Risk Management in Transport PPP Projects
In the Islamic Countries
141
Risk type Risk category Usual allocation of risks (public/private/shared)
Macroeconomic
risks
Macroeconomic risks are primarily borne by the private party.
Inflation related risks impact on the concession financial performance of
the projects and are particularly impacting on the private sector, both at
the construction stage and operation stage. Inflation risk is particularly
relevant for those contracts regulated according to the Mozambican
Metical. It shall however be noticed that the public sector retains the
risks associated with the management of the liabilities and fiscal risks
possibly applicable to the PPP contract. In this regard the definition of
PPP included in the Mozambican Public-Private Partnership law is worth
recalling, according to which PPPs are conceived as undertakings in a
public domain (excluding mineral and petroleum resources) or a public
service area, in which, by contract and under financing, in whole or
partly by the private partner, the latter undertakes to make the
necessary investment and to exploit its activity for the efficient provision
of services or goods whose availability to the users shall be granted by
the public sector. According to legislation the PPP model shall thus be
adopted for Value-for-Money initiatives where the private sector can
bring to the public the required know how and competences for a more
cost-effective if not profitable implementation and operation of projects.
Notwithstanding this overall principle, the PPP model can be also
adopted for country strategic projects not financially viable in which case
the state should contribute to its viability. Accordingly, financial
guarantees may be granted to the contractor by the entity responsible
for financial supervision (by means of co-financing or providing financial
guarantees, facilitating access guarantees for financing, subsidies or
compensation for the provision of services or sale of products below
their actual cost).
Project
risks
Financial credit
risks
Financial credit risks are generally retained by the private sector, who
is also responsible for defining the project financing structure.
Design,
construction and
operation risks
The private party is responsible for the risks associated with the
conception and design of the project, as well as for engineering and
construction defects and associated to impacts on the environment
attributable to facts occurred after the start of the PPP concession. The
contractor is also responsible for the management and operation of the
infrastructure. The public sector retains the risks related to land
concession and public planning.
Financial
sustainability
risks
The private sector is responsible for economic and financial risks,
business, commercial as well as management and performance risks,
including demand risks, except from those contracts where subsidies are
foreseen.
Other risks
(force majeure
and early
termination)
Force majeure and early termination risks are shared and the effects of
force majeure events should be mitigated on fair terms by both parties.
Cases of force majeure and early termination are to be specified in the PPP
contracts.
Source: Authors.
The above risk allocation matrix is generally applicable to the PPP projects in Mozambique, with
no specific differences between BOT and ROT initiatives.