RISK- IDENTIFICATION,ALLOCATION

AND MITIGATION IN INFRA PROJECTS

ROAD SECTOR
 India has the second largest road network across the
world at 4.7 million km.
This road network transports more than 60 per cent of
all goods in the country and 85 per cent of Indias total
passenger traffic.
Road transportation has gradually increased over the
years with the improvement in connectivity between
cities, towns and villages in the country.
The Indian roads carry almost 90 per cent of the
countrys passenger traffic and around 65 per cent of
its freight.
In India sales of automobiles and movement of freight
by roads is growing at a rapid rate.
Cognizant of the need to create an adequate road
network to cater to the increased traffic and
movement of goods, Government of India has set
earmarked 20 per cent of the investment of US$ 1
trillion reserved for infrastructure during the 12th Five-
Year Plan (201217) to develop the country's roads.
Most of the Road Projects of Central and State Govt
 Market size
The value of roads and bridges infrastructure in
India is projected to grow at a Compound Annual
Growth Rate (CAGR) of 17.4 per cent over FY12
17.
The country's roads and bridges infrastructure,
which was valued at US$ 6.9 billion in 2009 is
expected to touch US$ 19.2 billion by 2017.
The construction of highways had reached an all-
time high of 6,029 km during FY 2015-16, and the
increased pace of construction is expected to
continue for the coming years.
The financial outlay for road transport and
highways grew at a CAGR of 12.5 per cent
between FY2010-2016.
The plan outlay for FY2016-17 stepped up
Risks in Road Project Life Cycle
Title 1

Construction Risk Revenue Risk O&M Risk

Revenue Side
Expense Side

High Risk Medium-Low Risk

RISK ALLOCATION MITIGATION
DESIGN RISK: GOVT UNDERTAKING/CON
FEASIBILTY,APPROV AGENCY/CONCESSIO FIRMATION/VERIFIC
ALS,CONSENTS NAIRE ATION BY LIE
DETAILED DESIGN GOVT/CONCESSION LIE
APPROVALS, AIRE CERTIFICATE/SYNDI
DRAWINGS CATOR
CHANGE IN DESIGN GOVT/ LIE, UNDERTAKING
CONCESSIONAIRE TO BEAR COST
,PROMOTERS
SITE RISK: GOVT. CONFIRMATION BY
LAND ACQUISITION LL ATTORNEY
ADDITIONAL LAND GOVT AGENCY/ STATE SUPPORT
STATE GOVT AGREEMENT
ACCESS RISK GOVT AGENCY/ STATE SUPPORT
STATE AGREEMENT, LIE,
GOVT/COCESSIONAI LLA
RE
SITE SECURITY CONCESSIONAIRE, LIE, COCESSION
STATE GOVT, GOVT AGREEMENT
RISK ALLOCATION MITIGATION
SITE RISK: STATE GOVT/ AGREEMENTS/
WATER/AIR/ POWER CONCESSIONAIRE STATE SUPPORT
UTILITIES AGREEMENT
UNDISCLOSED GOVT AGENCY/ CONCESSION
LATENT DEFECTS STATE GOVT AGREEMENT/ FORCE
MAJEURE CLAUSE
CONSTRUCTION CONCESSIONAIRE PERF GUARANTEE/
RISK: UNDERTAKING
QUALITY FROM PROMOTER
ASSURANCE AND
QUALITY CONTROL
CONSTRUCTION CONCESSIONAIRE PERF GUARANTEE
STANDARDS AND FROM
SPECIFICATION SUPPLIERS/O&M
CONTRACTORS
DELAYS BY UTILITY CONCESSIONAIRE PENALTIES/
AGENCIES GUARANTEE/
PROMOTER
SUPPORT,
CONSULTANTS
DELAYS BY STATE CONCESSIONAIRE/S PENALTIES/
RISK ALLOCATION MITIGATION
CONSTRUCTION CONCESSIONAIRE,S UNDERTAKING,
RISK: TATE GOVT LABOUR RELATIONS
LABOUR DISPUTES CONSULTANT
LABOUR AND CONCESSIONAIRE, FIXED TIME LABOUR
MATERIALS EPC CONTRACTOR AND SUPPLY
CONTRACTS
PROJECT COCESSIONAIRE APPOINTMENT OF
MANAGEMENT EXPERIENCED
INTEGRATION RISK MANAGEMENT
DAMAGES TO CONCESSIONAIRE, PENALTIES IN PM
VARIOUS STAKE EPC CONTRACTOR CONTRACTS
HOLDERS-
WORKERS,
UTILITIES, THIRD
PARTIES
ADEQUACY OF CONCESSIONAIRE, APPOINTMENT OF
INSURANCE EPC CONTRACTOR, LIA, COST OVERRUN
LIA AGREEMENT
LATENT DEFECTS, CONCESSIONAIRE, FORCE MAJEURE
ARCHEOLOGY STATE GOVT CLAUSE
RISK ALLOCATION MITIGATION
CONSTRUCTION CONCESSIONAIRE, LIE, UNDERTAKING
RISK: EPC CONTRACTOR, TO BRING ADDL.
DEFECTIVE MATERIAL SUPPLIER FUNDS
MATERIAL
COURT CONCESSIONAIRE, SPECIFIC
INJUNCTIONS/DISPU LLA COVENANTS
TES
FORCE MAJEURE GOVT AGENCY, SPECIFIC CLAUSE
RISK: STATE GOVT IN CONCESSION
NATURAL ,CONCESSIONAIRE AGREEMENT
DISASTERS
TERRORISM/ GOVT AGENCY, SPECIFIC CLAUSE
WAR/RIOTS/AGITATI STATE GOVT IN CONCESSION
ONS ,CONCESSIONAIRE AGREEMENT

WEATHER GOVT AGENCY, SPECIFIC CLAUSE

CONCESSIONAIRE IN CONCESSION
AGREEMENT

UNINSURABLE CONCESSIONAIRE UNDERTAKING FOR

RISK ALLOCATION MITIGATION
REVENUE RISK: GOVT AGENCY/ PRE DISBURSEMENT
AVAILABILITY OF STATE CONDITIONS/ COST
LAND GOVT/CONCESSIONA OVERRUN
IRE AGREEMENT/PROMO
TERS
VOLUME OF TRAFFIC COCESSIONNAIRE/PR COVENANT TO
NOT AS PER OMOTERS BRING ADDL FUNDS/
PROJECTIONS MAKE GOOD
SHORTFALL
UNDERPERFORMANC UTILITIES/ O & M UNDERTAKING TO
E BY UTILITIES CONTRACTOR/ MAKE GOOD
CONCESSIONNAIRE SHORTFALL
INCREASED CONCESSIONNAIRE/ INCREASED TOLL/
MAINTENANCE COST O& M CONTRACTOR RESERVES
OPENING OF A GOVT AGENCY/ FORCE MAJEURE
PARALLEL STATE GOVT CLAUSE
ROAD/SERVICE ROAD
CLOSURE OF MAJOR CONCESSIONNAIRE/S PROMOTER/
INDUSTRIES ALONG TATE GOVT/ GOVT CONCESSIONNAIRE
THE ROAD AGENCY
DELAY IN REVISION GOVT AGENCY/ EXTENTION OF
RISK ALLOCATION MITIGATION
POLITICAL RISK/ GOVT AGENCY/ LEGAL
ABOLITION OF TOLL CONCESSIONNAIRE/ DOCUMENTATION/A
REIMBURSEMENT RBITRATION
O&M COST RISK: CONCESSIONNAIRE/ FIXED RATE- FIXED
ACTUAL> O&M CONTRACTOR TIME CONTRACT/
PROJECTED RESERVES/
PROMOTER
SUPPORT
INEFFICIENT O&M CONTRACTOR/ REPLACEMENT/
CONTRACTOR CONCESSIONNAIRE PENALTY FROM O &
M CONTRACTOR
PERFORMANCE O&M REPUTED
RISK: CONTRACTOR/CONC CONTRACTOR/
FAULTY & ESSIONNAIRE TECHNOLOGY/ LIE
OBSOLENT EQPMNT
LABOUR/MATERIAL/ O&M REPUTED
SUB CONTRACTORS CONTRACTOR/CONC CONTRACTORS/
ESSIONNAIRE FIXED COST TIME
CONTRACTS/PENALT
IES
EXPANSION SCOPE CONCESSIONNAIRE/ CONCESSION
RISK ALLOCATION MITIGATION
MARKET RISK: CONCESSIONNAIRE RESERVE ACCOUNT/
INTEREST ADDL CAPITAL/
RATE/SPREAD PROMOTER
SUPPORT
CURRENCY CONCESSIONNAIRE HEDGING,
FLUCTUATION FORWARD
CONTRACTS,
PROMOTER
SUPPORT/ ADDL.
LOAN
INFLATION CONCESSIONNAIRE FIXED RATE
CONTRACTS/PROMO
TER SUPPORT
POLITICAL RISK: CONCESSIONNAIRE/ SPECIFIC CLAUSES
CHANGE OF LAW GOVT AGENCY/ IN CONCESSION
CHANGE IN GOVT/ STATE GOVT AGREEMENT
TAXATION
DEFAULT RISK: GOVT AGENCY/ SUBSTITUTION
TERMINATION SUBSTITUTION/ RIGHTS IN
ASSIGNMENT CONCESSION
AGREEMENTS
RISK
OTHER
ALLOCATION
RISKS
MITIGATION
LEAKAGE OF DEVELOPER/CONCE ONE ESCROW
REVENUE SSIONAIRE/PROMO ACCOUNT.
THROUGH TOLL: TERS FREQUENT AUDIT
DIVERSION OF TOLL
UNAUTHORISED COLLECTION
EXPENSES LIE
UNDER REPORTING UNDERTAKING TO
OF TOLL MAINTAIN ONE
MANY BANK ESCROW ACCOUNT.
ACCOUNTS REGISTERING WITH
ALL AUTHORITIES.
PENALTY CLAUSES
STRICT ADHERENCE
TO WATERFALL
ARRANGEMENT
Cash Flow Waterfall to Prioritize
Payments
 RISK- IDENTIFICATION,ALLOCATION
AND MITIGATION IN INFRA PROJECTS

SOLAR PV PROJECTS
RISK ALLOCATION MITIGATION
LAND PURCHASE & DEVELOPER/PROMO DISB. ONLY AFTER
SITE RISK- TERS FULL LEGAL &
DEVELOPED: ACTUAL
LEGAL & ACTUAL POSSESSION, ALL
POSSESSION PERMISSIONS,SURV
GOVT PERMISSION EYORS REPORT,LIE
ACCESS RIGHT REPORT,GROUND
SECURITY WATER REPORT, ETC
HERITAGE&EXCAVAT
IONS
POLLUTION
LATENT DEFECTS
LAND PURCHASE & DEVELOPER/PROMO SAME AS ABOVE,
SITE RISK- TERS PROJECT COST TO
DEVELOPED: TAKE CARE OF
LEGAL & ACTUAL DEVPMNT
POSSESSION EXPENSES, LIE,
GOVT PERMISSION SURVEYORS
ACCESS RIGHT
SECURITY
HERITAGE&EXCAVAT
RISK ALLOCATION MITIGATION
ENVIRONMENTAL DEVELOPER/ EPC ENSURE ALL
AND SOCIAL RISKS: CONTRACTOR PERMISSIONS
RELOCATION, TAKEN, GRAM
POLLUTION,FOSSIL PANCHAYAT, PCB
AND FAUNA APPROVAL
,COMPENSATION
PAID ETC
DESIGN RISK: DEVELOPER/EPC LIE REPORT,
TECHNOLOGY CONTRACTOR COMPARISON OF
INTEGRATION TECHNOLOGIES,
OUTPUT REPUTED EPC
SPECIFICATIONS CONTRACTOR,
PENALTY CLAUSES,
PERF. GUARANTEE
CONSTRUCTION DEVELOPER/ EPC LIE REPORT,
RISK: CONTRACTOR/ COMPARISON OF
LAND DISPUTE MACHINERY TECHNOLOGIES,
IP RISK SUPPLIERS REPUTED EPC
DEFECTIVE CONTRACTOR,
MATERIAL PENALTY CLAUSES,
LATENT DEFECTS PERF. GUARANTEE
RISK ALLOCATION MITIGATION
COMPLETION RISK: DEVELOPER/PROMOTE FIXED TIME/FIXED
COST OVER RUN RS COST CONTRACT
TIME OVER RUN REPUTED
INEXPERIENCED CONTRACTORS
CONTRACTOR INMEMNITY
TECHNOLOGY ISSUES /GUARANTEE FOR
FUNDING ISSUES TECHNOLOGY ISSUES
DISPUTE AMONG PERFORMANCE
PROMOTERS GUARANTEE
PROMOTER
GUARANTEE
COMMITMENT OF
BANKS
PERFORMANCE RISK: DEVELOPER/ EPC PERFORMANCE
OUTPUT NOT CONTRACTOR/ O&M GUARANTEE.
OPTIMUM CONTRACTOR REPUTED EPC AND
POWER PRODUCTION MACHINERY/MODULE/I O&M CONTRACTOR
LOWER/ HIGHER NVERTER SUPPLIERS LIQUIDATED DAMAGES
QUALITY OF POWER INDEMNITY BONDS
NOT AS PER INSURANCE
SPECIFICATIONS
INPUT RESOURCE DEVELOPER/O&M PROPER DESIGN
RISK: CONTRACTOR /ROTATING
SOLAR RADIATION PROPER PROJECT
LEVEL PLANNING
WEATHER CONDITIONS MAINTENANCE OF
RISK ALLOCATION MITIGATION
DEMAND RISK: DEVELOPER/ GOVT TAKE OR PAY
EVACUATION RISK DEPT/OFFTAKERS CONTRACT
OFFTAKE NOT MUST TAKE
REGULAR CONTRACT
GRID PROBLEM INDEMNITY FROM
FINANCIALS OF OFFTAKERS
OFFTAKERS PPA WITH PENALTY
COMPETITIVE CLAUSES
PRICING ALTERNATE
EXCESS SUPPLY OF OFFTAKERS
POWER
ALTERNATE
SUPPLIERS
MAINTENANCE DEVELOPER/ EPC BREAKDOWN
RISK: CONTRACTOR/O&M PENALTY
BREAK DOWN OF CONTRACTOR PERFORMANCE
PANELS/INVERTERS GUARANTEE
SOLAR PANELS NOT REGULAR
MAINTAINED MONITORING OF
INSULATION ISSUES O&M
PERFORMANCE
FORCE MAJEURE DEVELOPER/ GOVT/ SOUND PPA
RISK ALLOCATION MITIGATION
EXCHANGE AND DEVELOPER/PROMO FIXED RATE LOAN
INTEREST RATE TERS HEDGING
RISK CONTRACTS
INTEREST RATE
SWAPS
PROMOTER
GUARANTEES
CREATING
RESERVES
INSURANCE RISK: DEVELOPER/EPC LIA
NON AVAILABILITY CONTRACTOR/O&M DEVELOPER/PROMO
OF INSURANCE CONTRACTOR TER GUARANTEE
INADEQUACY OF
INSURANCE
POLITICAL RISK: DEVELOPER/ GOVT WAIVER OF
GOVT TAKE OVER AGENCY SOVEREIGN
CHANGE OF POLICY IMMUNITY
EXPROPRIATION INSURANCE
LACK OF BUDGET PROMOTER
CHANGE OF GOVT. GUARANTEE
RISK ALLOCATION MITIGATION
INFLATION RISK: DEVELOPER/GOVT PASS THROUGH
LOWER IRR CONTRACT
INABILITY TO SERVICE REFIXING PPA
DEBT PERIODICALLY
COST OVERRUN FIXED RATE
CONTRACTS FOR
SUPPLIES
INSURANCE
STRATEGIC RISK: DEVELOPER/ COMMITMENT OF
CHANGE OF PROMOTERS PROMOTERS.
SHAREHOLDING OF PRIOR PERMISSION OF
PROMOTERS BANKS.
CONFLICT OF INSURANCE
INTEREST ISSUES
DISRUPTIVE DEVELOPER/ GUARANTEE FROM
TECHNOLOGY RISK TECHNOLOGY TECHNOLOGY
SUPPLIER SUPPLIER
CAREFUL WORDING OF
PPA CONTRACTS
REDUCING COST OF
PRODUCTION
EARLY TERMINATION DEVELOPER/ EPC ADEQUATE
RISK CONTRACTOR COMPENSATION
RISK ALLOCATION MITIGATION
CHANGE IN DEVELOPER/ DEBT SERVICE
TAXATION BENEFITS PROMOTERS RESERVE
REP OBLIGATIONS PROMOTER
CHANGED GUARANTEE
CHANGE IN EPC CONTRACTOR
ACCELERATED GUARANTEE
DEPRECIATION
LAWS
INDIGENOUS
SOURCING OF
MODULES
INCENTIVES RISK
GENERAL COST OF INSERTING PROPER
OBSERVATIONS. MITIGATION MAY BE COVENANTS AND
SUBSTANTIAL. CLAUSES IN LOAN
DEVELOPER HAS TO AGREEMENT.
AGREE TO BEAR THE
ADDITIONAL COST.
DEVELOPER MAY
NOT ACCEPT THE
RISKS AS