The Global Infrastructure Hub has prepared an innovative guidance tool for governments, primarily in emerging markets, that wish to enhance the viability of their public-private partnership (PPP) infrastructure projects. This tool deals with an issue that is at the centre of every PPP transaction – namely, the appropriate allocation of risks as between the public and private parties participating in the project.
This tool is designed to help governments build a pipeline of viable PPP projects by:
- improving the cost-effectiveness and ‘bankability’ of their PPP projects, by providing detailed guidance on how to identify those risks that are best managed by the private sector, those risks that are best managed by the public sector, and those risks that should be shared;
- providing information on risk mitigation measures and on appropriate forms of government support; and
- illustrating, by means of detailed annotations, the different approaches to risk allocation in highly-developed PPP markets and in those countries without a ‘track record’ of such transactions.
The Annotated PPP Risk Allocation Matrices
A risk matrix is an instrument which lawyers develop prior to drafting any major PPP agreement. Typically, a matrix will consist of a very detailed listing of all risks associated with the design, construction, operation and handover stages of a PPP project, with an indication as to whether the individual risks are to be handled by the public party or the private party or whether the risk is to be shared. A sophisticated risk matrix will also contain columns dealing with the mitigation measures available for each risk, plus a description of specific government support measures that might be considered.
The GI Hub Report on Allocating Risks in Public-Private Partnership Contracts presents sample risk matrices for 12 separate infrastructure projects, across three sectors: transportation, energy and water/sanitation. Significantly, in addition to having all of the material normally found in a well-developed risk matrix, the Report also contains detailed annotations, describing how risk allocations may vary across different markets, depending on factors such as the levels of market maturity and the domestic legal systems.
The Report is being presented on the GII Hub website as a fully interactive tool, allowing users to focus on a particular project type, or a particular risk, and to make comparisons across sectors and projects. The tool identifies the major risks for each sample project, which can be then be highlighted for senior decision-makers in government. In addition, the GI Hub is sponsoring an ongoing blog forum, on which recognized experts will provide commentaries and updates, and will respond to questions and comments submitted by users.
The Consultative Process and the Ongoing Development of the Report
The process for developing the Report has involved extensive consultations.
In January 2016, the GI Hub retained Norton Rose Fulbright, a major international law firm to prepare the Report, beginning with a Preliminary Draft, which was discussed at a workshop held on 25 April, in conjunction with the G20 working group meetings held in Singapore. At that workshop, comments were received from project developers, lenders and PPP advisors along with G20 meeting participants representing various governments.
The comments made at the Workshop were taken into account in the preparation of the Second Draft of the Report, which was discussed a second Workshop, held in Paris on 31 May, cohosted by the GII Hub, the OECD, the Monetary Authority of Singapore and the World Bank Group.
The latest version of the Report on Allocating Risks in Public-Private Partnership Contracts, reflecting inputs from the Paris workshop, was completed on 10 June 2016, for submission to the G20. It was also presented at a third Workshop, held on 20 June in Santiago, in conjunction with the Inter-American Development Bank’s PPPAméricas Conference.
The GI Hub is very interested in continuing the dialogue on the Report – and using that dialogue to improve its contents – though this interactive website. To that end, we strongly encourage users to explore the Report on this site, and send us their questions and comments. We look forward to hearing from you!