Risk Management in Transport PPP Projects
In the Islamic Countries
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institutions represent however a financial and fiscal risk for the state, which requires close
monitoring and mitigation measures (WB, 2014, Emek 2015, IMF, 2018).
According to the Ministry of Treasury and Finance, mitigation measures have been identified
which relates to the commitment by the Ministry of Treasury and Finance to assume the
outstanding senior loan to lenders with the financing costs in case of an early termination of the
contract, provided that the project assets are taken over by the public administration. Pre and
post tender approval of debt assumption by the Ministry of Treasury and Finance is also in
place. The Ministry of Treasury and Finance is also involved in the definition of the scope,
elements and terms of payments of the debt assumption agreement. For theMinistry of Treasury
and Finance risk of debt assumptions mitigation measures have been also considered which
relate to the definition of an annual budgetary commitment ceiling (excluding financing costs,
i.e. interest, breakage and hedging costs), which is determined through rigorous scenario
analysis on effects over debt stock. Another mitigation measure is represented by partial debt
assumption, considering 85% of the outstanding debt is assumed if the early termination is
caused by failure of the project company to fulfil its obligations. The maximum hedging cost
subject to debt assumption is also set at 10%of the senior loan. A joint collateral of at least 110%
of the maximum instalment amount by the partners of the PPP project company is applicable,
together with a lump sum option or payment in installations by the Ministry of Treasury and
Finance. An annual budgetary limit for investment guarantees is also foreseen along with the
repayments guarantees and on-lending. As part of the risk management practices by the
Ministry of Treasury and Finance, an internal monitoring and reporting activity is also
performed consisting in the elaboration of an internal quarterly fiscal risk bulletin report. This
report includes debt sustainability analyses related to the calculation of the expected losses from
past treasury investment guarantees, and elaboration of different debt assumption scenarios
and public administration's guarantee payment scenarios for the projects involving debt
assumptions agreements (Ministry of Treasury and Finance, 2015).
For projects not benefitting from guarantees by the Ministry of Treasury and Finance, the
Ministry of Transport and Infrastructure is responsible to conduct an internal analysis of
projects under its responsibility (e.g. airport PPPs).
The increase in the number of PPPs should go hand-in-hand with growing awareness and
culture of risk management within the governmental institutions.. Institutional transparency
should be encouraged such as disclosing PPP contract information including public
commitments and risk-sharing arrangements between the involved institutions. In order to
mitigate financial and fiscal risks, projects should be prioritized implementing those that could
perform positively even if in case of downturns in the economy (IMF, 2018).
A set of standard procedures and guidelines should be preferably adopted that could
include risk management checklists . These checklists should cover the entire life-cycle and
allow for both the quantitative and qualitative assessment of risks. In consideration of the fact
that BOT projects are mostly developed under a demand guarantee scheme, specific attention
should be given to the optimal definition of the project layout according to the planned demand
to avoid the risk of under or over sizing. In this respect, guidelines and standard
documentation/protocols could also be developed for the procurement stage as a pre and post