Investing and Financing Options & Risk Mitigation Framework for Infrastructure Sector

www.duanemorris.com
Agenda:
2
• Investing in Infrastructure Sector in Myanmar
• Financing Options for Infrastructure Sector
 Options for Infrastructure Finance
 How to Structure a Project Finance
• Risk Mitigation Framework for Infrastructure Sector
• Effective Risk Management in Infrastructure Sector

www.duanemorris.com
Investing in Infrastructure Sector in Myanmar
• Demand of Infrastructure Development:
 Myanmar’s infrastructure sector is rapidly developing
 But a significant gap in infrastructure development
 Myanmar was ranked 139 out of 148 countries for its’
competitiveness, with its’ infrastructure quality ranked at 141
(Source: WEF, Global Competitiveness Report)
 According to the Logistic Performance Index (LPI)
published by the World Bank, Myanmar was ranked 133 out
of 155 in 2012
 Myanmar needs US$320 billion in infrastructure development
alone (Source: McKinsey Global Institute)
3

www.duanemorris.com
• Required for infrastructure investment in all sectors: road,
power, port, telecommunication, industrial zones, etc…
• Investment opportunities in each specific sector:
 Roads: Under the Framework for Economic and Social Reforms, immediate
priority will be given to infrastructure projects improving land connectivity and
transportation links with regional economies to boost economic integration
 Railways: Under the same framework, the Government has also committed to
improving the quality of railroad sections connecting important economic centres in
the country to promote regional equity and as part of the Singapore-Kunming Rail
Link project
 Ports: These have the potential to become regional transportation hubs serving
markets in China, India and the Indo-China region. Deep water ports are currently
being jointly developed at Dawei and Kyaukphyu and there is interest in developing
ports in Thilawa, Sittwe, Kalegauk and Bokpyin
4
Source: KPMG’s Myanmar
Infrastructure report

www.duanemorris.com
• Investment opportunities in each specific sector:
 Airports: Plans have been announced by the Government to add two international
airports in central Bago and in the Dawei special economic zone. Plans have also been
released to redevelop Yangon and Mandalay airports
 Energy & Power: Myanmar’s power sector is underserved and investments in energy
generation, alternative energy and pipelines are coming in rapidly. Opportunities exist for
investments in the generation, transmission and distribution of power
 Telecommunications: To increase mobile phone density and internet penetration, a
Information and Communications Technologies (ICT) Master Plan has been announced
along with plans for new telecommunication and Cyber laws and the privatization of
state-owned Myanmar Post and Telecommunication
 Special Economic Zones (SEZ): Three key SEZ projects have been announced – the
Dawei Special Economic Zone, Kyaukphyu Economic and Technology Zone and the
Thilawa Special Economic Zone near Yangon. Seven new local industrial zones will also
be added
 Social infrastructure: The Government has committed to undertaking education sector
as well as healthcare sector reforms
5
Source: KPMG’s Myanmar
Infrastructure report

www.duanemorris.com
Financing Options for
6

www.duanemorris.com
Financing Options for Infrastructure Sector
• Financing Options for Infrastructure Finance:
 Government investment funding and preferential policies
 Official Development Assistance (ODA)
 Loan from commercial banks or financial institutions
 Public Private Partnership (PPP)
 Clean Development Mechanism (CDM)
7

www.duanemorris.com
• Government investment funding and preferential
policies:
 Infrastructure investments account for high GDP
percentage
 State budget financing big investment projects
 Preferential policies from Government:
 Fiscal credibility
 Price subsidies
 Feed-in tariff (FIT)
8

www.duanemorris.com
• Official Development Assistance (ODA): Financing Programs
from World Bank; ADB; IMF; other countries’ ODA funds (e.g. Japan,
European Union, Sweden, Germany, France, USA, etc…)
 Non return ODA
 Preferential loans
• Loan from domestic and international commercial banks
or financial institutions:
 Traditional financing source;
 Preferential policy to loan for RE projects
• Clean development fund of investment funds
9

www.duanemorris.com
• Innovative Financing Options:
Public Private Partnertship (PPP):
 Alternative financing source
 A means to enable the development or improvement
of energy in infrastructure through the participation of
private and government entities
• Why PPP is attractive as an off-budget mechanism for
infrastructure development?
• Common type of PPP: Build Operation Transfer (BOT)
10

www.duanemorris.com
• Build Operation Transfer (BOT):
 A common PPP model: A private entity receives a franchise from the private or
public sector organization to finance, design, construct, and operate a facility for a
specified period of time, after which the ownership is transferred back to the
funding entity
 Many other variants such as Build-Transfer-Operate (BTO), Build-Own-Operate-
Transfer (BOOT) and Build-Rehabilitate-Operate-Transfer (BROT)
• BOT form is widely used in the infrastructure development
projects in Myanmar
• BOT Rules in Myanmar: Under the Foreign Investment
Rules of Myanmar:
 BOT means Building, Operating and Transfer from the business operator to the
relevant person at the expiry of the contract term
 While BTO means Building, Transfer from the business operator to the relevant
person after the building and operating the business.
11

www.duanemorris.com
• BOT Rules in Myanmar:
 In the real estate project, if the land is directly leased by the Government to the project
developer, the project is usually conducted under a BOT
 In the power plant projects, after the feasibility study is approved, the project developer will
negotiate and sign with the Government a Memorandum of Agreement (MOA) which is
importantly a BOT contract
 Memorandum of Agreement (MOA): A short form agreement without the
detailed concession
 In general, the concession depends on the nature of the investment project. For example: In
power project, the concession is usually in about 25-30 years. The road BOT contract may be
40 year term for the local investors and 60 year term for some international investors (from the
start of operating period until the end of transfer period
• Myanmar Government’s support to BOT project:
– Tax exemption for imported construction materials
– Provision of construction materials which is able to be provided by the Government with a
price rate of the Government
– BOT project can make a loan from the local banks for funding the project performance
12

www.duanemorris.com
• How to Structure a Project
Finance:
 Definition of Project Finance: The
financing of long-term
infrastructure, industrial projects
and public services based upon a
non-recourse or limited recourse
financial structure where project
debt and equity used to finance the
project are paid back from the
cashflow generated by the project
(International Project Finance
Association (IPFA) )
13
Source: Thompson Reuteur
2012 report

www.duanemorris.com
• How to Structure a
Project Finance:
 A project financing structure
involves many equity investors as
well as the bank or other lending
institutions that provide the loans to
the project operation
 Normally, each project will create a
special purpose entity, thereby
indemnifying other assets owned by
a project equity investor from the
detrimental effects of a project
failure
 Risk identification and allocation is
the key component of a project
finance
• 14

www.duanemorris.com
15

www.duanemorris.com
 In the infrastructure sector, major projects
have the risks, e.g. cost overruns, delays,
failed procurement or unavailability of private
financing that may cause the failure of
infrastructure project
 To complete a successful infrastructure
project, it must have a risk management
approach from the initiation, financing and
execution of the project
 Risk management framework is a basic
conceptual structure that is used to address
the risks faced by for an infrastructure project
16

www.duanemorris.com
 Risk Management Framework:
 Risk Identifications
 Risk Assessment
 Risk Mitigation
 Implementation of mitigation plans
 Review and monitoring of mitigation plans
17

www.duanemorris.com
 Effective Risk Management in
Infrastructure Sector :
• Project risk management must be a core element of
project selection, planning and design and also
continuous in the whole life cycle of the project
• For the on time completion of infrastructure project, the
effective risk management must be applied to the project
implementation projects
• Creating an effective risk management system is to
understand the qualitative distinctions among the types
of risks that the infrastructure projects may face
• The infrastructure project managers must forecast and
plan for risks within the whole life cycle of the project
18

www.duanemorris.com
Thank you very much!
Contact email:
omassmann@duanemorris.com
19
DUANE MORRIS SELVAM MYANMAR
No. 10 Phoyazar Street, 15 Ward,
Baukhtaw Yankin Township
Yangon Suite, Myanmar

Investing and Financing Options & Risk Mitigation Framework for Infrastructure Sector

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

En vedette

En vedette (20)

Similaire à Investing and Financing Options & Risk Mitigation Framework for Infrastructure Sector

Similaire à Investing and Financing Options & Risk Mitigation Framework for Infrastructure Sector (20)

Plus de Dr. Oliver Massmann

Plus de Dr. Oliver Massmann (20)

Dernier

Dernier (20)

Investing and Financing Options & Risk Mitigation Framework for Infrastructure Sector