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Public-Private Partnerships in Health pp 43–64Cite as

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The Key Element of PPP: Risk

Abstract

The amount of risk transferred to the private operator must be enough to create the incentives that enhance the efficiency of delivery. But transferring risk has a cost in terms of increased finance costs. These affect the scale of the unitary charge, and hence only those risks that can be identified, managed and mitigated by the private operator should be allocated to them. Risk is also, in some jurisdictions, a crucial variable in terms of contract qualification and accounting treatment, and it must therefore be assessed objectively in both financial and economic appraisals. In this chapter, the key dimensions of risk assessment in these contexts are analysed in detail.

Keywords

  • Risk
  • cost
  • finance costs
  • rate of return
  • financial appraisal
  • economic appraisal

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Fig. 3.1
Fig. 3.2

Notes

  1. 1.

    According to Eurostat, the term PPPs “will be exclusively used to describe those long-term contracts in which government pays to a non-government partner all or a majority of the fees under a specific contractual arrangement, thus covering most of the total cost of the service provided (including the amortisation of the assets). In national accounts, this feature distinguishes PPPs from concessions. In a concession contract, government makes no regular payments to the partner, or such payments, if they exist, do not constitute a majority of fees received by the partner. In a PPP contract the final users do not pay directly (i.e. in a way proportional to the use of the asset and clearly identified only for this use), or only for a minor part (and generally for some specific uses of the asset), for the use of the assets for which a service will be provided”.

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Authors and Affiliations

  1. Bocconi University, Milan, Italy

    Veronica Vecchi

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  1. Veronica Vecchi
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Editors and Affiliations

  1. Bocconi University, Milan, Italy

    Veronica Vecchi

  2. University of Edinburgh, Edinburgh, United Kingdom

    Dr. Mark Hellowell

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Vecchi, V. (2018). The Key Element of PPP: Risk. In: Vecchi, V., Hellowell, M. (eds) Public-Private Partnerships in Health. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-69563-1_3

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