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  • 1. “A Case Study on Project Risks and Risk Mitigation”North Luzon Expressway Project(A Public-Private Partnership in the Philippines)
    Amol Azad
    MBA (Marketing)
  • 2. Project Key features
    The concession is held by Manila North Tollways Corporation (MNTC),the project company, which is a joint venture of several national and international companies.
    Involves rebuilding and modernization of the NLE tollway system according to government required standards and levels of service.
    Operation of the tollway.
    Maintenance of the pavement and the toll collection system.
    Returning the tollway system to government at no cost after concession period ends.
    The corporation was required to raise finance on its own without government guarantee.
  • 3. Key Issues
    MNTC will put up the money (invest and borrow) on its own without government financial guarantee.
    MNTC will build the tollway and take full construction risk.
    MNTC will operate, maintain and manage the tollway for 30 years (or until 31 December 2030) in accordance with government standards with no funding support from the Government.
    The Project roads are owned by the Grantor subject to the rights and privileges of MNTC to construct, operate and maintain the tollway system.
    Government will not take market risk. If revenues are not sufficient, government will not bail out MNTC.
    To recover the investment, MNTC will collect tolls through the authorized toll rates and the approved adjustment formula.
    Multilateral & Bilateral Financial Institutions are playing a key role.
  • 4.
  • 5. Risk Mitigation in the NORTH LUZON EXPRESSWAY PROJECT
    Economic Risk
    The Government of Philippines, did not participate in funding, it was mitigated via financing through Multilateral Agencies such as IFC, MIGA and of course ADB.
    Construction Risk
    ‘Delay In Service’ Insurance
    Overrun Undertaking
    Deficiency/Shortfall Agreement
    Completion Undertaking
  • 6. Risk Mitigation
    Traffic Risk
    Existing traffic with capacity reached on certain segments
    More than 20 years history as tolled road
    No alternative road
    Conservative forecasts, robust cash flows
    Toll rate increases
    Automatic approval under the STOA
    Toll rates to be revised every two years
    Grantor compensates in case toll rates not increased
    Projected tolls lower than in comparable roads
  • 7. Risk Mitigation
    Currency devaluation
    Significant pass-through in the application of the toll
    adjustment formula
    Starting toll rate is fully hedged
    Cash flow strong enough to take care of sensitivities
    O&M Risks
    O&M expertise from Transroute via technical assistance
    Regular / periodic maintenance planned
    Bonus / penalties to minimize leakages