OPIM 5894 ADVANCED PROJECT MANAGEMENT
POLAND A2 MOTORWAY CASE
- POLITICAL & FINANCIAL RISKS
Team 3
Richard Buskey
Jonathan Weiss
Daniel Mahzonni
Prashant Mishra
Vijay Gadigeppa
Jonathan Koenig
http://users.business.uconn.edu/snair/opim5894.html
Poland A2 Motorway case
2
Political Risks
1. Change in government
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A different political party takes control
IDed and assessed – Yes, delays create risk of change in heart
Who? – Government responsible for fully covering debt obligations
plus NPV of cash flow
Mitigation – Contracts with government guaranteed, counter
guarantees by government against building competing systems,
ending concession
Prof. Suresh Nair, University of Connecticut
Poland A2 Motorway case
3
Political Risks
2. Change in government priorities
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War, trade issues, natural disasters, riots, etc.
IDed/Assessed – yes, delays caused by environment could
jeopardize project
Who? – AWSA
Mitigation – insurance will compensate a maximum of 650
thousand EUR per year for operational loss, government agreed to
compensate based on archaeological or hazardous materials
Prof. Suresh Nair, University of Connecticut
Poland A2 Motorway case
4
Political Risks
3. Use of UK law, enforceable through Polish courts
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E.g., interest on interest not allowed in default situations
IDed and assessed – Somewhat, risk is known but severity not yet
determined
Who? – Law firm (Baker & McKenzie)
Mitigation – Lobby/promote change in laws based on UK structure
Prof. Suresh Nair, University of Connecticut
Poland A2 Motorway case
5
Likelihood
Political Risks – Heat Map
5
4
3
2
1
Political
1
3
2
1
2 3 4 5
Consequence
Prof. Suresh Nair, University of Connecticut
1. Change in Government
2. Change in Government
priorities
3. Use of UK law, enforceable
by Polish courts
Poland A2 Motorway case
6
Financial Risks
1. Financing not processed in time to meet deadline
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IDed and assessed – Banks (Credit Lyonnais, Commerzbank)
expressed concern with traffic forecasts and recommended
additional 60-90 million EUR to cover shortfalls
Who? – AWSA
Mitigation – Secure extra funding from European Investment Bank,
present case why Wilbur Smith estimates are too conservative
Prof. Suresh Nair, University of Connecticut
Poland A2 Motorway case
7
Financial Risks
2. The new road would capture less than the expected 50% of
traffic
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Competition from alternate roadways or methods of travel
IDed and assessed – S&P studies, Wilbur Smith analysis
Who? – AWSA
Mitigation – Included in concessions that the government could not
back other roadways or alternate modes of travel
Prof. Suresh Nair, University of Connecticut
Poland A2 Motorway case
8
Financial Risks
3. Polish inflation would not decrease to 2% by 2008 and/or
Polish corporate taxes would not decrease to 22% by 2004
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IDed and assessed – Finance model by Deutsche Bank being used
for forecasting
Who? – AWSA
Mitigation – None, risk must be accepted. Forecasts are in line with
government estimates.
Prof. Suresh Nair, University of Connecticut
Poland A2 Motorway case
9
Financial Risks
4. Weakening of the Zloty vs. the Euro
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IDed and assessed – No, consequence is funding gap could be
created
Who? – AWSA and Polish government
Mitigation – Do not hedge against exchange rate, purchase
materials from Poland suppliers when possible
Prof. Suresh Nair, University of Connecticut
Poland A2 Motorway case
10
Likelihood
Financial Risks – Heat Map
5
4
3
2
1
Financial
4
3 2
1
1
2 3 4 5
Consequence
Prof. Suresh Nair, University of Connecticut
1. Financing not processed in
time to meet deadline
2. The new road would capture
less than the expected 50% of
traffic
3. Polish inflation would not
decrease to 2% by 2008
and/or Polish corporate taxes
would not decrease to 22% by
2004
4. Weakening of the Zloty vs. the
Euro