Risk Management in Transport PPP Projects
In the Islamic Countries
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resources. Whilst staff training supported by International Funding Institutions and
Multilateral Agencies proved to be successful , most institutions appear to have developed
competences and skills based mostly on a learning by doing approach. It is also noticed that
albeit appropriate in general terms, the implementation of such measures could be however
challenged under the cost-opportunity perspective by the limited number of PPP initiatives
implemented or expected to be implemented in a given country.
Macroeconomic risks
Macroeconomic risks generally include liquidity risk, exchange and interest rate risk, currency
inflation. In several investigated countries contracts are usually signed in international currency
to mitigate risks associated with local currency and inflation. Special financial solutions and
products for SPV companies are also offered by International funding Institutions to mitigate
macroeconomic risks on a corporate or specific project basis.
Islamic finance solutions may also mitigate this type of risks. According to the study Islamic
finance was not used in the financing of the PPPs implemented so far in the investigated
countries, except than in Malaysia, that has an extensive experience in the use of Islamic finance
solutions (particularly Sukuk), and where these have been applied to infrastructure investment
projects proving to be effective.
Based on the interviews performed as part of the study further to the reliability of the public
sector and solidity of the banking sector, private investors are generally attracted by the
perspectives of the local economy and demography , as positive outlooks are likely to result
in growth of traffic and revenues.
6.1.2. Project risks
Financial credit risks
This type of risks comprises cost of financing, credit risk of the Special Purpose Vehicle (SPV),
credit risk of the construction and operating company, credit risk of the financial institution,
sovereign risk, transaction costs. High potential revenue generating projects, assumed to be self-
sustainable under the financing stand point (i.e. ports terminals, airports or toll roads) are likely
to see most of these risks allocated primarily to the private sector, whereas availability payment
schemes and railway PPP projects may see the transfer of state loans contracted from
International Funding Institutions, to the SPV, under the institutional PPP model. Several
examples considered in the study follow such an approach, which is particularly effective in
those contexts where the private sector and market are generally weak or poorly developed. In
order to improve the bankability of projects loan guarantees are also provided by the state.
Design, construction and operation risks
Risks of this nature include site risks (availability of the site, permits, ground conditions),
construction costs, contractor failure risk, delays at various stages, maintenance risk,