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Risks must be managed in PPP projects

Released at: 20:40, 18/11/2015

Risks must be managed in PPP projects

Conference hears of risks that can derail PPP projects.

by Anh Nhi - Minh Tuyet

Risk assessment and management in public-private partnership (PPP) projects would improve the efficiency of public finance management, experts told a conference on managing public finance held on November 18 by the Central Institute for Economic Management under the Ministry of Planning and Investment, South Korea’s Ministry of Strategy and Finance, and the Organization for Economic Cooperation and Development (OECD).

Risk management

There are many investment forms of PPP available, such as build-operate-transfer (BOT), build-transfer-operate (BTO), build-own-operate (BOO), build-lease-transfer (BLT), and operation and maintenance (O&M). PPP projects are often for long periods of time and consequently bear a great many risks, according to Professor Seok Joon Choi from the University of Seoul.

Risks in PPP projects mentioned at the conference included political risk, financial risk (interest rates, debt to equity ratios and foreign exchange rates), risks in development plans, risks in construction, and risks in capital mobilization.

Professor Choi pointed out that most PPP projects are under the supervision of the State but often fall short of expectations upon completion. Many factors can impact on a project, he said, most of which stem from these risks and also unexpected risks.

For this reason he recommended that managing risks in PPP projects is a key solution to better managing State capital.

Payment ceiling   

The payment ceiling in PPP projects was suggested at 2 per cent of the State budget or from 10 to 15 per cent of total public investment.

Other solutions put forward to improve the efficiency of PPP projects included monitoring currencies before signing PPP contracts, as this may affect the State budget, and ensuring transparency of information.

Professor Choi also spoke about a lesson South Korea learned: at the beginning of PPP projects the management should be at the central level. The Vietnamese Government needs to identify a working mechanism for managing PPP projects at the local level, as this is where the greatest problems lie in South Korea.  

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