Risk Allocation in Public-Private Partnership Infrastructure Projects: Comparative Study

Abstract

It is important for the public and private sectors to establish effective risk allocation strategies for public-private partnership (PPP) projects in order to achieve a more efficient process of contract negotiation and reduce the occurrence of dispute during the concession period. This paper aims first to identify the preferred risk allocation in PPP projects of mainland China and the Hong Kong Special Administrative Region (referred to as China and Hong Kong from here onward) and then to compare these preferences to those in the U.K. and Greece by a questionnaire survey based on the same risk register. The results in China and Hong Kong show that the public sector preferred to retain most political, legal, and social risks, and share most microlevel risks and force majeure risk; while the majority of mesolevel risks were preferred to be allocated to the private sector. The comparative analyses of risk allocation preference among these four countries/jurisdictions indicate that the public sector in the U.K. was most able to transfer the PPP risks to the private sector, followed by Greece, Hong Kong, and China. Respondents from Greece exhibited the greatest degree of support for the public sector to retain the macrolevel risks. All respondents agreed that private investors should take a more active role in managing the mesolevel risks. Respondents from China and Hong Kong considered that majority of the microlevel risks should be shared equally between the public and private sectors, while respondents from Greece indicated that the private sector should take a more active role in managing the microlevel risks. The comparative study provides international investors a better understanding of risk preferences in different countries/jurisdictions so that they could adjust their strategies according to the specific situation and achieve better value for money in running their PPP projects.