Sector Specific Inventory & Institutional Strengthening for PPP Mainstreaming - Tourism Department
CHAPTER 10 OPERATING FRAMEWORK
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OPERATING FRAMEWORK
10.1 RISKS AND MITIGATION Risks are inherent in all PPP projects as in any other infrastructure projects. They arise due to uncertain future outcomes which may have direct effect on the provision of services by the project, and/or the commercial viability of the project. The risk allocation to parties in contract and the management of risks are, therefore, at the heart of a PPP design. This is also an important element in establishing the business case for a PPP project. The risk analysis, allocation and management involve the following activities: •
Identification of all possible risks and assessing their likelihood;
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Examining the likely effects of the risks in quantitative and qualitative terms;
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Consideration of suitable mitigation measures that may be available; and
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Allocation of risks to parties.
10.1.1 Risks in PPP Projects Typically the main categories of risks associated with PPP projects include the following: •
Construction and Completion Risks (delays in construction or cost overruns);
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Technology risk (new and untried technology, whose performance cannot be checked against existing references);
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Sponsor Risk (ability of private sponsor(s) to deliver the project);
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Environmental Risk (environmental constraints in construction and operation);
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Commercial Risk (lower demand and/or revenues than the ones projected);
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Operating Risk (inefficiency in operation leading to higher operating cost);
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Financial Risks (change in interest and currency exchange rates, and tax laws);
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Legal Risk (change in legal regime);
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Regulatory Risk (change in regulatory regimes);
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Political Risk (change in government policy or action that affects the business case of the project); and
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Force Majeure (risks due to unpredictable natural and man-made events such as earthquake, flood, civil war, etc.).
PRELIMINARY FEASIBILITY STUDY
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