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
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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

 Poland A2 Motorway case
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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

 Poland A2 Motorway case
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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

 Poland A2 Motorway case
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Political Risks – Heat Map

Political 1. Change in Government

5 1 2. Change in Government
Likelihood

4 3 priorities
3 3. Use of UK law, enforceable
2 2 by Polish courts
1
1 2 3 4 5
Consequence

Prof. Suresh Nair, University of Connecticut

 Poland A2 Motorway case
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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

 Poland A2 Motorway case
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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

 Poland A2 Motorway case
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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

 Poland A2 Motorway case
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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

 Poland A2 Motorway case
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Financial Risks – Heat Map

Financial 1. Financing not processed in

5 4 time to meet deadline
2. The new road would capture
Likelihood

4 3 2 less than the expected 50% of

3 1 traffic
2 3. Polish inflation would not
1 decrease to 2% by 2008
and/or Polish corporate taxes
1 2 3 4 5 would not decrease to 22% by
Consequence 2004
4. Weakening of the Zloty vs. the
Euro
Prof. Suresh Nair, University of Connecticut