Risk Management in Transport PPP Projects
In the Islamic Countries
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 Further, the ERL extension from Kuala Lumpur International Airport (KLIA) to KLIA2 exceeded
the government-allocated budget by RM29 million, according to the Auditor-General's Report
201563;
Once the construction of the asset is completed, the Project Monitoring Committee members,
together with government inspectors, check that the facility is in line with the approved design.
Only after that, the operation phase can start (Ahmad et al., 2018).
5.6.6. Operation
Management of risks during operation
The private party retains full responsibility on the operation of the infrastructure and/or
delivery of the services.
At this stage, the monitoring risk function is under the responsibility of the ministry, as the
ultimate owner of the project.
In order to mitigate the intrinsic risks of a long-term contract, the supplier of the asset/service
is required to provide performance guarantee that will ensure a source of compensation in case
of failure to perform its contract obligations as foreseen in the contract agreement. Since the
private party is usually responsible for all routine and heavy maintenance, the concessionaire is
typically required to raise a maintenance bond, which constitute a further security for
government after construction stage to ensure performance during operation phase.
Demand shortfall is clearly one of the most critical risks during operation. For railways and
motorways, traffic overestimation is a common feature, not specific of PPPs. However, in traffic-
based PPP64 projects, large traffic deviation from forecasts can lead to financial failure and
ultimately to transfer the infrastructure to the public sections beforehand if not appropriately
managed. The Box below illustrates how Malaysian government intervention was necessary to
counteract the decrease in passengers of START-LRT and PUTRA-LRT in the aftermath of the
Asian financial crisis.
6
64 Demand risk is borne by the concessionarie.