Risk Allocation Inefficiencies in Chinese PPP Water Projects

Abstract

Risk management is a key concern in public-private partnership (PPP) projects and the efficient allocation of risk remains problematic. Previous studies on PPP practices have documented the prevalence of inefficiency in risk allocation. Nevertheless, the nature of PPP risk misallocation has not been quantitatively described and verified. This study examines risk allocation in the Chinese water sector as it supports the highest number of PPP projects. Based on the expertise of 32 senior practitioners, statistical analysis is used to contrast where risks ought to lie in order to maximize risk mitigation efficiency with where such risks actually lie. The results confirm that current risk allocation practices are far from ideal, with the implication that current practices play a significant role in project failure. Details within the data provide insight into how practitioners should modify current risk allocation practices to better achieve risk management optimization. The lesson learned from this study can be transferred to projects in other emerging PPP markets.