A Study Of Financial Risk Management In PPP Project

PPP (Public Private Partnerships) mode as a new kind of project financing pattern, designed to combine the policy supports from the public sector and the advantages of abundant fund, advanced management skills and rich managerial experience from private investors together to achieve complementarity, has opened up new investment channels to China's current private investors to participate in the construction of public infrastructure ,and will help alleviate the financial pressure on public finances and improve the quality and efficiency of public products and services.Because the public infrastructure construction projects adopting PPP mode usually have the characteristics of enormous investment, high-leverage financing, long construction period, etc. which make the costs and benefits of the projects become sensitive on such factors as interest rate, exchange rate and inflation rate. and as a result, the project sponsor (or private investors) will bear long-term uncertainty of the financial benefits due to the financial risks during the process of foreign investment, international financing, equipment and raw material procurement and international project contracting, export earnings and other financial activities,. At the same time ,since the collapse of "the Bretton Woods monetary system" in1973, most of the world has paced up the liberalization of the interest rate and exchange rate which broaden the volatility of them ,and the international financial crises occurred often; As in China, with the development of reform on foreign exchange rate system, especially with the gradual liberalization of the capital accounts of RMB, it is expected that the exchange rate fluctuations of RMB against major international currencies will be more severe. Under such international and domestic financial conditions, The project sponsor will face more great challenges in the management of financial risks of PPP projects.The article has consulted the massive literature, firstly gave an overview of the definition, characteristics and operating procedures on PPP projects ,then indentified and classified the financial risks as exchange rate risk, interest rate risk and inflation risk ,carried a deep analysis of the causes and mechanism of them. Secondly, conducted a comparative analysis of the current financial risk assessment methods on PPP projects, and made an active attempt to build a reasonable financial risk assessment system, furtherly analyzed the application of VaR methodology in project risk assessment. Thirdly, put forward a specific financial risk control measures. Finally, gave an illustration of India's largest power plant-Dabol project as a case study in financial risk management. This paper is supported by the National Natural Science Foundation with the Fund number 70672011.