infrastructure risk: navigating financing challenges
TRANSCRIPT
Global Infrastructure Practice
INFRASTRUCTURE RISK: NAVIGATING FINANCING CHALLENGESMARSH’S 2011 GLOBAL INFRASTRUCTURE CONFERENCE HIGHLIGHTS
1 • Infrastructure Risk: Navigating Financing Challenges, Marsh’s 2011 Global Infrastructure Conference
On 11 October 2011, Marsh hosted its inaugural
infrastructure conference, Infrastructure Risk:
Navigating Financing Challenges. More than
thirty of the infrastructure industry’s thought
leaders, representing owners, operators,
financiers and regulators addressed over 150
senior infrastructure
sector practitioners
in interactive
sessions focused on
anticipating critical
risk issues. A simple
message emerged –
risk understood, well
managed and
optimised creates opportunities, and will unlock
the necessary capital by improving critical
decision-making and project economics.
The conference focused attention on key risk areas
across the infrastructure value chain with lively,
insightful discussions throughout the day. We are
delighted to share with you some of the key
themes that emerged.
Edwin Charnaud
Managing Director
Marsh Infrastructure Practice
INFRASTRUCTURE INVESTOR
AWARDS 2010
“I was really impressed by the level of the participants, the quality of the interventions and the particularly high level of the other speakers and panellists.”
“I was very pleased to receive your invitation and now to have been associated with a very well organised but, best of all, very informative event; this was all about content and you got it right.”
“We do hope you consider such a conference again. I am not a big conference attender but this is one I would not want to miss.”
2 • Infrastructure Risk: Navigating Financing Challenges, Marsh’s 2011 Global Infrastructure Conference
NEED FOR A LEXICON FOR THE “NEW NORMAL”
As governments and global economies
continue to struggle through turbulent
times, the need to rehabilitate, expand
or build critical infrastructure in both
OECD and developing nations will fuel
an ongoing competition for the right
kind of investment capital.
Infrastructure projects with a poor risk
profile will have a very limited chance of
successful funding or refinancing.
However, despite general agreement
on the need for investment and the
enormity of the challenge, there is a
serious disconnect between
Government and the private sector
based on a fundamental lack of
understanding around underlying
asset economics and the associated
risks of financing, developing,
constructing and operating them. This
disconnect blocks many forms of
investment capital and increases
financing costs because of built-in risk
premiums.
To address this disconnect, it will be
important both to build a common
understanding and lexicon to discuss
real infrastructure risks/returns and to
re-calibrate to the “new normal” of
macro economic conditions which
requires a longer term view of
addressing project risks and solving
them at a local level. Infrastructure can
no longer be considered as a “free”
resource. Changes to old paradigms
will have profound social, political and
economic consequences. Essential
public services that were previously
taken for granted will now come at a
cost and the premium charged for
them could be, as panellist Thomas
Putter emphasised, “social dynamite”.
DEVELOPING “BANKABLE” TRANSACTIONS IN AN INCREASINGLY COMPLEX RISK ENVIRONMENT WORLDWIDE
New and/or updated core
infrastructure requires huge
investment, supporting regulation,
multi-stakeholder involvement and the
resultant need for stakeholder
alignment around the allocation and
treatment of risk. Greater risk
complexity in a world undergoing
change necessitates understanding
the real costs, risks and returns of an
infrastructure project and ways to
define and mitigate those risks through
objective analysis, experience, tools
and sophisticated approaches.
Identifying and quantifying the real
risks and costs involved over the life-
cycle of an asset and consequently
better determining the real rates of
return on required investments can
help to make projects more bankable
by helping financial and strategic
sponsors determine they are “good
projects” which essentially implies
“good risks”. Key areas that must be
conclusively addressed include:
Revenue Risk – In addition to the
shortage of liquidity in the project
finance market, it is becoming much
harder and more expensive for the
private sector to secure financing for
projects with market or traffic risk. User
fees and demand/traffic risks pose a
significant level of long-term
uncertainty, volatility and potential
variance from forecasts that cannot be
easily assessed, priced or insured over
CONFERENCE HIGHLIGHTS
3 • Infrastructure Risk: Navigating Financing Challenges, Marsh’s 2011 Global Infrastructure Conference
the life of a long-term project. This
creates financing problems and
increases costs. Flexibility in contract
terms along with fair and optimal
project risk allocation (including
shared risks and rewards) can lower
the risk premium charged by the
private sector, and help reduce overall
project costs making the project more
viable and financeable.
Regulatory Risk – Governmental action
and policy is a key enabler of activity
across critical sectors including energy,
transportation and social
infrastructure. However, this enabler
also presents one of the greatest risks
to infrastructure stakeholders due to
uncertainty over potential changes in
political climate, broader policy issues,
regulatory clarity and consistency over
time. Lack of a reliable legal framework
and judicial system along with
unexpected changes in regulations or
legislation due to corruption, short-
term political influence and competing
interests can impact the strategic
balance of risk and reward necessary to
deliver stable long-term financial
returns inherent to the existence of
infrastructure as an investment class.
Environmental Risk – this is no longer
just about legacy or pre-existing
conditions. Climate change, energy
stability and changes in legislation and
regulatory regimes in response to
these factors are, and will continue to
have, a major impact on the evolution
of infrastructure investment. Greater
scrutiny of climate change, use of
scarce resources, sources and demand
for energy, food and water along with a
greater focus on eco-efficiency and
sustainability will impact all
stakeholders in infrastructure assets
and plans for future infrastructure
investment globally.
GLOBAL INFRASTRUCTURE EXPERTISE
In an increasingly risky world,
infrastructure sector stakeholders need
access to professionals who
understand the risks they face and can
help them manage and mitigate them
in the most effective way. Marsh &
McLennan Companies’ Infrastructure
Practice offers an experienced global
team that is dedicated to advising the
infrastructure community throughout
the life-cycle of a project or asset. We
have advised national, state, provincial
and local governments and the private
sector including infrastructure funds,
private equity investors, commercial
and investment banks and design,
engineering and construction-related
clients. Our expertise includes
identifying opportunities, identifying
risks associated with those
opportunities, mitigating risk,
facilitating the successful completion
of a project, managing through the
operational phase or exiting an
investment.
The Practice works globally across all
sectors of infrastructure development,
operation and maintenance in
leveraged infrastructure acquisitions,
PPP/PFI competitive bids and non-PPP
project financed developments
advising clients on the complex risk
issues associated with the financing,
development and operation of
Greenfield projects, Brownfield
improvements, acquisition, leasing
and operation of secondary assets and
privatisation of essential public
services.
Marsh has been recognised by others
in the industry as the leader in risk
advisory services for infrastructure. For
the second year in a row, Infrastructure Investor named Marsh Global
Infrastructure Insurance House of the
Year 2010 as voted by industry
professionals within the global
infrastructure finance and investment
community consisting of investors,
developers, lenders and government
sponsors from over 40 countries.
4 • Infrastructure Risk: Navigating Financing Challenges, Marsh’s 2011 Global Infrastructure Conference
MODERATORS
Martin Bennett Senior Vice PresidentMarsh
Philippe du FourManaging Director and Chairman Global Power PracticeMarsh
Manny HontoriaPartnerOliver Wyman
Jim Pierce Global Infrastructure Practice LeaderMarsh
Gilles Roucolle PartnerOliver Wyman
Dr Cliff Warman EMEA Environmental Practice LeaderMarsh
Mark Williams Director of European Competition Policy GroupNERA Economic Consulting
PANELLISTS/SPEAKERS
Michael Allen Founding PartnerArcus Infrastructure Partners
Kanat Alpysbayev CFOKazakhstan National Railways
Jeffrey Altmann Director, Investment ManagementFirst State Investments
Allan Baker Managing Director - Global Head of PowerSociété Générale
Juan Matias Sottile Bergonzi Head Project & Acquisition Finance (PF/AF) EMEA (Non Iberia)Santander
David Borthwick SVP Structured Finance PracticeMarsh
Pierre-Olivier Bouée Managing Director, CEO OfficePrudential plc
Andrew Bright Divisional Director for Sustainability and EnergyWSP Environment & Energy
Matt Brown Senior DirectorPöyry Group
John Campbell Senior PartnerCampbell Lutyens
Spence Clunie Managing Partner and FounderAncala Partners
Gershon Cohen Global Head of Project FinanceLloyds Banking Group
Andrew Davison Senior Analyst, EMEA Project Finance teamMoody’s
Boris GalonskePartner, Global Risk & Trading Practice Oliver Wyman
Dan Glaser Group President and Chief Operating OfficerMarsh & McLennan Companies
Mark Gregg-Macdonald Group Executive: Planning & MonitoringTransnet Limited
Stephen Hockaday DirectorLaing O’Rourke
Mathieu Kowalski Business Development Director, PPP Concession ProjectsBouygues Construction
Elizabeth McKnight Head of EU Competition GroupHerbert Smith
Antoine Quero-Mussot Adviser of the Director of BudgetEuropean Commission
Gordon Parsons Executive DirectorMacquarie Infrastructure and Real Assets
Thomas Putter Former CEO of Allianz Capital Partners
Mike Redican Managing Director, Debt Capital MarketsDeutsche Bank
Nick Robins Head of Climate Change CentreHSBC Bank Plc
Pierre-Alain Schieb Head of Futures ProjectsOECD
Fadi Selwan Director, Business DevelopmentVINCI Concessions
Graham Shuttleworth DirectorNERA
Ulrich Stark Head of Infrastructure EMEAHSH Nordbank
Stephen Vineburg Partner and CEO InfrastructureCVC Capital Partners
James Whittall Deputy Head of Project Finance (Western Europe)European Investment Bank
Graeme York Head of OperationsInternational Power
MODERATORS AND PANELLISTS
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Marsh is one of the Marsh & McLennan Companies, together with Guy Carpenter, Mercer, and Oliver Wyman.
The information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.
In the United Kingdom Marsh Ltd. is authorised and regulated by the Financial Services Authority for insurance mediation activities only.
© Copyright 2011 Marsh Ltd All rights reserved
USDG 1981
JAMES R. PIERCE, JR. Chairman, Marsh Energy and Infrastructure PracticesMarsh Inc.+1 713 276 [email protected]
EDWIN CHARNAUDManaging Director, Marsh Infrastructure Practice+44 20 7357 [email protected]
GEOFFREY S. CLARKManaging Director, Marsh Infrastructure PracticeNorth America+1 213 346 [email protected]
SABRINA BAKERGlobal Knowledge ManagerMarsh Infrastructure Practice+31 65 32 30 [email protected]
ALLAN KAULBACHPractice Leader Corporate Finance and RestructuringManufacturing, Transportation & Energy Industry SegmentsOliver Wyman+1 617 424 [email protected]
GRAHAM SHUTTLEWORTH Director NERA Economic Consulting +44 20 7659 [email protected]
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