Risks over the infrastructure life cycle
Commercial and political risks refer to potential internal or external events that influence the commercial viability and bankability of private infrastructure projects. A comprehensive risk assessment is essential for infrastructure projects, due to their unique risk profile:
- Long-term and large-scale infrastructure investments tend to involve significant social, ecological and economic impacts at a local level, increasing the risk of political interference.
- Infrastructure projects are often financed through limited or non-recourse project financing structures, limiting investors’ exposure to projects whilst increasing lenders’ reliance on a secure revenue stream and the value of the asset.
- Large-scale infrastructure projects could entail substantial capital investments over a long period of time, with limited capacity to divest.
- Large-scale projects frequently encounter delays and cost overruns during the construction period, which might negatively affect their commercial viability.
- Over-estimation of traffic or revenue streams also endangers a project’s commercial viability.
The main commercial and political risks in Southeast Asia have been identified through conducting expert interviews as well as through a qualitative survey. These identified:
- The main commercial risks in infrastructure projects, including construction and completion, demand and exchange rate risks. See Commercial Risks for more information.
- The main political risks, including Adverse regulatory changes, creeping expropriation and Breach of Contract (BoC). See Political Risks for more information.
A comprehensive and ongoing risk management process is essential in order to identify, measure and manage the potential impact of the various risks. In general, risks should be transferred to the party best able to mitigate their occurrence or bear the costs should they occur. See Risk Mitigation Instruments for more information.