PPP in the Latvia Highway Project (Risks & Tools to Mitigate the Risks)

Eshaan MBA(mktg.)

Project Related Risks (Relatively manageable by sponsors and lenders)

Completion Risk Operational Performance Risk Market Risk Financial Risk Environmental Risk

Non-Project Related Risks(non-manageable by sponsors and lenders)

Political Risk Contractual Risk Macroeconomics Environment Legal Environment

IEF, April 2005 4

CC (Construction completion)

Investment

Debt

Equity

Ideal Cash Flows

Cash Flows

US$

Years

IEF, April 2005 5

PC (project completion)

Investment

Debt

Equity

Cash Flows (e)

US$

Years

Real Cash

Flows

Effect of Risk on Cash Flows

Key Stakeholders in the Risk Assessment and Risk Allocation

IEF, April 2005 6

ProjectCompanyProject

Company

ShareholdersShareholders

Lenders /BondholdersLenders /

Bondholders

OperatorOperator

Construction Contractor

Construction Contractor

GrantingAuthorityGrantingAuthority

Services PurchaserServices Purchaser

Shareholders Agm’t

Concession Agreement

Purchase Agreement (e.g., shadow toll)

End-users

Traffic Demand

Construction Contracts

Operation & Maintenance Agreement (O&M)

Authority Right of WayAuthority

Right of WayLand acquisition and further transfer to PPP

Risk Mitigation

IEF, April 2005 7

Non-sovereign Sovereign

Completion Risk

Performance Risk

Environmental Risk

Demand Risk

Political Risk Regulatory Risk (inc.

Land Acquisition

Risk)

Macroeconomic Risk

Cost overruns and delays.

Revenue generation and operational costs increase

Hidden liabilities

Revenue generation

Expropriation, transfer, convertibility Cease of revenue generation

Revenue generation. Tariff Adjustment; Right of Way, Termination payment

Revenue generation. Devaluation / inflation impact of cash flows

High Low Low High Low High High

EPC Contract and performance bonds

Performance based contracts

Environmental Assessment

Traffic Minimum Revenue Guarantees / VPN ConcessionPartial Credit Guarantees

Political Risk Insurance

Concession Contract Partial Risk Guarantees

Local currency financing

Risks

Cash Flow effect

Impact

Risk Mitigation Instrument

Thank You