Public Private Partnerships

Public Private Partnerships

The Worldwide Revolution in Infrastructure Provision and Project Finance

Darrin Grimsey and Mervyn K. Lewis

This path-breaking book considers the recent trend for governments to look increasingly to private sector finance, provided by private enterprises constructing and managing public infrastructure facilities in partnership with government bodies.

Chapter 7: Risk Management

Darrin Grimsey and Mervyn K. Lewis

Subjects: economics and finance, financial economics and regulation, public finance, public sector economics

Extract

RISKS OF PPPS This chapter analyses the risks of PPP arrangements from the perspectives of the various parties. For the public procurer, there is an obvious need to ensure that value for money has been achieved with public funds. To the project sponsors, such ventures are characterized by low equity in the project vehicle and a reliance on direct revenues to cover operating and capital costs, and service debt finance provided by banks and other financiers. Risk evaluation requires not only the analysis of risk from these different perspectives but also intimate knowledge of the project. To this end, as well as considering the general principles involved, we draw on practical experience of evaluating such projects to present a framework for assessing the risks, using as illustration a case study which is typical of many PPP projects.1 The project concerned is the Almond Valley and Seafield (AV&S) project involving the construction and operation of a water treatment facility for East of Scotland Water (ESW), with a services contract over 30 years between ESW (the public procurer) and Stirling Water. There is also a separate operating agreement between Stirling Water and Thames Water, the private sector operator of the works. The project reached financial close in March 1999 and Figure 7.1 sets out the links and key contractual arrangements between the parties involved. This brings out the point that a major infrastructure venture such as this is complex in terms of documentation, financing, taxation, technical details, sub-agreements, and so on....

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information