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

Poland A2 Motorway case 2 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 3 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 4 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 5 Political Risks – Heat Map Prof. Suresh Nair, University of Connecticut 1.Change in Government 2.Change in Government priorities 3.Use of UK law, enforceable by Polish courts

Poland A2 Motorway case 6 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 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 7 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 8 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 9 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 10 Financial Risks – Heat Map Prof. Suresh Nair, University of Connecticut 1.Financing not processed in time to meet deadline 2.The new road would capture less than the expected 50% of traffic 3.Polish inflation would not decrease to 2% by 2008 and/or Polish corporate taxes would not decrease to 22% by Weakening of the Zloty vs. the Euro