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Risk Management in Transport PPP Projects

In the Islamic Countries

258

environmental risk, technology risk, disruptive technology risk, public acceptance, security risk,

subcontractor disputes/insolvency, renegotiation risk, residual value risk.

It is a general expectation of PPPs in the investigated countries that the involvement of the

private sector brings

know-how and competence

to the project if not also to the public sector.

The involvement of the private sector also mitigates the

risks associated with delays in the

implementation of the project and cost overruns

. In general terms the analysis shows that

PPPs are effective under this point of view. PPPs usually involve a structured and multiple set of

supervising, controlling and monitoring activities and reporting system that, if appropriately

performed, represents an effective risk mitigation factor in terms of implementation of

construction works. Indeed, where problems appear at this stage, these are usually related to

failures in the supervision and reporting system or inadequate follow up of the outcome of the

monitoring process.

Efficiency gains and higher quality of services

are also expected from

the operation of the assets by private companies. The analysis seems confirming that PPPs in

the investigated countries are normally effective under this standpoint and that benefits may

also be expected in terms of

transfer of know-how and competences

.

Notwithstanding the above overall expectations, which generally support the allocation of

technical risks primarily to the private sector, the identification, allocation and treatment of this

type of risks in the investigated countries is defined in

contractual documentation

. Differences

may indeed exist between PPPs in the scope of the works to be implemented, as certain works

could also be implemented by the public party (e.g. port basic infrastructure in terminal

concessions granted to private or public-private partnerships). Mode specificities also exist as

for instance

disruptive technology risks

may fall under the responsibility of the state in the

airport sector for investments required by changes in international air traffic management

technology, whereas the private party may bear the cost of new technology equipment and

solutions, especially if associated with efficiency gains.

Public acceptance risks

are also included in this category of risks, which generally fall under

the responsibility of the public sector. Public acceptance risks related to a specific project are

generally mitigated by specific consultation activities to be generally organized at the project

identification and preparation stage. Mitigation factors of this type of risks are also represented

by an appropriate national and sector planning process as well as transparent identification

process of PPP initiatives. As commented in the above section related to context related risks,

weaknesses seem to be present in the investigated countries in this regard. Similarly the project

preparation practices seems to support the consideration that public consultations are not

generally performed.

Financial sustainability risks

Financial sustainability risks refer to revenue risks and demand risks. This type of risks has been

extensively subject of studies on the implementation of PPPs and mega-projects over the course

of the past 20 years, many of these studies showing that demand and revenue forecasts were

usually overestimated. The analysis performed as part of this study also shows that

for some

projects demand and or revenue estimates were either over or underestimated

. Whilst

weaknesses appear to exist at the stage of project preparation concerning traffic and revenue

estimates for some of these initiatives, the reasons of discrepancies between real observed data