Risk Management in Transport PPP Projects
In the Islamic Countries
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strategy/policy framework. Chile’s annual statement of contingent liabilities can be seen as a
good practice example, in line with IMF’s PFRAM guidelines.24
Box 5 Managing fiscal risks: contingent liabilities in Chile25
The Chilean government publishes an annual statement of contingent liabilities spelling out
the risk exposures associated with various long-term financial obligations, including revenue
guarantees given to public works concessions. Key indicators presented in the statement include
estimates of the government’s maximum payments in Present Value (PV), nominal and in percent
of GDP, under worst-case scenario (e.g. no traffic in the case of road concessions; the expected (that
is, probability-weighted) value of the payments in each of the next 20 years and relevant
distribution tails; the PV of the expected payments net of expected revenue sharing for each of the
projects, in both nominal terms and percent of GDP.
These estimates are based on modeling driven by two main elements. On the one hand a
mathematical representation of the contractual terms that may require payments by or to the
government; on the other a stochastic model of traffic revenues that makes assumptions about
expected growth rates, volatilities, and correlations.
In addition, the statement also includes historical data on the evolution of costs from such
guarantees. A comprehensive list of all PPP concessions is annexed with the statement to provide a
measure of the size of the PPP portfolio.
In sum, takeaways, barriers and strategy options related to the policy framework can be
summarized as presented in the following Table.
Table 17: Takeaways, barriers and options related to the policy framework
Key Takeaways
 Pressing ahead without adequate strategic/institutional framework increases the risk profile at
program and project level
 Adequate attention to the strategic framework allows better understanding of the multiple
objectives of a PPP strategy and trade-offs – e.g. release of current budget constraints vs fiscal
unbalances in future
Barriers/trade-offs
 High priority to identify specific barriers in public sector capacity (technical, legal, financial,
organizational) and the most appropriate ways to address them, possibly combining internal
reforms and technical assistance
Scope for parallel strategies
 Based on project pipeline possible to work in parallel on pilot investments and learning/capacity-
building
 Possible to be selective and test pilot projects, but in this context beware of unsolicited proposals
Source: Authors.
24 PPP Fiscal Risk Assessment Mode
(accessed 07.07.2019)
25 Irwin T., Mazraani S., Saxena S. (2018) “How to control the costs of Public-Private Partnerships”, Washington,
Fiscal Affairs Department, International Monetary Fund, based on Chilean Budget Department 2015.