Environmental Engineering Reference
In-Depth Information
action
(MAGA) rules, which provide for readjustment in case of political interfer-
ence, alternatively for termination of the contract.
Legal risks relate to the change of laws and thus the legal framework of the
project. 109 Here the support of the host government is just as essential as in the case
of political risk. 110 While discriminatory changes are covered by MAGA rules,
other changes should be addressed separately. The state should agree to keep all
necessary impacts as small as possible 111 and, if this is not possible, additional costs
should be split between the host state and the investor. 112
'
1.3.4.2 Project Risks
Construction risks encompass the conditions on the ground, the failure to stay on
schedule and the general default of obligations by the state (e.g. permission) or
construction partners. 113
Other project risks include financial risks, demand risks, availability risks, force
majeure and residual risks. 114 The risk of changes in consumer preference, a
decrease in public solvency or the appearance of a competitive product (demand
risk), 115 and the guarantee of availability, capacity and efficiency during the
contract period (operating risk) 116 are frequent issues for any large scale project.
Inflation, political reluctance towards change, applicable currency of payment and
any negative influence of the cash flow are considered financial risks. 117 Environ-
mental risks include potentially negative influences on the environment. 118 Social
109 HyunChan et al. ( 1997 ), 93 (100); cf. Palmer ( 2009 ), 18; Hofler ( 2007 ), 35 (43-44); Legal risks
exists in long-term projects, in: Joff´ ( 2000 ), 33 (36).
110 Metje ( 2008 ), 18.
111 Kn ¨ tel in Siebel et al. ( 2008 ), para 1325; In cases where the change of law is adversely to the
private operator, he can demand adjustment to be put into the same economic position prior to the
changes, in: Wang and Tiong ( 2000 ), 69 (74).
112 Roquette/Butcher in Roquette and Otto ( 2005 ), F. Public-Private Partnership III paras 70 and
72-73; Kn ¨ tel in Siebel et al. ( 2008 ), para 1329.
113 Wagner ( 1996 ), 3 (11); cf. HyunChan et al. ( 1997 ), 93 (100); Palmer ( 2009 ), 14; cf. Nicklisch
( 2007 ), 3 (6); cf. Hofler ( 2007 ), 35 (43); Subcontractor should be chosen wisely, and facts like the
subcontractor ' s average size projects must be examined, in: Yescombe ( 2007 ), 89 and 256; Risks
related to the planning and constructions of the project are normally borne by the private sector, in:
Jonas and Paulsen ( 2007 ), 13 (28); And permission granting, in: Hofler ( 2007 ), 35 (43) and (46).
114
Corbacho and Schwartz ( 2008 ), 85 (88); Construction risk, in: Hesse ( 1994 ), 31 (35-36);
Market risk (similar to demand risk), in: Pahl ( 1994 ), 23 (29).
115
cf. Yescombe ( 2007 ), 19; OECD ( 2008 ), 53; Nicklisch ( 2007 ), 3 (7); Jonas and Paulsen ( 2007 ),
13 (30-31).
116 Wagner ( 1996 ), 3 (11); cf. HyunChan et al. ( 1997 ), 93 (100).
117 Estache et al. ( 2007 ), 14; Verveniotis ( 1996 ), 115 (124); Nicklisch ( 2007 ), 3 (7); HyunChan
et al. ( 1997 ), 93 (100); cf. Kumaraswamy and Zhang ( 2001 ), 195 (198); Metje ( 2008 ), 51;
Including risk of inflation, in: Metje ( 2008 ), 52.
118 Palmer ( 2009 ), 14; HyunChan et al. ( 1997 ), 93 (100); Consideration of environmental issues,
in: Kumaraswamy and Zhang ( 2001 ), 195 (198).
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