If the CVC has high implementation readiness and resources are available to implement CVC, Project Owners should proceed to risk assessment and mitigation. This step is not a substitute for a full risk assessment of the project but should supplement normal project risk assessments and generation of a risk register. General risks which are not specific to CVC (e.g., political risks, force majeure risk, inflation risk, financing term risk, exchange rate risk) are not discussed under these Guidelines.[1]
Identify and assess additional risks that can arise from CVC. Table 5 provides an example of how to identify, assess and mitigate CVC related risks.
Table 5: Examples of how to identify, assess and mitigate CVC risks
Risk | Description | Mitigation Measures |
|---|---|---|
| Market and demand risk | Demand risk from core-services can impact revenue from CVC. For example, if ridership drops, demand for commercial services will also be impacted. |
|
| Political risk | Changes in central or local government policy, or material adverse government actions can impede CVC. |
|
| Finance risk | Investors will bear most financing risk, but some key issues may merit government support, for example exchange rate risk between the currency of debt and currency of revenues. |
|
| Design and construction risk | Design and construction of all works needs to be delivered on time and to the level of quality required, resulting in a series of risks normally born by the contractor. For example, the private sector may be incentivised to construct commercial component of the project with higher commercial return and delay construction of core service component with lower commercial return. |
|
| Operational risk | Some CVC opportunities such as infrastructure sharing can lead to operational restrictions. For example, sharing telecom infrastructure may limit the types of services the operators can offer as they do not have the right to alter the infrastructure. |
|
Reflect the risks and mitigation measures in the contractual terms.
- At contract preparation stage, Project Owner should include contractual terms that properly reflect the risks associated with CVC, how risks are allocated between parties and the measures to mitigate the risks.
Footnote 1: For further discussion of risk allocation and mitigation for infrastructure projects, see Delmon, Jeffrey, Private Investment in Infrastructure: Project finance, PPP projects and PPP programs (2021).
