Figure 3: Knowledge domain sets associated with the SPE and defining characteristics.
design and delivering, operating, other
services). Mostly Project Financing
and Public-Private Partnership
Project Management sub-Domain Financial Vehicles
• Is a Fenced Entity (Risk, Assets, Liabilities)
• Has Limited and Pre-defined Purposes
• SPE has legal personality
Key Characteristics of Three Domains
Advantages Ability to Attract
SPE groups and share stakeholders’ capabilities and risks. Since the SPE is an external and
self-fenced entity, all risks exogenous to the project are reduced (e.g., bankruptcy of a project
stakeholder). This enable SPEs to increase the debt at a reasonably low cost (Finnerty, 2013).
Alignment of Actor’s
SPEs are designed to provide a comprehensive scheme of incentives affecting relevant project
stakeholders (i.e., shareholders, critical contractors, etc.). The contracting schemes involving the
SPEs enable better alignment of stakeholder interests (Clifton & Duffield, 2006; Nisar, 2013).
During the Life Cycle
SPEs are coupled with the infrastructure that designs, delivers, and operates. SPEs extend the
stakeholders commitment in the project to more phases. (Clifton & Duffield, 2006; Nisar, 2013).
Effective Risk Sharing Using SPEs, the project risks are shared depending on the stakeholders’ ability to influence them.
This principle enables a better performance in terms of risk sharing (Grimsey & Lewis, 2002).
Lower Taxes The SPE corporate structure enables fiscal advantages in several countries (BCBS, 2009).
Easier Transfer of Assets
SPE enables higher flexibility in the transfer of assets among companies. All assets available in the
SPE can be transferred by relocating the control of the SPE, i.e., by transferring SPE shares among
companies (OECD, 2008)
Disadvantages Limit Flexibility Longer stakeholder commitment to the infrastructure has the downside of lower flexibility.
Generally, lower flexibility takes the forms of: longer amortization time, rigid off-take contract
conditions, etc. (Viegas, 2010), (Medda, Carbonaro, & Davis, 2013)
Creation of Monopoly PPP projects exploit the SPE approach. The public issues special provisions in favor of the private
partners (e.g., off-take contracts, special regulations, etc.). This framework increases the barrier
to entering into the private business; in most cases, this leads to monopolies (Demirag, Khadaroo,
Stapleton, & Stevenson, 2011).
SPEs require longer time for due diligence and negotiation process at the beginning of the project.
These activities are time and cost consuming (Finnerty, 2013).
on the case)
The treatment of transaction costs in SPEs is controversial. In some scenarios, SPEs enable lower
transaction costs (e.g., because of the better cooperation among project stakeholders); in others. the
opposite occurs (e.g., because of the longer due diligence and negotiation process) (Finnerty, 2013;
Table 4: Advantages and disadvantages of SPEs in megaprojects.