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1 2022

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Political instability as a risk factor for PPP project success – a case study of the Hungarian M1/M15 motorway project

Schulders Maria

Zeszyty Naukowe. Organizacja i Zarządzanie / Politechnika Śląska

2022

z. 157

469--482

Purpose: The main aim of this paper is to analyze political instability as a risk factor for public-private partnership (hereinafter: PPP) project success on the case of the 1992 Hungarian M1/M15 motorway project. Furthermore, it also examines the project success framework and critical success factors in PPPs, as well as project risk division and proper risk allocation. Design/methodology/approach: The text includes a review of relevant literature in the field of political instability and risk management pertaining to PPPs, in combination with a case study illustrating the impact of political instability on a PPP project. Findings: The findings of the case study suggest that Hungary’s institutions at the time of the project did not offer the necessary safeguards against governmental abuse of bargaining power. Independent courts are essential for the success of public-private partnerships, in combination with an emphasis on the protection of property rights and the rule of law. A well-functioning institutional and legal framework offer protection against the failure of public-private partnership projects and constitute a critical success factor for PPPs. Practical implications: Despite growing social infrastructure investment needs, PPP is not developing in accordance with expectations in the majority of developing and emerging economies. Political stability is an essential factor in any development process and happens to be one of the most distinguishing factors between developed and developing countries, in which PPP schemes are underutilized despite an enormous potential for more private sector involvement. Countries lacking independent courts may strongly benefit from alternative dispute resolution procedures. The retention of a larger amount of project risk by the public party may additionally prove to be helpful for the development of PPP markets in nations lacking institutional and political stability. Originality/value: The research problem identified in this paper concerns the implications of political instability – a global phenomenon of growing significance, on the success of PPP projects. The obtained results may be of interest to representatives of science and practice, especially with regards to developing countries, as well as emerging economies.