OPIM 5894 Advanced Project management Poland A2 Motorway case - Political & Financial Risks

1. OPIM 5894 Advanced Project managementPoland A2 Motorway case - Political & Financial Risks Team 3 Richard Buskey Jonathan Weiss Daniel Mahzonni PrashantMishra Vijay Gadigeppa Jonathan Koenig http://users.business.uconn.edu/snair/opim5894.html

2. Poland A2 Motorway case Political Risks 1. Change in government • 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

3. Poland A2 Motorway case Political Risks 2. Change in government priorities • 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

4. Poland A2 Motorway case Political Risks 3. Use of UK law, enforceable through Polish courts • 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

5. Poland A2 Motorway case Political Risks – Heat Map • Change in Government • Change in Government priorities • Use of UK law, enforceable by Polish courts Prof. Suresh Nair, University of Connecticut

6. Poland A2 Motorway case Financial Risks 1. Financing not processed in time to meet deadline • 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

7. Poland A2 Motorway case Financial Risks 2. The new road would capture less than the expected 50% of traffic • 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

8. Poland A2 Motorway case Financial Risks 3. Polish inflation would not decrease to 2% by 2008 and/or Polish corporate taxes would not decrease to 22% by 2004 • 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

9. Poland A2 Motorway case Financial Risks 4. Weakening of the Zloty vs. the Euro • 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

10. Poland A2 Motorway case Financial Risks – Heat Map • Financing not processed in time to meet deadline • The new road would capture less than the expected 50% of traffic • Polish inflation would not decrease to 2% by 2008 and/or Polish corporate taxes would not decrease to 22% by 2004 • Weakening of the Zloty vs. the Euro Prof. Suresh Nair, University of Connecticut