RISK MANAGEMENT IN PUBLIC-PRIVATE PARTNERSHIP AND OTHER MAJOR INFRASTRUCTURE PROJECTS

ABSTRACT

Any public infrastructure project, and especially a public–private partnership (PPP) project, is a complex project with many different obligations. It weaves together the interests of a wide range of participants: public and private partners, governmental authorities, and public organizations, the private partner’s shareholders, banks, and other financing entities, contractors, suppliers, operators, and insurers, as well as the interests of third parties such as consumers, and public organizations affected by the project in one way or another.These circumstances predetermine the large number of risks the private and public partners face in implementing a project, including construction and operating risks, tax, financial, market, political, legal, information, and other risks.Many of these risks are manageable and can be prevented or identified at the stage when they can be kept from materializing and resulting in specific adverse consequences such as breach of obligations and, in the worst-case scenario, default on the project. Both the private and the public partner should consider and control these risks. Proper risk management is also an important factor in reaping financial and operating benefits.The article’s objective is to promote modern approaches to risk analysis and risk-oriented decision-making when implementing PPP projects.

Notes

1. United Nations Commission on International Trade Law. Public-private partnerships (PPPs): Proposed updates to the UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects (revised chapters I and II). P. 24. https://undocs.org/en/A/CN.9/982/Add.2

2. See: Timothy C. Irwin. Government Guarantees Allocating and Valuing Risk in Privately Financed Infrastructure. 2007. P 49. Nevitt and Fabozzi define risk as “instability; uncertainty about the future; more specifically, the degree of uncertainty involved with a loan or investment.” (Nevitt, Peter K., and Frank J. Fabozzi. 2000. Project Finance. 7th ed. London: Euromoney Books. P. 428).

3. See, e.g.: Bazhenov, A.V. Use of the Public-Private Partnership Mechanism as a Catalyst of Anti-Crisis Potential for Developing Infrastructure. In Public-Private Partnership: Ways of Improving the Legislative Framework. A.A. Zvereva (ed.). Moscow, 2009. P. 25 (in Russian).

4. Klijn E.-H. and Teisman G.R. Governing public-private partnerships. Analysing and managing the processes and institutional characteristics of public-private partnerships in S.P. Osborne (ed.) Public-Private Partnerships. Theory and practice in international perspective. London, 2000. P. 85; Public-Private Partnership in Russia and Foreign Countries: Legal Aspects. V.F. Popondopulo and N.A. Sheveleva (ed.). Moscow, 2015. P. (in Russian); Belitskaya, A.V. Legal Definition of Public-Private Partnership. In Zakonodatel’stvo. 2009. No. 8. P. 42 (in Russian).

5. Adopted in St. Petersburg on November 28, 2014 by Resolution 41–9 at the 41^st plenary session of the Interparliamentary Assembly of CIS Member States.

6. For more detail, see: http://www.p3week.ru/forum-2018/programma/den-2.

7. https://www.pmi.org/-/media/pmi/documents/public/pdf/learning/thought-leadership/pulse/pulse-of-the-profession-2016.pdf

8. https://www.offshoreenergytoday.com/ey-oil-gas-megaprojects-exceed-budgets-cost-overruns-at-500b/

9. https://www.wrike.com/blog/complete-collection-project-management-statistics-2015/

10. http://www.globalconstructionreview.com/perspectives/centurys-most-troublesome-construction-pr8oje8ct8s/

11. See: the New Zealand Treasury’s Public Sector Comparator and Quantitative Assessment https://treasury.govt.nz/sites/default/files/2015-10/ppp-public-sector-comparator-sep15.pdf

12. PPP Reference Guide - Version 3, International Bank for Reconstruction and Development. Washington, DC: World Bank. 2017. https://library.pppknowledgelab.org/documents/4699/download. P. 129–132.

13. Value-for-Money Analysis Practices and Challenges: How Governments Choose When to Use PPP to Deliver Public Infrastructures and Services. Washington, DC: World Bank. 2013. P. 23–28.

14. Ibid., and Public-Private Partnerships: In Pursuit of Risk Sharing and Value for Money. Paris: Organisation for Economic Co-operation and Development. 2008. P. 71–72.

15. PPP Reference Guide - Version 3, International Bank for Reconstruction and Development. Washington, DC: World Bank. 2017. P. 131; National Public Private Partnership Guidelines - Volume 7: Commercial Principles for Economic Infrastructure. Canberra: Australian Government, Department of Infrastructure and Regional Development. Section 2.3.

16. Ministry of Economic Development of Russia Order No. 894 of November 30, 2015, “On Approval of the Methods for Evaluating the Performance of a Public-Private Partnership Project and/or a Municipal-Private Partnership Project and Determining Their Comparative Advantage.”

17. Edward Farquharson Clemencia Torres de Mästle and E.R. Yescombe with Javier Encinas. The World Bank. How to Engage with the Private Sector in Public-Private Partnerships in Emerging Markets. Washington. 2011, pp. 38–40.

18. Ibid. P. 38.

19. Ibid.

20. Timothy C. Irwin. Government Guarantees Allocating and Valuing Risk in Privately Financed Infrastructure. 2007. P. 56.

21. See: Edward Farquharson Clemencia Torres de Mästle and E.R. Yescombe with Javier Encinas. The World Bank. How to Engage with the Private Sector in Public-Private Partnerships in Emerging Markets. Washington. 2011, p. 38–40.

22. See: https://riskacademy.blog/2017/01/14/my-favourite-risk-management-books/

23. See: https://www.researchgate.net/publication/266666768_The_Risk_of_Using_Risk_Matrices

24. See, for example, the requirements to risk management, internal control and internal audit in a public company established in Russia by Federal Law No. 209-FZ of July 19, 2018 “On Amending the Federal Law ‘On Joint Stock Companies.’”

Additional information

Notes on contributors

Alex Sidorenko

Alex Sidorenko is an expert with over 15 years of private equity, sovereign wealth fund risk management experience across Australia, Russia, Poland and Kazakhstan. In 2014 Alex was named the Risk Manager of the Year by the Russian Risk Management Association. Alex specializes on integrating risk management into strategic and investment planning and decision making at venture capital, private equity, investment authorities and sovereign funds across the world. Alex worked as a Head of Risk Management at RUSNANO, one of the largest private equity funds in Russia, specializing in technology investment. Alex won an award for best ERM implementation at RUSNANO in 2014.As a VP at Institute for strategic risk analysis in decision making, Alex is responsible for risk management consulting, training and certification across Russia and CIS. Alex is the co-author of the global PwC risk management methodology, the author of the risk management guidelines for SME (Russian standardization organization), risk management textbook (Russian Ministry of Finance), risk management guide (Australian Stock Exchange) and the award-winning training course on risk management (best risk education program 2013, 2014 and 2015).In 2012 Alex created RISK-ACADEMY www.risk-academy.ru a web portal dedicated to risk management training across Russia and CIS. Since then RISK-ACADEMY became a global brand providing risk management services to some of the largest organizations in the world.Alex recently published his second risk management book called “Effective Risk Management 2.0”. Alex also regularly presents at risk management conferences in the Middle East, Russia and Europe. In November 2012 Alex short a TV series dedicated to risk management in start-ups. Alex teaches risk management at major Russian business schools as well as corporate universities.

Vladimir Kilinkarov

Vladimir Kilinkarov, for more than 10 years, he has advised public authorities and investors on various aspects of structuring, preparing and implementing concession and other PPP projects in Russia (roads, transportation, healthcare, IT, housing and utilities, education and science), on issues of improving federal and regional PPP legislation, preparing and implementing domestic and international business projects, foreign investment, corporate law and M&A transactions. Before joining Dentons Vladimir headed the PPP practice at a Russian law firm as a partner. Vladimir is a recognised international expert in PPPs. He is a member of a drafting team of the United Nations Economic Commission for Europe for preparing a UNECE model law on public-private partnerships, he has also participated in development of the new UNCITRAL Legislative Guide and Model Provisions on PPPs. Vladimir is a member of a number of expert councils in the major Russian associations and institutes for PPPs and infrastructure, including the Ministry of Economy, Ministry of Digital Development, National PPP Centre. Vladimir regularly speaks at parliamentary hearings on developing PPP legislation and is involved in developing national and international legal acts in this field. He has authored articles and books in Russian and English on PPP issues; he speaks at Russian and international conferences and workshops. He holds a PhD in Law and lectures at the Law School of the St. Petersburg State University. He is a head of the postgraduate program on legal aspects of PPPs in St. Petersburg State University.

Alexey Belkov

Alexey Belkov, PMP, CRMP, AT31000, 10+ years experience in Risk Management, Project Management & Project Controls (Oil & Gas, Capital Construction): In addition to the basic financial education/degree in economics has a degree in capital construction as a must to be a competitive specialist and got the level of his position in the company. Project Manager of several well-done projects (IT+finance/investment processes, capital construction, internal organizational projects, development and implementation of effective project management and project controls tools, building risk oriented decision making process in the company). 8 years experience in Industrial & Civil Construction. 6 years experience in Gas & Oil industry. 3 years experience in international projects. Including work and living in Dubai (Tekom Zone till the end of 2016). Developed the risk management process in the number of GAS & OIL Companies, tools and methodology meet the best international practices and the international ISO 31000 standard. The author of a number of publications on risk management. The author of the training course – «The basics of the risk management». An expert in the schedule risk models preparation and modeling/ simulating. Risk manager of the Year” (Gazprom Neft nomination).