Political risk

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Description (What is the Risk)

The risk of Government intervention, discrimination, seizure or expropriation of the project.
Public sector budgeting.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared

The Contracting Authority will bear responsibility for political events outside the Private Partner's control, and the Contracting Authority will be responsible should it fail to continually provide the Private Partner with the license and access to the system and surrounding lands necessary to allow the Private Partner to fulfil its obligations.

Mitigation Measures (What can be done to minimize the risk)

The Contracting Authority will outline certain political events as delay events, compensation events excusing causes (relief from payment deductions) that involve a breach of obligations or interference by the Contracting Authority with the project.

Government Support Arrangements (What other government measures may be needed to be taken)

This type of issue will typically lead to a termination event where the Contracting Authority will need to stand behind debt and equity.

Comparison with Emerging Market

The type of political risk events that occur in developed markets are likely more subdued and less drastic than emerging markets. As such, political risk insurance is not typically obtained.

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