18.9.1 Introduction
A BOT project has a certain number of identifiable risks. Some are within the control
of one or the other of the partners involved in a BOT project. Other may be insured,
at a cost. However, some others may still not be insurable. The general risk
philosophy in a BOT project is as follows.
(a) Each risk should be assured by the party within whose control the risk most lies.
(b) In return, it is only fair that a reward be given to the party taking the risk, which
will be a function of the level of risk.
18.9.2 Risk Analysis
Risk analysis involves –
(i) Risk Evaluation i.e. the categorisation of the various inherent risks. They are
generally the Physical, Financing, Political and Operational risks. Physical risks
include Natural events (Acts of God), such as Floods, Earthquakes, Soils, and
Technical Risks, such as Faulty Design, Equipment non-performance, Contractor Default and Completion.
(ii) Risk allocation
Risk can be generally grouped into Pre-Completion risks i.e. prior to full operations, and Post-Completion risks i.e. at operational stage.
Risk allocation will be shared between the parties involved in the project, and, in
the given order, as below:
• Private Sector (Investors)
• Host Government
• Insurance
• Bank
Usually bankers are the last to be willing to take risks.
(iii) Risk Backstopping - i.e. the provision of measures to mitigate the risks and, if
possible, stop them.
18.9.3 Natural Risks
Usually Insurance Agencies will provide insurance covers for the natural events
risks.
18.9 Analysis of BOT Project Risks
519
A BOT project has a certain number of identifiable risks. Some are within the control
of one or the other of the partners involved in a BOT project. Other may be insured,
at a cost. However, some others may still not be insurable. The general risk
philosophy in a BOT project is as follows.
(a) Each risk should be assured by the party within whose control the risk most lies.
(b) In return, it is only fair that a reward be given to the party taking the risk, which
will be a function of the level of risk.
18.9.2 Risk Analysis
Risk analysis involves –
(i) Risk Evaluation i.e. the categorisation of the various inherent risks. They are
generally the Physical, Financing, Political and Operational risks. Physical risks
include Natural events (Acts of God), such as Floods, Earthquakes, Soils, and
Technical Risks, such as Faulty Design, Equipment non-performance, Contractor Default and Completion.
(ii) Risk allocation
Risk can be generally grouped into Pre-Completion risks i.e. prior to full operations, and Post-Completion risks i.e. at operational stage.
Risk allocation will be shared between the parties involved in the project, and, in
the given order, as below:
• Private Sector (Investors)
• Host Government
• Insurance
• Bank
Usually bankers are the last to be willing to take risks.
(iii) Risk Backstopping - i.e. the provision of measures to mitigate the risks and, if
possible, stop them.
18.9.3 Natural Risks
Usually Insurance Agencies will provide insurance covers for the natural events
risks.
18.9 Analysis of BOT Project Risks
519