Business World: “Managing political risks of infrastructure projects”

January 03, 2016| Romeo Bernardo

(The author Romeo Bernardo was Finance Undersecretary in the administrations of Corazon C. Aquino and Fidel V. Ramos. He is Senior Counselor to Vriens & Partners.He is also a Board Director in the Institute for Development and Econometric Analysis.)

Credit information and rating pioneer and friend, Santiago “Santi” F. Dumlao, Jr., secretary-general of the Association of Credit Rating Agencies in Asia (ACRAA), invited me to speak on political risk management for infrastructure public-private partnership (PPP) at an ACRAA seminar late last year. Allow me to share excerpts from my talk:

 “My own experience on the subject starts in the nineties as Undersecretary in the Deparment of Finance, then later as an occasional adviser on policy for the Asian Development Bank (ADB), the Japan International Cooperation Agency (JICA), and a few PPP projects on the transactions end.

“First, let’s identify the various risk factors.

“Nine are project specific: cancellation and change of scope risk; environmental and other permit risk; community risk; expropriation risk (both sudden and creeping); breach of contract risk; asset-specific regulation risk; concession duration/renewal risk; asset transfer risk; and decommissioning risk. Then there are five that affect the entire sector or economy — change of industry regulation, taxation risk, currency transfer risk, judicial risk, and corruption/market distortion risks. A whole lot of these risks can only be managed through a concerted and realistic commitment from the public and the private stakeholders since both have a clear interest in the success of the PPP.

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