Risk allocation preferences in public-private partnerships in South Africa

Abstract

Background: Appropriate risk allocation has been identified as one of the critical success factors in Public-Private Partnerships (PPPs). Therefore, it is important to understand risk allocation preferences between the private and the public sector as the country’s PPP market matures. Objectives: This research study identifies risk allocation preferences in public-private partnerships in South Africa. Method: An online questionnaire survey was designed to identify the allocation of different risk factors in PPPs. Results: A total of 34 responses were obtained for empirical review. The Kruskal-Wallis H test and Mann-Whitney test were conducted to test whether significant differences in responses existed between respondents with practical PPP working experience and those with only theoretical knowledge. The results of the test indicated that the responses for all 43 risk factors were not significantly different. The empirical results indicated that all the risks which were allocated to the public sector were systemic risks which included political, legal, social and design risks. The private sector was allocated systemic risks which were project finance risks. The majority of natural, relationship, residual risks were preferred to be shared. The remaining risks which included mostly project-specific risks, such as construction, design, operational, and third-party risks, were deemed to be negotiable on a project by project basis. Conclusion: This research study will enable international and domestic investors who want to enter into public-private partnerships to understand risk allocation preferences in South Africa. This study has also highlighted the need for the current risk allocation framework used by the South African National Treasury PPP unit to be reviewed in partnership with all the stakeholders represented. Keywords: Risk allocation, Public-private partnerships, South Africa