The risks involved in PSP for both the public sector and the private operator will be evaluated with the objective of identifying the main factors that could mitigate such risks and thus it will increase the likelihood of private sector participation. To reduce the risk for the public sector that services supplied by the private sector would not be in accordance with the desired standards. All interested participants will be prequalifed to ensure that only capable, qualified firms would eventually participate in the bidding process. To reduce the risk for the public sector that the cost of such services would be much higher than that currently charged by the public entity, a careful evaluation of the technical and economic feasibility of the venture will be carried out prior to issuing the bids and to ensure maximum transparency of the bidding process. As for the private participants, the technical and commercial risks will be mitigated by providing potential bidders with all the available information on the system and by changing existing legislation and policies, if necessary, to ensure payment for services provided and to permit cutting off the service in case of non-payment. Ensuring free convertibility of foreign currency will reduce the financial risks. Finally, the legal risks will be reduced by introducing in the concession contract clear clauses on arbitration or other modalities of resolving disputes. The basic approach to risk management should be based on the principle that the party best able to manage a risk at least cost should mitigate it. It may be necessary to unbundle the various risks so as to determine which participant is best placed to manage which risks at the lowest cost and how the cost of risk mitigation can be shared equitably.
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