Mitigating Political Risks in Large Infrastructure Projects

Transcription

1 Power Projects Mitigating s in Large Projects A presentation to the Regional Investment Conference September 2005 Tracey Austin Project and Export Finance Africa & Middle East

2 Contents

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4 in Africa has an enduring commitment to Africa and has had a major presence on the continent for over a century Today, is one of the largest Pan- African banks employing over 7,000 people in 11 African countries and serving over 1.5mn customers is the leading financial services provider in most of the countries in which we have a presence has historically been involved in over 22 African countries and we continue to invest in opportunities even where we do not presently have a formal presence in a specific country.

5 Notable Recent Transactions in Africa

6 Recent Energy

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8 The Investment Continuum Equity Facility Operator Contractor Facility Operator Contractor Investor Financial Institutions Local Groups Institutional Investor Retail Investor Concession Project Finance PPP Trade Sale Cornerstone Investor IPO Commercial Banks Debt Debt Capital Markets Development Finance

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10 Key forms of Non-payment and Currency Inconvertibility Inability to convert local currency into foreign exchange as well as delays in acquiring foreign exchange caused by the host government's actions or failure to act. Confiscation, Expropriation and Nationalisation Elimination of ownership, control over, or rights to the asset/investment. "Creeping expropriation," series of acts that over time have an expropriatory effect. War and Civil Disturbance Loss due to the destruction, disappearance, or physical damage to assets caused by politically motivated acts of war or civil disturbance, revolution, insurrection, and coups d'etat. Terrorism and sabotage treated selectively. Breach of Contract Breach or repudiation of a contractual agreement with the investor/lenders by host government. Reliant upon a dispute resolution mechanism (e.g., arbitration). Source:

11 Review of Common Practice Usual Mitigation Currently being applied World Bank Group Structures (IDA) IDA (poor developing countries) Always with the financial backing of host government International Finance Corporation (IFC) MIGA Private Insurers Loans, equity and quasi equity Loans at market rates Commercial Lenders participate under B-Loans IFC remains lender of record Provider of political risk under contracts of guarantee for debt or equity Cover provided without counterguarantee Subject to availability ( on-cover, tenor and price) Events clearly defined Damages easily measured DFI s/eca s DFI participation assists in overall project bankability ECA s insure against payment risk under PRI events

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13 These factors may give rise to political risk The Obsolescing Bargain Host Governments view vs. Foreign Investors view Visibility of Large Projects Debt or Equity Arrangement Tendency to utilise Loan arrangements Fix contractual performance irrespective of domestic economic conditions Corruption and External Pressure Managing Large projects in context of monopolistic environments Regulation Measure of market forces on a Large project Decentralisation Impact of contracting with a local party

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15 A Different Approach and Key issues for consideration include: Information and Disclosure Lack of information can lead to the acceptance of terms that are out-of-line Library of Agreements Report Debt-like Obligations Accessing the Full Picture Appropriate Agreements Using innovative agreements to resolve disputes Learning from other industries (oil & gas and mining industries) Refuse One-sided Agreements Banks/Investors alike need to guard against one-sided agreements Rescheduling of Payments Creation of a new mechanism to structure repayments under economic crisis

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17 Large Projects Require New Attitude Searching for new ways to reduce beyond conventional mitigants Looking beyond insurance, host government guarantees Insurance World Bank/MIGA Private Insurers Involving Other Parties Local participants, Joint venture partnerships Shifting Managing contractual performance against realistic challenges (i.e. socio-economic)

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19 Key Issues Going Forward Role of government remains critical Assist in developing a suitable investor climate set-up, regulatory framework, macro-economic policies Project Sponsors - key to successful commercial development Appropriate commercial structure to attract financing. Identify global benchmarks with similar characteristics replicate model Talk about your project introduce financiers earlier into the process Managing throughout the process Consider all possible alternatives, incl. global lessons Involve regional development financial institutions Understand the implication of what can go wrong and what the alternatives are

20 Emphasis on projects being bankable Upfront management of allocation to the appropriate counterparties Energy-related Project is alive in Africa. The time has come