Risk-sharing mechanism for PPP Projects - the case study of the Sydney Cross City Tunnel

The Cross City Tunnel in Sydney, Australia is a good example of how the improper allocation of risks could affect the success of a Public Private Partnership (PPP) project. It is not incorrect for risks to be passed on to the private sector, especially when they are able to manage them. But maybe there should be a ‘partnership’ in place when the private sector is unable to manage all the risks themselves. Some critiques considered this project as an unsuccessful PPP as the Government has had to cope with handling much public opinions dissatisfaction and criticisms for their inaccurate traffic forecasts, leading to the investor making a financial loss. This paper aims to derive a risk-sharing mechanism for projects similar to the Cross City Tunnel, by reviewing the underlying causes leading to the ‘failure’ of this project. In addition, the objectives are to ensure that appropriate risk allocation is achieved in the best interests of all parties so as to make the project successful. Unpredictable circumstances and inaccurate predictions of the Government could make it difficult if not impossible for the private sector to handle the project. In these situations the Government should step in, share the responsibilities and overcome the problems encountered with the consortium. The Government should be able to offer assistance in these circumstances in the form of finance, manpower, governmental procedures, etc. depending on the need. In addition, this paper advocates that such mechanism should be in place for similar projects in the future. Benefits for both sector parties are anticipated when this mechanism is included in the project contract. After all, a PPP is a ‘partnership’ and the parties should work together to overcome obstacles for mutual benefit.