors are ranked.
54. The insolvency of a project company is likely to involve creditors from more 
than one country or affect assets located in more than one country. It may 
therefore be desirable for the host country to have provisions in place that 
facilitate judicial cooperation, court access for foreign insolvency 
administrators and recognition of foreign insolvency proceedings. A suitable 
model that may be used by States wishing to adopt legislation for that purpose 
is provided in the UNCITRAL Model Law on Cross-Border Insolvency.3
10. Tax law
55. The general taxation regime of the host country plays a significant role in 
the investment decisions of private companies. Beyond an assessment of the 
impact of taxation in the project cost and the expected margin of profit, 
private investors consider questions such as the overall transparency of the 
domestic taxation system, the degree of discretion exercised by taxation 
authorities, the clarity of guidelines and instructions issued to taxpayers, the 
objectivity of criteria used to calculate tax liabilities.
56. Some countries, particularly developing countries and economies in 
transition, have made use of tax incentives to attract foreign investment or to 
promote investment in specific industries or regions. Common types of tax 
incentives may include reduced corporate income tax, exemption from income tax 
for foreign personnel required to staff the project, exemption from real estate 
tax, and tax concession on royalties or import duties. It should be noted, 
however, that project-specific tax incentives in the form of waivers or 
reductions of particular taxes, special tax withholding or deduction schemes or 
other ad hoc deviations from the general taxation regime of the host country are 
potentially discriminatory and may be less transparent than more direct forms of 
governmental support to the project (see chapter V, AGovernment support@, paras. 
___). Furthermore, it may be advisable for national Governments to review 
extensive tax incentives to foreign enterprises, particularly those which are 
indefinite and awarded to all kinds of foreign investment, since their 
continuation might put domestic investors at an unfair competitive disadvantage.
57. One particular problem of privately financed infrastructure projects 
involving foreign investment is the possibility that foreign companies 
participating in a project consortium might be exposed to double taxation, i.e. 
taxation of profits, royalties and interests in their own home countries as well 
as in the host country. A number of countries have entered into bilateral 
agreements to eliminate or at least reduce the negative effects of double 
taxation, and the existence of such agreements between the host country and the 
home countries of the consortium members often plays a role in their tax 
considerations. 
11. Environmental protection
58. Environmental protection laws are likely to have a direct impact on the 
implementation of infrastructure projects at various levels. Environmental 
protection laws often require prior authorization for the exercise of a number 
of business activities, which may be particularly stringent for some types of 
infrastructure (e.g. waste water treatment, waste collection). Authorizations 
and licences are often required for undertaking construction works or for 
installing certain physical structures. The denial of an environmental licence 
may in some cases constitute an impediment to the execution of the whole 
project.
59. Therefore, it is advisable to ensure the highest possible degree of clarity 
in provisions concerning the tests that may be applied by the environmental 
authorities, the documentary and other requirements to be met by the applicants, 
the conditions under which licences are to be issued, the circumstances that 
justify the denial or withdrawal of a licence and the appeals procedures and 
judicial remedies, as appropriate, that are available to the applicants. It may 
be further advisable to ascertain to the extent possible, prior to the final 
award of the project, whether the conditions for obtaining such a licence are 
met (see paras. 22-27). In some countries, special governmental agencies or 
advocacy groups may have a right to institute legal proceedings to seek to 
prevent environmental damage, which may include the right to seek the withdrawal 
of a licence deemed to be inconsistent with applicable environmental standards. 
In some of those countries it was found useful to involve representatives of the 
public in the proceedings that lead to the issuance of environmental licences.
60. Further issues under the host country=s environmental laws may arise when 
the project company takes over an existing infrastructure facility, in 
particular where the question of responsibility for environmental damage caused 
by State-owned industry prior to privatization has not been clarified. Private 
investors may be reluctant to take over an existing infrastructure or purchase 
shares in public utilities which may be called upon in the future to compensate 
for or remedy environmental damage caused by the enterprise before it was 
privatized. It may therefore be advisable to establish mechanisms for 
compensating the private investors for liability incurred as a result of 
environmental damage caused during the period of State operation.
12. Settlement of disputes
61. Another important factor for the implementation of privately-financed 
infrastructure projects is the legal framework in the host country for the 
settlement of disputes (see chapter XI, ASettlements of disputes@, ). Investors, 
contractors and lenders may be encouraged to participate in projects in 
countries that provide a hospitable and internationally acceptable legal climate 
for the settlement of disputes, as offered by the UNCITRAL Model Law on 
International Commercial Arbitration. The efficiency of the national judicial 
system, the expeditiousness of court proceedings and the availability of forms 
of judicial relief that are adequate to commercial disputes are additional 
factors to be taken into account. Of particular importance is the possibility of 
recognition and enforcement of foreign arbitral awards, which will be fostered 
by adherence to the United Nations Convention on the Recognition and Enforcement 
of Foreign Arbitral Awards (New York, 1958).
62. A framework for the settlement of disputes between the host Government and 
foreign companies participating in a project consortium (see chapter XI, 
ASettlement of disputes@, ___) may be provided by adherence to the Convention on 
the Settlement of Investment Disputes between States and Nationals of Other 
States (Washington, 1965). The Convention, which has thus far been adhered to by 
139 States, established the International Centre for the Settlement of 
Investment Disputes (ICSID). ICSID provides facilities for the conciliation and 
arbitration of disputes between member countries and investors who qualify as 
nationals of other member countries. Recourse to ICSID conciliation and 
arbitration is voluntary. However, once the parties to a contract or dispute 
have consented to arbitration under the ICSID Convention, neither can 
unilaterally withdraw its consent. All ICSID members, whether or not parties to 
the dispute, are required by the Convention to recognize and enforce ICSID 
arbitral awards. ICSID is an autonomous international organization with close 
links with the World Bank. 
C. National legislation and international agreements
63. In addition to the internal legislation of the host country, privately 
financed infrastructure projects may be affected by international agreements 
entered into by the host country. The implications of certain international 
agreements is briefly discussed below.
1. General agreements on trade facilitation and promotion
64. A number of multilateral agreements have been negotiated to promote free 
trade at the global level. The most notable of those agreements have been 
negotiated under the auspices of the General Agreement on Tariffs and Trade 
(GATT), and later the World Trade Organization (WTO). Those agreements may 
contain general provisions on trade promotion and facilitation of trade in goods 
(e.g. a most-favoured nation clause, prohibition of the use of quantitative 
restrictions and other discriminatory trade barriers) and on the promotion of 
fair trade practices (e.g. prohibition of dumping and limitations on the use of 
subsidies). Some specific agreements are aimed at the removal of barriers for 
the provision of services by foreigners in the contracting States or promoting 
transparency and eliminating discrimination of suppliers in public procurement. 
Those agreements may be relevant for national legislation on privately financed 
infrastructure projects which contemplates restrictions on the participation of 
foreign companies in infrastructure projects, or establishes preferences for 
national entities, or for the procurement of supplies in the local market.
2. International agreements on specific industries
65. The telecommunications sector to date is governed by specific international 
commitments on matters of market structure, competition and regulation. In the 
context of the negotiations on basic telecommunications concluded as part of the 
General Agreement on Trade in Services (GATS), a number of World Trade 
Organization (WTO) member States representing most of the world market for 
telecommunication services have made specific commitments to facilitate trade in 
telecommunication services. Other WTO member countries may still file specific 
commitments, those that already made them may offer improvements at any time, 
whereas new WTO members may be asked as part of the adhesion negotiations to 
include specific telecommunications commitments.
66. It should be noted that all WTO member States (even those that have not made 
specific telecommunications commitments) are bound by the general GATS rules on 
services, including specific requirements dealing with most-favoured-nation 
treatment, transparency, regulation, monopolies and business practices. The WTO 
telecommunications agreement adds sector-and country-specific commitments to the 
overall GATS agreement. Typical commitments cover the opening of various 
segments of the market, including voice telephony, data transmission and 
enhanced services, to competition and foreign investment. Legislators of current 
or prospective WTO member States would thus ensure that the country=s 
telecommunications laws are consistent with the GATS agreement and their 
specific telecommunications commitments.
67. Another important sector-specific agreement at the international level is 
the Energy Charter Treaty, concluded at Lisbon on 17 December 1994 and in force 
since 16 April 1998, which has been enacted to promote long-term cooperation in 
the energy field. The Treaty provides various commercial measures like the 
development of open and competitive markets for energy materials and products, 
the facilitation of transit and the access to and transfer of energy technology. 
Furthermore, the Treaty aims at avoiding market distortions and barriers to 
economic activity in the energy sector and promotes the opening of capital 
markets to encourage the flow of capital in order to finance trade in economic 
materials and products. The treaty also contains regulations about investment 
promotion and protection: equitable conditions for investors, monetary transfers 
related to investments, compensation for losses owing to war, civil disturbance 
or other similar events, and compensation for expropriation.

* * *
1 For a general overview of the legal framework required for fostering private investment in privatized sectors, see United Nations Conference on Trade and Development (UNCTAD), Comparative Experiences with Privatization, New York and Geneva, 1995, pp.40-52. Particularly in respect of economies in transition, see United Nations Economic Commission for Europe, Legal Aspects of Privatization in Industry, New York, 1992, pp. 13-30.
2 European Bank for Reconstruction and Development, Model Law on Secured Transactions, London, 1994.
3 The text of the Model Law was adopted by the Commission at its thirtieth session (Vienna, 12-30 May 1997) and is set forth in annex I to the report of UNCITRAL on the work of its thirtieth session (Official Records of the General Assembly, Fifty-second Session, Supplement No. 17 (A/52/17)).