Assessment and Allocation of Risk Factors Associated with Public Private Partnership Constructional Projects in Pakistan

Abstract

Since early 1990s, Pakistan is formally working on public private partnership (PPP) procurement model for the uplift of her economic growth and provision of needed infrastructural facilities to the public. Initially telecom and power sectors only experienced PPP procurement but since 2004, popularity of PPP projects in various other sectors has been on the rise from government perspective due to current fiscal constraints, global economic recession, increased urbanization and urge for needed infrastructural facilities by the public. PPP Procurement is considered to be complex in Pakistan due to presence of diverse geographical and social behavior across the country and lack of PPP experience and knowledge by the government officials and private sector dealing with involvement of heavy capital over long duration with achievement of different interests by various stake holders. Therefore, for the successful implementation of PPP projects across country without disputes and losses during concession period, reliable and effective risk management is needed at all levels during initial phase of PPP project and very few empirical studies have been carried out to address this important issue. This research deals with the assessment of major risk factors associated with PPP construction projects in Pakistan and their preferred allocation among public and private partners. Based on an extensive literature review, interviews and considering the likelihood of occurrence and impact of various risks associated with PPP construction projects in the region, forty two (42) risk factors comprising seven major categories i.e. political, construction/management, financial, operational/transfer, legal, relationship, natural/social were identified for the research study. An empirical questionnaire survey was carried out across the country to know the ranking and preferred allocation of selected risks pertaining to PPP construction projects. A total of 250 questionnaires were distributed among public, private and academics sectors, out of which 151 valid responses were received across the country for the data analysis. Mann-Whitney U Test is used to check the level of significance difference in perception among the public, private and academics sectors. The results across the country indicate that five top ranked risks accessed by public, private and academics sectors are political instability, corruption and bribery in government offices, strong bureaucratic influence, poor law and order situation and complex government approval system. Four out of five top ranked risk factors belong to political category whereas one belongs to legal category. Mann-Whitney U Test has revealed that there is considerable significant difference between the perception of public, private and academics sectors in the ranking of risk factors, which may be due to their differences of interests / perceptions towards the PPP concept in Pakistan which is still at preliminary stage. However no difference of opinion is observed in the ranking of “Top Fifteen Risk Factors”. For risks allocation, empirical results indicate that respondents allocated 15 risk factors to public sector, 12 to private sector and 15 risk factors were proposed to be shared between both public and private sectors. No risk factor was allocated to private sector among top fifteen risk factors by the respondents, which show public sector responsibility in handling of top priority risk factors towards the successful implementation of PPP construction projects. This research study enables government and international / local private sector construction companies to better understand the impact and significance of various important potential risk factors associated with PPP constructional projects in Pakistan. At same time, it also highlights the preferences of public and private sectors in handling of these risk factors. The research work also helps concerned government departments and institutions for better future risk planning / management on PPP constructional projects and adjusting their strategies accordingly to attract maximum foreign investors in the country to achieve better value for money for the public.