Risk Analysis of Infrastructure Projects : A Case Study on Build-Operate-Transfer Projects in India

The growth of the infrastructure sector in India has been relatively slow compared to that of the industrial and manufacturing sectors. Energy shortage, inadequate transportation network, and insufficient water supply system have caused a bottleneck in the country’s economic growth. The Build-Operate-Transfer (BOT) scheme is now becoming one of the prevailing ways for infrastructure development in India to meet the needs of India’s future economic growth and development. There are tremendous opportunities for foreign investors in this field. However, undertaking infrastructure business in India involves many risks and problems that are mainly due to differences in legal systems, market conditions and culture. It is crucial for foreign investors to identify and manage the critical risks associated with investments in India’s BOT infrastructure projects. The main purpose of this paper is to investigate the critical risks associated with BOT projects in India. Based on a survey, the following critical risks, in descending order of criticality, are identified: delay in approval, change in law, cost overrun, dispatch constraint, land acquisition and compensation, enforceability of contracts, construction schedule, financial closing, tariff adjustment and environmental risk. The measures for mitigating each of these risks are also discussed. Finally, a risk management framework for India’s BOT infrastructure projects is developed