Project Structuring & Risk Allocation Flashcards

What is the main purpose of a risk matrix in PPP structuring?

Answer: To list each risk, its allocation, and its mitigation in one place

A risk matrix lists the identified risks, shows which party bears each one, and records how each will be mitigated.

A retained risk has a 20% chance of causing a $5 million cost overrun. What is its expected value?

Answer: $1 million

Expected value = probability x impact = 0.20 x $5 million = $1 million.

What usually happens if the authority transfers too much risk to the private partner?

Answer: Bidders add large risk premiums or withdraw, and value for money falls

Over-transfer makes bidders price risks they cannot manage, which raises costs or reduces competition and weakens value for money.

Why are PPP projects usually delivered through a special purpose vehicle (SPV)?

Answer: To ring-fence project assets and cash flows so lenders can provide limited- or non-recourse financing

An SPV keeps the project separate from the sponsors' balance sheets, so lenders rely mainly on project cash flows with limited recourse to sponsors.

In the EPC contract, what are the delay liquidated damages usually sized to cover?

Answer: The SPV's debt service and lost revenue during the delay

Delay LDs are sized so the SPV can keep paying debt service and fixed costs while late completion holds back its revenue.

What is a common way to make sure the asset is in acceptable condition when a PPP contract ends?

Answer: Handback requirements backed by a retention fund or handback bond

Handback requirements set the minimum residual life, and retention funds or bonds give the authority security that the standards will be met.

Which risk does the public authority most commonly keep in PPP projects?

Answer: Land acquisition and right-of-way risk

Land acquisition uses sovereign powers such as eminent domain, so the public authority is best placed to manage it and usually keeps it.