Analysing Risk Allocation in Transport Concessions



Analysing Risk Allocation in Transport Concessions

Authors

CARBONARO G, European Investment Bank, Luxemburg

Description

One of the main arguments to promote the involvement of the private sector in public works financing is that contractual structures in public-private partnerships can more easily allow to capture efficiency gains by allocating more rationally project risk

Abstract

One of the main arguments to promote the involvement of the private sector in public works financing is that contractual structures in public-private partnerships can more easily allow to capture efficiency gains by allocating more rationally project risks. This generally flows from the observation that in contractual structures supporting conventionally financed public works risks connected to the construction and operation of infrastructure are not properly identified, unbundled and assigned to t~he parties "better equipped' to deal them. However, exactly what criteria should be employed in judging alternative contruactual structures and how value-for- money in risk allocation Should be achieved from the public interest point of view is often not entirely clear. The paper examines a particular sector - transport - to review and discuss what strategies have been adopted in practice to assign project risks within contractual structures involving the private sector.

Some of the relevant dimensions in the risk pattem of transportation projects, and the way these can be affected by contractual arrangements, will be presented: particularly risk reduction potential (ex-ante risk reduction potential and risk management strategies) scope for efficiency gains from assigning risks (exploiting diverging attitudes to or judgements about risk by different actors); and opportunistic risk shifting. After discussing examples of contractual structures in the transport sector, it is argued that a solid framework for assessing them should allow to characterise relevant trade-offs (particularly risk-reward relationships for the different parties) and separate efficiency gains from opportunistic risk shifting.

Publisher

Association for European Transport