Introduction to PPP Risk Allocation

About this Video

• Video Title: Introduction to PPP Risk Allocation
• Channel: OGC Commercial Law Development Program
• Speakers: Not specified in transcript.
• Duration: 00:03:28

Introduction

This video introduces the crucial role of risk allocation in Public-Private Partnership (PPP) projects. It emphasizes the importance of incentivizing private partners while ensuring efficient project delivery from the public authority's perspective. The video discusses various types of risks, their allocation, and potential pitfalls in the process.

Key Takeaways

• Appropriate Risk Allocation is Essential: Proper risk allocation is vital for the success of PPP projects, incentivizing private partners while managing risks efficiently.
• Risk Identification and Assessment: PPP projects require identification and assessment of market, technical, and credit risks.
• Allocating Risks Effectively: Risks should be allocated to the party best equipped to manage them at the lowest cost. A common mistake is public authorities pushing bidders to accept excessive risk.
• Risk Allocation in PPP Agreements: Project risks are typically allocated through concession or project agreements. Public authorities should retain risks outside the private partner's control.
• Consequences of Poor Risk Allocation: Inappropriate risk allocation leads to higher costs, reduced efficiency, and increased project failure risk.
• Example of Risk Allocation (Power Project): The video uses a power project example to illustrate how risks (design, construction, operation, maintenance, financing) are allocated between the private partner and the government.
• Government's Role in Risk Allocation: The government retains risks related to legal changes impacting the private partner's performance.
• Environmental Risk: Environmental risks are often shared, with the private partner responsible for complying with regulations, and the government bearing the risk of unforeseen, external events.
• Early Risk Assessment: Early assessment of risks allows for mitigation and proper allocation in project documentation.
• Long-Term Benefits of Effective Risk Allocation: Proper risk allocation contributes to lower long-term project costs, fewer disputes, and reduced chances of project failure.