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Let's transfer all the risks
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“We want a PPP… but we don’t want to take any risk.” That scream comes from the public and private sectors alike… And every time I hear that, I already see the coffin. ​ Today’s story is not about a PPP that went wrong. It’s about a PPP that never even made it to the starting line because the government tried to dump so much unmanageable risk on the private sector that the private sector simply said: “Good luck, amigos.” And walked away. ​ Welcome to the Nairobi–Thika Highway PPP attempt (early 2000s). Not the project that was later built. THIS is the version that died before birth and whose failure led directly to a massive cost blowout when the government had to build the highway itself. ​ A masterclass in how to kill a PPP before it even exists. ​ The opening scene Early 2000s. Kenya wants to upgrade the Nairobi–Thika highway. Great. Huge need. Explosive growth. Perfect candidate for a well-structured PPP. ​ Then came the technical team. And the PowerPoints. And the consultants. And the most dangerous sentence in the public sector: “Let’s transfer ALL the risk to the private partner.” ​ Ah yes. The famous “best practice” that kills more PPPs than corruption and incompetence combined. Specially when you don’t have a market with established PPP players… ​ The risk-transfer suicide menu: 1. 100% traffic risk No reliable traffic baseline No O-D surveys No willingness-to-pay data A massive informal transport system impossible to model. ​ But sure: “Let the private partner take all the revenue risk.” ​ Right. And maybe throw in a rosary too… they’ll need it. ​ 2. Land acquisition dumped entirely on the private partner In Kenya. Around Nairobi. Where expropriation can take years and litigation even longer. ​ Government’s idea? “The concessionaire should pay for it and absorb all delays.” The sponsors didn’t just laugh. The banks laughed too. Money safe in Switzerland or a place like that. ​ 3. Incomplete geotec, unclear scope, utility risks… of course… all transferred Geotechnical investigations were weak Utility maps were… aspirational Environmental risks not defined Scope still evolving ​ And somehow: “Private partner must take all construction and ground risks.” ​ 4. Political risk unmitigated Tariffs could be frozen Regulations could change Elections always around the corner No guarantee. No buffer. No common sense. ​ The result: absolute silence ​ Not a single serious bidder. Not one international consortium. Not one bank willing to support the risk matrix. ​ The PPP collapsed in the market-engagement phase. Dead on arrival. ​ And now the best part… ​ Because the PPP failed, the government decided: “Fine. We’ll build it ourselves.” ​ PPP cost estimate: US$ 250–300 million ​ Final cost of the traditionally delivered public project: More than US$ 500–600 million ​ Twice the price. Plus delays. Plus reputational damage. ​ Surprise, surprise… the same risks they wanted to dump on the private partner came back with a vengeance: ​ land acquisition delays political interference scope creep geotechnical surprises change orders contractor claims more delays more claims more overruns ​ The exact risks they refused to share… they ended up paying for in full. ​ But don’t get me wrong… The project is fantastic and it has delivered lots of good to the country. As good infrastructure does. ​ So… the final remarks: This “PPP” did NOT fail because PPPs don’t work. It failed because someone thought PPPs are about transferring everything, understanding nothing, and calling that “innovation.” ​ If they had structured a realistic, bankable PPP, one that shared risks intelligently, they would have had (very likely): ​ competition innovation better pricing faster delivery and a predictable final cost ​ Remember. A contract cannot replace common sense. ​ For more PPP adventures, click below:
​The top 15 Lessons of a successful project​ ​The top 15 lessons of a nightmare project​ ​Don't be embarrassed. ​ ​ PD 1: If you liked this email, don't keep it in secret and forward it to a friend. They will thank you enormously one day. PD 2: If somebody has sent you this email and you want to receive emails like this yourself, visit vicentevalencia.com PD 3: If you want unsubscribe, click the link below. ​ ​ |
Vicente Valencia
I talk about Personal Growth, Management, Infrastructure and More | C-Suite Executive | Mentor, Coach, Strategic Consultant | Real Estate Investor | 👇JOIN +2k readers 👇
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