A guidebook on public-private partnership in infrastructure

Examining the likely effects of the risks in quantitative and qualitative terms 
The next step involves assessing the effects of the risks in quantitative and/or 
qualitative terms for all possible risk factors. The risks may affect the service 
outcome of the project (for example, the project fails to deliver on time or provides 
service at a lower level), or the commercial viability of the project (for example, lower 
return on investment, or difficulties in debt servicing).
Many different techniques ranging from the rule of thumb (based on past 
experiences) to sophisticated simulation models are available for the assessment of 
different risks in a project.
15 
However, it is important to mention here that risk 
analysis is not a purely scientific process. While the available sophisticated tools 
may help in assessing the risks, in the end, it is as much an art as it is a scientific 
process. 
PPP contracts often include incentives that reward private partners for 
mitigating risk factors.
Consideration of mitigation measures 
Generally, mitigation measures are available for most risks. An effective 
strategy in risk management is to consider suitable mitigation measures for risks at 
the project planning stage. As appropriate, their consideration needs to be reflected 
in contract design and negotiation, and later on in designing a contract management 
process to address them during the construction and operation periods. The basic 
approaches to risk mitigation include: 
• Transparency in the whole process, including participation of key 
stakeholders from the beginning;
• Properly executed project appraisal with details of risks and their likely 
effects, and return expectations;
• Cash flow projections based on technical, market and financial analysis; 
15.
General purpose and special purpose softwares are available for risk assessment of infrastructure projects. 
Inforisk
is a special purpose software developed by the World Bank. There are also many general purpose 
softwares commercially available. 

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36 
A Guidebook on Public-Private Partnership in Infrastructure
 
 
• Structured 
finance16 to meet the characteristics of the project; 
• Security package and elaborate documentation; and 
• Project monitoring and contract compliance. 
Following are some of the commonly applied tools for risk mitigation: 
• Measures that can de-risk to the extent possible or minimize the possibility 
of risk occurrence;
• Obligations and comforts in contract agreement through allocation of risks 
to identified parties with penalties and/or responsibilities for 
consequences; 
• Insurance when available; 
• Financial instruments (hedge, swap, etc.); and 
• Designing of financial structure to minimize the risk of default. 
The risk matrix in table 3 shows some examples of possible mitigation measures 
against the risks.