Categories

Description

Procedures of consequences 
alleviation

The responsible entity

Risk related to the failure to provide services in the manner agreed upon under the contract

The services provided by the private sector may not meet the required conditions or conform to the specifications issued by the governmental authority responsible for providing the service

•  Putting clear and accurate outputs of the specifications.

•  Monitoring the Performance 

•  Imposing penal deductions from the payments released per unit/ for each unit separately

The private partner

Risks related to the project work completion

The completion of works required under the project may be:

1- Delayed, so that it is not be possible to start providing services according to the planned schedule.

2- Delayed, unless greater costs are incurred to fulfil the date scheduled to start providing services.

3- Delayed because variations

•  Monitoring the Performance

•  Providing special insurance coverage (against the delay in the project execution)

•  Appointing an independent and specialized entity to approve the project completion

•  Liquidating damage, construction warranties and other appropriate warranties provided by the private partner as incentives for project completion, unless the Federal Entity sponsoring the project is responsible for the delayed in completion 

•  Cases of rescue and providing help.

The private partner - unless delay is attributed to events of force majeure or the Federal Entity sponsoring the project.

Risks related to exceeding the scheduled costs

The actual costs of the project during phases of design and construction may exceed the expected costs of the project as per its feasibility studies

•  Drafting construction contracts with fixed prices

•  Developing conditions relating to emergency plans

•  Providing alternate credit facilities / liabilities pertaining to rights of additional shares paid in advance and expected in the financial model of basic cases

The private partner

Design-related risks

The design developed by the private partner may be inconsistent with the specifications of project outputs

•  Preparing clear specifications for the project outputs

•  Verifying design

•  Defining the responsibilities for clear and latent defects

•  Consulting the responsible Federal Entity and keep it informed of work progress (provided that such consultation shall not result in the provision of outputs for specifications by such entity).

•  Referring and appointing independent expert to settle the disputes promptly and effectively.

The private partner

Environmental risks

Possibility to afford consequences of the losses caused by environmental damage arising from:

1-  Works of construction or operation (kindly refer to the clause of operational risks) during the project period; or

2-  The works performed by the Federal Entity or third party before transferring the responsibility for the project to this private partner. The above works are not attributed to the private partner or the main partners working therewith under subcontracting agreement.

• Bidders must perform due diligence by conducting extensive studies and necessary researches about the project and conditions prevailing in worksite. This matter can be done by considering all financial, technical and contractual aspects and reading all documents, contracts, agreement and information provided by the Federal Entity sponsoring the project.

•  Conducting a survey about the project site at cost price through an independent entity appointed by the sponsoring entity.

•  Compensating for the hidden environmental pollution that occurs before the project transfer, provided that compensation shall be provided by the competent Federal Entity according to certain limits (as per considerations of value for money) and for definite period.

•  Taking the necessary corrective steps to handle the problems of environmental pollution identified before transferring the project to the private partner. The above steps shall be taken as one of the project's specified outputs. 

•  Corrective works shall be controlled by independent entity

As for Point (1): The private partner.

As for Point (2): the sponsoring Federal Entity, but the limit of its responsibility is specified as per the considerations of value for money.

Risks of exchange rates

The fluctuations of exchange rates may affect the expected value of inputs imported to construct or operate the project

Providing means and tools of protection against financial losses (for example resorting to means of barter)

The private partner

Risks of force majeure or circumstances outside the reasonable control

Unforeseen events beyond the reasonable control of both parties may occur (Whether such events are natural or manmade), in a manner would affect the activities of project construction or operation

Defining the force majeure properly in a manner that excludes the insurable risks (can be covered by insurances) that may be addressed through other mechanisms, such as taking the necessary relief events (relief events)

Terminating the project due to the events of force majeure or circumstances beyond the reasonable control of both parties.

As for the insurable risks, they shall be included in risks of force

As for the uninsurable risks, they are shared between both sectors. The sponsoring entity may pay a limited compensation upon project completion.

Inflation risks

Actual inflation rates may be higher than the expected ones. These risks become more obvious in the operational phase of the project.

Introducing amendments to the projects that use the method of payment per units (On the basis of each unit separately) or method of charging users or beneficiaries of the services provided under the project, provided that such amendments shall be linked to indicators.

The sponsoring entity shall afford the increase risks resulting from inflation of the agreed upon rates, and what so exceeds shall be afforded by the private partner.

Risks related to the cancellation of partnership or liquidation and dissolution of the private partner

The company may be dissolved or the private partner may be liquidated.

•  Establishing a unit with specific purposes to contain the project cash flows/liquidity.

•  Providing insurance cover and warranty for the project necessary assets.

•  The restrictions of private sector regarding indebtedness and credit and finance restrictions.

•  Obligations of notification regarding the financial data and information and judicial lawsuit or dispute with creditors.

•  The federal entities is entitled to terminate the agreement of partnership with the private sector.

•  Replacing private partner by another new one by virtue of a direct agreement.

•  Replacing private partner by another new one in the event that there is a liquidity in the market, provided that offering the project again in a new bid.

The private partner

Risks of insurances

The following may occur:

1.  Any risk insurable at the time of signing the project contract under agreed insurance cover may become uninsurable.

2.  There is remarkable increases in the rates of insurance premiums

In the first case, and at the sole discretion of the Federal Entity, coverage shall be provided in the form of self-insurance submitted by the Federal Entity itself, or the PPP contract shall be terminated if it is not possible to provide insurance, like the termination due to events of force majeure and alike, subject to compensating the private partner. Precautions

As for the first case, if the private partner is the one who causes the insurance impossible or flails to provide insurance or fails to prove that there are similar activities will not proceed without insurance (the subject matter of discussion), the private partner shall be held liable for the risk, otherwise the private partner and the sponsoring federal entity shall assume the same. As for the second case, the private partner shall be responsible for risk (unless there are reasons relating to regular complexities or reasons attributed to the sponsoring entity)

Risks of Interest rates

There are factors may affect the availability of financial credits and costs of finance

Providing means and tools of protection against financial losses (for example resorting to means of barter) Borrowing at fixed interest rates

The private partner

Risk of latent defects

losses or damage may result from latent defects or deficiencies hidden in the fittings and facilities, including the project assets (kindly compare the addressing latent environmental pollution that occurs before transferring the project responsibility to the private partner - Kindly refer as well to the clause of environmental risks)

Facilities must be, as far as possible, designed and constructed by the private partner unless the project requires handing over the currently existing facilities to the private partner. In such case bidders must perform due diligence through conducting extensive studies and necessary inspection of facilities so that it be possible to detect shortcomings. As for the procedures and costs pertaining to the detected shortcomings, a prior agreement may be concluded with the private partner about them.

The private partner shall immediately report the detected defects

If the private partner (or any main partner works under subcontract) assumes the works of design and fittings, it shall bear the consequences of such risk; Otherwise, the sponsoring Federal Entity shall bear the same, provided that there is no insurance coverage sufficient to mitigate the consequences of such risk. If the sponsoring Federal Entity's responsibility is limited, reference shall be made then to the considerations of value for money

Maintenance risks

1-  The maintenance necessary for keeping assets in a proper condition for providing the required services may require higher costs than those set out in the project prospections.

2-  Maintenance may be not conducted at all.

•  Preparing clear specifications for the project outputs

•  Applying a system of penalties and performance monitoring

•  Preparing an operation and maintenance contract includes and satisfies all the requirements of the sponsoring Federal Entity.

•  The sponsoring Federal Entity shall preserve its right to replace the private partner.

•  Providing a special insurance coverage and warranties in the form of final warranties of maintenance

The private partner

Risks related to supply and demand, service size or market mechanism

Demand for the services provided under the project may be below expectations or the desired rate (for example, absence of the need for such services, expiry or low level of their demand, market competition or the objection of clients to the services provided by the main external partners.

•  As for the PPP projects in which the payments are made per unit, payment must be based on the availability of service (not on the basis of actual usage by the Federal Entity sponsoring the PPP project)

•  Applying effective plan with clear objectives to market the services in question.

As for the projects financed on the basis of payment per unit, the sponsoring Federal Entity shall be responsible for such risk.

As for the projects financed by charging fees on the project users or beneficiaries, the private partner shall be responsible for such risks.

Operation risks

All factors that may affect the project operation requirements, including the expected costs of operation, the required skills of operation and alike (except for force majeure), such as:

1-  Labor disputes

2-  Employees' capabilities and level of efficiency

3-  Acts of fraud and forgery committed by the employees.

4-  Shortcomings of the technical field

5-  Environmental factors

6-  Failure to obtain the approvals required to conduct the necessary maintenance and fulfil the requirements needed in this regard.

•  Preparing clear specifications for the project outputs

•  Applying the system of penalties and performance control

•  Preparing an operation and maintenance contract includes and satisfies all the requirements of the sponsoring federal

•  The sponsoring Federal Entity shall have the right to replace the private partner.

•  Providing special insurance coverage

The private partner

Planning risks

The proposed usage of project site under the terms and conditions included in the agreement of public-private partnership, specifically regarding the establishment of facilities and fittings in the project site, may conflict with the laws and regulations applied in the field of planning and usage of lands, properties or buildings (such as the requirements of cities planning and urban planning) or with any other requirements or approvals needed under the foregoing; 

delay or failure to obtain the necessary approvals or even if such approvals are obtained, the project will be executed at a cost much higher than the original costs expected under the project plans

The competent Federal Entity must show all unnecessary approvals on the detailed proposal of design, building and constructions in the project regarding the large scale planning so as to identify such cases in the phase of feasibility study of the project. The above approvals include all approvals relate to the land utilization and identification of areas. The approvals must be obtained before offering the project in the bid. The private partner shall identify all cases of planning needed in the project and require the competent authorities' approval regarding the proposal of design and constructions of the project, which authorities must take all procedures and precautions and include the same in their work schedule to arrange for the obtainment of approvals from the above authorities.

Taking immediate remedial actions regarding the delay of Private Sector's representative, unless the private partner is not responsible for such delay

As for any approval on area identification and land utilization, the Federal Entity sponsoring the project shall be held liable for the risk, unless the private partner is responsible for selecting the project site.

As for all approvals on any identified planning, design, constructions and buildings, the private partner shall be held liable for this risk.

Systemic risks/ risks related to practical measures

The following may occur: 1- The federal entities or any governmental authorities may take unexpected acts that have a severe negative effect on the expected revenues from the rights of contributing in the project or service of debts and credit, or in any way results in increasing the costs incurred by the private partner. 2- Expropriation, nationalization or privatization/ transfer to the private sector/ (collectively referred to as expropriation) of the assets acquired by the representative of private partner in the relationship of partnership with the public sector in this project.

This risk intervenes with some financial risks (such as changes of tax fees)

Determine the risk of the unexpected and unconsidered behaviours and acts that have no other output in the agreement of public-private partnership and determine the risk of the behaviours that result in expropriation.

Distinguish between the general acts and discriminatory acts that cannot be expected.

As for the unexpected discriminatory acts, a special compensation shall be granted.

As for the acts that result in expropriation, the project shall be ended and compensation shall be granted.

As for any unexpected discriminatory act or any act results in expropriation of public interest for example, the Federal Entity sponsoring the project shall be held liable for such risk. As for the unexpected public acts, the private partner shall be held liable for such risk.

Organizational risks

The necessary approval may be delayed or cannot be obtained, or even if such approval is obtained, the project will be executed at a cost much higher than the original costs expected under the project plans. (kindly compare with the method of dealing with the approvals of planning and environmental themes and review the content of risks of planning and environment in this matrix)

legal survey/study about the project legal aspects by the Federal Entity during feasibility study phase to identify the above mentioned approvals.

The Federal Entity shall take all necessary actions by coordination and consultation with different competent governmental authorities prior to the commencement of purchase phase. 

The private partner must perform due diligence to identify the approvals needed to fulfil the operational requirements.

Obtaining all necessary approvals before concluding the project contract If it is permissible under the applicable laws and regulations and if so is practically possible.

If it is possible to obtain any approvals (unlike approvals of operational requirements of the private partner) before concluding the contract and if it was possible to transfer the same to the private partner, the Federal Entity sponsoring the project shall be held liable for such risks. As for the operational requirements of the private partner, the private partner shall be held liable for the same.

Risks of facilities and equipment.

Project assets may not be in the agreed condition to be returned them to the Federal Entity sponsoring the project upon expiration or termination of the relationship of partnership with the private partner

The private partner must fulfill its obligations of maintenance and repair.

The project assets must be checked and revised when the project is about to end.

The private partner must provide a guarantee to the Federal Entity responsible for the project. The guarantee may be, for example, in the form of final guarantees of maintenance or deductions from the payments made on the basis of units. Imposing obligations on the private partner

The private partner

Risks of inputs or resources

Shortage of supplies related to the project's inputs or resources (including financial credits) may occur, or there may be inability to provide the supplies needed to operate the project, including the defects related to the level of quality of the available resources.

Concluding supply contracts to fulfil the project requirements, such as the contracts based on direct supply for immediate payment (take and pay).

Taking prompt actions of assistance only in the event of shortcomings not falling under the responsibility of the private partner.

The private partner, unless the inputs are obtained from the Federal Entity sponsoring the project

Risks of liquidating the subcontractor's business or the failure of such subcontractor to fulfil its contractual obligations. These risks may arise in phases of construction and/ or operation.

The main partners working in the project under subcontracts must enjoy the necessary skills, knowledge and experiences and show spirit of responsibility to properly and satisfactorily fulfil the contractual obligations assumed thereby regarding the desired level performance.

Obtaining prior consent of the Federal Entity in charge of the project with regard to subcontracting with alternative main partners.

The responsible Federal Entity shall perform due diligence by conducting extensive studies that include reviewing the data of first-class subcontracting partners to make sure that they can overcome the risks they encounter.

The private partner

Changing the applied tax fees (for example, income tax or value added take "VAT") or imposing new taxes may result in reducing the expected revenues from the rights of contribution in the project.

If changes result from unexpected discriminatory acts or behaviors, a special compensation shall be granted then.

With regard to tax increase or imposition of new taxes due to unexpected discriminatory acts or behaviours, the Federal Entity sponsoring the project shall be responsible for such risk; otherwise, it shall be the responsibility of the private partner.

The following may occur:

1- The technical inputs of the activities assigned by the governmental authority to external contractors may fail to provide inputs that comply with the required specifications.

2- The technical inputs may not cope with the modern updates and advances in the field of technology (Risk relates to the technical obsolescence of technology or its inability to keep pace with the technical advances)

The private partner must, from time to time, update the technologies used in the project to keep pace with advances and to fulfil the project specifications and requirements.

Apply penalties in case of the failure to comply with the specification of project outputs

The private partner

The following may occur:

1-  The services needed to construct and/ or operate the project (such as water, electricity and gas) may not be available.

2-  Completion may be delayed due to the delayed removal of the facilities existing in the project or changing the site of such facilities.

Providing back-up equipment for emergencies, such as power generators.

Entering into contracts of supplies for emergencies

Providing a special insurance cover (for delayed completion or insurances for service interruptions or work stoppage)

The Federal Entity in charge of the project of partnership with the private partner must secure connections outside the project site.

In case No.1, prompt remedial actions shall be taken to handle cases of interruptions outside the project site regarding the supply of demands (unless the private partner is responsible for such stoppage. In case No.2, prompt remedial actions shall be taken while removing the facilities or changing their sites (unless the private partner is responsible for such stoppage)

The private partner in the project of partnership with the public sector unless the Federal Entity sponsoring the project is responsible for facilities or it is the facility itself.

In the first case and even if the sponsoring Federal Entity is not responsible for facilities, the responsibility for risk shall be shared between such Federal Entity and the company or private partner in case of non-availability or inability to obtain insurances, provided that such action shall ensure better results in terms of value for money