European Report 2002
The UK's PFI market has grown considerably over the past decade. What role does the UK government see PFI playing in the future, and what are the principles behind recent developments in the market? By Geoffrey Spence, Head of Private Finance Unit, HM Treasury.
The ‘not for' concept is currently in vogue in some government procurement circles. The fad, as its prefix suggests, is a negative response to the early workings of the Private Finance Initiative (PFI). Whilst the buildings delivered were fine or if not fine fixed at the private sector sector's expense, the whole refinancing issue put a spotlight on the profits made by the concessionaires. Hence the ‘not for' response, a negative response but one which could lead to some positive procurement examples if simplicity is maintained. By Rod Morrison.
Americas Power Report 2002
By all accounts, the world has changed in the past year for Independent Power Producers (IPP's) in the US. After several years of giddy growth, with new merchant power plants being built all over the country and regulated utilities spinning off competitive power producers, is the party finally over? Ben Carliner reports on the state of the US power industry.
2001 saw both the highest levels of volatility US energy markets have ever recorded, as well as the spectacular implosion of Enron, the single biggest player in the wholesale gas and electricity markets. And while by many measures the wholesale markets stood up well to the crisis - power deliveries continued uninterrupted and defaults were avoided - the prospects for continued deregulation seem at risk. Ben Carliner reports on the state of the US energy markets and the state of the deregulation process.
Global Energy Report 2002
To get deals done in today's market, tolling arrangements or power purchase agreements are almost essential. But things have changed dramatically in the world of tollers and the credit committees who analyse them, and the number of participants in the tolling business has shrunk dramatically this year, leaving the market working on ways to keep itself in contracts. By Alison Healey.
There's a buzz about power transmission. Yes, of course, power lines literally buzz when heavily loaded, but what's new is the figurative buzz: the excitement and interest in a sector long ignored by the finance and investment communities. Many on Wall Street are wondering if power transmission will be the next big thing within the United States and perhaps elsewhere. Bankers and institutional lenders are interested, as are private equity groups. And yet very little in the way of actual financing has occurred. How much of the buzz is justifiable and how much is simply hype or wishful thinking? By James C Liles, regulatory advisor, Milbank, Tweed, Hadley & McCloy LLP.
North America Report 2002
In the nine months following the Enron bankruptcy, the US energy industry has been rocked by a virtual perfect storm. The combination of falling energy prices and allegations of widespread accounting irregularities and marketing improprieties both within and outside the energy industry have triggered an unprecedented market sell-off. According to SNL Financial, a market research company based in Charlottesville, Virginia, the market capitalization of 88 large energy companies dropped US$240bn, or 50%, between January 2001 and July 2002. Investor confidence remains at an all time low; capital markets have virtually dried up; and the credit ratings of many industry stalwarts have been downgraded to junk status. By Mark S Laufman and Robert R Rabalais, partners, project finance & development, Vinson & Elkins LLP.
Many project finance shops have already written off 2002 with only a few deals done, and much of the year has been spent revisiting old deals to restructure huge amounts of debt to keep sponsors out of bankruptcy. The intense talks with companies whose survival depends in large part on favorable workouts with project finance lenders have yielded some ideas about the future of US project finance. By Alison Healey.
10th Anniversary Issue
Over the past 10 years, the US power sector grew from being a tiny part to the largest component of the global project finance market. It has also been the proving ground for new structures such as mini-perms and the primary developer of the project bond market. The sector is now challenged by industry-wide issues that need to be resolved for the power trip to continue. By Chris Beale, Global Head of Project & Structured Trade Finance, Citigroup.
At the turn of the 1980's and very early 1990's the Asian project finance market was characterised by a concentration on infrastructure and oil, gas & petrochemical projects. The trustee borrowing structure was well established in Indonesia leading to many successful gas export and oil product led deals from that market. Hong Kong and Thailand led the way with respect to infrastructure deals with such benchmark transactions as the Eastern Harbour Crossing in Hong Kong and the Bangkok Expressway which on closing in 1989 was the largest BOT ever completed at that time in Asia. Other major infrastructure deals were also closing around the region at this time such as Hopewell's visionary Superhighway between Hong Kong and Guangdong , China, the North-South Highway in Malaysia and the Don Muang Tollway in Thailand. By Ashley Wilkins, head of SG's project finance and advisory team in Asia.
Asia Pacific Report 2002
The Asian project finance landscape was deeply scarred by the 1997 Asian economic crisis. As projects under construction were stalled, planned projects were shelved and existing projects were renegotiated, the number of greenfield projects coming to market in search of project financing dropped dramatically. Similarly many project companies and financiers lost their appetite to invest into the region, with many scaling back operations and strategically reallocating resources to core markets. However, economic growth and growth in demand for energy are inextricably linked and, although there may be some lead-time, increases in regional economic growth will see a resurgence in energy infrastructure development and financing across Asia. By Peter Roberts, Partner with Jones Day Reavis & Pogue, Hong Kong Emad Khalil, Partner with Jones Day Reavis & Pogue, Singapore.
As the market eagerly awaits the long delayed Singapore genco privatisation, Vijay Sethu, Director and Head of Power Asia, ANZ Investment Bank, discusses the potential impact of the continuing exodus of IPP developers from Asia and the relevance of experience from merchant power privatisations elsewhere.
Middle East & Africa Report 2002
The Middle East project finance market had a good year last year, doubling in size in terms of debt raised to US$8.6bn from the figure in 2000. Much of this business was actually transacted after the events of September 11th, showing the market was able to withstand this shock and the initial nervousness of the international banks. A key factor in achieving this were the local and regional banks who are profiled at length in this article. By Rod Morrison.
There are now more than 250 Islamic finance institutions throughout the world with estimated total assets of US$100bn. However until now, developers have been reluctant to utilise this ready source of finance because of a lack of familiarity with Islamic financing products and a presumption of incompatibility between Islamic finance and conventional finance. However, the reality is that many Islamic banks are now willing and able to participate on a pari passu basis with the international banks; offering competitive rates, tenors and terms and conditions combined with speed of execution and certainty to match. With the continued growth in demand for infrastructure finance in the Middle East, the liquidity provided by the Islamic Banks is becoming an increasingly key element to the successful financing of projects there. By Nicholas Buckworth, Adam Cooper and Annabel Gurney of Sherman & Sterling.
Project Bonds Report 2002
At a time when things look bleak for many of the assets for which the project finance banking world once held high hopes, one of the first big US power deals stands as an example of an asset that is actually making money—creating a US$60m profit in its first years of operation. Edison Mission Energy took advantage of its strong cash flows and refinanced in a sale-leaseback structure for one of the largest and lowest-cost sources of electricity in the Mid Atlantic states. By Alison Healey.
The number of Latin American developers with regular access to the international capital markets can be counted on one hand and is steadily shrinking. But Pemex, Mexico's state-owned oil and gas company, is just beginning to raise funds for US$14.7bn in infrastructure projects planned for this year. Pemex raised US$3.88bn for a portfolio of projects in 2001 and 2002 through the Pemex Project Funding Master Trust, and is not yet halfway done. By Nicole Gelinas.