INTRODUCTION

Success of an infrastructure projects is greatly influenced by proper management of the risks associated with the project. Risk as per Cambridge Dictionary is defined “as the possibility of something bad happening”. Proper management of risks assumes more importance in case of PPP projects wherein most of the roles and responsibilities which were under the domain of public sector have been transferred to private investor. In addition to this, the private sector willingness to invest in the project is depended on whether a proper framework for risk management has been established for equitable allocation of risks between public agency and private sector.

Risk management is increasingly a critical success factor for major infrastructure projects. Risk management is often governed by the principle that it should be borne by the party most capable of controlling it. The sources of funding of Infrastructure projects may by public/private or both. Risk is something that is understood to have a range of possible outcomes and known probabilities can be attached to the outcome. Risk is different from uncertainty. In case of uncertainty there exists more than one possible outcomes but the probability for a particular outcome to occur is not known. A risk left unidentified is difficult to mitigate in later stages of the projects so the concept of risk management starts with identifying the potential risks. Often private stakeholders are very much interested in clearly defining and mitigating the risk and protecting themselves from those possible risks and will charge a premium for bearing the risk. The risks associated with a project will vary with the type of infrastructure sector as each of the sectors has unique operating environment and characteristics. So identifying risks and mitigating has some uniqueness in every project even though lessons learnt from the experiences of other projects help in identifying them. The following discusses the risk profile of the projects in some of the key infrastructure sectors.

RISK PROFILE OF VARIOUS INFRASTRUCTURE SECTORS

The various infrastructure sectors have unique operating environment and sectoral characteristics. These result in different risk profiles of the infrastructure sectors. The different profiles mean the various risks associated with projects which constitute the risk profile though remain the same but the severity of the risks will vary from sector to another. The risk profiles and operating environment of two of the infrastructure sectors, power and transportation sectors, wherein private sectors have been actively involved are discussed below.

Power Sector: In power sector, governments have privatized this sector and discontinued the monopoly of state utilities by inviting private sector in the form of Independent Power Producers (IPPs) who build generating plants initially on BOO (Build/Own/Operate) basis and on BOT basis, later on. The IPP then fed the electricity generated from their plants into state controlled distribution and transmission networks. Then, an off-taker, usually the state or provincial utility board purchases the electricity on a wholesale basis from the IPP via a Power Purchase Agreement (PPA). This mechanism ensures a regular stream of incomes otherwise the IPP will face a fluctuating demand and will not be able to meet the financial obligations. In spite of such an arrangement possible loss of income may occur though illegal connection to the transmission system, especially in developing countries but such an arrangement assign the demand risk to the government, as private sector is reluctant to assume this risk.