Risk Management in Transport PPP Projects
In the Islamic Countries
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Risk
type
Risk category Usual allocation of risks (public/private/shared)
Financial
sustainability
risks
Given that the private sector is responsible for the operation and maintenance
of the infrastructure, the financial sustainability of the concession contract
falls generally under the responsibility of the private sector. This is
particularly the case of BOT projects in the commercial ports and touristic
marinas and BOT/TOR airport projects. In BOT projects related to road
transport operations, demand guarantees are adopted, which results in the
allocation of demand risks to the public sector. However, it is worth to notice
that the concession period is offered by the contractors, hence there is a
degree of shared demand risk on the profitability of the project between the
public and private sector. Bonus/malus schemes could also be adopted which
could relate to the concession time-schedule or revenues, resulting in an
extension of the operation period in case of savings of time at the construction
stage or reduction of the concession period in case of delays; or the sharing of
revenues in excess to demand guarantee or revenue thresholds. These
mechanisms imply a risk/opportunity sharing of the financial sustainability
risks between the private and public in certain BOT and LOT projects.
Other risks
(force majeure
and early
termination)
Force majeure and early termination risks are shared. Cases of force
majeure and early termination are specifically referred to in the PPP
contracts.
Source: Authors.
The analysis of the risk management practices and processes in Turkey reveals specific
attention to the identification, allocation and treatment of projects risks that concentrates at the
stage of the contractual elaboration and finalization. This “legal attitude” to risk management
should be strengthened with an economic approach aimed at integrating risk management
related analysis and monitoring activities with risk appraisal (ex-ante), monitoring and
evaluation (ex-post), concerning all steps of the project life-cycle.
Performance metrics
According to the Turkish legislation regulating the implementation of BOT PPP projects,
auditing and monitoring mechanisms of the implementation of the projects shall be performed,
which is under the direct responsibility of the procuring authority and shall be regulated by the
implementation contracts. Accordingly, provisions are included in the contracts which relate to
the monitoring of the implementation of the works during the construction stage. The
performance of the contract is also monitored at the operation stage (WB, 2018).
In general terms, the current practice concerning auditing and monitoring of PPPs in the
transport sector consists of periodic reporting by the contractors to the procuring
authorities. In order to manage and supervise PPPs, each of the procuring authorities in Turkey
has established a PPP contract management team. Monitoring activities are performed either
independently (by the PPP dedicated team or involving personnel from specialized central or
regional departments in the case of KGM), or by hiring consultancy firms. Finally, lending
institutions also perform auditing and monitoring procedures, especially during construction.