Risk Management of Public Private Partnerships

in Railway Projects
in Egypt

By

Eng. Dalia Suliman Al Mohrez

B. Sc. in Civil Engineering, (2006)

A Thesis Submitted to
The Faculty of Engineering at Cairo University
In Partial Fulfillment of the Requirements for the Degree of
Master of Science
In
Structural Engineering

Faculty of Engineering, Cairo University

Giza, Egypt
2012
Risk Management of Public Private Partnerships
in Railway Projects
in Egypt

By

Eng. Dalia Suliman Al Mohrez

A Thesis Submitted to the Faculty of Engineering at Cairo University

In Partial Fulfillment of the Requirements for the Degree of
Master of Science
In
Structural Engineering
Supervised by

Prof. Dr. Moheeb El-Said Ibrahim Dr. Hesham Maged Osman

Professor of Construction Assistant Professor, Dept. of
Engineering and Management Structural Engineering
Faculty of Engineering Faculty of Engineering
Cairo University Cairo University

Faculty of Engineering, Cairo University

Giza, Egypt
2012
Risk Management of Public Private Partnerships
in Railway Projects
in Egypt

By

Eng. Dalia Suliman Al Mohrez

A Thesis Submitted to the Faculty of Engineering at Cairo University

In Partial Fulfillment of the Requirements for the Degree of
Master of Science
In
Structural Engineering

Approved by the Examining Committee

Prof. Dr. Moheeb EL-Said Ibrahim (Thesis Main Advisor)

Prof. Dr. Mohamed Abdel-Latif Bakry

Head of Planning and Control, Social Fund for (External Examiner)
Development

Prof. Dr. Mohamed Ahmad Mohamed

Youssef (External Examiner)
Manager of institute for construction engineering and
management “The Arab Contractors”

Faculty of Engineering, Cairo University

Giza, Egypt
2012
Engineer: Dalia Suliman AL Mohrez
Date of Birth: 20 / 10 / 1982
Nationality: Syrian
E-mail: eng.dalia2009@gmail.com
Phone: +201110042335
Address: 7 St. Haram, Giza, Egypt.
Registration Date: 1 / 10 / 2009
Awarding Date: / /
Degree: Master of Science
Department: Structural Engineering
Supervisors: Prof. Dr. Moheeb EL-Said Ibrahim
Dr. Hesham Maged Osman
Examiners: Prof. Dr. Moheeb EL-Said Ibrahim
Prof. Dr. Mohamed Abdel-Latif Bakry (Head of Planning and Control,
Social Fund for Development)
Prof. Dr. Mohamed Ahmad Mohamed Youssef (Manager of institute
for construction engineering and management “The Arab Contractors”)

Title of Thesis: Risk Management of Public Private Partnerships in Railway Projects in

Egypt
Key Words: Risk Management – PPP – Railway Projects – Infrastructure
Summary:
The use of Public-Private Partnerships (PPP) has become a common method for financing public
infrastructure projects. PPP projects rely on the use of private funds to finance the construction
and operations of infrastructure that would otherwise be delivered by the government. One of the
critical success factors for PPP projects is the effective management of risks between the
government and private sector. This research aims to identify risk factors and mitigation
strategies for railway projects that are delivered using the PPP approach.
To achieve this goal two questionnaires were designed in this research. The first questionnaire
was distributed to (36) experts and identified the relative importance of (64) risks factors that
were listed as potential risks in the literature. The second questionnaire was distributed to (20)
experts and identified the most effective risk mitigation strategies for the top ten risk factors that
were previously identified. Risk factors and mitigation strategies were analyzed statistically.
Results indicated that ten risk factors were considered the most significant. For each one number
of mitigation actions were determined. Such actions could be effective in mitigating risk impact
on railway projects in PPP contracts in Egypt.
A software tool was developed using Excel VBA to enable users to choose the mitigation actions
that achieves minimum project risks at the least possible mitigation cost.
 Table of Contents

LIST OF FIGURES ............................................................................................................ vi

LIST OF TABLES............................................................................................................ viii

DEDICATION..................................................................................................................... x

ACKNOWLEDGEMENT .................................................................................................. xi

ABSTRACT ...................................................................................................................... xii

1 CHAPTER 1: INTRODUCTION ................................................................................ 1

1.1 General ................................................................................................................... 1

1.2 Problem Statement ................................................................................................. 1

1.3 Research Objectives ............................................................................................... 1

1.4 Research Scope ...................................................................................................... 2

1.5 Research Methodology .......................................................................................... 2

1.6 Thesis Organization ............................................................................................... 3

2 CHAPTER 2: LITERATURE REVIEW ..................................................................... 5

2.1 Introduction ............................................................................................................ 5

2.2 Public-Private Partnerships .................................................................................... 5

2.2.1 Contractual Forms of Public Private Partnership ............................................ 8

2.2.2 Advantages of Public Private Partnership ....................................................... 8

2.2.3 Disadvantages of Public Private Partnership .................................................. 9

2.2.4 Milestones in PPP Project ............................................................................. 10

2.2.5 PPP Project in Egypt ..................................................................................... 10

2.2.5.1 Introduction ................................................................................................ 10

2.2.5.2 PPP Law ..................................................................................................... 13

i
 2.2.5.3 PPP Projects ............................................................................................... 13

2.3 Project Risk Management .................................................................................... 14

2.3.1 Risk Management Process ............................................................................ 15

2.3.2 Risk Management Approach ......................................................................... 15

2.3.2.1 Risk management planning........................................................................ 16

2.3.2.2 Risk identification ...................................................................................... 16

2.3.2.3 Qualitative Risk Analysis .......................................................................... 17

2.3.2.4 Quantitative Risk Analysis ........................................................................ 18

2.3.2.5 Risk Response Planning............................................................................. 18

2.3.2.6 Risk Monitoring and Control ..................................................................... 19

2.4 Risks in Public-Private Partnership Projects ....................................................... 19

2.4.1 Introduction ................................................................................................... 19

2.4.2 Risk in PPP Projects ...................................................................................... 21

2.4.2.1 Common risks ............................................................................................ 21

2.4.2.2 PPP-Specific Risks .................................................................................... 23

2.5 Previous Research Works .................................................................................... 24

2.5.1 Previous Research Works in Public Private Partnership Projects................. 24

2.5.2 Previous Research Works in Public Private Partnership in Infrastructure

Projects25

2.5.3 Previous Research Works in Risk management ........................................... 27

2.5.4 Previous Research Works in Risk Management of Public Private Partnership

Projects29

3 CHAPTER 3: RESEARCH APPROACH AND METHODOLOGY ....................... 31

3.1 Introduction .......................................................................................................... 31

ii
 3.2 Research Methodology ........................................................................................ 31

3.3 Risk Identification, Classification and Assessment ............................................. 32

3.3.1 Risk Identification ......................................................................................... 32

3.3.2 Risk Categorization ....................................................................................... 32

3.3.3 List of Risk Factor ......................................................................................... 34

3.3.4 Questionnaire (1) Design .............................................................................. 40

3.3.5 Questionnaire Sample Size ........................................................................... 41

3.3.6 Statistical Analysis of Risk Factors............................................................... 42

3.3.7 Calculation of the Significance Index ........................................................... 44

3.4 Risk Mitigation and Response ............................................................................. 44

3.4.1 Mitigation Actions for Risk Factors .............................................................. 45

3.4.2 Questionnaire (2) Design .............................................................................. 47

3.4.3 Calculation of the Relative Importance Index .............................................. 48

4 CHAPTER 4: RISK IDENTIFICATION AND ASSESSMENT FOR RAILWAY

PROJECTS: DATA PRESENTATION AND ANALYSIS ............................................. 49

4.1 Introduction .......................................................................................................... 49

4.2 Risk Identification and Classification (Questionnaire 1) ..................................... 49

4.2.1 Risk Factors Analysis .................................................................................... 49

4.2.1.1 Statistical Analysis Results for Probability of Occurrence ....................... 50

4.2.1.2 Statistical Analysis Results for Cost Impact .............................................. 53

4.2.1.3 Significance Index of Risk Factors ............................................................ 56

4.2.1.4 Checklists of Risk Factors According to Significance Index .................... 59

4.3 Risk Assessment .................................................................................................. 61

4.3.1 Natural Risks ................................................................................................. 61

iii
 4.3.2 Political / Government Risks ........................................................................ 62

4.3.3 Geo-technical Risks ...................................................................................... 62

4.3.4 Area Condition Risks .................................................................................... 63

4.3.5 Inadequate Information Risks ....................................................................... 63

4.3.6 Design and Construction Risks ..................................................................... 64

4.3.7 Financial Risks .............................................................................................. 64

4.3.8 Subcontractors Generated Risks ................................................................... 65

4.3.9 Owners Generated Risks ............................................................................... 65

4.3.10 Labor Risks ................................................................................................... 66

4.3.11 Material Risks ............................................................................................... 66

4.3.12 Equipment Generated Risks .......................................................................... 67

4.3.13 Operating Risks ............................................................................................. 67

4.3.14 Renewal and Maintenance Risks .................................................................. 68

4.4 Risk Mitigation and Response (Questionnaire 2) ................................................ 68

4.4.1 Results Analysis ............................................................................................ 69

4.4.1.1 Results of Statistical Analysis for Mitigation Actions .............................. 69

4.4.1.1 Checklists of Mitigation Actions According to Importance Index............ 72

5 CHAPTER 5: COMPUTERIZED RISK ASSESSMENT TOOL ............................. 85

5.1 Introduction .......................................................................................................... 85

5.2 Concepts ............................................................................................................... 85

5.2.1 Computerized System ................................................................................... 85

5.3 Software Description and Components: .............................................................. 86

5.3.1 System Interface ............................................................................................ 86

5.3.2 Input Data “First Sheet” ................................................................................ 87

iv
 5.3.3 Input Data “Second Sheet”............................................................................ 89

5.3.4 Input Data “Third Sheet” .............................................................................. 89

5.3.5 Processing...................................................................................................... 90

6 CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS ............................. 96

6.1 Introduction .......................................................................................................... 96

6.2 Conclusions .......................................................................................................... 96

6.3 Research Contributions ........................................................................................ 97

6.4 Key Research Recommendations ........................................................................ 98

6.5 Recommendations for Future Works ................................................................... 98

References ......................................................................................................................... 99

Appendix (A): Questionnaire (1)......................................................................................... 1

Appendix (B): Questionnaire (2) ....................................................................................... 11

Appendix (C): Sample Size ............................................................................................... 15

Appendix (D): Programming Code ................................................................................... 16

v
 LIST OF FIGURES

Figure 3-1 Flow chart of research methodology ............................................................... 33

Figure 3-2 Scale used of probability and impact ............................................................... 40
Figure 3-3 The standard normal distribution ..................................................................... 42
Figure 4-1 The coefficient of variation ............................................................................. 52
Figure 4-2 The coefficient of variation ............................................................................. 56
Figure 4-3 Top ten risk factors .......................................................................................... 69
Figure 4-4 Mitigation action impact for damage / theft rail risks ..................................... 73
Figure 4-5 Mitigation action impact for cash shortage risks ............................................. 74
Figure 4-6 Mitigation action impact for change currency risks ........................................ 75
Figure 4-7 Mitigation action impact for progress payment risks ...................................... 76
Figure 4-8 Mitigation action impact for inflation and interest rates risks ......................... 77
Figure 4-9 Mitigation action impact for utilities conditions risks ..................................... 79
Figure 4-10 Mitigation action impact for social impact risks ........................................... 80
Figure 4-11 Mitigation action impact for material storage risks ....................................... 81
Figure 4-12 Mitigation action impact for damage or failure risks .................................... 82
Figure 4-13 Mitigation action impact for inadequate government planning risks ............ 83
Figure 5-1 Tool diagram .................................................................................................... 86
Figure 5-2 System Interface .............................................................................................. 87
Figure 5-3 Risk factors ...................................................................................................... 87
Figure 5-4 Risk factors with significance index ................................................................ 88
Figure 5-5 The most important risk factors ....................................................................... 88
Figure 5-6 Mitigation actions with importance index for each risk factor ........................ 89
Figure 5-7 Main input of software tool ............................................................................. 90
Figure 5-8 Cost of mitigation actions ................................................................................ 91
Figure 5-9 Results of benefit-cost ratio and cumulative cost ............................................ 92
Figure 5-10 Descending rank for mitigation action .......................................................... 93

vi
Figure 5-11 Results sheet .................................................................................................. 94
Figure 5-12 result chart...................................................................................................... 95

vii
 LIST OF TABLES

Table 2-1 The Sequence of a PPP Project from Project Definition to Operation ............. 11
Table 4-1 The results of statistical analysis for probability of occurrence ....................... 50
Table 4-2 The results of statistical analysis for cost impact.............................................. 53
Table 4-3 The significance index (SI) of the risk factors .................................................. 56
Table 4-4 The checklists of risk factors according to significance index ......................... 59
Table 4-5 Ranking of the significance natural risks .......................................................... 62
Table 4-6 Ranking of the significance political / government risks................................. 62
Table 4-7 Ranking of the significance geo-technical risks .............................................. 62
Table 4-8 Ranking of the significance area condition risks ............................................. 63
Table 4-9 Ranking of the significance inadequate information risks ............................... 63
Table 4-10 Ranking of the significance design and construction risks ............................ 64
Table 4-11 Ranking of the significance financial risks .................................................... 65
Table 4-12 Ranking of the significance subcontractors generated risks .......................... 65
Table 4-13 Ranking of the significance owners generated risks ...................................... 66
Table 4-14 Ranking of the significance labor risks .......................................................... 66
Table 4-15 Ranking of the significance material risks ..................................................... 66
Table 4-16 Ranking of the significance equipment generated risks ................................ 67
Table 4-17 Ranking of the significance operating risks ................................................... 67
Table 4-18 Ranking of the significance renewal and maintenance risks ......................... 68
Table 4-19 The results of statistical analysis for mitigation actions ................................. 69
Table 4-20 Checklists of Mitigation Actions for "Damage / Theft Rail Risks"................ 72
Table 4-21 Checklists of Mitigation Actions for "Cash Shortage" ................................... 73
Table 4-22 Checklists of Mitigation Actions for "Change Currency Risks" .................... 75
Table 4-23 Checklists of Mitigation Actions for "Progress Payment" ............................. 76
Table 4-24 Checklists of Mitigation Actions for "Inflation and Interest Rates Risks" ..... 77
Table 4-25 Checklists of Mitigation Actions for "Utilities Conditions" ........................... 78
Table 4-26 Checklists of Mitigation Actions for "Social Impact" .................................... 79
viii
Table 4-27 Checklists of Mitigation Actions for "Material Storage" ............................... 80
Table 4-28 Checklists of Mitigation Actions for "Damage or Failure Risks" .................. 82
Table 4-29 Checklists of Mitigation Actions for "Inadequate Government Planning
Risks" ................................................................................................................................. 83

ix
 DEDICATION

To My Father… For His Endless Kindness

To My Mother… For Her Unlimited Love and Support

To My Sisters and Brother … For their support and

encouragement

To My Nephews and Nieces …. The Sweet roses in My Life

To My Angel BOSHRA

To Syria

DALIA SULIMAN ALMOHREZ