PPP projects are financed with equity capital from investors and debt from lenders. Financing risk refers to the risk that sufficient finance will not be available for the project at reasonable cost either due to changes in market conditions or credit availability resulting in increase in cost of capital of the projects. The risk of not being able to raise enough equity by the project promoter results in equity risk. The other equity investors will not be willing to provide funding for PPP projects if the project promoter has not proven its financial capability. If the lenders are not able to fulfill its commitment to any financial transaction on the due date, then it is known as credit risk.

Revenue risk is the risk the project may not earn sufficient revenue to service its operating costs and debt and leave adequate return for investors. The main sources of revenue risk are volume risk and price risk. Volume risk is the risk that actual demand for the project services is far less than the projected demand of the project services. Price risk is the risk that the actual price at which the service is sold is different from the projected price.

Input supply risk is the risk that supply of raw materials for the project may get interrupted or the raw material may not be available on an appropriate price basis.

Financial risks such as inflation risk, interest rate risk, and currency exchange risk are the risks which are not directly related with the project but related with the environment in which the project operates. Inflation will be a risk during the construction period when it leads to higher project cost than the projected cost leading to cost overrun. Similarly, inflation will be a risk during the operation period when it leads to higher operating costs than the projected level. Interest rate is the risk of fluctuation in the interest rate leading to the need to pay extra cost while servicing the debt to lenders. Currency exchange risk exists in project when the currency for project cost is in one currency and the funding is in another currency or revenues are in one currency and financing is in another currency. Fluctuation in exchange rate may lead to increase in project cost if the currency in which cost is incurred appreciates. If the exchange rate fluctuates leading to depreciation of the currency in which the project collect revenues, then it will lead to reduction in net revenues available for debt servicing, which is to be repaid in another currency.

Political support is required for PPP projects in order to complete the construction successfully and to continue its operation successfully. Various actions of the government could lead to changes in the political support thereby introducing political risks to PPP projects. The projects may be exposed to political risks on account of: the restrictions imposed on convertibility of currency and transfer, expropriation of the project assets by the government, and internal political stability causing physical damage to project or preventing its operation. The government may introduce changes in the law which provides the stable legal and regulatory environment for the project resulting in change in law risk.

The risks can also be categorised as elemental and global risks. The elemental risks are the risks which originate from sources within the project structure. The elemental risks are considered to be manageable by elements within the project, such as through proper risk allocation in the concession agreement. Risks such as completion risk, performance risk, financing risk, revenue risk, and input supply risk are elemental risks. On the other hand, global risks are those risks which are exerted externally to the project environment and are generally not controllable by the project participants. They are also called force majeure risks. They include floods earthquakes and other natural disaster. When a project is entirely sponsored by private participants then the political risk in a global risk and on the other hand if the host government is involved in the project as a co sponsor then political risk is an elemental risk.

The risks associated with PPP projects can also be categorised based on the occurrence of the risk in a particular phase of the project lifecycle. The lifecycle of PPP projects comprises of development, construction, and operation phase. The development phase of the project is associated with risks such as delay in land acquisition risk, permit risk, third parties risk, financing risk, equity risk, and credit risk. Risks such as completion risks, financial risks, and performance risks are observed in construction phase. Revenue risks and O&M risks are two major risks associated with the operation phase of the project. In addition to this, the operation phase may also be exposed to input supply risk and financial risks. There are other categories which may be associated with any phase of the PPP project lifecycle. These include risks such as force majeure risks, and change in law risk.