CE5870: Infrastructure planning and

Management

Assignment: Module 2

NISCHAL SINGHAL
CE18B045
What are the key risks that Public-Private Partnerships face (select as many as you can - but at
least 5)? Using real world examples taken from the class or from sources outside (books, internet,
journals etc)can you provide an instance of how each of these risks impacted a particular project
and what was/could have been done about this? (2000 Words)

Public-private partnerships (PPPs):

Public-private partnerships are collaborations between a government agency and a

private-sector company that can be used to finance, build, and operate large scale projects.
(definition by Investopedia).
PPPs allow for large-scale public projects to be completed using the help of the private sector’s
expertise and finances.
In the past few decades, the PPP structure has been used in many mega projects throughout
the world such as bridges, airports, highways, etc. The involvement of the private sector could
be of multiple levels - from just design-build to full privatisation (Build-operate-own).
Participation of the private sector has the following advantages
● Innovation and efficiency in construction
● Financing mega-projects would not be possible without economic diversification
● Better operations and maintenance

These partnerships essentially work well when private sector technology and innovation
combine with public sector incentives to improve efficiency, asset allocation and complete work
on time. Although PPPs have been successful in many instances there are multiple risks
associated with each stakeholder and project. The risks pertaining to Private Public partnerships
have been discussed in this assignment.

PESTLE - Political, Economic, Social, Technological, Legal & Environmental

PPPs cannot follow a common plan for all projects as the requirements and conditions vary with
location, stakeholders and projects. PPPs have injudiciously been implemented in various
instances without accounting for the risks. To identify these risks in a structured manner PESTLE
term was coined.
The various types of risks are -

1. Social Risks: PPPs are generally undertaken for building public infrastructure. The
citizens are one of the major stakeholders and at times have strong opinions about
public services and their costs. The government generally has only limited funds and is
forced to have private participation to implement multiple projects at the same time.
And the private sector is always inclined towards profits and this poses a risk if there is
no understanding about the benefits and tariffs for a project.

Cochabamba water war

Cochabamba is a city in Bolivia where disagreements in water tariffs lead to riots, making it a
prime example of the social risks of a project. In 1992, only 75% of urban households in Bolivia
had water connections and 36% had sewage connections. The long-term solution proposed was
the construction of Misicuni Multipurpose Project (MMP), a $300million megaproject. Following
the 2nd attempt at attracting the private sector, participation Aguas del Tunari (AdT) was
granted the concession of water services on 3rd September 1999.

Risks/issues-
➔ AdT was granted exclusive rights to water resources and water provision
➔ A tariff increase of 35% was introduced through a new increasing block tariff structure
➔ The threat of charging small farmers for irrigation water
➔ Failure to involve the various stakeholders, especially the public

Impact-
For many Bolivians, the concession contract was a prime example of what was wrong with the
neo-liberal development strategy and failure to address the social risks lead to the following-
➔ Conflicts with small farmers leading to protests
➔ Calls for modification and cancellation of contracts groups by associations & political
parties
➔ Riots in February 2000, with police repression leading to 22 injuries
➔ Hostile environment leading to contract being cancelled on 10th April 2000

Risk mitigation techniques-

In many PPPs, citizens are ignored as stakeholders which leads to misconceptions about the
project. Therefore there is need for-
➔ Setting up channels for discussion with the public/citizens
➔ Assess the ability and willingness of the citizens to pay
➔ Address all concerns regarding the participation of private sector
 2. Construction Risks: One of the biggest risks in any infrastructure project. Inefficient
processes of planning, design and construction can lead to delays and cancellations of
projects. The risks can be divided further into-
● Design Risks
● Site relation risks
● Contractual risks
● Relationstional risks
● Completion risks, etc

Montreal Olympic Stadium

The project aimed to build an ultramodern and unique stadium for the 1976 Olympics. It was
initially a $120 million project and the stadium was to look like an elliptical seashell with a
handle. The major stakeholders being the city of Montreal, the Mayor, the Province of Quebec,
the Olympic committee and contractors. The planning for this megaproject started only in 1970

Risks/Issues -
➔ Design - complicated design with different sized ribs, difficult to construct
➔ Construction methods - use of epoxy-glued post-tensioned structural members was a
new technique​and local contractors & labour were unaware and untrained
➔ Scheduling/operational risks - impractical scheduling by theorists leading to inefficiency
in construction
➔ Construction time-sensitivity - fixed deadline project

Impact -
➔ Cost overruns - 12x initial cost estimate. Initially, a $120 million project cost $1.5billion
affecting property tax and tariff rates of Montreal city
➔ Incomplete project - roof and mast deleted due to insufficient time & complexity
➔ Poor resource management - poor estimations leading to poor management of labour
and material leading to increased transportation costs

Risk mitigation techniques-

➔ Practical design by taking local construction techniques, labour skills and resource
availability into account
➔ Contractual agreements for better allocation of roles and responsibilities
➔ Earned value techniques can be used to determine the status of the project wrt time and
budget
➔ Efficient and practical scheduling by involving the site engineers for determining the
critical path
 3. Economic/market risks: Money is an important factor in all goods and services. The
private players take up a project only if they view an attractive profit in the project.
Government too raises capital through multiple sources and in case of poor financial
planning, the burden falls on the tax-paying public. Therefore, a very detailed
cost-benefit analysis has to be done before any project is undertaken

Mumbai-Ahmedabad high-speed rail project

One of the ongoing mega projects in India is probable to fail due to economic risks. This 530km
high-speed rail corridor aims to reduce travel time, vehicle operations costs, pollution and boost
growth & trade between the two of the most industrialized states of India. The inauguration
was done in 2017 and the initial completion date was December 2023 with a cost estimate of
1.1 lakh crore where JICA is funding 80% of the project through a soft loan

Issue/Risks
➔ The project has faced challenges on multiple fronts leading to delays
➔ Political tension and land acquisition issues leading to delay in construction
➔ Estimated cost of ticket is high, initially Rs3500, meaning there are better alternatives
available in the market

Impact-
With the delays, the one-way ticket cost required to make this project financially viable is now
Rs 4000. With the alternative of airline tickets at Rs2000 available, it is difficult to see the
project doing well once it is completed in 2027

Risk mitigation techniques-

➔ Detailed analysis of the creditworthiness of a project
➔ Accurate estimations and detailed surveying of market conditions for future revenue
estimates
➔ Incorporating potential roadblocks & delays for a project in the analysis

4. Political Risk: A variety of risks come under this category. It includes payment failures
from govt bodies, resistance from opposition and termination of the project due to
change in government. The government (or a public body) is often the main sponsor for
a project and a loss of motivation or change of intent at different levels (state or centre)
can put the project at risk.
Dabhol power plant
One prime example of projects being subjected to political risk is the Power plant located in
Dabhol, Maharashtra. The 2015MW plant was to be built and operated by Enron Corporation.
Enron was a diversified service provider in the natural gas industries and had implemented
multiple power projects in developing countries in the 90s. This plant was pivotal to meet the
growing demands of electricity and encourage further private and foreign investments

Issue/risks-
➔ Market risks - Dabhol was chosen after careful analysis of multiple locations for buying
power, requirements & sustainability; Currency & inflation risks were mitigated by tying
revenue to USD
➔ Project Financing - the project financing was done through debt and equity. Having
multilateral banks onboard increased confidence in the project; PPA with MSEB for
guaranteed revenues
➔ Contractual risks - the project had exhaustive and well thought out contracts with
sponsors, lenders, boards, natural gas suppliers etc
➔ Political & regulatory risks - liberalisation of the Indian economy had happened in 1992
and along with the two electricity acts foreign and private investments were allowed in
the power sector. The project was the 1st of its kind and thus the regulatory measures
were not perfect. The opposition political parties, BJP and Shiv Sena, were apprehensive
of foreign investments in megaprojects and believed such projects should be built and
operated by Indian organisations

Impact-
Enron development corp. was successful in mitigating various risks, finalising long-term
contracts and constructing the power plant but the political risks associated proved to be
detrimental.
➔ With the BJP gaining support in Maharashtra and nationwide and eventually forming the
government, they raised several issues with the project such as the high price
agreement and lack of bidding process
➔ Eventually, after several legal deliberations and negotiations, Enron Corporation exited
and the power plant operation was shifted to the MSEB.

Risk mitigation techniques-

➔ Conducting transparent and competitive bidding process
➔ Contractual agreements, sovereign guarantees and inclusion of global & experienced
players
➔ Improving legal structure for making PPPs less volatile to the political environment
➔ Cautious approach while entering a new country/market
 5. Environmental Risks: infrastructure projects like dams and power plants can cause
irreparable damage to the biodiversity, displacement of local and environmental
degradation. This occurs mainly due to the underestimation of environmental costs.

Sardar Sarovar Dam

Sardar Sarovar Dam is a concrete gravity dam built on the Narmada river in Navagam near
Kevadiya, Narmada district, Gujarat. The dam was aimed to provide water to drought-prone
areas of Kutch and 3 other states of India and produce 1500MW hydroelectricity. The
foundation stone was set by PM Jawaharlal Nehru, constructed in 1987 but the project finished
only in 2017. The World Bank was one of the early backers of the project, lending $200million in
1979. The project has a height of 137m and is the 2nd largest concrete dam in the world

Risk/Issue-
Sardar Sarovar dam project was the focus of one of the world’s longest environmental and
social campaigns
➔ 10,000+ ha of forest land submerged
➔ Loss of wildlife & biodiversity and lack of regenerative methods
➔ Potential displacement of 100,000 people living in villages in submergence areas

Impact-
The project was marred by controversies and stoppages at the end costing $8billion. Some of
the key highlights were-
➔ Construction was stalled multiple times by court cases in the Supreme CourtWorld bank
after conducting an independent survey, withdrew its funding in 1994
➔ Narmada Bachao Andolan movement was born to protest against the environmental and
social effects of the project
➔ Execution of the project and raising of the height of the dam has lead to loss of forests,
biodiversity and displacement of people

Risk mitigation techniques-

➔ Attention to environmental impact and transparency of the process
➔ Utilizing the talent of environmentalists in NGOs and other organisations in
understanding and mitigating environmental risks
Conclusion:

Through this assignment, various risks associated with a PPP framework were studied. PPPs are
subjected to various risks which are not managed well could lead to loss of capital, resources,
time, biodiversity and at times human lives.
Although the cases seen above were of failed projects, there have been many profitable PPPs
where the risks were mitigated successfully, one such project was the Alandur sewage project.
Which faced all of the risks mentioned above but was able to mitigate them through
comprehensive planning, effective risk allocation and inclusion of all stakeholders.

The economic, social and technological conditions of a region are continuously evolving. For this
reason, the success and perception of PPPs have changed from positive to negative and vice
versa (cyclic nature) at different stages. It is necessary to understand there are advantages and
disadvantages to the PPP framework and it is not feasible to have private sector participation in
all projects and no two projects are the same. It is necessary that we learn from the successful
and unsuccessful projects of the past to implement PPPs more logically and with systematic risk
mitigation in the future.

References:
● Class slides and material
● https://www.investopedia.com/terms/p/public-private-partnerships.asp
● https://en.wikipedia.org/wiki/Sardar_Sarovar_Dam
● https://sabrangindia.in/article/environmental-impact-sardar-sarovar-dam
● https://ppp.worldbank.org/public-private-partnership/financing/risk-allocation-mitigation
● https://en.wikipedia.org/wiki/Mumbai%E2%80%93Ahmedabad_high-speed_rail_corridor
● https://www.nhsrcl.in/
● https://www.clearias.com/bullet-trains-india/
● https://ppiaf.org/sites/ppiaf.org/files/documents/toolkits/highwaystoolkit/6/pdf-version
/5-37.pdf