Risk Management in Transport PPP Projects
In the Islamic Countries
62
Not a panacea: controversy reigns
Evidence and opinions on the merit of PPPs remain controversial15 and the general view is that
they can work, but need to be carefully prepared and executed, with risk governance
representing one of the key components to build resilient PPP delivery systems. A recent study
of the European Court of Auditors16 found that the overall results of a sample of PPP operations
co-financed by the EU was disappointing. In the case of the 6 road transportation projects
covered by the study, the Spanish and Greek projects were subject to significant delays and cost
overruns. In the case of Greece, projects were financed by toll revenues alongmotorway sections
operated by the private partner. However, the economic crisis in Greece caused a collapse in
traffic volumes and toll revenues and, in order to avoid suspending construction and paying
substantial damages to the private party under force majeure provisions included in the
concession contracts, the government had to re-negotiate the contract and commit to
substantial additional injections of public financial support.
A hard lesson learnt from the United Kingdom is that extensive experience in PPPs and
sophisticated financial markets are not enough to ensure that PPP risks are managed effectively.
A 2012 Treasury Review of PPPs17 found that the first generation of PFI operations (“PFI1”) had
been too often unable to deliver Value-for-Money. Criticisms included also risk allocation,
emphasizing how inappropriate risk management will mean that the cost of a PPP is likely to be
higher compared to the optimal or more desirable solution, with the excess cost associated to
higher than necessary fees for the public sector (or the user in case of user-pays PPPs), costly
disputes or inadequate service delivery.
The growing role of Islamic finance
In recent years, the Islamic financial market has been growing rapidly across the globe. Over
the past six decades, the market has reached nearly USD 1.9 trillion (World Bank et al., 2017),
with a near double-digit annual growth, as reported by the Islamic Financial Services Board
(IFSB, 2017).
During the 2008 global financial crisis, Shariah-compliant financial institutions performed
better than their conventional counterparts. The reason relates to the business of Islamic
financial institutions which undertake transactions which are:
 Asset-backed or asset-based;
 Based on risk-sharing principles.
15 For critical views of the PPP experience in the road transport sector see for instance Shaoul J, Anne Stafford
A., Stapleton P. (2006), “Highway Robbery? A Financial Analysis of Design, Build, Finance and Operate (DBFO)
in United Kingdom Roads”, Transport Reviews Volume 26, Issue 3. For a more general critique see Hall D.
(2015), “Why Public-Private Partnerships don’t work. The many advantages of the public alternative.” London,
PSIRU, University of Greenwich.
16 European Court of Auditors (2018) “Public-Private Partnerships in the EU: Widespread shortcomings and
limited benefits”, Special Report 09/2018, Luxembourg.
17 HM Treasury (2012) “A new approach to Public-Private Partnerships”. This was one of the key documents
that launched the new approach in delivering PPPs, “PFI2”. The publication has been withdrawn in December
2018 and is no more recommended a reference for the design of PPP operations in the United Kingdom.