Case Study. WEEK 5 TO WEEK 7: Trade Finance and Risk (INT 1356) Risk and opportunity - together as always! Engineering Tech (ET) is a large national engineering partnership in Australia, with expertise in targe-scale infrastructure projects, including public-private partnership (PPP) projects involving goverment departments and agencies. Et has been a major player in various parts of Australia and has ventured into consulting activities in Japan and parts of Asia. A senior partner of the firm was approached recently about executing a major infrastructure project in Addis Ababa, Ethiopia near the Bole Road airport. The country that was once referred to as the Breadbasket of Africa, and remains the only country on the continent never to be colonized, has experienced war, drought, and starvation, and continues to face extreme poverty Those harsh realities aside, the country has benefited from some foreign aid and some investment and the partner at Engineering Tech perceives an opportunity to do some good as well as to take on a complicated, profitable project in a region considered to risky by the firm's competitors Engineering Tech has an excellent relationship with EFIC. Australia's Export France and Insurance Corporation. The national export credit agency Down Under is viewed by many as a very progressive, dynamic and innovative export credit agency that will go to great lengths to promote the success of Australian exports - even taking in significant country and bank risk to do so when warranted While the several partners at Engineering Tech are intrigued and willing to invest time to put a bid together, the company Board is concerned how will the firm succeed in a country that faces so many challenges? How, they wonder, will Engineering Tech protect is interests and ensure excellent results in a place where a major national language. Amharic, is spoken nowhere else in the world? The challenge Several partners of Engineering Tech have been to Africa - including Nigeria, Ghana and Kenya but none have traveled to Ethiopia, and previous projects involved a consortium of partners to share both the project execution and the risks. This time, Engineering Tech is the lead executing firm under a World Bank development program, facilitated partially through the World BankIFC (International Finance Corporation) Trade Finance Program. Engineering Tech will be the prime contractor and must adequately provision for the risk The partners supporting involvement in this project - now known at Engineering Tech as the "Acacia Crew, about the tree that often frames sunsets outside of Addis-have engaged you to identify some risks and their mitigation options. You have been able to outine some preliminary risks to consider and must now present viable risk management options The Risks A complex infrastructure engineering project in an LDC (Least-Developed Country environment automatically brings with it a complex set of risks, from the possibility of revolution (as was the case in Ethiopia in 1974), through to the risk of outright expropriation of the completed project, its ownership lies elsewhere than with the government of the day, even temporarily. In the event that a project is only partially funded through development monies, assets associated to the project may not be usable to secure financing, due to the in-market risk to those assets. Shortage of resources, staff and materials can cause significant delays and generate significant cost overruns: questionable business practices and outright corruption can be a serious risk, as can eruptions of violence have caused by political unrest Environmental impact concerns are increasingly critical in projects of this type, and any government agency which might be engaged to support in this project - including EFIC - has committed to conduct environmentalment on any projects funded. This includes Shortage of resources, staff and materials can cause significant delays and generate significant cost overruns: questionable business practices and outright corruption can be a serious risk, as can eruptions of violence have caused by political unrest Environmental impact concerns are increasingly critical in projects of this type, and any government agency which might be engaged to support in this project - including EFIC - has committed to conduct environmental impact assessments on any projects funded. This includes assessment of impact on local populations. The World Bank has also published standards related to sustainability and environmental issues. Non-governmental organizations (NGO's) actively monitor and report on projects such as this one, and Engineering Tech has no desire to be dragged into a public relations nightmare. Even in the ideal situation, there remains the risk of disagreement between Engineering Tech and the funding agencies, including the World Bank and the IFC. Such disagreements can occur and can be time-consuming to resolve. Projects funded through multilateral agencies are subject to significant due diligence and verification - even (potentially) stringent audit processes - all of which imply risk and added cost (both net new costs, and cost of funds on delayed payments) to Engineering Tech Your general impression after having studied the proposed project is that nearly every business risk imaginable is represented, to some degree in this opportunity Risk Mitigation Considerations The "Acacia Crew are experienced consultants and engineers with successes in numerous high- risk markets and understand that inevitably things will go wrong, but that some foresight, coupled with effective planning, will maximize the likelihood of a successful outcome. The Engineering Tech Board members are somewhat less schooled in the nature of developing market projects and will require comprehensive assessments and significant reassurance Your assessment indicates that this opportunity is primary about risk management and ensuring adequate financing and cash flow over the term of the project Engineering Tech and its Board must take a holistic view of the situation and determine whether they have access to the necessary risk mitigation tools, and whether the firm has the financial wherewithal to see the project through Case Study Discussion Questions: 1. How can Engineering Tech organize an approach around nisk mitigation with so many risk factors at play with this potential project? What are some of the resources and techniques that can be explored as possible risk mitigation solutions in the context of a project such as this one? 2. Do any of the basic trade finance products or services apply in complex and high-risk scenarios such as this one? List and explain at least three products that could be used in this scenario 3. The risks involved in this project seem to be very broad and encompassing. How can Engineering Tech effectively protect its interests, assure payment and ensure the project is completed profitably? Indude mention of trade finance products that you would recommend in this situation to mitigate their risks 4. The members of the Board of Directors of Engineering Tech are less educated in the nature of developing markets and therefore will require comprehensive assessments and significant reassurance. How can the "Acacia Crew (the partners at Engineering Tech that are in support of pursuing this project) present this project to the Board of Directors to assure them that the project can be completed successfully and should be pursued? Case Study Discussion Questions: 1. How can Engineering Tech organize an approach around risk mitigation with so many risk factors at play with this potential project? What are some of the resources and techniques that can be explored as possible risk mitigation solutions in the context of a project such as this one? 2. Do any of the basic trade finance products or services apply in complex and high-risk scenarios such as this one? List and explain at least three products that could be used in this scenario. 3. The risks involved in this project seem to be very broad and encompassing. How can Engineering Tech effectively protect its interests, assure payment and ensure the project is completed profitably? Include mention of trade finance products that you would recommend in this situation to mitigate their risks. 4. The members of the Board of Directors of Engineering Tech are less educated in the nature of developing markets and therefore will require comprehensive assessments and significant reassurance. How can the "Acacia Crew" (the partners at Engineering Tech that are in support of pursuing this project) present this project to the Board of Directors to assure them that the project can be completed successfully and should be pursued? Case Study. WEEK 5 TO WEEK 7: Trade Finance and Risk (INT 1356) Risk and opportunity - together as always! Engineering Tech (ET) is a large national engineering partnership in Australia, with expertise in targe-scale infrastructure projects, including public-private partnership (PPP) projects involving goverment departments and agencies. Et has been a major player in various parts of Australia and has ventured into consulting activities in Japan and parts of Asia. A senior partner of the firm was approached recently about executing a major infrastructure project in Addis Ababa, Ethiopia near the Bole Road airport. The country that was once referred to as the Breadbasket of Africa, and remains the only country on the continent never to be colonized, has experienced war, drought, and starvation, and continues to face extreme poverty Those harsh realities aside, the country has benefited from some foreign aid and some investment and the partner at Engineering Tech perceives an opportunity to do some good as well as to take on a complicated, profitable project in a region considered to risky by the firm's competitors Engineering Tech has an excellent relationship with EFIC. Australia's Export France and Insurance Corporation. The national export credit agency Down Under is viewed by many as a very progressive, dynamic and innovative export credit agency that will go to great lengths to promote the success of Australian exports - even taking in significant country and bank risk to do so when warranted While the several partners at Engineering Tech are intrigued and willing to invest time to put a bid together, the company Board is concerned how will the firm succeed in a country that faces so many challenges? How, they wonder, will Engineering Tech protect is interests and ensure excellent results in a place where a major national language. Amharic, is spoken nowhere else in the world? The challenge Several partners of Engineering Tech have been to Africa - including Nigeria, Ghana and Kenya but none have traveled to Ethiopia, and previous projects involved a consortium of partners to share both the project execution and the risks. This time, Engineering Tech is the lead executing firm under a World Bank development program, facilitated partially through the World BankIFC (International Finance Corporation) Trade Finance Program. Engineering Tech will be the prime contractor and must adequately provision for the risk The partners supporting involvement in this project - now known at Engineering Tech as the "Acacia Crew, about the tree that often frames sunsets outside of Addis-have engaged you to identify some risks and their mitigation options. You have been able to outine some preliminary risks to consider and must now present viable risk management options The Risks A complex infrastructure engineering project in an LDC (Least-Developed Country environment automatically brings with it a complex set of risks, from the possibility of revolution (as was the case in Ethiopia in 1974), through to the risk of outright expropriation of the completed project, its ownership lies elsewhere than with the government of the day, even temporarily. In the event that a project is only partially funded through development monies, assets associated to the project may not be usable to secure financing, due to the in-market risk to those assets. Shortage of resources, staff and materials can cause significant delays and generate significant cost overruns: questionable business practices and outright corruption can be a serious risk, as can eruptions of violence have caused by political unrest Environmental impact concerns are increasingly critical in projects of this type, and any government agency which might be engaged to support in this project - including EFIC - has committed to conduct environmentalment on any projects funded. This includes Shortage of resources, staff and materials can cause significant delays and generate significant cost overruns: questionable business practices and outright corruption can be a serious risk, as can eruptions of violence have caused by political unrest Environmental impact concerns are increasingly critical in projects of this type, and any government agency which might be engaged to support in this project - including EFIC - has committed to conduct environmental impact assessments on any projects funded. This includes assessment of impact on local populations. The World Bank has also published standards related to sustainability and environmental issues. Non-governmental organizations (NGO's) actively monitor and report on projects such as this one, and Engineering Tech has no desire to be dragged into a public relations nightmare. Even in the ideal situation, there remains the risk of disagreement between Engineering Tech and the funding agencies, including the World Bank and the IFC. Such disagreements can occur and can be time-consuming to resolve. Projects funded through multilateral agencies are subject to significant due diligence and verification - even (potentially) stringent audit processes - all of which imply risk and added cost (both net new costs, and cost of funds on delayed payments) to Engineering Tech Your general impression after having studied the proposed project is that nearly every business risk imaginable is represented, to some degree in this opportunity Risk Mitigation Considerations The "Acacia Crew are experienced consultants and engineers with successes in numerous high- risk markets and understand that inevitably things will go wrong, but that some foresight, coupled with effective planning, will maximize the likelihood of a successful outcome. The Engineering Tech Board members are somewhat less schooled in the nature of developing market projects and will require comprehensive assessments and significant reassurance Your assessment indicates that this opportunity is primary about risk management and ensuring adequate financing and cash flow over the term of the project Engineering Tech and its Board must take a holistic view of the situation and determine whether they have access to the necessary risk mitigation tools, and whether the firm has the financial wherewithal to see the project through Case Study Discussion Questions: 1. How can Engineering Tech organize an approach around nisk mitigation with so many risk factors at play with this potential project? What are some of the resources and techniques that can be explored as possible risk mitigation solutions in the context of a project such as this one? 2. Do any of the basic trade finance products or services apply in complex and high-risk scenarios such as this one? List and explain at least three products that could be used in this scenario 3. The risks involved in this project seem to be very broad and encompassing. How can Engineering Tech effectively protect its interests, assure payment and ensure the project is completed profitably? Indude mention of trade finance products that you would recommend in this situation to mitigate their risks 4. The members of the Board of Directors of Engineering Tech are less educated in the nature of developing markets and therefore will require comprehensive assessments and significant reassurance. How can the "Acacia Crew (the partners at Engineering Tech that are in support of pursuing this project) present this project to the Board of Directors to assure them that the project can be completed successfully and should be pursued? Case Study Discussion Questions: 1. How can Engineering Tech organize an approach around risk mitigation with so many risk factors at play with this potential project? What are some of the resources and techniques that can be explored as possible risk mitigation solutions in the context of a project such as this one? 2. Do any of the basic trade finance products or services apply in complex and high-risk scenarios such as this one? List and explain at least three products that could be used in this scenario. 3. The risks involved in this project seem to be very broad and encompassing. How can Engineering Tech effectively protect its interests, assure payment and ensure the project is completed profitably? Include mention of trade finance products that you would recommend in this situation to mitigate their risks. 4. The members of the Board of Directors of Engineering Tech are less educated in the nature of developing markets and therefore will require comprehensive assessments and significant reassurance. How can the "Acacia Crew" (the partners at Engineering Tech that are in support of pursuing this project) present this project to the Board of Directors to assure them that the project can be completed successfully and should be pursued