Risk Management in Transport PPP Projects
In the Islamic Countries
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reference to revenue regulations, the concession agreement allows the concessionaire to provide
services complementary to its transport service (such as storage, freight forwarding, etc.).
The Concessionaire is in charge of the operation and maintenance of the rail infrastructure and
bears the associated costs. On the other side, the Conceding Authority is financially responsible
for the renewal and upgrading of the infrastructure, according to an investment plan submitted
by the Concessionaire and approved by the state for funding. The debt associated with this
investment is serviced by the concessionaire. Under the technical standpoint, the renewal and
upgrading activities are implemented by the Concessionaire, which bears the related technical
risks.
A similar allocation of responsibilities is in place for the rolling stock , with the Concessionaire in
charge of operation and maintenance and the Conceding Authority in charge of all rehabilitation
& acquisition costs. In both cases, the technical risks are nevertheless allocated to the private
party. The Concessionaire is also allowed to rehabilitate and acquire rolling stock and can use
third party’s rolling stock.
The analysis of the past financial performance of Sitarail (World Bank, 2016) provides some
interesting findings concerning financial feasibility and risk allocation of PPPs in the railway
sector. As in similar railway concessions in the region, the financial feasibility of the Sitarail
concession was achieved on the basis of the governments’ ability to secure extremely low debt
financing cost transferring state-guaranteed borrowing from IFIs such as the World Bank. As a
result, almost 90% of the private operator’s financing is based on governments’ sovereign debt
issued by IFIs. Meanwhile, Sitarail private shareholders’ financial exposure has remained
minimal: the combined sum of private equity contribution and the level of borrowings from
private lenders was less than 20% of Sitarail’s total debt. Despite such favorable debt structure,
Sitarail never achieved high net profit margins, with an average annual rate of return on equity
around 9%, which is deemed relatively low considering the level of financial and operational risk
of the operation. However, it is worth mentioning that actual margins for the private party have
been presumably higher as the Bolloré group also provided some technical assistance to Sitarail
that resulted in additional revenues for the parent company.
On this basis, the participation of the private party in railway concessions appears to have been
driven more by the desire of the private party (Bolloré Transport & Logistics) to control
logistical distribution chains rather than earning substantial direct return on their investment.
In fact, Bolloré has historical business interests in the catchment area served by the railway via
its freight forwarders and agricultural production subsidiaries. In addition, after entering the
Sitarail concession, the same group was awarded the Concession of the first container terminal
of the Port of Abidjan (in 2003) and, recently, the concession of the second container terminal (in
2013). This situation clearly raises the issue of potential undue market/pricing power in the
transport logistic chain as well as of profit transfers from one group subsidiary to another.
Second concession (2016-ongoing). Partially because of the disruption in the line operation
during the decade of instabilitiesy, early 2010s the railway line required major rehabilitation