The Key Element of PPP: Risk
The amount of risk transferred to the private operator must be enough to create the incentives that enhance the efficiency of delivery. But transferring risk has a cost in terms of increased finance costs. These affect the scale of the unitary charge, and hence only those risks that can be identified, managed and mitigated by the private operator should be allocated to them. Risk is also, in some jurisdictions, a crucial variable in terms of contract qualification and accounting treatment, and it must therefore be assessed objectively in both financial and economic appraisals. In this chapter, the key dimensions of risk assessment in these contexts are analysed in detail.
KeywordsRisk cost finance costs rate of return financial appraisal economic appraisal
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