Risk Management in Transport PPP Projects
In the Islamic Countries
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and estimates may also be routed in the lack of coordinated development of the network
surrounding the PPP project, for those initiatives embedded in transport systems, such as road
or rail or urban transit schemes. Political will to develop an infrastructure keeping the risk of
low demand and/or low but publicly acceptable fees also represents a possible reason for
discrepancies between estimated and actual traffic and revenue volumes. In such cases
optimistic demand and/or revenue assumptions might have been adopted in contractual
documents to turn the project bankable. Demand and/or traffic revenue guarantees by the
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).
6.2. Policy recommendations
The following sections provide a set of policy recommendations which have been identified on
the basis of the analysis presented in this study.
6.2.1. 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