Thursday, September 15, 2011

Projects are Interdisciplinary and Local

I often get asked why I pursue infrastructure projects in emerging markets. "Isn’t it risky/expensive/unprofitable/prone to delays and uncertainty?"

I usually answer in two parts: First, an admission and warning: yes, you are correct, and if you can think of anything else to do with your life, do it (similar to the advice I got when I was contemplating graduate school in philosophy). Second, a deeper admission: yes, you are correct, but I would not do anything else.

Ever since I started project finance advisory as a young investment banker at Credit Suisse First Boston, I’ve been captivated by the interdisciplinary requirements of the field. I learned that a successful project in an emerging market requires diverse skills: among others, building and auditing a financial model, analyzing technical and commercial risks, analyzing and negotiating contracts, building relationships with a wide range of stakeholders (e.g. government officials, development finance institutions, export credit agencies, equity investors, local communities, etc.), and arranging debt and equity financing. As my career progressed and I moved to the developer side of the business, I’ve found these core project finance skills to be critical to executing projects, plus I’ve had the satisfaction of seeing projects immediately and directly improve the quality of life of large numbers of people.

One of the most common problems that I’ve observed projects encounter is that the interdisciplinary skill set is not fully represented in the project management. Often this takes the form of an over-emphasis on the engineering side of the project, or a too-strict division between the “technical” and “commercial” workstreams. Building a power plant in an African country, for example, where the power project could be the country’s first IPP, is vastly different from building a power plant in upstate New York. Even though the central element of the power plant – the power plant itself – could be virtually identical in both cases, the African project involves working within a concessionary framework and will certainly require juggling an ensemble cast of stakeholders, contractual obligations, technical and logistical issues, (more likely than not) funding challenges of one sort or another, deadlines and a huge amount of permits and documentation – all with an eye toward keeping the project “bankable” for lenders (commercial banks, or in many cases, only DFIs) and ultimately fulfilling conditions precedent.

And don’t forget local presence. It’s nearly impossible to have good perspective if you are thousands of miles away.

Ideally, the emerging market project needs a manager or advisor that can constantly step back and assess the “big picture” with an understanding that encompasses the technical, commercial and financial workstreams.

Provinceroot can fill this role. While Provinceroot develops its own projects, the company also provides”all around” advisory services to infrastructure projects and their stakeholders, ranging from review of specific issues to project management. Provinceroot’s goal is to see as many successful infrastructure projects as possible in emerging markets, particularly sub-Saharan Africa, and the firm is eager to add value to third party projects (on behalf of governments or companies) by contributing the extensive experience of its partners and associate members.