Overview of PPP modal variants

Risk allocations under different PPP modes

One of the important features at the heart of a PPP arrangement is the allocation of project risks between the public and private partners. Careful risk allocation is critical to unlocking the efficiency benefits of private sector involvement and is a key driver of value in a PPP.

The risk matrix in the table below summarises the typical allocation of risks in each major PPP modal family in the Roads sector.

Typical risk allocations in the main road sector PPP modes

	Risk Type	BOT Toll	BOT Annuity	BOT Shadow Toll	Performance Based Maintenance Contracts
A	Pre Operative Task Risks
A1	Delays in Land Acquisition	Public Sector	Public Sector	Public Sector	Not Relevant
A2	External Linkages	Public Sector	Public Sector	Public Sector	Not Relevant
A3	Financing Risks	Private Sector	Private Sector	Private Sector	Not Relevant
A4	Planning	Private Sector	Private Sector	Private Sector	Not Relevant
A5	Approvals	Private Sector	Private Sector	Private Sector	Not Relevant
B	Construction Phase Risks
B1	Design Risk	Private Sector	Private Sector	Private Sector	Not Relevant
B2	Construction Risk	Private Sector	Private Sector	Private Sector	Not Relevant
B3	Approvals	Private Sector	Private Sector	Private Sector	Not Relevant
C	Operations Phase Risks
C1	Technology Risk	Private Sector	Private Sector	Private Sector	Private Sector
C2	Operations & Maintenance Risk	Private Sector	Private Sector	Private Sector	Private Sector
C3	Volume Risk	Private Sector	Public Sector	Private Sector	Public Sector
C4	Payment Risk	Private Sector	Public Sector	Public Sector	Public Sector
C5	Financial Risk	Private Sector	Private Sector	Private Sector	Private Sector
D	Handover Risk Events
D1	Handover Risk	Private Sector	Private Sector	Private Sector	Private Sector
D2	Terminal Value Risk	Private Sector	Private Sector	Private Sector	Private Sector
E	Other Risks
E1	Change in Law	Public Sector*	Public Sector*	Public Sector	Public Sector
E2	Force Majeure	Shared	Shared	Shared	Shared
E3	Concessionaire Risk	Public Sector	Public Sector	Public Sector	Public Sector
E4	Sponsor Risk	Private Sector	Private Sector	Private Sector	Private Sector
E5	Concessionaire Event of Default	Private Sector	Private Sector	Private Sector	Private Sector
E6	Government's Event of Default	Public Sector	Public Sector	Public Sector	Public Sector

* In case of financial implications lower than Rs. 1 crore, risk is retained by private sector (Source NHAI model concession agreement)

The allocation shows which party is usually best able to manage the particular risk. It reflects typical contract allocations and presumes that all contract terms can and would be enforced.

The Mode Validation tool incorporates this matrix. It can be used to help match the risk allocation that the Project Sponsor is trying to achieve with one of the modes. The Mode tool indicates where there are differences between the allocation that the Sponsor has in mind and the typical allocation under each mode. The Sponsor is encouraged to think about why there are differences and to consider the appropriate allocation.

The Mode Validation tool is available here.

The NHAI has issued Model Concession Agreements (MCA) for roads sector BOTs. These MCAs contain suggested risk-sharing arrangements.

The Department of Shipping (Ministry of Shipping) has issued a Model Concession Agreement (MCA) for private sector projects in major ports, which can be a useful reference resource for minor ports projects. This MCA contains suggested risk-sharing arrangements.

Some risks are beyond the control of either the public or private sector. For example acts of God, such as natural disasters, and events such as civil unrest. These force majeure risks are typically shared among both parties to a PPP.

Allocation of revenue risk under different payment mechanisms

The allocation of revenue risk to the private sector depends on the type of payment mechanism in the particular PPP mode. The table below shows different levels of revenue risk allocation for different payment mechanisms.

Private sector revenue risk under different PPP payment mechanisms

		Annuity / Periodic Payments	Operational Subsidy + User Charges	Fixed Periodic Payments by Govt + User Charges	Output Based Aid for Capex or achieving Performance Milestones + User Charges	Construction Grants during construction + User Charges	Cross subsidy by providing development rights on an ancillary project (eg, real estate)	Fixed Payments based on Take or Pay Arrangements
Capex Recovery Risk	Source of capital recovery	Annuity payments	NA	Fixed payments	User charges	User charges	Dependent on the prospects of ancillary project	NA
	Private sector risk level	Low	NA	Low	Medium (reduced to the extent of the aid)	Medium (reduced to the extent of the construction grants)	High	NA
	Allocation of time & cost overrun risk	Private sector	NA	Private sector	Private sector	Private sector		NA
Revenue Risk for Opex	Private sector risk level	NA	Medium – high	High	High	High	NA	Low
Revenue Risk for Opex	Source of revenue risk	NA	Revenue Risk reduced by the operational subsidy	Revenue Risk due to dependence on user charges	Revenue Risk due to dependence on user charges for operating expenses	Revenue Risk due to dependence on user charges for operating expenses	NA	Take-or–pay provides a guaranteed revenue stream

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