Equitable Risk Allocation For Public-Private Partnership Projects In China

Public-Private Partnership (PPP) financing modality has the ability of alleviating the budgetary pressure to the government, fulfilling the need of infrastructure development, and improving the efficiency of investment and operation. However, the negotiations between the government and the investors are time-consuming and costly, due to the persperctive differences in risk allocation and revenue distribution. Disputes often arise during concession period because of changes in various risks or non-performance of its obligations, especially when one sector was forced to accept the requirements by the other as a result of the unequal status, the project urgency or other reasons. Only a few PPP projects in China could perform successfully. There is therefore a need to develop an equitable risk allocation mechanism for the delivery of PPP projects in China so as to improve the efficiency of private investment in infrastructure development.A risk register of fourteen country level risks, seven market level risks and sixteen project level risks was firstly identified and adopted to explore the equitable risk allocation. The main characteristic of the identified risks is their significance to the project success but unclear allocation preferences. These risks thus included principal risks encountered in the Chinese past PPP projects, risks with varied views regarding their preferred allocations in the previous relative surveys, and risks with different allocation suggestions in those existing foreign risk allocation schemes.A two-round Delphi survey was conducted to analyze the risks, their relative importance and preferred allocations for PPP projects in China. An observation which can be made from the mean calculation is that most risks were rated higher for the consequence compared to those for the probability. The significance scores of country level and market level risks are much greater than those of project level risks. This observation may reflected that the Chinese PPP market is currently under development with unmature legal and economic systems. The results also show that the public sector would take the majority of responsibility for country level risks, the private sector would take the majority of responsibility for project level risks, and risks at market level are preferred to be shared equally.A comparative analysis of preferred allocations from Delphi survey and actual allocations from thirty-eight past PPP projects collected by a round of face to face interviews was then carried out. The results show that there is a significantly negative relationship between the project performance and the diversity between actual and preferred allocations, which yet again reinforces the rationale of risk preferred allocations. By comparing the actual and preferred allocations in all sectors and each sector, this dissertation proposed an equitable risk allocation scheme for both all sectors and each specific sector. Influencing factors for risk allocation were then identified and formed into an allocation adjustment framework by comparing the actual and preferred allocations in each project. In order to improve the applicability of the findings, recommendations on commercial principles and contract terms between the public authorities and private consortia are also provided.