Risk mitigation in ppp projects
Risks pertaining to the effective legislation. Careful analysis of specific risks applicable to PPP projects is essential while implementing projects in emerging countries, such as Ukraine, with no developed legislation or established court practice in this sphere. Unlike countries with more developed financial markets, Ukraine has little to offer in terms of possibilities to mitigate such currency risks.
These issues will be addressed in the intercreditor arrangements. In the neighbouring CIS countries such schemes are implemented under laws applicable to lease.
These banks have agreed not to lend to projects that do not comply with the Equator Principles.
The effective Ukrainian laws do not foresee such type of cooperation as "private public partnership". Environmental due diligence in respect of such projects and in respect of the legal regime within which they are being constructed, and an appreciation of the environmental requirements of public agencies which will be involved with the project, are crucial if the project company and lenders are to make a proper assessment of the risks involved.
EBRD sector factsheet www.
The lenders and project company often look to the grantor to manage this risk. However, to the best of our knowledge, no concession of highway under state guarantees was entered into last year. As a rule, this risk is borne by the actual operator of the facility.
Afterwards, it may put the whole project under a question unless the PPP contract is re-negotiated.
Key risks in project finance- part i
Upon analysis of other laws it appeared that water, heating and sewage infrastructure may be considered as "engineering infrastructure". Risk related to tariffs6 should be also analyzed when entering into a PPP. Restrictions imposed by insurers and at law will need to be considered in this context. Similarly, if hedge counterparties get paid out if they suffer a loss when they close out their hedge, then lenders will argue that they should share any windfall profits. For example, exposure to foreign exchange risk can be mitigated by swapping currency requirements with another market participant. Unlike countries with more developed financial markets, Ukraine has little to offer in terms of possibilities to mitigate such currency risks. Nevertheless, such insurance is possible only to certain extent and it does not apply to wide range of global risks such as war, crisis, revolution, etc. To the extent that hedge counterparties benefit from project security, in theory their hedges should also be limited recourse. The concession started in , however, due to the fact that traffic volume and, as a result, revenues were less than it was originally forecasted, partners implemented a risk-sharing provision whereas the public partner partially assumed the risk of insufficient volume risk and provided subsidies. This is contrary to the interests of the lenders and will be a heavily negotiated issue.
based on 49 review