Updated: 24 April 2007. FINA 522: Project Finance and Risk Analysis. Lecture Seven. Managing Contingent Liabilities. Contingent Liabilities In Infrastructure: East Asian Experience Philippines Experience Indonesian Experience Malaysian Experience.
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Updated: 24 April 2007
Project Finance and Risk Analysis
Managing Contingent Liabilities
Contingent Liabilities In Infrastructure: East Asian Experience
Main Source of Infrastructure Contingent Liabilities, The Philippines
Transportation – Road Projects
- 26 projects
Under the 1986 concession agreement for the North-South Highway,automatic toll increases equal to the greater of 6 percent or the annualincrease in the consumer price index. If the eligible toll increase isdenied, the concessionaire must be compensated an equivalent amount by the government. Permitting a formula-driven toll rate increase creates acontingentliability for the government that grows with each additional yearthe eligible increase is denied. Since 1996, the government has deniedthe full increase permitted under the concession agreement. The governmentbudgets for this expense, which for the PLUS concession average 80.5 million for 1996 and 1997 and which increasedsharply to MYR145 million for 1998 (because of the cumulative denialof rate increases for successive years).
Tenaga – the public utility (largely government owned)
- Energy demand fell with economic crisis in 1997-1998 hence, excess capacity and revenues did not keep up with growth in costs
IWK contract took over sewerage services from local governments
Private participation in Malaysia is less than the value of the “private” projects.
Government has provided support through several mechanisms: “soft” loans, equity investments, directed lending through banks and provident funds, and various explicit and implicit guarantees
- Government soft loans – carry low interest rates
- used more competition to reduce costs
- privatization done to reduce costs