Risk Management in Transport PPP Projects
In the Islamic Countries
10
public sector are common measures in the investigated countries to mitigate financial
sustainability risks, implying that in those circumstances where demand and revenue risks are
overestimated, the public sector needs to compensate the private party. This further emphasizes
the importance of performing accurate pre-feasibility and feasibility studies. It seems that in
some cases the institutions involved in the preparation of the projects do not have adequate
financial resources and/or competences to perform directly these analyses or hire consultants.
Other risks
Other risks related to PPPs usually include force majeure and early termination risks. Whilst
these are normally specified in contract documentation, some investigated countries include
provisions in the procurement or PPP dedicated regulation on dispute mechanisms solutions
which might help avoiding arbitration procedures that are generally long-lasting and costly.
International arbitration is also generally foreseen and some countries also adopted the New
York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and are
members of the International Centre for Settlement of Investment Disputes (ICSID Convention).
Policy recommendations
In order to improve risk management practices in the transport sector in the OIC Member
Countries, policy recommendations have been formulated as a result of the study around the
following eight areas: political measures, institutional and organizational measures, technical
measures, legislative measures, procedural measures, statistics, survey and follow up measures.
Political measures
PPP projects should be better integrated in the wider socio-economic development vision and
transport development strategy of the government. In order to mitigate political risks as well
as financial sustainability and technical risks their identification should be framed in the
wider context of the investments required for the development of the transport system and their
selection should be based on the capacity of these projects to perform positively and possibly
better than other investments in terms of cost-effectiveness and cost-efficiency analysis.
Projects should indeed be selected for PPP implementation minimizing the need for state
guarantees, mitigating the risks associated with project bankability and contingent and long-
term liabilities impacts of PPPs on the Stage Budget, i.e. macroeconomic and financial credit
risks. The preparation of an indicative pipeline of PPP projects should be considered in this
respect, which may also be used to cluster and rank projects according to their value for money
and value-added for society. Such a list could also provide a basis for discussion with the
financial stakeholders aimed at facilitating credit availability and project bankability, thus
optimizing the financial cost and implementation of PPPs. It would also increase the
attractiveness of the PPPs and PPP system to the private sector and investors market, also
mitigating the risks associated with unsolicited and direct negotiation procedures thanks
to a more transparent approach.
Regulatory issues should also be taken into account when identifying and selecting PPP projects,
first of all the tariff setting regulations: in many cases PPP initiatives relying on users revenue