SPE working group. by Corrado lo Storto

Transcription

1 1 SPE working group by Corrado lo Storto members: Naomi Brookes Vit Hromadka Jana Korytarova Corrado lo Storto Agnieszka Lukasiewicz Tristano Sainati Daniela Spirkova Tomas Urbanovsky

2 2 Main questions Why? What? How? Where? Who?

3 Why? 3 Why do SPEs need attention? SPE emerged as a relevant theme to focus on from the analysis of the COST Action portfolio of Megaproject cases findings from statistical inference show a strong association between the establishment of a SPE and the project performance SPEs are commonly used in the implementation of business models i.e. in: a) project financing operations to gain financial advantages for the project shareholders in terms of financial commitment and cost of failure. Since SPE is a self-fenced organization, it is not affected by the corporate risks of parent organizations; b) project partnering aims to gain synergies among project stakeholders by aligning their interest Lack of literature on research themes not focusing on finance and governance issues

4 Why? 4 SPE strengths (source: Sainati, Brookes, Locatelli, Special Purpose Entities and their role in Megaprojects: a new focus for understanding megaproject behavior, EURAM, 2014) ability to attract external financial resources alignment of actor s interests the SPE approach enables to group and share stakeholders capabilities and risks. Therefore, since SPE is an external and self-fenced entity, all risks exogenous to the project are reduced (e.g. bankruptcy of a project stakeholder). This enable SPEs to obtain greater amount of financial resources at lower cost; SPEs are designed in order to provide a comprehensive scheme of incentives affecting relevant project stakeholders (i.e. project shareholders, critical contractors, etc.). This complex architecture enable to better align stakeholder interest ; stakeholder integration during lifecycle SPEs are coupled with the infrastructure that design, deliver and operate with. SPE extend the stakeholders commitment in the project to more phases; effective risk sharing lower taxes easier transfer of assets among companies under SPE approach, project risks are shared depending on the stakeholders ability to influence its. This principle enable a better performance in terms of risk sharing; SPE corporate structure enable fiscal advantages in several countries; SPE enables higher flexibility in the transfer of assets between companies. All assets available by the SPE can be transferred by relocating the control of SPE; in other words by transferring SPE shares among companies.

5 Why? SPE weaknesses (source: Sainati, Brookes, Locatelli, Special Purpose Entities and their role in Megaprojects: a new focus for understanding megaproject behavior, EURAM, 2014) 5 limit flexibility longer stakeholders commitment to the infrastructure has the downside of lower flexibility. Generally, lower flexibility take the forms of: longer contract amortization time, rigid offtake contract conditions, etc.; creation of monopoly PPP Projects exploit SPE approach. In these cases, public party issue special provisions in favour to the private partners (e.g. offtake contracts, special regulations, etc.). This framework increases the barrier of entry into the private business; in most of cases this lead to monopolies; longer negotiation process SPEs require longer time for due diligence and negotiation process at the beginning of the project. These activities are time and cost consuming and don t add value to the final outcome; lower/higher transaction cost treatment of transaction costs in SPE is controversial. In some scenarios SPE enable lower transaction costs (e.g. because of the better cooperation among project stakeholders) in others the opposite (e.g. because of the longer due diligence and negotiation process).

6 What? 6 The working group research design Do SPEs really contribute to Megaprojects success? legal, finance, and governance SPE issues are important, but what about management, social and strategic issues necessary to deliver successful Megaprojects? an ecological-evolutionary perspective and the adoption of a socio-technical systems approach may provide a more effective holistic framework to study how SPE contribute to Megaprojects success.

7 What? 7 The dynamic - evolutionary perspective Megaproject evolution Infrastructure asset SPE Management infrastructure Megaproject delivery environment time t 0 time t 1 time t n SPE changes over project lifecycle time t 0 time t 1 time t n

8 How? 8 Method and preliminary results two research approaches based on the implementation of different techniques a cross case study analysis that covers different stages of the Megaprojects lifecycle a systems dynamics model to simulate the SPE evolution when the environment and some project characters change a selection of cases from the COST Action portfolio to focus on more in depth (sectors: transport and energy) MOSE, Flood Protection,Venice (ITALY); Andasol Solar Power Station (SPAIN); Anholt Offshore Windfarm (DENMARK); Greater Gabbard Offshre Windfarm (UK); Hinkley Point C Nuclear Powerplant (UK); Lunen Conventional Power Plant (GERMANY); Rovigo LNG (ITALY); A2 Motorway (POLAND); Athens Ring Road (GREECE); HS Portugal Project (PORTUGAL) further cases (i.e., the UCL Megaproject portfolio)?

9 How? The environment - SPE behavior - project performance framework 9 Context changes -Technology breakthroughs -Changes in regulation -Changes in consumer preferences - Fund availability - SPE structure SPE conduct Performance - Partners capabilities - Power relationships within SPE - Role of SPE - SPE task responsibilities in the megaproject delivery - determines interdependenc e - Procurement strategy - Suppliers selection policies - Management style -Information exchange practices - Risk management procedures - Control mechanisms - Governance issues - determines interdependenc e - Project management performance (time, cost, specs) - Social impact - Economic impact - Business impact - determines

10 How? 10 The systems dynamics model (an example) (source: T. Sainati, TU 1003 COST Action SPE working group meeting, Warsaw, )

11 How? 11 The systems dynamics results (of the example) (source: T. Sainati, TU 1003 COST Action SPE working group meeting, Warsaw, )

12 Where? 12

13 Where? 13 The cross case study analysis actors & relationships over the Megaproject lifecycle LEGEND Actor Conceptual Design Project Start-up Detail Design Constructio n Time/Lifecycle SPE Commission ing Relationship type A Relationship type B Operation

14 Where? 14 The cross case study analysis drivers Time/ Lifecycle: we should able to capture the evolution of SPE during project lifecycle Initiation: Whys behind SPE: we should able to identify the motives that explain the initiation of SPEs Actor: relevant stakeholders linked, with some extent, with the SPEs Relationship: linkages (of different nature) between the previous Finance: understanding of the financial scheme and relationships characterizing the SPEs Power: we should identify the relation of powers between project stakeholder, special emphasis is given to the power affecting SPE s action

15 Where? 15 Research (empirical) output things go on

16 Who? 16 The SPE WG expected output & target audience Expected output insights to develop an holistic theoretical framework to understand Megaprojects more in depth, and particularly why some Megaprojects are low performing (more specifically, due to SPE characteristics); a taxonomy of SPE business and organizational models; insights relative to sector influence on SPE characteristics. guidelines about how to deal with critical issues relative to SPE design and operation in different stages of the project lifecycle (i.e. capability management between partners, power sharing, adaptability to environment changes, etc.); a rank of project and environment variables that affect most project performance to focus on; successful SPE organizational models that support effective project delivery Target audience academy industry (construction, consulting, finance)

17 Who? 17 Any question?