The Worldwide Revolution in Infrastructure Provision and Project Finance
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....
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