Political risks: How to effectively mitigate political risks, deal structure, financing and political risk insurance

Abstract

Political risk has become an increasingly critical topic for many airport projects, predominantly, but not limited to, projects in emerging economies. There are a considerable number of airport projects that have been subjected to cancellations of concessions or outright expropriation, or where a political impasse has resulted in renegotiations or a sale to a new concessionaire. What are the types of political risks that may threaten the stability of a project, and how can these be mitigated? This paper looks at selected aspects of the deal structure and of the finance structure as potential mitigants to political risk. It finally discusses key features of political risk insurance as a tool to find protection against risks an investor cannot avoid by proper structuring alone.