Risk Management in Transport PPP Projects
In the Islamic Countries
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Table 38: Indicative risk matrix in transport PPPs in Malaysia (by risk category)
Risk
type
Risk category Usual allocation of risks (public/private/shared)
Context-
related
risks
Political and legal
risks
In general terms, the public party is responsible for political and legislative
risks arising from unilateral measures taken by the government or public
institutions resulting in negative or adverse effects on the normal
implementation and management of the PPP contract and/or the
competitiveness of the project. Only the sovereign risks are borne by the
private party and often mitigated by Multilateral Investment Guarantee
Agency.
Macroeconomic
risks
Macroeconomic risks are primarily borne by the private party . The
public sector retains the risks associated with the management of the
liabilities and fiscal risks possibly applicable to the PPP contract.
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. To some
extent, the project company shares the financial risks with the financial
institutions.
Design,
construction and
operation risks
Risks in the delay of projects approval and acquisition of permits is
generally shared by the parties even if it is caused by governments long
lasting procedures and bureaucracy. The design risk is also typically
shared . The SVP is not liable for deficiencies in the project design after the
approval of technical committee, the ministry of transport and the Cabinet.
However, the private party is typically not compensated for the bad
consequences of weak design on the project performance.
For risks correlated to contract changes, such as “excessive contract
variation” and “late design change” the risk cost will be paid by the party
that proposes changes as sometimes parties share the cost of such
variations.
The private party is responsible for the risks associated with the
engineering and construction defects. The private party is also responsible
for the management and operation of the infrastructure. The SPV may
transfer obligation of construction and maintenance phase to contractors
which, in this case, become responsible to mitigate risks during the project
life-cycle, until handover back to government.
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. Demand risk allocation is strictly correlated to the PPP model
adopted. While in the case of BOT and BOOT it is borne by the private sector,
in BLMT and BOO the public body takes this risk (Ahmad et al., 2017).
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.