Project+Management+UG

Multimodal partnership multimodal multimodal projects

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Unformatted text preview: Volume • Compensation and termination clauses • Revenue • Changes of law • Environmental/archeological • Economic shifts • Regulatory/contractual • Currency/foreign exchange • Payment structure/mechanism • Taxation constraints • Transaction cost • Moral hazard • Construction cost • Loss of control of assets • Maintenance cost • Political stability • Life-cycle cost • Protectionism • Liability/latent defects • Public acceptance Consequences and Mitigation Strategies for Major Types of PPP Project Risks Types Risk Category Description Consequences Mitigation Site Conditions • Existing structures may be inadequate. • Contamination of site. • Necessary approvals may not be obtained. • Additional construction costs and time delays. • Clean up costs. • Commission studies to investigate suitability of site and structures • Private sector to incorporate risk through refurbishment during construction phase. Design, Construction and Implementation Risk • Facility incapable of delivering at the anticipated costs. • Physical or operational implementation tests cannot be completed. • Increase in recurrent costs, delays. • Delayed/lost revenue. • Seek reputable constructors with strong financial credentials. • Private party may pass risk to builder/architects while maintaining primary liability. • Link payments to progress. Financial • Interest rate risk. • Financing unavailable. • Contingent funding requirements. • Increased project cost. • Interest rate hedging. • Financial due diligence. • Bank/capital guarantees from companies and directors. Operating • Inputs, maintenance may yield higher costs. • Changes to government with respect to facility operations. • Increase in operating costs. • Adverse effects on quality and service delivery. • Long-term supply contracts where quality/quantity can be assured. • Upfront specification by public sponsoring agency. Consequences and Mitigation Strategies for Major Types of PPP Project Risks (Continued) PPP Risk Category Description Consequences Mitigation Market • Fluctuations in economic activity or demand • Competition, demographic change and inflation. • Lower revenues. • Diminution in real returns to the private party. • Private operator to seek an availability payment element to minimize impact on risk premium. • Review likely competition for service and barriers to entry. Legislative • Additional approvals required during the course of the project cannot be obtained. • Changes in laws and regulation. • Further development or change in business operation may be prevented. • Increase in operating costs with regards to complying with new laws. • Private sector to anticipate requirements. • Public sponsor may mitigate such change by monitoring and limiting changes which may yield adverse consequences. Asset Ownership • Loss of the facility upon premature termination of lease or other project contracts upon breach and without adequate payment. • Loss of investment by private party • Possible service disruption as additional capital costs are incurred to upgrade the asset to the agreed value and useful life. • Private party will be given cure rights to remedy defaults. • Public sector sponsor may make payment for value in the project on a cost-to-complete basis if termination occurs pre-completion. • Impose on the private party maintenance and refurbishment obligations. • Secure services of a reputable maintenance contractor with strong financial credentials. Benefits of PPPs Benefits 1. 2. 3. 4. 5. 6. 7. 8. Stronger working relations Reduction of financial constraints Faster delivery Innovation and expertise Greater cost efficiency and productivity Integration of various stages of development Increased competition Risk management Concerns of/about PPPs Concerns Potential higher life-cycle costs -- private sector may demand Potential cycle -- private higher rate of return than public sector. higher No concerns for externalities & social benefits No Taxation constraints Taxation Federal government does not allow accelerated depreciation Federal Concession uses only taxable debt and equity (no tax-exempt debt Concession exempt financing) financing) Moral hazard Moral Loss of control over assets Loss Critical Success Factors for PPPs Critical PPP has to: Improve “service quality” Improve Promote socio-economic development Promote Success factors Success Consultation with and support of stakeholders Consultation Public sector’s active involvement Public Political leadership Political Secure public control Secure Limited complexity Limited Appropriate risk sharing and rewards Appropriate Effective working relationships among partners during and after contract Effective negotiations Legal authority Legal Legal Issues Associated with Transportation Infrastructure Project PPPs Infrastructure Legal capacity of parties and legal requirements of the sponsor to provide services Ability of the private sector to be involved in infrastructure development, particularly foreign companies Ability of the private sector to acquire and own public-use infrastructure, especially foreign firms Existence and legal basis of cost recovery tolling Ability to provide performance guarantees Property issues of land acquisition – condemnation, use, and disposal Administrative coordination Dispute resolution and liability provisions Special provisions asso...
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This note was uploaded on 07/25/2012 for the course ECON 111 taught by Professor King during the Spring '12 term at CSU Bakersfield.

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