The risks involved in PPP projects are of several types. Some risk factors are discussed below.
PLANNING RISKS,
The planning risks are those risks associated with the conducted pre-development studies (technical, legal, financial, and others) if they were inadequate or not robust enough resulting in possible deviations from the outcomes that were planned or expected in the PPP project development.
DESIGN RISKS,
Faults in the design that end in the asset being built, but failing to meet the prescribed standards, legal requirements, and any conditions imposed by environmental or other stipulations. Such circumstances mean that the project must be changed, causing delays and above all cost increases.
Design risks are related to any mistakes or defects in the design specifications or in the design of structural elements. If there is any damage of structural element, then it is difficult to decide whether the damage is due to mistakes in design parameters or the very design itself. The design risks are generally within the control of the design contractor. So, during the design the design contractor should take the responsibility to eliminate this type of risk.
ESTIMATING RISK
Estimating risk is when you determine the probability of occurrence of harm and severity of harm. The risk should be recorded in your hazard traceability matrix or risk analysis. You do this both before risk control measures have been taken, as well as after risk control measures have been implemented.
CONSTRUCTION RISKS,
Construction risk is the possibility that during the Construction Phase the actual project costs or construction time exceeds those projected. The delay in the completion or commissioning will also represent a loss of income.
OPERATING RISKS,
Operating risks are related to operations and maintenance cost of infrastructure of project. In general, private parties take the responsibility for operating risks unless there is an increase in due to new or increased taxes.
MARKET AND REVENUE RISKS,
The market and revenue risks are the risks resulting from the PPP project being unable to receive the revenue that it would require from operating the assets.
LEGAL RISKS,
The legal risks can not only affect the project goals directly by themselves but impact the PPP project indirectly through the interaction of other risk factors.
FINANCIAL RISKS,
Thirdly, PPP projects are often financed with debt, which means that investors are exposed to interest rate risk and other financial risks. Contractual risk, encompassing potential losses arising from a contract, includes various factors such as financial, legal, security, operational, and brand-related risks.
POLITICAL RISK
These risks can create uncertainties to project objectives and goals by the political climate or political actors. Various types of political risks include taxes, bribery, contract default, protests/ strikes, and regulatory deviations.
NON-PERFORMANCE RISK
Nonperformance risk refers to the risk that the obligation will not be fulfilled by the client or Facilitator and affects the value at which the liability is transferred. Nonperformance risk includes but may not be limited to the reporting entity’s own credit risk.
MANAGEMENT RISK
Managing PPP agreements involves monitoring and administering the PPP contract obligations; and managing the correlation between the public and private partners. The agreement management stage spans the lifetime of the PPP agreement from the effective date of the agreement to the end of the agreement interval.
DISPUTABLE LAND RISK
Sometimes the project area has various problems, for example, the area is not suitable for the project, or the property documents of the project are not healthy, or the project site is not suitable in terms of weather.
CONSTRUCTION RISK
Construction risks in PPP projects are related to several individual factors which affect the construction of infrastructure of project.
Estimated Cost vs. Real Project Cost In most of the cases, The real project cost may overrun the estimated cost of project due to several reasons such as inefficient working, delay in agreement approvals by public sector, modifications in design, new taxes etc. Most of the times private parties are involved with this type of risk.
PROJECT COMPLETION TIME RISK
This risk is also taken by the private parties such as contractors whose responsibility is to complete the project within the given time.
