www.pppinindia.gov.inPPP TOOLKIT
PPP TOOLKIT for Improving PPP
Decision-Making Processes
Welcome
Guest
 

Sector: State Highway  |  Module 1: PPP Background

Risk – a critical focus of PPP design

Major risks in infrastructure PPPs

Not all projects in the roads sector will have the same set of risks and the risks that are common will vary in importance from one project to another. However, it is possible to identify a set of risks that generally apply to projects in the sector.

The typical risks are shown and described in the table below, grouped according to important project stages and ‘other’ risks. Typical allocations of these risks under different types of PPPs are given later in the toolkit.

Typical risks in roads PPP projects

Risk type Description
Pre-operative task risks
Delays in land acquisition Refers to the risk that the project site will be unavailable or unable to be used within the required time, or in the manner or the cost anticipated or the site will generate unanticipated liabilities due to existing encumbrances and native claims being made on the site.
External linkages Refers to the risk that adequate and timely connectivity to the project site is not available, which may impact the commencement of construction and overall pace of development of the project.
Financing risks Refers to the risk that sufficient finance will not be available for the project at reasonable cost (eg, because of changes in market conditions or credit availability) resulting in delays in the financial closure for a project.
Planning risks Refers to the risk that the pre-development studies (technical, legal, financial and others) conducted are inadequate or not robust enough resulting in possible deviations from the planned or expected outcomes in the PPP project development.
Approvals risk Refers to the risk that necessary permits, authorisations and approvals required prior to the start of construction are not obtained in a timely fashion, resulting in delays to construction and the project as a whole.
Construction phase risks
Design risk Refers to the risk that the technology used will be unexpectedly superseded during the term of the project and will not be able to satisfy the requirements in the output specifications. It would result in increased costs of a replacement technology.
Construction risk Refers to the risk that the construction of the assets required for the project will not be completed on time, budget or to specification. It may lead to additional raw materials and labour costs, increase in the cost of maintaining existing infrastructure or providing a temporary alternative solution due to a delay in the provision of the service.
Approvals risk Refers to the risk that delays in approvals to be obtained during the construction phase will result in a delay in the construction of the assets as per the construction schedule. Such delays in obtaining approvals may lead to cost overruns.
Operation phase risks
Operations and maintenance risk Refers to the risks associated with the need for increased maintenance of the assets over the term of the project to meet performance requirements.
Volume risk Refers to the risk that demand for a service will vary from that initially projected, such that the total revenue derived from the project over the project term will vary from initial expectations. There is no risk in annuity contracts.
Payment risk Refers to the risk that tolls are not collected in full or are not set at a level that allows recovery of costs. This is a risk for the public sector under shadow tolls and for the private sector under user tolls. There is no risk in annuity contracts.
Financial risk Refers to the risk that the private sector over stresses a project by inappropriate financial structuring. It can result in additional funding costs for increased margins or unexpected refinancing costs.
Handover risks
Handover risk Refers to the risk that the concessionaire will default in the handover of the asset at the end of the project term or will deviate from the minimum quality / value of the asset that needs to be handed back to the public entity. 
Terminal value risk Refers to the risk relating to differences from the expected realisable value of the underlying assets at the end of the project.
Other risks
Change in law Refers to the risk that the current legal / regulatory regime will change, having a material adverse impact on the project.
Force Majeure Refers to the risk that events beyond the control of either entity may occur, resulting in a material adverse impact on either party's ability to perform its obligations under the PPP contract.
Sponsor risk Refers to the risk that sponsors will prove to be inappropriate or unsuitable for delivery of the project, for example due to failure of their company.
Concessionaire event of default Refers to the risk that the private entity will not fulfil its contractual obligations and that the government will be unable to either enforce those obligations against the sponsors, or recover some form of compensation or remedy from the sponsors for any loss sustained by it as a result of the breach or the sponsors will prove to be inappropriate or unsuitable for delivery of the project.
Government event of default Refers to the risk that the government will not fulfil its contractual obligations and that the private entity will be unable to either enforce those obligations against the government, or recover some form of compensation or remedy from the government for any loss sustained by it as a result of the breach.

 

 

  Next Page: Overview of PPP modal variants
   
www.eca-uk.comwww.crisil.com