Risks form an integral part of every project, and the cost of assuming these risks must be borne by some party. In a traditional public procurement, many of the risks, such as the risks of delays and cost overruns, may be borne by the government. Under the Privatization option, however, the risks of delays and cost overruns (among others) are passed on to the private sector. An accurate cost comparison must therefore consider the cost impact of this risk transfer.
As part of the Qualitative Analysis conducted in the Second File, a risk analysis and allocation assessment from a value for money perspective was performed. In calculating the PSC, the Work Team shall revisit the risk analysis it conducted as part of the Second File. It shall select the most important risks based on the potential impact of these risks on the cost and income estimates, e.g., resulting in delays in the project and/or an increase in project costs, and value them to adjust the PSC accordingly.
The risk adjustment is required because the two cash flows need to reflect, as far as possible, identical risk profiles from the government's perspective. For example, if the construction risk is transferred to the private partner under the proposed Privatization scheme, the PSC needs to reflect the costs related to bearing the construction risk, and the economic consequences of possible construction cost overruns should be included in the PSC.