Mitigating contractual risks for EPC-based power projects in emerging economies: an empirical investigation in Pakistan

EPC-based power projects under Independent Power Producer (IPP) frameworks in emerging economies often face persistence performance instability due to contractual complexities and institutional constraints. This study investigates the influence of contractual risks on project performance outcomes, specifically cost overrun and schedule delay in Pakistan’s power sector. A quantitative empirical study approach was adopted, integrating stakeholder-based risk prioritization via the Relative Importance Index (RII), Exploratory Factor Analysis (EFA), and multiple regression modeling. Twenty-seven contractual risk factors were clustered into five dimensions: (F1) contractual governance and scope, (F2) financial and payment, (F3) regulatory and political, (F4) technical and operational, and (F5) environmental and social risks. Empirical results reveal that financial and payment risks (F2) predominantly drive cost escalation, while governance and scope risks (F1) primarily contribute to schedule delays. Other risk dimensions exhibited comparatively weaker direct effects but influence project outcomes indirectly through institutional and contractual mechanisms. Drawing on Risk Allocation Theory, Agency Theory, and Transaction Cost Economics, a structured contractual governance enhancement framework is proposed, encompassing financial security stabilization, incentive and monitoring realignment, and coordination cost reduction. The study offers practical guidance for EPC contractors, project sponsors, and regulators, while extending theoretical understanding of contractual risk pathways in emerging infrastructure markets.