Abstract in the development agenda of many of those

Abstract

This study
focuses on the risks involved in infrastructure projects of Public-Private
Partnership.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

The study aims
to identify many critical risk factors that are not well considered in PPP. And
because of these risks PPP cannot deliver services in the way it is supposed to
deliver. In developing countries like Pakistan, there is still need to develop
and properly implement the PPP’s policies and objectives.

“Today, the private sector is the engine of growth for many countries
and expansion

of the private sector has become a central theme in the development
agenda of many of

those countries.” (Asian Development Bank Institute (ADBI), 2007, p.15)

 

Introduction

Pakistan,
similar to other developing countries, is facing a severe shortage of
infrastructure that hampers economic growth and development of the country. In
order to meet the infrastructure requirements, private investment seems to
offer a promising solution to partially mitigate the above mentioned issue. PPP
projects are known to be riskier than the projects delivered through
traditional procurement methods. Research has determined that equitable risk
allocation is one of the most important driver for achieving success and Value
for Money (VfM) in such projects. Failure of projects procured under various
modalities of PPP, world over, has indicated a shortfall in effective risk
management efforts by the stakeholders involved. To better understand risks and
their management on PPP infrastructure projects in the Pakistani context, this
research endeavors to identify the critical risks, important Risk Allocation
Criteria (RAC) that determines risk management capabilities of the stakeholders
in their capacity and commitment to manage risks, and factors that determine
effective risk management (ERM) efforts on projects delivered through PPPs. The
relevant risk factors, RAC, and measures of ERM, have been determined through
an extensive review of the international research, published literature, and
information obtained from interviews with PPP experts in Pakistan, both in the
power and transport infrastructure sectors. This questionnaire constitutes
stage one of the research and solicits information on risks and measures of
ERM. Risk(s), in this research, have been defined as
event(s) that can cause actual project circumstances to differ from those
assumed and hence influence project cost/benefits.   

Purpose
of the study

The purpose of this
study is to analyze the risks involved in Public-Private Partnership and their
assessment from the PPP’s experts.

METHOD

Data
was collected through questionnaires from different PPP’s experts. This method
is appropriate according to the topic of the research.

Risks assessment in PPP

“In Pakistan, the need
for infrastructure is immense while resources and capital are scarce
commodities. The government estimates the public exchequer cannot even meet
half of the funds required for infrastructure development.” (Noor, Khalfan, & Maqsood, 2012)

In general, when a
company starts a project firstly it identifies the possible risks that can
occur before starting the project, during the project and after the project.
But in PPP, public and private both sectors are involved and risks are
identified from both ends. Public sector party has its own risks and private
party have its own. Although the risks are related to the project but risk
assessment became important in that case. Public party can have risks like availability
of project site, permits to start the project etc. and private parties can have
financial risks, lack of experts etc. Both parties after analyzing the risks,
check the probability of each risk factor, and then impact of that risk factor on
the project.

 

Risk category

Risk factors

Political

 

Political  risk 
(Political  violence,  geopolitical  situation, 
country  political

 

stability),
corruption, government intervention/interference, price change

 

 

Legal

 

Small
gaps in legal and regulatory framework

Natural

 

Hydrological
risks (hydropower projects), geological risks, flood risk, force

 

majeure,
environmental risk (loss of or damage to biodiversity/environment)

 

 

Social

 

Public
opposition (opposition against high tolls)

 

 

Development  risk 
(late  changes  in 
government  project  procurement

 

 

requirements/policies  resulting 
in  loss  of 
project  development  costs),

Development

 

significant  delays 
in  financial  closure, 
lack  of  competition,  lack 
of

 

 

international
participation in bidding, land acquisition, resource assessment

 

 

(wind/solar
resource assessment data)

Construction

 

Technology
risk, poor quality (construction), construction equipment risk

 

(breakdown,
repair and maintenance), project changes

 

 

 

 

Operations  and 
maintenance  risk,  availability/performance  risk, 
power

Operation

 

evacuation
risks (lack of transmission infrastructure), input/resource risk

 

 

(supply/cost)

 

 

Poor
local economy, poor global economy (escape or lack of interest of

Economic

 

western
investors), inflation, foreign exchange (availability and volatility),

 

financing  risk 
(local  investors’  credibility/difficulty  in 
attracting  foreign

 

 

 

 

investment)

Market

 

Demand
risk, competition risk

 

 

 

 

 

Institutional
capacity issues (lack of skilled manpower), turnover of public

 

 

sector
officials (loss of corporate knowledge), high internal resistance to

Capacity

/

PPPs  (within 
public  authorities  – 
lack  of  ownership 
/  understanding),

Capability

 

coordination
issues between government departments,

 

 

long
and protracted public decision making process, delays in obtaining

 

 

permit/licenses

 

 

“With
regards to the factors that significantly influence risk management performance
on PPP projects, institutional capacity/maturity (public/private sector) was
highlighted as a point of major concern, the lack of which was considered as a
significant cause of problems at the pre-financial close stage for projects.
One of the interviewee held the opinion that the projects which bring foreign
investment have seen good risk management efforts, principally attributable to
foreign experience and expertise of the lenders. Local lenders were also
maturing over time, however, the local lenders may be forced to act outside
principles, at times, under political influence. The interviewees also held
that public sector lacked understanding of risks and exhibited weak contract
administration skills in privately financed power projects.” (Mazher, Chan, & Khan, 2017) APPENDIX                  Dear
Sir/Madam, I
am writing to request your participation and assistance in filling the attached questionnaire, as a
practitioner with knowledge in Public-Private partnership (PPP) infrastructure
projects in Pakistan.  The questionnaire
identifies various risks and factors to promote effective risk management
efforts on PPP projects in the Pakistani context. The study aims to identify critical risks, understand risk allocation (as practiced), and
develop risk assessment and allocation models,
which may prove useful in informing decision making for future PPP projects. The
study adopts a two stage approach where stage one attempts to identify critical
risks and important measures for effective risk management on PPP projects and
stage two investigates the most critical risks (obtained from stage one) for
efficient risk allocation on PPP projects. The attached questionnaire
constitutes stage one and requires 15-20
minutes to complete. For stage two, case study projects will be selected to
study risk allocation practice and determine the most efficient risk allocation
strategy for the projects. All responses to the survey will be treated in
strict confidence and utilized solely for academic purposes.   Your
response will be a significant contribution towards this research and in
potentially informing research, decision making, and management of PPP
infrastructure projects in Pakistan, in the future. I
would be grateful if you can provide your response by 6th of June, 2017. The completed questionnaire will be
collected in person by the researcher. Thanking
you in anticipation. Yours
truly,  

  

 

Study
Title:
Risk assessment and allocation model for
Public-Private Partnership (PPP) Infrastructure Projects in Pakistan Structure
of the Questionnaire:The questionnaire is
divided into three (3) sections. Section
A solicits background information on respondent and the project (All fields are not mandatory). Section B identifies several PPP
specific risks and attempts to analyze risks by determining their probability
and severity. Section C
attempts to understand the measures of effective risk management on PPP
projects, therefore, the respondents are requested to assess the importance of
each factor towards the mentioned goal of effective risk management. All the
answers are solicited on a Likert Scale which will be used for various
statistical analysis.  Section
A: General Background Information on the Respondent ExpertName of the respondent:Name of the organization (Mandatory):Email address for correspondence (Mandatory):Contact number (Office/Mobile phone):Which sector(s) best applies to your current
role/occupation:  Public sector   
Private sector: Project company    ; Consultant    ; Contractor    ; Operator    ; Investor    ; Financial institution    ; Other (Please specify:_________ )Academic sector   
Section
B: Risk Assessment for PPP projects

Based on your general
experience/knowledge of PPP projects, please evaluate the significance of each
risk factor, provided below, in terms of the probability (likelihood) of
occurrence and severity (impact on project objectives) of
risk on the following scale: 1 =
extremely low; 2 = very low; 3 = low; 4 = moderate; 5 = high; 6 = very high; 7
= extremely high.

Sr.
No.

Risk factor

Probability
of occurrence

Severity
of risk

1

Government
intervention (interference in the
activities of the regulator or project company)

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

2

Poor
public decision-making process (inexperience,
lack of standards, bureaucracy, etc.)

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

3

In?ation

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

4

Variation
in foreign exchange rate and convertibility issues

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

5

Financing
risk (difficulty in securing needed
financial resources/structure)

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

6

Delay
in financial closure

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

7

Insurance
risk (changes in premiums and/or
covered risks)

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

8

Change
in law/regulation

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

9

Conflicting
or imperfect contract

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

10

Change
in market demand (variation in demand
for project’s services)

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

11

Unfavorable
national/international economy

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

12

Payment
risk (inability to recover revenues due
to non-payment)

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

13

Public
opposition

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

14

Technology
risk

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

15

Operation
cost overrun (estimation errors,
reduced efficiency, higher maintenance etc.)

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

16

Environment
risk (pollution to the land and surroundings)

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

17

Land
acquisition

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

18

Construction
risks (cost overrun, delay)

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

19

Material/labor
shortage or non-availability

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

20

Delay
in project approvals and permits

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

21

Force
majeure

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

22

Corruption

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

23

Planning
risk (inadequate pre-development
studies)

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

24

Change
in government and political opposition

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

25

Lack
of skilled experts

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

26

Design
& construction deficiencies

?   
?    ?   
?    ?   
?    ?

?   
?    ?   
?    ?   
?    ?

 

Others (if any):