When the mix of future revenues includes revenues coming from third parties or produced by ancillary businesses, the risk of those revenues being lower than anticipated is generally allocated to the private partner.
This risk refers to the risk (especially from the public perspective) of the infrastructure not being available to use and/or not meeting the quality or expected performance levels. This risk is borne by the private partner as it is the essence of the PPP objectives. The mechanism to transfer the...
Maintenance risk may refer to the risk of improper maintenance resulting in a lack of performance, which is implicit and covered in availability and performance risk analysis.
But maintenance risk also refers to the risk of higher costs for maintenance operations and plans (including current...
General project company costs
General company costs include the permanent staff of the company, which is usually more of an administrative centre with limited personnel. For instance, it could include staff to manage the finance of the project and interact with the procuring authority and the...
Technological obsolescence risk refers to the risk of certain equipment becoming inadequate for the purpose of the service — or the service becoming poorer in comparison with more recent services being provided in the course of the project. When the private partner is exposed to market risk (...
The risk of the taxation framework changing during the course of a contract is generally borne by the private partner when referring to taxes that are part of the common business environment, with exceptions.
In some contexts, a value-added tax (VAT) may be an exception to the general rule, and...
When, as is commonly the case in most PPPs, the asset will be "handed back" to the authority at the end of the contract, this should be done in an appropriate physical state. The authority should not be exposed to the risk of the asset having a short remaining life, a low residual value, or being...
Financing the asset is an essential obligation in a PPP, and the risks of availability and cost of the financing should generally be borne by the private partner (with the exception and to the limit established in the contract in those projects under a co-financing scheme – see chapter 5.4)....
There is a risk of funding not being available at financial close or only being available at a significantly worse price (margin and fees) and conditions (including debt service cover ratio [DSCR] or maximum term) than anticipated. This risk is generally to be assumed by the private partner....
Generally speaking, the project company has to adequately plan its financial needs, building up in the financial plan the necessary contingent funds. Reserves for renewals and major maintenance have already been mentioned. Another common reserve, as requested by the lenders, is the debt service...
Generally, refinancing is not considered a downside risk but an upside benefit. When the project performs well, the private partner will have the ability to renegotiate the debt on better terms or refinance the debt, including an increase in the debt level so as to amortize share capital early (“...
This risk refers to the risk for the public partner of a worsening in the performance of the project if the new shareholder (when there is a change in control) is not as capable as, and does not have the capacity, of the original partner.
It is common practice to require the private partner to...
The risk of changes in law refers to the risk of changes that may affect the project outcome, impacting on the costs (capital costs by means of new investments) or current operating costs (higher maintenance costs or higher operating costs).
Law is broadly defined for this purpose as laws,...
Setting aside the potential limits established by the procurement regulations in a number of countries, changes in scope of works (changing the design prescriptions) and changes in service requirements are always a risk event to be allocated clearly to the public partner.
This is one of the areas...
Force majeure has been introduced in this chapter (see section 5.6).
As described in the referred section, force majeure may have different meanings (and therefore a different scope in terms of events included within the category or general term) in different jurisdictions, and it may even be a...
Vandalism is the risk of intentioned acts against the asset or parts of the asset. Generally, vandalism is a risk to be allocated to the private partner, as it is the economic owner of the asset and as such has the first responsibility to protect the asset’s physical and operational state.
However...
A risk originally insurable (at the inception of the contract), and for which a requirement to be so insured has been included in the contract, may become uninsurable during the life of the contract. Unless specifically imputable to the private partner, this risk (of becoming uninsurable) should...
From the perspective of the public partner, early termination risk is mainly a budgetary risk (in addition to the concern of how the service will be provided after the termination, at least until the private partner is replaced by a new contractor) which relates to the ability to meet the...
