Assessing relative importance

Over the Project Term, there is the risk that events may occur in the broader market economy which may affect the Project.  The impact of this risk may take a number of forms.  An example, may be a social policy which affects the number of patients referred to the emergency department.  But as stated earlier, the majority of demand risk lies with the government with a small element transferred to the Project Company.

A further effect of a downturn in the broader market is its impact on the financial health of the Project Company's subcontractors and thus the Project Company may not be able to meet the requisite KPIs, resulting in a change in subcontractor (and hence increased costs), or the financial distress/ insolvency of the Project Company itself.  This risk lies with the Project Company as it is responsible for the provision of specified services over the Project Term.  It is this risk that should be adjusted for in the PPP Discount Rate.  The risk of a market downturn cannot be diversified away and is a recognised Systematic Risk.

Compared to the other risks this risk is considered low, but as there are government restrictions on the private sector in its choice of alternate service provider/s, this risk is elevated to medium importance.