CLASSIFICATION/KINDS OF

BUSINESS RELATED RISKS

Business related risks, in alphabetical order:
1. Acquiring planning approval risk where delays could arise or
failure to secure the necessary permissions;
2. Asset quality risk where quality of assets is unacceptable;
3. Availability risk which relates to facilities and equipment
being on hand for use by the parties;
4. Bid process risk due to unwieldy, lengthy and costly process;
5. Commissioning or start-up risk due to delay in meeting
targets;
6. Consortium structure risk where there is a mismatch of
consortium partners;
7. Construction risk which arises from cost or time overruns, and
poorly constructed solutions;
8. Corruption risk which arises from officials getting bribes and
favors;
Business related risks, in alphabetical order:
9. Cost risk where the private party fails to deliver on its outputs
within the cost assumptions;
10. Counterparty risk which concerns the trading process when
one of the trading parties do not perform its obligations;
11. Credit risk which arises from the possible default of the
debtor whether government or the private sector proponent or
when the lenders or sponsors are not credit-worthy;
12. Demand risk which could render the facility or project
underutilized;
13. Demographic risk where changes in population and density
could affect the project;
14. Design risk where the proposed technical solution is
unworkable or inefficient;
15. Economic risk which results in fall in revenues or financiers
pulling out;
Business related risks, in alphabetical order:
16. Environmental risk which involves the impact of the
project on the environment, or vice-versa;
17. Feasibility studies risk for failure to conduct a complete
one or not identifying the key downsides of the project;
18. Force majeure risk arising from circumstances beyond the
parties’ control;
19. Foreign exchange risk brought about by foreign currency
fluctuations;
20. Gearing risk which arises from an inappropriate funding
structure (ratio of debt to equity) and its impact on
profitability;
21. Ground conditions risk pertaining to undesirable ground
conditions;
22. Inflation risk brought about by inflation;
Business related risks, in alphabetical order:
23. Installation risk which arises from incorrect installation to
ensure no risks are left behind and passed on to operator;
24. Insurance risk which involves the efficacy of the insuring the
project;
25. Interest rates risk affecting the project life cycle;
26. Legal risk relating to the capacity of the party to sign the
contract;
27. Legislative risk brought about by changes in law affecting the
project;
28. Life cycle costs risk on the inaccuracy with which life cycle costs
can be projected for longer duration;
29. Local partners risk posing interface problems or in the use of
different systems and procedures;
30. Market competition risk eroding the potential gains of the due
to strong competitors positioning;
Business related risks, in alphabetical order:
31. Market familiarity risk where company do not understand the
market segment they are targeting.
32. Operational risk arises in the course of the processing,
confirming and reconciling transactions, and maintenance,
malfunctions and delays, and operating beyond the cost
projections;
33. Payment mechanism risk pertaining to the scheme by which
payments are apportioned among the parties;
34. Project management ability risk pertaining to inadequacy to
accomplish task;
35. Project performance risk where parties fail to meet standards
set;
36. Raw material risk on supply, availability and cost;
37. Regulatory risk where future actions of government will
adversely affect the project;
Business related risks, in alphabetical order:
38. Residual value risk where high standard of facilities at the
end of the project life or concession period will not be
achieved;
39. Revenue tariffs risk where actual tariffs set are lower than
projected;
40. Risk mismatch risk where the allocation of risk is not
appropriate or when risk is assigned to a party incapable of
managing or controlling it;
41. Site Acquisition risk that may be brought about by
choosing the wrong land or the right land for the wrong price;
42. Social or protester risk where some communities may
oppose the project;
43. Sponsor risk which arises from the level of commitment of
the sponsors or equity-providers to the project;
Business related risks, in alphabetical order:
44. Succession risk brought about by change of policies
by the successor administration;
45. Taxation risk due to change in taxation laws and
rules;
46. Technology risk could result in an unfruitful scheme
due to obsolescent technology;
47. Time risk involving delays in the project;
48. Usage risk overtime could overstretch the
capability limits of resources;
49. Volume risk on the capacity of the facility; and
50. Weather risk causing project disruptions
attributable to the weather.
If the relevant risks are not addressed and properly
assigned to the party who can best manage and
control the risks, it can result to:
1.high or unreasonable tariffs,
2.delay,
3.failure,
4.finger-pointing,
5.penalties,
6.defaults, litigation,
7.congressional investigations,
8.lost of confidence, and
9.distrust.