Managing risks to PPPs is essential for preventing potentially large and long-term damage to projects. A vital element of PPP risk management is the ability of governments to choose optimum trade-offs among schemes to maximize benefits, minimize risks, and assess future risks. Governments tend to lean toward risk-averse choices, leaving their private sector partners in such a risky position that negotiations can fail or governments end up bearing excessive liabilities, which will likely reinforce their adversity to risk.
The assessment of future liabilities is complex, since it is not only determined by the capabilities of involved entities but also by external factors, such as macroeconomic conditions and changing economic structures. To anticipate this, Indonesia set up the Directorate of Government Support and Infrastructure Financing Management under the Ministry of Finance's Directorate General of Budget Financing and Risk Management. In setting up the unit, the government recognized that PPPs could expose the state budget to contingent liabilities that could turn into future fiscal risks. The unit, however, does not have a special risk-mitigation agency to monitor PPP projects, a similar situation to other countries in the region. Instead, risk mitigation is done during the procurement process. That no mitigation mechanisms are used during project implementation is a worrying omission because problems can occur at any stage of the process. It is important that problems are fixed to prevent them from turning into a series of failures that can collapse an entire project.