Risk Management in Transport PPP Projects
In the Islamic Countries
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Organization Definition
World Bank A long-term contract between a private party and a government entity, for
providing a public asset or service, in which the private party bears significant
risk and management responsibility, and remuneration is linked to
performance.
Source: Authors based on ADB, 2012; EPEC, 2011; Global Infrastructure Hub, 2018; OECD, 2008; The World Bank
et al., 2017.
A basic structure emerges from the different definitions as common to all PPP schemes: a PPP is
a long-term contractual agreement between a public-sector entity and a private-sector
contractor, frequently covering a time horizon of 20-30 years, with performance-based
specifications, i.e. focusing on service delivery (outputs) more than on technical details of
physical infrastructures (inputs). The contract structure is generally complex and involves a
number of interlinked sub-contracts in addition to the core agreement between the public
contracting authority and the private party. The contract structure is defined at its core by the
sharing of risks between the public and private parties, whereby each of them is responsible
for the management of different risks.
PPPs result in a demanding contract management and, being project-specific, their features
depend on factors such as the regulatory and institutional environment in which the project is
implemented, the public and private partners’ capabilities and risk perception, the need
addressed by the project itself. Consequently, the partners’ assumption of responsibilitymay
differ and the partnerships may take different forms . There are in fact numerous variations
of the basic structure above, leading to a plethora of contractual arrangements (referred to with
acronyms such as e.g. DBO, DBFO and DBFM) which allocate risks to the public and private
parties in different ways and establish different remuneration schemes.
PPPs can be usefully categorized according to three parameters identified by the World Bank
Reference Guide (2017):
 The types of asset involved, either new (greenfield) or existing (brownfield);
 The functions the private party is responsible for, identified as Design, Build or
Rehabilitate, Finance, Maintain and Operate (whose first letters generate the acronyms
describing PPP contracts);
 How the private party is remunerated: a distinction can be made between user-pay PPP
and public-entity pay PPP. In the first case, the private party recovers its initial investment
and ongoing costs by charging a fee to the users of the infrastructure services in question.
In the second case, it recovers its investment and costs from the public entity that has
entered the contract.
The main areas of application of PPPs have typically been large infrastructure projects in
transport and utilities. Even though in recent years PPP models have been applied in a wider
range of sectors, including for instance health and education, transport safely remains
worldwide among the most relevant sectors of PPP application .