Risk Management in Transport PPP Projects
In the Islamic Countries
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Box 8 Prequalification procedure29
The prequalification procedure was introduced by the Ministry of Public Works in 1994 with the
aim to reduce the ambiguity of tender documents (i.e. decrease design and construction risks), to
lower the firms’ costs of preparing their tenders, and ultimately to attract larger number of
bidders (i.e. increase competition). During the prequalification stage, the Ministry of Public Work
presents a detailed construction schedule and preliminary engineering studies of the project. In
turn, firms can pose questions and make suggestions. After some years from its adoption, this
procedure was considered actually successful in order to:
 Reduce duplication of expenditures by bidders;
 Increase the number of bidders;
 Reduce uncertainty related to costly changes to the original project for concessionaires
(i.e. reduce risk in the design and construction phase).
It is critical as part of the tender to develop a detailed and transparent design of payment
mechanisms to remunerate the private parties during construction and operation, including
availability fees, user charges, bonus/malus clauses and the like. This an important pre-requisite
and should be embedded in tender documentation.
Box 9 Tendering in motorway sector - Least PV tenders in Chile30
The Chilean government has adopted in many cases a bidding mechanism for toll road PPPs based
on the Least Present Value of Revenues (LPVR). The central feature of the LPVR approach is
that PPP contracts have a variable term date, in contrast to conventional PPPs, which have a
concession duration and end date set in advance. When the stipulated PV of revenues is achieved,
the concessionaire should in principle achieve the anticipated remuneration level indicated in its
bid and the concession expires.
Experience in Latin America indicates that the LPVR approach is preferred by
concessionaires and reduces the chance that too few or no bidders express interest in the
PPP deal. The LPVR approach provides for more flexibility and is capable of accommodating a
wider range of cash-flow profiles over time compared to usual fixed-term contracts, which are
exposed to a higher renegotiation risk in case traffic revenues and the concession cash-flow
profile diverge from initial expectations.
The Least Present Value of Revenues (LPVR) approach has been often employed in Latin
America in toll road PPP tenders. It is presented in the previous box as an illustration an
approach likely to mitigate traffic risks compared to other approaches based on fixed concession
duration.
29 This box draws on Engel at al. (1999).
30 This box is based on
(accessed 04/07/2019). The blog provides more detail on the mechanics of LPVR contracts.