General risks inherent in PPPs

Technological/Design risks
Technology risks threaten assets and processes vital to your business and may prevent compliance with regulations, impact profitability, and damage your company’s reputation in the marketplace.

Construction/Completion risk

Operating risk
Operational risk summarizes the risks a company undertakes when it attempts to operate within a given field or industry. Operational risk is the risk not inherent in financial, systematic or market-wide risk. It is the risk remaining after determining financing and systematic risk, and includes risks resulting from breakdowns in internal procedures, people and systems.

Market/Demand risk
A risk that a demand forecast may not meet the actual consumer demand. A high forecast but low actual demand can mean unnecessary cost for the firm in terms of disposing or storing their surplus. On the other hand, low forecast but high actual demand can mean opportunity cost in terms of lost sales.

Economic risk
Economic risk is the chance that macroeconomic conditions like exchange rates, government regulation, or political stability will affect an investment, usually one in a foreign country.

Counterparty risk
Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its contractual obligations. Counterparty risk is a risk to both parties and should be considered when evaluating a contract. In most financial contracts, counterparty risk is also known as default risk.

Political/Regulatory risk
Political risk is a type of risk faced by investors, corporations, and governments that political decisions, events, or conditions will significantly affect the profitability of a business actor or the expected value of a given economic action. Political risk can be understood and managed with reasoned foresight and investment.

Foreign exchange/currency
Foreign exchange risk – also called FX risk, currency risk, or exchange rate risk – is the financial risk of an investment’s value changing due to the changes in currency exchange rates. This also refers to the risk an investor faces when he needs to close out a long or short
position in a foreign currency at a loss, due to an adverse movement in exchange rates.

Force Majeure
Force majeure meaning “superior force”, also known as cas fortuit (French) or casus fortuitous (Latin) “chance occurrence, unavoidable accident “is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, or an event described by the legal term act of God (hurricane, flood, earthquake, volcanic eruption, etc.), prevents one or both parties from fulfilling their obligations under the contract. In practice, most force majeure clauses do not excuse a party’s non-performance entirely, but only
suspend it for the duration of the force majeure

Environmental risk
Environmental Risk can be defined as the “actual or potential threat of adverse effects on living organisms and the environment by effluents, emissions, wastes, resource depletion, etc., arising out of an organization’s activities.” Environmental exposures, whether physical, chemical, or biological, can induce a harmful response and may affect soil, water, air, natural resources or entire ecosystems, as well as the plants and animals – including humans – and the surroundings where they live.

With growing oversight, this type of risk is not typically covered under conventional liability protection, but gaps in coverage can be filled by innovative specialty programs made available by insurers. Given the increase in environmental exposures, the global risk and
insurance community would be wise to evaluate its awareness, vulnerability, preparedness and response in managing emerging and unforeseen pollution risks.

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