• Developmental risks: such as the quality and comprehensiveness of preparatory tasks (which may result in problems at a later stage, if not well conducted), conduct of the procurement process in a transparent manner, obtaining various statutory and regulatory clearances, acquisition of land (where required) and getting the buy-in of key stakeholders, could be addressed to a large extent through credible project development studies and the conduct of a transparent bidding process. Some of these are also specified as conditions precedent in the concession agreement.
• Sponsor risks: in order to ensure that private partners of the required experience and financial capability are selected, the qualification process is important and qualification parameters should be appropriately specified so that there would be sufficient competition and yet ensure that only bidders of the desired capability are selected to implement the project. The concession agreement also has clauses which set out certain minimum equity-holding commitments for the sponsors to ensure their continued commitment to the project.
• Counter party risks: where the Government is a counter party either for payment, supply of key inputs (MSW for instance) or purchase of project outputs (water or power for instance), it may require certain arrangements to be in place, such as dedicated funds to be created (just as the Government of India set up the Central Road Fund), special taxes to be levied to raise additional revenue for paying for these services (cess on fuel or for solid waste management) or ring fencing of revenues (as was done for the initial power generation projects). In some cases certain assurances may need to be given (minimum level of MSW to be supplied or power to be purchased or standing charges to be absorbed) with penalties in case of non-compliance. Credit enhancement mechanisms such as letters of credit (L/Cs) or guarantees (in the initial annuity projects - a L/C covering one annuity was provided by National Highways Authority of India to the concessionaire) may be necessary. This risk would need to be suitably addressed and the arrangements may need to be put in place as part of the development process itself.
• Another early project risk is associated with changes in the project contours. This happens when project studies are conducted post award of project and the data that emerges changes the parameters of the project considerably.