Risk Management Strategy
for Infrastructure
Public-Private Partnership
Projects
Pi-Chu Chiu
Visiting Scholar, CRGP, Stanford
Brown Bag Seminar, 26 April 2006
1
Outline
Background: Private-Private
Partnership in Taiwan
Case: Taiwan High Speed Rail
Initiative: Risk Management
Strategy for Infrastructure Public-
Private Partnership Projects
2
Part I: Background
Private-Private
Partnership in Taiwan
3
PPP - Definition
“A Public-private partnership is a contractual
agreement between a public agency (federal, state
or local) and a private sector entity. Through this
agreement, the skills and assets of each sector
(public and private) are shared in delivering a
service or facility for the use of the general public.
In addition to the sharing of resources, each party
shares in the risks and rewards potential in the
delivery of the service and/or facility.”
- National Council for Public-Private Partnerships
4
PPP - Spectrum
5
PPP – Worldwide Trend
Survey of PricewaterhouseCoopers
In 2004~2005, 206 PPP deals, totaled € 42 billion
Outside Europe: €21 billion in 54 deals
• Australia, Canada, Japan, Mexico, US
• China, Hong Kong, Singapore, Middle Eastern countries
Europe: €21 billion in 152 deals
• UK, Spain, Portugal, German, France
• Italy, Ireland, Netherlands, Greece, Denmark, Finland
6
PPP in Taiwan – Location
Area: 36,000 km2
Population: 23 million
Climate: 24.7 oC Avg. in May
Taipei
Taiwan
7
PPP in Taiwan - History
Law for
Promotion of
Private
Participation in
Infrastructure
Projects
Plan for
Public &
Statute for Private
Encouragement of Regulation
Participation
Private Participation of Open
300km railway in Incinerator
in Major Electricity
concession Projects
Transportation Industry
proposed by local
government Projects
1887 1994 1995 1996 2000
8
PPP in Taiwan – PPIP Law
Underlying principles
General Application
Maximization of private participation
Maximum government prudence
Models of Private Participation
BOT, BTO, BOO, ROT, OT
Procedures of Application
Government planned projects
Unsolicited Proposal
9
PPP in Taiwan – Application
Government-Planned Projects
10
PPP in Taiwan - Organizations
Coordination Committee for the Promotion of Private
Participation in Infrastructure Projects, Executive Yuan
Coordination Task force
County（City）government authority- Central government
in-charge promotion committees authority-in-charge promotion committees
Authority-in-charge of each project Authority-in-charge of each project
Implementing agencies of individual Implementing agencies of individual
projects projects
11
PPP in Taiwan – Incentives
Land acquisition
Capital raising
Tax incentives for major
infrastructure projects
Ancillary enterprise
Deregulation of foreign capital
participation
12
PPP in Taiwan – Statistics
Amount of Private Investment 3.88
billion
USD
(82 projects)
1.86 1.84
billion billion
USD USD
(36 projects) (152 projects)
2.1-
fold
0.22 8.6- 1.74
billion fold billion
USD USD
(49 projects)
2002 2003 2004 2005
13
PPP in Taiwan – Statistics
Private Investment Volume No. of Projects
Participation (Unit: million US$)
BOT 5,742.5 34
BTO 3.1 1
ROT 145.5 61
OT 120.6 93
BOO 906.3 10
BOT + OT 92.5 1
BOT + ROT 35.9 4
OT + ROT 3.8 2
Total 7,050.2 192
Source: Public Construction Commission [2005]
14
PPP in Taiwan – Statistics
Facilities Investment Volume No. of
(Unit: million US$) Projects
Cultural & Education 198.0 49
Transportation & Common Conduit 4,154.4 25
Sewerage, Water Supply & Conservancy 386.3 4
Social & Labor Welfare 83.0 15
Industrial, Commercial & Hi-tech 1,022.3 7
Agricultural 75.1 12
Sanitation & Medical 197.0 64
Tourism 934.1 16
Total 7,050.2 192
Source: Public Construction Commission [2005]
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Part II: Case
Taiwan High Speed Rail
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Specifications
Alignment
345 km, Taipei~Kaohsiung
12 stations, 5 maintenance bases
Structure types
Viaducts & bridges – 207km
Tunnel/cut&cover – 56km
Embankments/cuttings – 81km
Track
2 tracks
Standard gauge (1,435mm)
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Specifications
Core system
TGV+SKS hybrid system
Design speed
350 km/hr
Operating features
250~300 km/hr operation speed
4-min service interval in peak hour
18-hr operation every day
80-min travel time for direct train
989 seats per train
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Model of Private Participation
10 Years 35 Years
Government Taiwan High Speed Rail Corporation Government
Planning Build Operate Transfer
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Scope of Work
Land Acquisition & Handing Over
Improvement of Access Highway to
Stations
US$ 3.3 billion Civil Works between Nankang &
Panchiao Stations (i.e. Central Taipei)
Government’s Work
Supervision and Administration of
THSR project
Expropriation of Station Special
US$ 16 billion Districts by Zones
THSR Miscellaneous Works
Planning, Design & Construction of
US$ 12.7 billion THSR (except Nankang~Panchiao)
THSRC’s Work Operation & Maintenance of THSR
Land Use & Development of Station
Estimation by the Government Special Districts
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Scope of Works
D/B,
fixed price, lump-sum
Preliminary Civil Works
D/M/B/I, Core
Project D/B, fixed price,
fixed price, System Trackwork
Management lump-sum
lump-sum
Depots
Stations
D/B/B, D/B/B, fixed price,
fixed price, Lump-sum lump-sum
21
Chronology
1990/07 • Provisional Office of the High Speed Rail was established.
1992/06 • The alignment of THSR was permitted by the Executive Yuan.
• The Legislative Yuan passed the THSR plan, requiring the part of
1995/01
private investment in THSR must exceed 40%.
1996/10 • Announcement to invite private participation.
• Taiwan High Speed Rail Consortium was selected as the best
1997/09
applicant by the Selection Committee.
• Taiwan High Speed Rail Corp, Ltd. (THSRC) was officially
1998/05
registered with the capital volume of US$1.56billion.
1998/07 • THSRC was awarded the concession agreement by MOTC.
• Chiao Tung Bank (CTB), Bank of Taiwan (BoT), and International
1998/09 Commercial Bank of China (ICBC) formed the finance syndicate
for THSRC.
• THSRC signed the Tripartite Contract with MOTC and CTB,
1999/08
representing the Bank Consortium, comprised of 25 banks.
2000/01 • Design contracts of all Stations were awarded.
22
Chronology
2000/01 • Design contracts of all Stations were awarded.
• The Contract of Syndicate Loan totaled US$10.1 billion was
2000/02
signed between THSRC and 25 banks, represented by the CTB.
2000/04 • Design/build contracts of all civil works were awarded.
• THSRC signed core system supply and installation contracts
2000/12 valued at US$3 billion with the Taiwan Shinkansen Corp. and the
Taiwan Shinkansen International Engineering Corp.
2003/03 • Contract of automated booking and tolling system was awarded.
• T240 Rail Installation Ceremony, symbolized the commencement
2003/07
of track work.
2004/01 • The production of THSRC 700T trains by Kawasaki was finished.
2004/05 • Construction works alone the route completed.
2005/01 • 700T Test Run Inauguration started in Tainan.
• THSRC announced the revision of Target Operation Date from
2005/09
2005/10/31 to 2006/10/31.
2005/10 • 700T Test Run reached top speed of 315km/hr.
23
Shareholders of THSRC
A/E/C, Transportation & Materials
Continental Engineering Corp.
EVA Airways Corp.
Tung Ho Steel Enterprise Corp.
Finance
Taipei-Fubon Commercial Bank
Shinkong Insurance Co., Ltd.
Electronics & Communication
Pacific Electric Wire & Cable Co., Ltd.
TECO Electric & Machinery Co., Ltd.
Walsin Lihwa Co, Ltd.
Government & Relevant Organizations
Executive Yuan Development Fund
Taiwan Sugar Corp.
China Aviation Development Foundation
CTCI Foundation
Institutional & Individual Investors
24
International Teamwork
THSRC
1500 engineers & technical staff
1/3 of above are foreigners from 26 countries
Contractors
Civil works – 12 subprojects
• Taiwan, Japan, Korea, Hong Kong, Thailand, Italy,
Germany, Netherlands, France
Stations – 8 subprojects
• Taiwan, Japan
Depots – 4 subprojects
• Taiwan, Japan
Electric & Mechanical – 2 subprojects
• Taiwan, Japan, France
25
List of Contractors – Civil Works
Commencement
Subproject No. Start Mileage Finish Mileage Length (m) Contractor Award Date
Date
C210 16K+800 28K+080 11,280 Obayashi - Futsu JV 2000/1/10 2000/4/1
C215 28K+080 68K+540 40,460 Obayashi - Futsu JV 2000/1/10 2000/4/1
C220 68K+540 86K+320 17,780 Daiho Corporation 2000/3/1 2000/4/1
C230 86K+320 109K+760 23,440 Hyundai - Chung Lin - Zen Pacific JV 2000/4/1 2000/5/1
C240 109K+760 130K+600 20,840 Hyundai - Chung Lin JV 2000/4/1 2000/5/1
C250 130K+600 170K+400 39,800 Hochtief - Ballast Nedam - Pan Asia JV 2000/5/1 2000/5/1
C260 170K+400 207K+015 36,615 BB - CEC JV 2000/4/1 2000/4/1
C270 207K+015 249K+814 42,799 BB - CEC JV 2000/3/1 2000/4/1
C280 249K+814 284K+221 34,407 Samsung - Doosan - IE&C JV 2000/2/1 2000/3/1
C291 284K+221 312K+734 28,513 Evergreen - Shimizu JV 2000/3/1 2000/4/1
C295 312K+734 340K+058 27,324 Evergreen - Italian Thai - PEWC JV 2000/3/1 2000/4/1
C296 340K+058 343K+120 3,062 Evergreen - Shimizu JV 2001/1/5 2001/1/5
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Tunnel Construction Viaduct Construction
Track Works Vehicle Testing
27
Progress
Overall 94.05% [Feb 2006]
Civil
Civil works
works Completed 100%
Stations
Stations Completed 98.71%
Trackwork
Trackwork Completed 100%
Core
Core system
system Completed 79.05%
Depots
Depots Completed 94.71%
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Part III: Initiative
Risk Management Strategy
for Infrastructure Public-
Private Partnership
Projects
29
Research Objective
To investigate the optimal risk
allocation and risk management
strategies for infrastructure PPP
projects, by considering
The interdependency of risk events and
actions of project participants,
Different types of PPP, and
Different stages of infrastructure projects.
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Risk Management
31
What is “Risk Interdependence”
“Risk faced by one person or firm depends
on both its own security investments as
well as on the actions of others.”
- Heal and Kunreuther (2004)
Interdependent Security (IDS)
Problems
32
Examples of IDS Problems
Airline security
Fire protection
Vaccinations
Computer security
Theft protection
R&D investment
Protection against bankruptcy
33
Classes of IDS Problems
Class 1: Partial Protection
The more firms invest in preventive measures, the
lower are the negative externalities in the system.
Class 2: Complete Protection
If an individual invests in prevention it cannot be
harmed by the actions of others nor can it harm
others
Class 3: Positive Externalities
Investment by one individual creates positive
externalities, substituting for the same investment
by others & making it less attractive for others to
follow suit.
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Risk Interdependence
Action 1 Outcome 1
Individual 1 Event 1
Action k Outcome m
Interdependent actions Interdependent outcomes
Action 1 Outcome 1
Individual 2 Event 2
Action l Outcome n
35
Research
Procedure
36
Risk Classification
Complexity of output Complexity of markets
Low High
High Defense facilities Airports
Maintenance facilities Telecoms networks
Public waste management Channel Tunnel
Computer facilities Private railways
Low Power stations Toll crossings
Water supplies Toll roads
Sewage treatment Container ports
Incinerators Light rail links
Telecoms links
Imputed toll roads
Source: Walker & Smith [1995]
37
Political Support Risks
Taxation Risks
Expropriation /Nationalization Risks
Political
Forced Buy -out Risks
Risks Cancellation of Concession
Import/export restrictions
Risk
Failure to obtain or renew approvals
Currency Inconvertibility Risks
General Country Foreign Exchange Risks
Commercial Devaluation Risks
Classification
(Country)
Risks Inflation Risks
Risks
Interest Rate Risk
Changes in Laws and Regulations
Country
Risks Law Enforcement Risk
Legal Risks
in Delays in Calculating Compensation
BOT
Projects Bidding Risks
Development Planning Delay Risks
Risks Approval Risks
Transnational Risks
Delay Risk
Specific Cost overrun risk
Project Construction Re-performance risk
Risks /Completion Completion Risk
Risks Force Majeure Risk
Loss or Damage to Work
Liability Risk
Associated Infrastructure Risks
Technical Risks
Demand Risk (Volume and Price )
Supply Risk (Volume and Price )
Operating
Cost Escalation Risks Source: UNIDO[1996]
Risks
Management Risks
Force Majeure Risk
Loss or Damage to Project Facilities
Liability Risk 38
Research Strategy
From quantitative to qualitative
From local to global
Taiwan ⇒ Great Chinese Area ⇒
Transportation
• Taiwan High Speed Rail, Kaohsiung Mass Rapid Transit,
Taipei Port Container Terminal, Farglory Free Trade
Zone, Taipei City Hall Transfer Station
From simple to complex
N stages, N agents, factor model
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Dapeng Bay Scenic Area Æ
(Biggest Tourism PPP in Taiwan)
Ç Landscape of
Taiwan High Speed Rail
Taipei 101 & Taipei CityÆ
40
E-mail: pichu@[Link]
Looking forward to more and closer
collaboration with you!
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