Allocating risk, in the context of a PPP, means deciding which party to the PPP contract will bear the cost (or reap the benefit) of a change in project outcomes arising from each risk factor. Allocating project risk well is one of the main ways that PPPs can achieve better value for money. Iossa et al [#159, page 20] describe two main goals of risk allocation. The first is to create incentives for the parties to manage risk well-and thereby improve project benefits or reduce costs. The second is to reduce the overall cost of project risk by 'insuring' parties against risks they are not happy to bear. Box 3.8: Allocating Land Acquisition Risk-commonly a significant risk for PPP projects.
Box 3.8: Allocating Land Acquisition Risk Land acquisition can be one of the most challenging aspects of developing a PPP project-delays in obtaining land have created significant hurdles or even blocked some promising PPP projects. There are many options for dealing with this risk associated with land acquisition delays or difficulties. Some governments adopted a policy of freeing land before launching a project to the market, thereby accepting and taking this risk out of the contractual equation-such as for transport projects in India. Others allocate to the private party the responsibility for identifying the plots of land that will be needed for the project, and for undertaking the necessary processes to acquire that land. Still others prepare carefully the land acquisition process, detailing the need for land and the identification of owners, but then transfer to the private partner the responsibility for actually obtaining the land. The best option may depend on circumstances-not least the prevailing legislation regarding compulsory acquisition of land. India's Toolkit for Highways, in its Module 3: Tools and Resources, presents several good and bad examples of how to handle land acquisition. Jonathan Lindsay's paper [#176] discusses compulsory land acquisition in detail. |