Risk Management in Transport PPP Projects
In the Islamic Countries
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Management of risks during operation
In the post-construction phase, which can extend over a period of various decades, several risks
of different categories pose a threat to the PPP project performance, among which: demand risk,
maintenance risk, revenue risk, disruptive technology risk and force majeure risk. Ultimately,
the risk exposure for the private party in the post-construction phase is driven by the long-term
balance between revenues fromoperations and operating and maintenance costs. If this balance
is significantly altered compared to expectations, this may compromise the private party’s
ability to meet its financial and operational obligations. This will not only cause stress for the
concessionaire, but also put the public sector in a position where it may be difficult to provide
continuity of services.
Demand risk is traditionally borne by the private party, with toll roads being a partial
exception, as already mentioned unde Against this risk, the public authority might put in
place mitigation measures such as to commit for the duration of the project not to allow the
construction of any infrastructure which would compete substantially with the private partner’s
passenger transport services (Global Infrastructure Hub, 2016).
Maintenance risk, generally borne by the private sector as well, concerns mainly the risk of
increased maintenance costs due to increased volumes or incorrect estimates or malfunctions.
As a remedy against the materialization of maintenance risk, the private party is frequently
inclined to allocate such risk to subcontractors (i.e. other private companies appointed by the
private party for the delivery of well-defined tasks), thus choosing risk transferring as a
mitigation strategy.
Sources of revenue risk exposure are multiple. They can be of macro-economic nature: for
instance, every PPP contract should regulate the indexation of payments in case of inflation.
Revenue risks also relate to a weak assessment of revenue flows, which becomes apparent when
the use of the transport infrastructure does not match with original forecasts. Further, revenue
risks may materialize in case of non-payment by users or fraud. In the transport sector, revenue
risk is also dependent on the characteristics of competing facilities (in different modes) and their
evolution over time. Generally, revenue risks are borne by the private partner. In order to
mitigate them, their assessment should include stress tests and a break-even analysis. In
addition, the public sector might provide a guarantee for minimum revenue or minimum traffic,
thus partly sharing the risk (APMG, 2016).
The disruptive technology risk usually falls upon the public party, even if for reasons which
may slightly vary depending on the transport subsector. For port projects, this risk is not likely
to be allocated to the private party because technological innovation is rarely a major
component in this type of infrastructural investments. For toll roads, the risk is usually borne by
the public authority because it may impose on the private partner the implementation of new
tolling technologies, or to adapt to future technical evolutions (e.g. driverless cars). A significant
exception is represented by airports PPPs. In this case, the management of this risk is under the
responsibility of the private party and disruptive technologies point to digital innovations