A fuzzy-based evaluation of financial risks in build-own-operate-transfer water supply projects

Ernest Effah Ameyaw, Albert Chan PC, De-Graft Owusu-Manu, Edward John David, Frederick Dartey

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Abstract

The Build–own–operate–transfer (BOOT) scheme is widely used for the provision of new bulk water supply. However, this scheme is complex and carries significant financial risks, due to the characteristics of the water sector and the involvement of public–private stakeholders with new and extended responsibilities, large private capital, and long contract duration. Drawing on the Nungua Seawater Desalination Plant (NSDP) in Ghana, this research seeks to identify and assess the critical financial risks associated with BOOT water supply projects and evaluate the financial risk level of the NSDP project. The risks and their relative criticality on the NSDP project are investigated by using a questionnaire survey method. The questionnaire was formulated with a set of 18 risks derived from extant literature and project documentation. Perceived critical financial risks affecting the NSDP project were assessed by a team of experts who had direct involvement in the project. A fuzzy synthetic evaluation suggests that the case project is financially risky and that all the risks are critical to the project. Bankruptcy of consortium members, unfavourable economy of the host country, uncertainty in the tariff adjustment of water products, rate of return (profitability) restrictions, and availability problem of private capital are the five most highly-ranked risks. The fuzzy technique is used to represent and model the experiential knowledge of survey participants and to address the fuzziness of their expert judgments. The study’s results facilitate prioritization of risks and a comprehensive risk management program during the lifecycle of the case project and future projects. The fuzzy technique is suitable for early phases of BOOT projects to prioritize the risks that require a detailed analysis and to predict the risk level of a project.
Original languageEnglish
Article number04017033
JournalJournal of Infrastructure Systems
Volume23
Issue number4
Early online date25 Aug 2017
DOIs
Publication statusPublished - 1 Dec 2017

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Keywords

  • BOOT
  • fuzzy synthetic evaluation
  • water supply
  • financial risk

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