infrastructure risk: navigating financing challenges

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.”


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


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.


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

z

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]

CONTACT US

infrastructure risk: navigating financing challenges

Documents