Risk Management in Transport PPP Projects
In the Islamic Countries
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positive effect on the management of political risks as well as technical risks related to project
design and operation as well as financial sustainability risks.
Another identified area of improvement is market competition. Due mainly to high entrance
costs in new markets, high upfront costs for project preparation and economy of scale in
operations, in some of the analyzed national markets few private payers have achieved in the
course of the years a dominant market position. In the long term this may reduce efficiency in
the provision of transport services: to avoid operation risks adequate regulations and
institutional settings should be considered to ensure an optimal level of competition in the
market.
6.2.3. Technical measures
Pre-feasibility and feasibility studies should be preferably prepared by the public sector
following the identification of the PPP initiatives as part of national and sector specific transport
plans. In depth analysis should be performed at this stage by the public party also using
transport models accurately calibrated on the basis of real data and/or surveys, including
willingness to pay surveys. This is crucial to avoid public acceptance risks which ultimately
lead to financial sustainability risks .
The practice of the recourse to demand and/or revenue guarantees by the public sector to
implicitly cover possible imbalances between the demand and revenue thresholds required to
turn projects bankable and mitigate financial sustainability risks, may be substituted by
alternative remuneration/regulatory schemes such as the Least Present Value of Revenues
(LPVR) approach, share-in-profit/Joint Venture approach. The first approach sets the duration
of the concession to the achievement of the Present Value of Revenues allowing the PPP project
to be financially sustainable, thus representing a better sharing of the financial sustainability
risks without requiring renegotiations of the contractual terms in case of over and/or under
estimation of the demand and revenues of the project. This is particularly indicated for network
embedded initiatives such as toll roads. Another way to improve the bankability of projects,
without incurring in “optimism bias” issues associated with project bankability is represented
by reducing the scope of the project under the PPP scheme. For instance in port PPPs the port
authority and public sector may develop the structure of the project whereas the private sector
may be in charge of providing the superstructure facilities and equipment and operate the
infrastructure.
At the tendering phase, projects should be preferably at an advanced stage of maturity to avoid
risks related to changes in the project scope which can lead to contract renegotiation risks.
Independent consultants and engineers should be recruited for due diligence and auditing
procedures of feasibility studies as well as technical design documentation, project
implementation and operation monitoring procedures. Further to mitigate the materialization
of technical risks at the construction and operation stages of project implementation, this
measure is also deemed to minimize the risks of conflict of interest between the public and
private parties directly involved in the SPV of PPP institutional projects.