Risk Management in Transport PPP Projects

In the Islamic Countries

Often, the definition of payment mechanisms goes hand-in-hand with the definition of subsidy

and demand guarantees. The example in the following Box illustrates how to set government

subsidy just large enough to make the project attractive to private investors.

Box 10 The Panamerican-Highway case

The Pan-American Highway runs through Chile from North to South. The Chilean government

divided the highway into eight sections, which were auctioned separately taking into account the

difference in traffic flows. Despite big differences in traffic flow, the government designed the

concession program so that similar tolls are levied in the eight sections. However, in low traffic

volume sections, which are unattractive to the private sector, the government offered an up front

subsidy to the concessionaires. These subsidies are financed by fixed payments to the

government from the holders of the sections with high traffic volumes.

Criteria for

scoring offers

also need to be defined in this phase and they may have implications

on the risk profile in the following phases. Typical selection criteria can include technical quality,

environmental impact & management, financial proposal and the proposed toll or availability

fee levels. It has been found that excessively complex criteria in scoring offers may correlate

with increased likelihood of renegotiation. In particular, the World Bank (2004) found

statistically more likely that Latin American transport concessions attributed using multiple

scoring criteria – e.g. employment support and minimum tolls – undergo renegotiation.

In sum, takeaways, barriers and parallel strategy options related to the tendering phase can be

summarized as presented in the following Table.

Table 19: Takeaways, barriers and options related to the tendering phase

Key Takeaways



Need to build on Value-for-Money considerations in the pre-tender stage



Fine tuning of payment mechanisms is essential in preparing a robust tender documentation



Essential to establish at project level an adequately skilled tender management team to direct the

process of tender preparation, publishing and award

Barriers/trade-offs



Barriers from lack of skills and organizational resources may be high and specific, beware of

asymmetry in public sector vs private sector skills (legal, technical)



Trade-off between long preparation of tender and urgency in delivery

Scope for parallel strategies



As in other cases, scope for parallel strategies combining learning by doing (including) and

implementation of priority projects, as already mentioned in the strategy and pre-tender phase

Source: Authors.

This box draws on Engel at al. (1999).