Agreement 258-2020

Approve the Guidelines for the Structuring of Projects Developed under a Public-Private Partnership (PPP) Scheme that aims to provide simplified guidelines for the structuring of projects under a PPP scheme that allow for homogeneity in the scope and depth of studies and analyses required for the correct market launch of the same.

1. Introduction: In compliance with what is established in the Law for the Promotion of Public-Private Partnership, Decree 143-2010 and the reform to the Law, Decree 115-2014, possible projects to be financed under the modality of Public-Private Association (PPP) must be registered in the National System of Public Investment of Honduras (SNIPH) and it must be justified that the optimal execution modality is through PPP schemes, the Fiscal Contingencies Unit (UCF) of the Finance Secretariat (SEFIN) is mandated by the legal framework to evaluate the proposal, issuing, in case it complies with the requirements that the regulations indicate, a positive "First Opinion," which in turn must be authorized by the head of SEFIN, which enables the Specialized Technical Unit for Projects-Public Private Partnership (UTEP-APP) to begin the project structuring tasks that have been assigned to it by the Entity or Department promoting it to be the granting authority. Within the framework of PCM-064-2019, published in the Official Gazette La Gaceta on December 17, 2019, it orders the elimination and liquidation of the Commission for the Promotion of Public-Private Partnership (COALIANZA) and reassigns functions to the Superior Council of PPP, as of the effective date of said Decree. "The Superior PPP Council," as the body of maximum authority of the System and will exercise its coordination. Its nature is that of a mixed and intersectoral collegiate body of high level and of a strategic, deliberative and binding nature for the design and formulation of policies, strategies, plans, programs and projects under the modality of public-private partnerships, for the economic development and improvement of the competitiveness of the Country. Likewise, the creation of the Specialized Technical Unit for Projects under the Public-Private Partnership model, hereinafter Technical Unit for PPP Projects (UTEP-APP), is established, which will be responsible for the identification, evaluation, selection, definition, structuring and awarding of projects that according to the Superior PPP Council qualify to be developed under the Public-Private Partnership model, for which it must have the participation of the Granting Authority. The Unit will be attached to the Finance Secretariat, and for this purpose, said State Secretariat must allocate the resources for its operation. The structuring of projects, in their technical, financial and legal components, must conclude with the complete preparation of the documentation necessary for their bidding, must provide optimal solutions for society trying to minimize firm and contingent fiscal burdens for the Government of Honduras (GdH). To improve and standardize structuring, and thus achieve contracts that allow for the provision of infrastructure under the best conditions for the GdH, this document has been developed with the recommended guidelines for the structuring of PPP projects. This structuring, following existing regulations, must be analyzed by the UCF by conducting the "Second Opinion" which, if positive and authorized by the head of SEFIN, would enable the Granting Authority to develop the bidding and contract awarding phase. Subsequently, once the contract is awarded and before signing, the UCF must conduct a final review of the documentation and issue a "Third Opinion" that enables its signature.

Finally, except in previously approved projects, the UCF must give its approval to the documents signed so that the Contract is approved by the National Congress. In addition to the assistance that these guidelines will provide to optimize the development and implementation of PPP projects, their application will allow reducing as much as possible the review and correction times inherent to the aforementioned Opinions, avoiding delays derived from deficient or incomplete files. The following chart represents the flowchart of PPP project approval: In the following table, the tasks to be performed in the different phases of development of a PPP project are described:

This document will focus on describing the guidelines for the structuring of a project by grouping them into their technical, financial and legal tasks. 2. Objectives The purpose of this document is to provide simplified guidelines for the structuring of projects under a PPP scheme that allow for homogeneity in the scope and depth of studies and analyses required for the correct market launch of the same. In a structuring of a project in general, and specifically under a PPP scheme, we must be able to answer the following essential questions: i. What are the needs that the project must satisfy? ii. What would be the required scope and what is the best alternative? iii. What investments are estimated to be necessary? iv. What will be the required quality standards and the estimated costs for operation and maintenance? v. Does the project generate social profitability? vi. What sources and what would be the cost of the financial resources necessary for project implementation? vii. Can the project be self-sustainable with user income? or, if applicable, what modality and amount of public support will it require? viii. How should risks be allocated between the Public Sector and the Private Partner to optimize the scheme and what mitigation mechanisms are proposed? ix. With this risk allocation, is the suitability of the PPP option confirmed with respect to other traditional contractual options? x. What would be the most suitable payment mechanism? xi. What mechanisms for performance evaluation are determined? xii. What would be the recommended contract term? xiii. What does the risk allocation proposed generate for the State? xiv. Causes that warrant financial rebalancing and mechanisms for its application? xv. What events are considered "Force Majeure" and their consequences? xvi. What are the contractual termination events and their consequences? xvii. How are the obligations of the parties defined in the contract? xviii. What will be the dispute resolution system? xix. What monitoring systems are established for contract control and follow-up? xx. What scheme of promotion, bidding and selection of offers is considered appropriate? xxi. Will the project generate interest among the private sector? All these aspects must be defined during the structuring process and a series of stages can be established with differentiated tasks and components that are described in the following sections. As represented in the attached chart, the comprehensive structuring process develops and combines technical, financial and legal aspects:

The products of this comprehensive structuring must be presented to the UCF for evaluation and the subsequent issuance of the Second Opinion, which, if positive, will enable the UTEP-APP and/or Granting Authority to begin the bidding and awarding phase of the project. 3. Components of structuring: 3.1. Prior stage: File for First Opinion UCF Prior to the authorization to begin the structuring stage of a PPP project, the UTEP-APP must have obtained a positive resolution from the Superior Council and a positive First Opinion from the UCF for which it will have prepared a file that will serve as the starting point for structuring. This file must contemplate what the Law and the regulation require to incorporate the acceptance of the registration in the SNIPH by the General Directorate of Public Investments. For the preparation of the required documentation, the recommendations included in the "Methodological Guide for the Formulation and Evaluation of Public Investment Programs and Projects" will be taken into account. The minimum documentation that must be included in the file necessary for the UCF to issue its First Opinion will be: I. Communication from the DGIP regarding the registration of the Project in the SNIPH to the UTEP-APP, copy of the resolution of the Superior Council of PPP. II. Prefeasibility Study that includes: − Evaluation of needs, identification and selection of alternatives. − Technical analysis of the project and estimation of main magnitudes, with justification:

o CAPEX, OPEX, DEMAND/INCOME − Progress of Environmental and Social Impact. − Evaluation of preliminary social profitability (Cost-Benefit or Cost-Efficiency Analysis). − Identification of risks and proposal for preliminary allocation − Financial prefeasibility: o Analysis of financial self-sustainability and estimation of the need for public support. o Preliminary evaluation of private profitability and feasible financing scheme III. Eligibility Analysis of this document. 3.2. Technical structuring Technical structuring will define the main characteristics of the chosen option or solution and, based on the prefeasibility studies conducted in the previous phase, will deepen the development of the technical documentation required for the PPP project contracting. Starting from the basis that technical structuring must allow for the estimation of project demand and costs, depending on the type of infrastructure and the degree of previous definition of the solution decided to be developed, it may be more in-depth, defining the required solutions in detail or will leave degrees of freedom to the private partner so that, based on the objectives and the required performance and quality, it proposes adjustments or develops technical solutions that optimize the project. In this sense, technical structuring may be limited to the development of a functional project, develop a reference project or, conversely, propose the final technical solution. The decision on the degree of depth of technical studies in the structuring phase will depend on several factors such as the size or complexity of the project and environmental and social impacts, but in any case, it must be possible to estimate, with a sufficient degree of certainty, the project investment and maintenance costs and the demand (income) that it can generate. It is recommended that the estimations of the project's main magnitudes, Investment, Operating Costs and Demand have sufficient reliability so that the results of financial structuring have value. In this sense, the range of variability of these magnitudes should not exceed 15% and it will always be necessary to conduct sensitivity exercises in financial structuring.

Below we describe the minimum components that should be included in the technical structuring of a PPP project: 3.2.1. Estimation of demand and income. In the studies developed in the prefeasibility phase, and which have been part of the file for the 1st Opinion, the first estimates of the demand that the project must cover must have been made, as well as the income that it could generate from the users of the infrastructure or service. In the structuring phase, detailed demand studies will be conducted to allow adjustment of the project design and size and to estimate the income that can be obtained from users in different tariff scenarios. Demand studies will depend on the type of project, but it is recommended that they contemplate at least the following elements: 1. Definition of the project's area of influence estimating the potential demanding population 2. Definition of the study period 3. Estimation of current demand: a. compilation of historical demand b. measurement of current demand (traffic counts, field studies) 4. Analysis of existing infrastructure: a. Capacity b. Remaining useful life 5. Projection of demand a. Surveys (on roads, origin-destination type and stated preference) b. Evaluation of fluctuations

6. Models of growth and analysis of correlated variables (GDP, population, per capita income, motorization level, etc.) 7. Definition of future scenarios (network models, competition from other infrastructure) 8. Capacity and service levels. 9. Potential demand during the study period 10. Analysis of tariffs and estimation of income from all possible activities that can be developed. 11. Elasticity of demand and sensitivities to different variables The demand study correlates in structuring with: − The design studies defining the project size for a determined service level − The social profitability analysis, influencing the benefits generated versus project costs − The financial analysis estimating the income the project can generate − The payment mechanism and the allocation and mitigation of risks 3.2.2. Design studies. Technical studies must allow for the definition of the optimal solution by verifying its constructive viability, as well as the environmental and social effects it can produce, estimating in a sufficiently adjusted manner its costs both for construction and for operation and maintenance. As mentioned previously, the degree of definition of the design or of the proposed technical solution will depend on the type of project, but in any case it must be sufficient to be able to estimate, with an acceptable degree of approximation, the amount of investments and project operating costs. In those cases where, due to the specific characteristics of the project, it is difficult to define the optimal solution, the convenience of opting for a Competitive Dialogue scheme will be analyzed, through which it will be the specialized private sector itself that will help define the suitable solution and the design studies required for project structuring. This type of structuring will be developed in Annex V of this document. Below are listed some of the main components that design studies should have, specifying according to the project typology: In all projects: − Environmental Impact Study − Complete topographic survey (bathymetric in maritime or river works) − Geology and geotechnics: Collection of background, field visits and diagnosis, report and geological-geotechnical map, prospections and tests, geotechnical reports and soil bearing capacity. − Hydraulics and Hydrology: Collection of climatic and hydrological data, climatology, hydrology, watershed study and water quality study. − Affected networks and services: replacements, interconnection study. − Connections to public services (electricity, water and sanitation). − Analysis of threats and vulnerability: Flood management plan. − Emissions study.

− Noise study. − Measurements of all project components In building works: − Architecture plans with complete dimensions − Preliminary structural analysis, including foundation design − Technical specifications of materials − Technical specifications of equipment In civil infrastructure projects: − Geometric design in plan and profile with cross sections − Study of quarries and dumpsites − Location and preliminary dimensioning of structures and underground works In electro-mechanical infrastructure projects: − Plan and elevation section drawings − Process flow diagrams − Piping and instrumentation diagrams − Equipment layout drawing − Technical specifications of pipes, equipment and instruments − Preliminary plans for the location of substations and electrical rooms. Status of existing infrastructure: − In the case of projects that incorporate existing assets, an evaluation of their physical condition and verification of compliance with construction and operation standards will be conducted to determine and define the necessary improvement or rehabilitation actions that should be included in the design studies. 3.2.2.1. Environmental, Social and Land Analysis During structuring, an environmental and social program and land program will be developed and planned to present and discuss the project with affected communities and sectors, which may be supported together with the municipalities. The objective of the environmental, social and land analyses is to identify potential impacts and establish possible contingencies and action plans in terms of environmental, social and land matters. Environmental: It includes the preparation of studies on the environmental impact that the project may cause and the identification of corrective measures that must be applied, identification of permits and the quantification of all associated costs following applicable standards. Also, depending on the characteristics and complexity of the project, the convenience of managing and obtaining approvals or prior validations of the Environmental License will be analyzed. Social: It includes the preparation of studies on the social impact that the project may generate and the identification of possible contingencies. Likewise, possible compensation measures and their associated costs will be evaluated. Land: It includes the identification of land effects that the project will cause, evaluating the needs for resettlement programs and purchase of properties, estimating their costs and expected timeframes for their release.

3.2.2.2. Budgets and Programming Budgets: Based on the quantities of work or measurements quantified in the design studies for each project component, unit prices are applied based on price databases and a check is performed against market prices. The result will be the estimation of the cost of works that will have a degree of reliability determined by the depth of the studies conducted. This amount, with the correction that is determined, will constitute the CAPEX input for the financial structuring of the project. The estimation is performed as a result of multiplying quantities by prices. In this quantification of CAPEX, the costs derived from the corrective measures required in the Environmental Impact Study must be included, as well as those corresponding to compensations or actions determined to mitigate social impact. Programming of works Together with the design studies, a programming of works will be prepared that must take into account the estimated timeframes of prior activities related to the release of properties and easements, the obtaining of permits and licenses and the drafting of the construction project. In this programming, the monthly amount of activities carried out will be quantified for use in the financial structuring of the project. In summary, the estimation of budgets and programming must include: − Engineering and construction budget, including direct and indirect costs − Timelines and costs of environmental management − Timelines and costs of social management − Timelines and costs of land management − Timelines and costs of interference or network management − Works supervision costs − Valued project execution schedule 3.2.3. Operation and Maintenance Plan. Based on the design conducted and the expected performance for the infrastructure, an Operation and Maintenance Plan must be prepared that includes: − The project operation plan. − Operation plan for the collection system. − Project maintenance plan, including an estimation of required equipment. − Analysis of the project's life cycle: need for major maintenance or replacements. − Definition of service indicators for operation and maintenance − Definition of the conditions for reversion of the project at the end of the contract period. Budget for Operations: − Based on the definition of operation and maintenance actions, derived from the design and the assigned service indicators, the estimated costs will be applied to determine the operation and maintenance budget that will constitute the OPEX input for the financial structuring of the project. − The investments necessary for the reversion of the infrastructure under the established conditions will be taken into account. − In this quantification of OPEX, the costs derived from possible corrective measures during the operating phase, required in the Environmental Impact Study, must be included, as well as those corresponding to compensations or actions that could be determined in that phase to mitigate social impact. 3.2.4. Evaluation of social profitability. In the technical structuring, a final evaluation of the project's cost-benefit must be conducted analyzing social, economic and environmental impact on the directly affected population and evaluating expected socioeconomic benefits. This evaluation will be conducted based on an update of the social profitability analysis conducted previously in the prefeasibility phase, and which was part of the file evaluated by the UCF for the issuance of the First Opinion. This final social profitability study must corroborate that the project generates benefits and therefore its execution is recommended. In the case that, after having updated the project magnitudes, social profitability is not positive, in order to move forward, the project must be, if possible, reconsidered by adjusting its characteristics to reduce its costs or increase its benefits. 3.3. Financial structuring We call financial structuring of a PPP project the formulation of it as a business, determining, quantifying and assigning its risks and evaluating its sustainability based on the expected income that allows for repaying investments and operation costs with a certain profitability and defining, if necessary, the magnitude and type of public support required in those projects with insufficient or non-existent market income, such as in the case of social infrastructure or equipment. One of the main characteristics of PPP schemes is the possibility of being financed by third parties in a high percentage, so that promoters would only contribute a part of the funding needs, as capital, and the rest would be contributed by financiers in a "Project Finance" scheme. The essential tool for developing these schemes is financial modeling in a spreadsheet. Project Finance is a financing technique or mechanism that is based on the project's ability to generate positive cash flows, not depending only on the value of the assets that the sponsors are willing to put in but above all on the project's ability to pay the debt incurred and remunerate invested capital.

The debtor is a company created by the promoters specifically to develop the project (the vehicle company SV). This entity is financially and legally independent from the promoters. Lenders provide external resources with their main guarantee being the project's cash flows and assets. Lenders require that project risks be allocated efficiently among all parties participating in the transaction, with the objective of achieving better management, mitigation and control of them. The cash flows generated, and which will be those established in the proposed payment mechanism, must be sufficient to cover operating expenses and repay capital and interest on debt. Only the residual funds remaining afterwards can be allocated to the payment of dividends to sponsors. This section provides recommendations for the financial structuring of a project under a PPP scheme. 3.3.1. Identification, allocation and quantification of risks An inherent element in PPP schemes is the distribution of risk between the public grantor and the private promoter. Recommendations in international best practices point to assigning each risk to the party that can best manage it. The assignment of project risks to the private sector can improve its management and generate value for the State, but on the other hand, if this transfer is excessive it will certainly increase the project cost and even reduce interest in participating in it. It is therefore a matter of defining a balanced scheme that enables the conception of a feasible project both from a financial and commercial perspective, but trying to minimize contingencies for the State, extracting maximum value and efficiency from the contract at the same time. The analysis of risks in projects formulated under a PPP scheme is a fundamental element in the configuration and definition of the contractual structure, since it incorporates the distribution and allocation of risks in the form of rights and obligations of the parties. The objective of this structuring component is to identify, analyze and quantify the main risks associated with the project, define their allocation (public, private or shared) and propose measures to mitigate possible impact. Risk allocation should try to optimize the final project cost for the State, so it must take into account the opposing effect it can generate: − A limitation of the risk transferred to the private sector will result in greater attractiveness of the project (more participation and competition) and an improvement in financial feasibility, with lower profitability requirements for shareholder capital, with better access to financing conditions, resulting therefore in a lower cost for the State − This lower initial cost can, however, increase considerably due to the probability that the risks retained by the State materialize, causing contingent obligations and therefore increasing the final project cost. We will begin this section with the identification of the main risks that can occur in PPP projects proposing a distribution scheme for them and the identification of measures for their mitigation. We will then describe the proposed methodology for the qualitative and quantitative analysis of the main risks, a topic that will be developed in Annex I of this document. As we will see later, this allocation and quantification will condition the result of the comparative analysis of the PPP option versus the Public Works contract and will allow estimation of the amount of contingent liabilities that the State will have to assume during the life of the contract. 3.3.1.1. Identification, allocation and mitigation For the identification and allocation of risks we will consider the phases of project development: A. Design and Construction Phase: From the signing of the contract until the completion of works and the infrastructure is put into service. B. Operation and Maintenance Phase: From the putting into service until the completion of the contract and reversion of the infrastructure. These risks may be hidden in the case that the infrastructure is partially put into use before its final completion. Below are described the main risks identified in infrastructure projects developed under PPP schemes. Annex I to this document includes a matrix of the main risks summarizing this section in which they will be identified and their allocation and possible mitigation will be proposed. A. Design and Construction Phase: In this phase, risks that can materialize will have the consequence of an increase in the amount of works, or an increase in the construction timeframe of the works, or both simultaneously. In extreme circumstances, the materialization of risks in the design and construction stage can lead to contract termination and cancellation. The appearance of construction cost overruns compared to initially estimated amounts is common in infrastructure projects. While in a traditional public works scheme, cost overruns and delays would generally be assumed by the State, in the case of the PPP alternative, the transfer of design and construction risk to the private party is one of the axioms of the model, so construction cost overruns and the consequences of delays in putting the service into operation must be assumed by the concessionaire. This transfer of risk may have some exceptions and can be shared for certain events as we will see below. A.1 Risk of deficiencies in design It is the risk of the existence of errors or deficiencies in the design that have an impact on the cost or quality of the infrastructure and may also cause delays in work execution. This risk should always be transferred to the concessionaire. The Grantor will not assume any risk related to the prior designs developed in the structuring phase and that have been delivered with the bidding documents, regardless of the level of depth they have. Likewise, the approval of the definitive engineering studies by the Grantor will not in any case mean the assumption by the latter of the design risk or compliance with the quality and service indicators of the infrastructure. This measure indicates that all bidders must conduct a critical review of the technical documentation provided by the Grantor in the bidding bases, to accept or develop it, or to propose the changes they consider necessary to comply with current regulations and the specifications required in the bidding documents. Once the PPP contract is signed, the concessionaire must submit a Definitive Engineering Study for approval by the Grantor within the stipulated timeframes. This Definitive Study must comply with regulations and the technical specifications defined in the Bidding Documents and in the contract and may, if so established, incorporate adjustments. If the allowed adjustments included modifications in the layout (e.g., linear works), the cost and risk of expropriation of the necessary properties should always be assigned to the concessionaire. A.2 Construction Risk Construction risk groups all events that can cause cost overrun or schedule overrun in the execution of works or investments in a PPP contract. As a general rule, this risk should be transferred to the concessionaire since its offer is with fixed price and timeline, assuming the consequences of any variation in its estimates. However, as we will see in the following sections, there are risks that generate cost and/or schedule overruns in which, although they have mitigation mechanisms that the concessionaire must adopt, it may be advisable to assign them, in whole or in part, to the Grantor. There would not be a real and complete transfer of construction risk to the concessionaire if the contract provides for payments while there is no availability of the infrastructure or at least a functional part of it. A.3 Risk in Land Availability The risk in land availability is the risk resulting from an increase in the estimate of its cost or delays in its release that cause delays in the commencement of works and cost overruns in the execution thereof. This risk, unless there is clear justification to the contrary, should be assumed by the Grantor given that it is the Grantor who has control over the expropriation process and the setting of compensation prices. When there are budgetary allocation problems to cover expropriation costs, it can be determined in the Contract that the concessionaire covers a certain amount and that the risk and chance of cost differences being within the final cost is assumed by the Grantor. This allocation means that not only the possibility of cost overruns generates a contingent liability to the Grantor but also delays in release that will cause claims by the concessionaire for cost overruns in the execution of the work, higher financing costs and reduction in profitability resulting from delays in putting the service into operation and beginning income. It is therefore a fundamental requirement for proper structuring that there is sufficient certainty that the land or properties will be available on the dates required to comply with the work planning and not generate construction delays and putting into service. Additionally, an adequate and realistic estimation of costs must be made and an analysis conducted that quantifies possible contingencies resulting from cost overruns or delays in expropriations. To mitigate this risk, it will be necessary that in the structuring phase, an expropriation plan be developed that identifies the properties and their owners or holders, the planned release procedure and the projected costs and timeframes, as well as, if necessary, a resettlement and compensation plan. To have greater certainty of project viability, as well as its attractiveness to the private sector and to limit the contingencies resulting from the land release process, it is recommended that before contract signing, a significant percentage of land be available (>50%). In cases where the concessionaire requests a modification in the layout (for example, in road projects), it must assume the risk of cost overrun or schedule overrun of the release of the new properties required. A.4 Social Risk It is the risk resulting from protests and claims from affected communities that the project might generate because it negatively affects their quality of life and they must be relocated or compensated for this. The amount of these compensations and the risk of project paralysis from social protests is a risk that is difficult for the concessionaire to assume, so it is recommended that this risk be assigned mostly to the Grantor, provided that the concessionaire complies with what was agreed at the beginning of project development. To mitigate this risk, it is necessary to conduct early socialization of projects in the structuring phase, involving affected communities in continuous explanatory dialogue. This also allows for understanding the issues and being able to analyze alternative solutions that mitigate or eliminate the impact. When socializing the project, compensation proposals must also be communicated to avoid social conflict. If these actions have been conducted efficiently in the project structuring phase, the risk can be partially transferred to the private sector with scenarios of shared risk if the conditions imposed by communities significantly exceed the costs of compensations and relocations considered in the structuring. In any case, the private sector should be assigned obligations related to project communication as well as the monitoring and control of works in order to prevent invasions. The private party must also contract the insurance available in the market that covers social events that could affect the project, such as vandalism or riots, among others. A.5 Risk of Interference and Affectation of Service Networks The risk of interference and affectation to networks is translated into the possibility of construction cost overruns and schedule overruns due to insufficient identification and quantification of costs and timeframes for adjusting affected services. It is recommended to transfer to the concessionaire the risk related to interference and affected services, provided it is feasible to gather reliable information during structuring, which it must expand and evaluate during the offer preparation phase. In those cases where the probability that the interference or unavailability of affected services could significantly impact project execution, it will be advisable to share this risk with a scheme of bands or percentages of deviation from initial estimates and to quantify the impact it could have for the Grantor of the contingent liability resulting from the retained risk. In any case, to mitigate this risk, regardless of who ultimately assumes it, during structuring a detailed analysis and estimation of costs and timeframes resulting from interference with affected networks and services must be conducted, which will be complemented with the private party's own analyses during the offer phase. This is why, in structuring, surveys must be conducted to identify affected networks and correctly quantify the investment and timeframe necessary for modifications. A.6 Geological or Geotechnical Risk Geological or geotechnical risk is identified with the appearance of differences in the conditions of the geological environment regarding those studied in the structuring phase that affect the project's geotechnical design, causing cost overruns or extension of construction timeframes for the infrastructure. This risk, except in the special cases discussed below, should be assumed by the concessionaire who will conduct its own geological and geotechnical studies of soil conditions where the infrastructure will be constructed so as to be able to define and dimension the corresponding structures. The Grantor may provide studies previously conducted in the structuring phase, but without assuming the risk derived from their accuracy. However, there are project typologies where possible geotechnical variations from initially estimated amounts are very likely, such as in the case of underground works or those conducted in very unstable geological environments. In these cases, the transfer of all risk to the private party is not advisable as it can reduce project interest and increase the cost for the Grantor due to overestimation by the private party in its offer of the cost related to the materialization of this risk. In these cases, it is certainly advisable, for the same reasons argued before, that the risk be partially retained by the Grantor, but it is essential, to mitigate the risk, to conduct reliable studies in the structuring phase that allow for a comparison scenario of conditions against which the concessionaire can request compensation for cost overruns, applying the sharing mechanisms that are stipulated which usually apply a scheme of bands or percentages of deviation. Likewise, in these cases, it will be necessary to estimate the possible contingencies for the Grantor resulting from the part of the risk retained. A.7 Environmental Risk i. In the design phase Environmental risk in the design phase stems from the impossibility or delay in obtaining the environmental permits necessary for the approval of definitive designs. This approval may require modifications to the initially proposed technical solutions that may imply higher costs or execution timeframes. To mitigate this risk, in the structuring phase the necessary environmental studies must be conducted to obtain prior approval from the responsible bodies and in this way minimize the risk in the design and construction phases. In this scenario, the risk can be transferred to the Concessionaire who must conduct the necessary procedures to obtain the environmental permits or licenses that are necessary after contract signing and prior to the start of works. In the exceptional case that due to the project's typology the prior technical definition has only been at the functional level, and for this reason it is not possible to obtain prior approvals in the structuring phase, or if it is a project with high environmental impact, it will be difficult and costly for the bidder to accept total risk assumption and sharing mechanisms are recommended so that the project becomes attractive to the private sector. ii. In the construction phase Once the definitive engineering study has obtained approval and construction of the infrastructure has begun, this would be the risk resulting from non-compliance with environmental regulations or an increase in the cost or timeframe expected for corrective measures which would result in cost overruns or schedule overruns in work execution. This is a risk that should be completely transferred to the concessionaire. A.8 Archaeological Risk This risk refers to the discovery of significant archaeological remains that generate an interruption in the normal development of works according to the timelines established in the contract or cost overruns in the execution thereof. To mitigate this risk, it is necessary to conduct in the phase an identification of risk zones for discoveries and an assessment of the time and cost of their treatment. This should be a shared risk so that the concessionaire will have the obligation to conduct the necessary additional investigations to assess the possible existence of archaeological remains in the subsoil of the property and to take into account the possible delay that the treatment of the same can have in work planning. The Grantor on its part will assume the cost of the work for identification and treatment of the remains and the effect of the schedule overrun caused by suspensions if these exceed the provisions stipulated in the contract. In case of significant delays, suspension of the contract could occur, which would be an event of early contract termination due to causes of Force Majeure. In any case, the concessionaire has the obligation to adopt or impose on third parties all precautions for the extraction of such objects that are indicated to it by the competent administrations. The concessionaire would be responsible for thefts and damages that could occur in relation to the aforementioned objects. In cases where the concessionaire requests a modification in the layout (for example, in road projects), it must assume the delay or cost overrun resulting from archaeological discoveries in the new layout. A.9 Risk of Obtaining Permits and Licenses This category includes the risk of cost overrun resulting from delays in obtaining any of the permits and licenses that must be issued by institutions or public bodies other than the Grantor and that is necessary for the concessionaire to obtain before the start or during construction works. The risk of obtaining permits and licenses, whether it translates into higher costs, longer timeframes, or directly into non-obtaining of the same, would be transferred to the private party if the cause is attributable to the private party, in all other cases it would be a risk retained by the Grantor. The Grantor will have the obligation to conduct all actions that are within its reach for the proper development of the administrative activity aimed at the granting of licenses and permits provided that the private party has developed the procedures for their processing with due diligence. It is therefore a shared risk that can generate contingent liabilities to the Grantor that must be evaluated based on accumulated experience. The failure to obtain the corresponding permits or licenses due to negligence or causes attributable to the concessionaire would be grounds for contract rescission due to non-compliance by the private partner. A.10 Risk of Existing Infrastructure Transferred to Private In projects for expansion or improvement of infrastructure, there