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Group 14

PMF Section A
Political Risk

As the project has been delayed there are chances of another political party coming to power
Government responsible for covering debt obligation including NPV of cash flows
Guarantee by Government not to build or improve any competing road
Termination without cause
Insurance policy for compensation up to a maximum annual loss of 650,000
Risks which cant be insured commercially would be insured by Government
Government would compensate AWSA for delays or extra costs incurred due to discovery of archeological or
hazardous materials
Delay caused due to Government
Senior debt contracts covered under UK common law
Lenders rights enforceable through Polish civil law system
Risk to be mitigated by designing a proper legal framework for financing plan
Disparate Legal System
Financial Risk

Commitment by Government to generate satisfactory traffic volume
Government agreed to maintain feeder roads and not to build ant competing road
Conservative estimates
Lower traffic volume against forecasted levels
Financing plan was based on a model created by Deutsche Bank
Inflation 2% in 2008 down from 6% in 2000
Corporate Taxes 22% in 2004 down from 34% currently
Incorrect assumption regarding future inflation & corporate taxes
Not mitigated due to shortage of excess funds & non-availability of suitable hedging instrument
Exchange Rate risk
Interest rate on senior debt based on spread over 6-month LIBOR
Swap arrangement to mitigate interest rate risk
Interest rate risk
Operating Risk

Three independent traffic studies by consultants
AWSAs financial projects based on WSAs extensive study based on very conservative estimates
Deviation from revenue projections
All risk coverage insurance for property damage up to 667 million declining to 100 million per event post completion
Business interruption insurance to cover revenue losses for up to 12 months
Third party liability insurance of US $50 million for the complete concession period
Insurance against force majeure
Motorway to be operated & maintained by the Operating Company (OC) under a 10 year
renewable contract, experienced operators involved
Construction Risk

Construction handled by a special purpose JV company (the Development Company, DC) owned by shareholders with
extensive construction experience
Performance of DC guaranteed by several owners of AWSA
Turnkey project: Contractor responsible to handover the project in a state ready for commercial operation
Fixed Price Design & Construction Contract
Government committed to help in getting required permits & land
Government to compensate for any delay, extra costs & loss due to delay at Governments end
Insurance against Force Majeure
Government Responsibilities & Guarantees
Performance Bonds & latent defects bonds
Low High
Ability to Control
Project Specific Risks
Market Risks
Allocate (with
contracts)
Insure/Diversify
Hedge (Market
instrument available)
Bear (No market
available)
Insure/allocate (profit
sharing,
contracts)/deter
Gebicki could make his case by using results from A4 Toll Motorway, which was capturing 80% of the available
traffic. This would lead bankers to believe that there estimates might be more conservative than required, and that
there was no need to deviate from scenarios mentioned in the original mandate

EIB had agreed to finance the project with a term loan and this could be put across to the bankers to convince
them of the robustness and reliability of current estimates

The various risks in the project had been properly mitigated and allocated, with financial and construction risk
borne by private players, AWSA, DC and OC, while political risk was borne partly by the Polish government.
Risk mitigation with insurance against Force Majeure, imcluding adequate surplus for contingencies
Counter guarantees by government against building competing systems
Low senior debt(Around 26%), adequate reserves and debt coverage, flexible principle repayment
Control of waterfall by lenders gives better cash control

As some of the above mitigation and risk allocation strategies indicate, the project was well-protected against
downside scenarios, while also having appropriate/optimum traffic estimates and with the present finnacing
structure, one of the regions topmost development lenders, EIB was willing to come on board. These aspects
coulfd help Gebicki convince bankers to go ahead with the current plan

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