Risk Management in Transport PPP Projects
In the Islamic Countries
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management, which should follow the following steps: a profound effort to foresee risk
events (identification), a rigorous analysis of their implications (assessment of likelihood
and size of consequences if they materialize) and analysis and implementation of possible
mitigating measures or remedies.
Before presenting each of the six investment phases of the conceptual framework in detail in the
light of the relevant risk governance dimensions, a preliminary clarification on the relevant
risks is necessary. Building upon the synthetic typology of risks affecting PPPs proposed by
Burger et al. (2009) and after adjusting and enriching it based on additional literature and
transport-specific considerations (especially from the database on risks presented in Global
Infrastructure Hub, 2016; see also The Economist Intelligence Unit, 2013), an ad-hoc
classification of risks has been developed, which is presented in the following Table. It is based
firstly on a macro-distinction between context-related and project-related risks, and secondly
on further risk categories, under which actual risks have been listed, aiming to provide a
practical overview of the threats characterizing transport PPPs, i.e. the reasons why a proper
risk management is indispensable.
Table 6: Typology of risks affecting transport PPPs
Risk type Risk category Risks
Context-
related
risks
Political and legal
risks
Different investment preferences of alternating governments,
expansionary policies raising the cost of financing, risk of
expropriation, changes in law, corruption risk, fiscal risk
Macroeconomic
risks
Liquidity risk, exchange and interest rate risk, currency inflation
Project
risks
Financial credit
risks
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
Design,
construction and
operation risks
Site risks (availability of the site, permits, ground conditions),
construction costs, contractor failure risk, delays at various stages,
maintenance risk, environmental risk, technology risk, disruptive
technology risk, public acceptance, security risk, subcontractor
disputes/insolvency, renegotiation risk, residual value risk
Financial
sustainability risks
Revenue risks (demand/usage risk - in user-pays and volume payment
mechanisms, price or tariff risk - in user-pays mechanisms, availability
and quality risks, third party revenue risks, etc.) and demand risks
(traffic volume, toll fee level, toll fee acceptability)
Other risks Force majeure and early termination risks
Source: Authors.
The different risks can be relevant at different investment phases and have different potential
impacts on the performance of transport PPPs. Risks may also mutually reinforce each other.
Crucially, anyway, while every risk may require a tailored approach and management, no one
can be managed outside of an integrated risk governance framework, which commands a
holistic approach.