2009

Infrastructure Financing in Emerging Markets:

Negotiations in the Post-Enron Era

SAH Final Paper, Class on International Strategic Commercial Transactions taught by Mark Vecchio, Columbia Law School 12/7/2009

Summary

I.

Introduction: Infrastructure in the Global Economy

II.

Infrastructure and Development in Emerging Markets Trends Financing methods

III.

Legal Strategies for Infrastructure Financing in Emerging Markets Specific Features Remedies

IV.

Enron or the Stumbling Blocks of the Project Finance Technique The Enron cases Consequences

V.

Regulatory Schemes Adopted in the Aftermath of Enron The Sarbanes-Oxley Act The Equator Principles The Basel II Regulation

VI.

Conclusion: Current Trends and the Effects of the Financial Crisis on Infrastructure Financings in Emerging Markets

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Introduction: Infrastructure in the Global Economy

In its public statement of November 30th, 2009, 28 months after its creation, the long arm of the Dubai government for construction and infrastructure development, Dubai World, publicly announced that it would not pay its $3.5 billion loan by the December deadline and asked its creditors for a grace period on its $59 billion debt. On the following day, oil prices tented by 7 % and the Dow Jones Industrial Average fell 1.7 %, followed by the S&P 500 listing of the 500 biggest publicly-held companies in the United States. As the company decided to lay off 90 % of its employees, the credit rating agency Standard & Poor downgraded Dubai investment companies to its junk category, as neither the Dubai government nor the United Arab Emirates are believed to be willing to infuse money in a close future for the recovery of those financial institutions1. In fact, it seems that the infrastructures developed for tourism, entertainment resorts and housing facilities have finally turned out to be more a burden than a tool for the takeoff of the emirate. Moreover, one need to question the whole model of development set up by the emirates, which put project finance and infrastructure construction at the core of their growth strategy. Indeed, critics had long warned against the Gulf real estate bubble. In the middle of the desert, the Babylonian dreams of a few visionary emirs have progressively been concretized, Duba Marina, the Islands, the new Metro, the Hotel Palm Jumera, Burj Al Arab & Sheikh Zayed Road, the American University; the rise of the grandiose called for respect and fear at the same time. Meanwhile, the hundreds of new void skyscrapers just remained a faade for hardly hidden vanities; it is therefore no surprise if the shock eventually came as expected.

In fact, studies tend to show that infrastructure construction has effects on the longterm growth and on GDP per capita in the host country, with rates of return up to 100 % in excess per annum 2 . Nonetheless, different factors come into play, such as the type of infrastructure investments in transportation, telecommunication and electricity have clear
1 2

Nathan Becker, The Wall Street Journal, S&P cuts Six Dubai entities to Junk, December 3 , 2009. David Canning and Peter Pedroni, Infrastructure and Long Run Economic Growth, Center for Analytic Economics, Cornell University, July 1999.

rd

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positive effects on economic growth (Esterly and Rebelo, 1993) or the level of infrastructure expenses in the aggregate production function of the particular host country (Canning and Pedroni, 1999). Thus, prices for infrastructure capital vary widely from one country to another and government investment can sometimes be inefficient, especially in emerging countries (Pritchett 1996). As numerous studies show, a substantive part of the leverage effect actually depends on the model used to design the financing of the infrastructure project and on the general frame in which it is developed (Barro, 1990).

In such a context, the issue of law and contract negotiation for the purpose of infrastructure development is quintessential. In fact, I became particularly interested by the issue of contract negotiation in emerging markets as I was researching into the development of infrastructure funds in Sub-Saharan Africa. I had myself noticed an increasing number of such funds as I lived in Ghana and wondered how they worked and according to which mechanism they were gaining momentum throughout the continent. Researching into this field, I discovered that such funds often had a much broader geographical base and that they were often developing projects simultaneously on different continents, so as to diversify their portfolio of investments and alleviate their systematic risk this observation is all the more accurate since the financial crisis, with the shortage of funding abilities and the increased risk of financial defaults. Yet, such projects still generally have the same mechanisms and often encounter the same problems in all emerging markets, where the rule-of-law is often an aspiration more than an actual realization and where government default is a constant threat.

This is why I chose to describe the difficulties that the Enron Company encountered throughout the design of its different project financings to try and draw lessons from its failures. Indeed, the case of the notorious Texan company constitutes a perfect illustration of the challenges faced by international companies in emerging markets. More, it even paved the way for numerous regulatory laws aimed at improving the practice of project financings in such contexts. Sure, we cannot determine with certainty that the fraudulent activities of Enrons management were directly linked to its difficulties to raise cash flow on the field. Yet the Enron
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scandal fostered a series of new behavior and practices in project finance that are crucial to analyze.

For the purpose of our analysis, we will consider emerging markets as countries that fall as under the low- and middle-income category in the World Banks country classification. Nonetheless, we will particularly focus on countries like India, China, Russia, South Africa, Brazil or Bolivia, heads of the list in terms of infrastructure investments3. By infrastructure, we understand both economic (electricity, telecommunications, transportation and water) and social (education, hospitals, prisons and government information technology) infrastructure types, but we will focus on energy infrastructure and more particularly on gas-related infrastructure investments, as our Enron case studies will mainly illustrate our point4.

In Part I of our paper, we will study the different solutions available for infrastructure financing in emerging countries. First, we will discuss the advantages and drawbacks linked to the two traditional methods of public financing on the one side and private (corporate) financing on the other side. Second, we will analyze the consequences of the vague of liberalization that occurred in the financing of emerging markets infrastructure since the beginning of the 1990s. In Part II, we will determine how the specific context of emerging markets is approached, to what particular legal challenges it exposes project financiers and the solutions that are usually used to overcome them. In Part III, we will go through the different difficulties that Enron Corporation had to face, analyze them through the prism of project finance and study how they influenced companies practices in the field.

Neil Roger, Recent trends in Private Participation Infrastructure, Public Policy for the Private Sector, WB Note No. 196, Sept. 99. 4 More, the topic of energy infrastructure is particularly interesting because of its political and geopolitical implications. For example, the fall of President Suharto in Indonesia is intimately related to the power project disputes in the country, as his family was involved in 14 national power projects. (The Future of IPPs, Indon.Com. th Newsl, December 19 , 2000.)

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In Part IV, we will see what regulatory schemes have been adopted in the aftermath of Enron and how they changed the face of infrastructure finance and its legal management. In Part V, we will conclude by presenting an overview of the current trends at stake in infrastructure financings and the challenges posed by the current financial crisis.

1. INFRASTRUCTURE AND DEVELOPMENT 1.1. TRENDS

The hundreds of billions of dollars that will be invested in infrastructure sectors in coming decades represent a challenge and an opportunity for the global economy, state Berg, Pollitt and Tsuji5. Indeed, the need for infrastructure in emerging countries is enormous. According to JP Morgan Emerging Markets Infrastructure Equity Fund, $21.7 trillion will be spent in the sector in the next decade, thus representing more than 70 % of worldwide growth opportunities, with China planning to build 37 new airports by 2020, Russia intending to acquire 20,000 kilometers of new railway lines by 2030 and India needing 100,000 megawatts of additional power capacity by 20126. In fact, since the beginning of the 1990s, a vague of liberalization spread out through the world economies, and in emerging countries especially under the pressure of multinational donors and the international financial organizations like the IMF and the World Bank. As a consequence, those countries welcomed nearly $755 billion in more than 2,400 public-private partnerships (PPPs) in infrastructure7. The potential is thus enormous, all the more since the phenomenon of urbanization spreads throughout the world at a gigantic path: according to UN Habitat, two thirds of humanity will be living in towns and cities by 2030.8

Sanford V. Berg, Michael G. Pollitt, Masatsugu Tsuji, Private Initiatives in Infrastructure: priorities, incentives and performance, 2008. 6 www.jpmorganequityfunds.com 7 PPI Database, www.worldbank.org. 8 UN Habitat, Housing Finance Mechanisms in Zimbabwe, The Human Settlements Finance Systems Series, Nairobi, 2009.

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Different financial institutions operate on the field, like Macquarie Bank Ltd., Carlyle Group or the infrastructure funds of Goldman Sachs and JP Morgan, together with construction companies like Suez, Veolia, Telefonica, France Telecom and Deutsche Telecom. Most of those companies have departments specialized on infrastructure investment in emerging markets (JP Morgan, BT Global Telecom, Invesco Powershares etc.). In the last years, we have even observed the development of many new local investors, involved either in funding like AIG Africa Fund Infrastructure Fund or in direct construction activities9.

1.2. FINANCING TECHNIQUES

The classic way to finance infrastructure is public financing, through taxes and public finances. In emerging countries, where both the tax base and public resources are restricted, infrastructure financings were usually made either through loans contracted within bilateral agreements, for example with national development agencies, or through loans contracted with multilateral financial organizations like the World Bank or the regional development banks. This type of financing still represents a majority of the infrastructure financings realized today.

Another way is traditional corporate finance. One calculates the net present value of a project to see if it is more likely to bring about profitable cash flows.

The third way is public-private partnerships. Project finance has emerged a long time ago. The Suez Canal or the railways built for the Far West were already working on such a technique of syndicating loans and expecting future project earnings to finance the project itself and reimburse its equity partners. Yet PPPs have given a big impulse on project finance since the technique has been spread out to many more projects and involve much more actors than before.

Stephan von Klaudy, Apurva Sanghi, Georgina Dellacha, Emerging Market Investors and Operators: a New Breed of Infrastructure Investors, PPIAF Documents, Working Papers No.7

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We can distinguish PPPs according to three types of contractual arrangements, the first one based on a concessionary partnership, the second one on a non-concessionary relation, and the third one being based on private finance.

In the concessive partnership, the legal structure varies according to the project or the countrys specific laws. In this system, Public authorities commit to the private partner the responsibility and the risks of the investments and commercial operations for the duration of the concession. Users are charged, and public authorities give subsidies if necessary (in case of limitation of the price paid by users, as in the transport sector for example). The private partner in charge of operating the infrastructure supports the commercial risks and the contract length is established to the amortization of investments made by the private partner.

Differently, the non-concessive partnership is especially adapted to complex projects, enabling the public authority to contract with a consortium bringing together all the competences necessary to all the aspects of the project. In this system, public authority entrusts the private partner with the construction, maintenance, operation and financing of the infrastructure over the contracts length. The infrastructure, according to the contract, must remain in good state when handed over to the public authority. The private partner does not support the commercial risk. The contracts length is often linked to the level of annual rent that the public authority is ready to pay.

The third way, called the Private Finance Initiative (PFI), is developed by the public authority but the public and private sectors join to design, build or refurbish, finance and operate (DBFO) new or improved facilities and services to the general public. Thus, the private sector provider, chosen after a competitive bid, holds a DBFO contract for facilities such as hospitals, schools, and roads through a Special Purpose Vehicle (SPV). Over a typical period of 25 to 30 years, the private sector provider is paid an agreed monthly or unitary fee by the relevant public entity for the use of the asset, which at that time is owned by the PFI provider.

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This and other income enables the repayment of the senior debt over the concession length. Asset ownership usually returns to the public body at the end of the concession.

Public-private partnerships have raised much criticism, especially in the sector of water10. Sure, they have certain advantages. Indeed, on the one hand, advocators of the PPPs praise their effect on efficiency. For them, project managers have better incentives to improve quality and cost efficiency under this system, and this cost-effectiveness can be effectively measured. Many writers also consider that PPPs allow better economic analyses, more precise financial structures and more accurate demand forecasts and construction cost projections 11. More, PPPs are deemed to offer a better mitigation of the risks since they allow the participation of many more actors than in the classic financing methods. Nonetheless, many of those positive analyses have been made under the funding of institutions like the World Bank or governmental development banks. On can easily understand how analyses issued by those institutions can be biased, since the very basis of their activity is precisely to incent to liberalization and since much of their revenues during the last decade come from the publicprivate partnerships in which they participated.

However, criticism against the PPPs mainly comes from the fact that they often induce higher unitary costs. Indeed, since contracts often include partial indexation of the local currency on the dollar, fluctuations or in some cases devaluation lead to price appraisal. In Manille12: for example, the PPP set up in the water sector provoked up to a 300 % increase in the liter price. In Guatemala13, it led to a 100 % increase. In each case, the change triggers conflicts with the population: the French group Suez finally had to withdraw from Manille and President Jorge Serrano finally had to flee Guatemala after declaring martial law and threatening in vain to dissolve Congress. As a matter of fact, since the 2000 Cochabamba Water

10 11

P.M. Coupry, Controverse sur la privatisation de leau dans les pays du Sud , www.novethic.com, March 2005. PPP Club Medafrique, http://info.worldbank.org/etools/PPPIPortal/2008PPPI/doc/08Presentations/Day4%20Session3%20pr5.pdf. 12 P.M. Coupry, Controverse sur la privatisation de leau dans les pays du Sud , www.novethic.com, March 2005. 13 Daphne Wysham and Jim Vallette, Chronology of Enrons Empire, Sustainable Energy and Economy Network, April 2002.

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Wars in Bolivia which showed that water privatization was a failure and a highly unpopular policy, 24 countries have regained control over their public water system 14. Other critics state that the selection process of the concessionaires is often opaque and that emerging countries have inappropriate legislation and public regulators to welcome such financing structures. Finally, some analysts rather deplore that PPPs have mobilized insufficient finance for the requirements of urban infrastructure in the emerging countries 15.

Yet, to sum up this debate, the keys for the success of a public-private partnership in an emerging market is the fact that the regulatory rules are clear and that the risks, commercial, technological or political, are effectively mitigated with crafter incentive systems. If the role of each party is clearly determined, opportunistic behavior by government and private parties can be reduced and problems like the ones that arose in the Enron cases can be avoided.

2. LEGAL STRATEGIES FOR INFRASTRUCTURE FINANCINGS IN EMERGING MARKETS 2.1. SPECIFIC FEATURES
The advantages of financing infrastructure projects in the context of emerging markets are numerous. First, they allow long-term and steady cash flows for the operators in charge, hence the fact that they are particularly attractive to pension and insurance funds. More, the niche of infrastructure investment is less vulnerable to obsolescence or to competitive threats coming from changing technologies. Finally, cash flows tend to be predictable because demand for infrastructure, especially power, water and transportation, grows steadily to the GDP rate. Yet a series of legal threats can potentially hamper the project. Indeed, the two main issues of infrastructure financing in emerging markets are the ones of stability and predictability of the contracts. Henceforth, such transactions are often highly expensive in

14

World Bank, Public-Private Infrastructure Advisory Facility: Public-Private Partnerships for Urban Water Utilities: A Review of Experiences in Developing Countries, by Philippe Marin, 2009. 15 Annez P., Urban Infrastructure Finance from Private Operators: What have we learned from recent experience?, World Bank Policy Research Working Paper 4045, November 2006.

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order to reflect the complexity of risk allocation, and since they often induce higher returns so as to compensate risk assessment. Indeed, the risk of failure is higher in emerging markets than in more industrialized economies. To illustrate this fact, 48 infrastructure projects out of 2500 which reached financial closure have been cancelled from 1990 to 2001; all of them were located in emerging markets16.

The differences that distinguish the emerging market approach from the one in more industrialized countries are of five kinds. First, emerging markets are often characterized by incomplete legislative systems. Often, they lack precise environmental laws and developed legislative systems to deal with foreign lenders and equity investors on subjects like ownership, taxation or repatriation of profits. Many jurisdictions like Nigeria, China, Vietnam, or Latin American countries adopted such schemes in the mid 90s, even if some authors question the completeness of their provisions (Malinasky, 2006), but still many states have not adopted any such regulations yet17. Second, the economic security of the parties is often not fully ensured. This is all the more accurate since a vast majority of the citizens of those countries do not have the means to afford the foreseen price. Frederic Marty witnesses that toll roads installed in such countries often bring about a decrease in the traffic rate (Marty, 2007). Third, the lack of political security induces higher insurance costs and higher equity or debt rates. Fourth, Hoffman notes that emerging countries are often characterized by centralized infrastructure systems with no competition culture and where inefficiencies are more likely to be witnessed. Fifth, on a financial level, projects implemented in emerging countries must be financed in hard currencies, US dollars, Euros, or Japanese yen. Yet the project revenues will be earned in local currency, which poses threats on the conversion and on stability, and which obliges to have recourse to alternative mechanisms to pay for the imported products, i.e. constructors or equipment suppliers18.

16

Clive Harris et al., Infrastructure Projects, A review of canceled private projects, Public Policy for the Private Sector, World Bank, Note No. 252, Jan. 2003. 17 Laura A. Malinasky, Rebuilding with Broken Tools: Build-Operate-Transfer Law in Vietnam, 14 Berkeley Journal of International Law 438, 1996. 18 Peter Rigby, Emerging Market Infrastructure, Global Project Finance Yearbook 2007.

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For all those reasons, the risk of renegotiation is extremely high. It is actually a threat for every long-term contract, since any renegotiation process carries the risk that one of the parties will act in an opportunistic way and hold up the other party (Scott, 200819). The Dabhol Power Project case herein exposed is a good example of this situation. Indeed, for project owners, the need for immediate and constant cash flows lessens their weight in the negotiation. On the contrary, for host countries, renegotiation might have advantages. For example, it could allow to circumvent the negative effects of a financial crisis yet, on the longterm, such a behavior causes uncertainty about the host governments abilities to contract and impedes its credibility before other current or potential parties.

2.2. REMEDIES
To avoid those risks, transactional lawyers have different tools. The easiest way is to rely on government guarantees to cover payment and convertibility. Yet, this does not constitute a long-term solution, since such guarantees only have a short-term and limited value. In the case of Malaysia and Thailand, the governments did not even provide guarantees. Thus, as we will study herein, other alternatives include securitization of project cash flows through bonds or mixes between project and corporate finance.

3. ENRON OR THE STUMBLING BLOCKS OF THE PROJECT FINANCE TECHNIQUE 3.1. THE ENRON CASES
Much has been said about the Enron case; the issues of false accounting and shareholder manipulation have been widely discussed. Yet, Enron has also marked its time

19

Clayton P. Gillette and Robert E. Scott, The Political Economy of International Sales Law, International Review of Law and Economics, September 2005.

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because of the recurrent mistakes that its executives made while dealing with several infrastructure financings either in India or in Bolivia. To recall the facts, Enron Corporation was a company created in 1985 from the merger of Natural Gas Company and Houston Natural Gas and incorporated in Houston, Texas. Its field of activity encompassed more than 30 different domains, its activities ranging from electricity and natural gas to paper, petrochemicals, telecommunications, media, shipping and investment commodities. This sprawling company, divided in more than 7 business units, possessed altogether 38 electric power plants located in a variety of countries throughout the world (USA, UK, Panama, Guatemala, Nicaragua, Puerto Rico, Dominican Republic, Brazil, Poland, Italy, Turkey, China, Philippines, India), 11 pipelines (USA, Columbia, Argentina, Brazil, Bolivia), 3 electric distributors (USA, Brazil, Venezuela), 6 natural gas industries (Puerto Rico, Jamaica, Brazil, Venezuela, South Korea), 3 paper-related businesses (USA and Canada), plus companies including an exploration company incorporated in the US, a manufacturer of electronic devices located in Venezuela and a manufacturer of wind power turbines based in the USA, Spain, Portugal and Germany.

Although Enron was praised by Fortune Magazine for six consecutive years until 2001, listed among the 100 Best Companies to work for in America and named Americas Most Innovative Company, the downfall came at top speed. In 2000, Enron claimed $101 billion in revenues. A year later, in August 2001, the first report was issued to reveal the scandal 20. On December 2nd, 2001, the company filed for the 3rd largest Chapter 11 bankruptcy in the history of world finance, after those of Worldcom and Lehman Brothers; it is now a unit of Warren Buffets Mid-American Energy Holding Corporation.

Enron has sadly illustrated the pitfalls of project finance on recurrent occasions, first because of its method of accounting and its heavily criticized method of fostering off-balancesheet partnerships (1), second because of its lack of due diligence and the case of the Cuiaba Pipeline (2), and third because of its renegotiation problems with the Indian State of Maharashtra and the case of the Dabhol Power Project (3).
20

Daniel Scotto, All Stressed up and no place to go, August 2001.

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1. Accounting Procedures, Insider Trading and the Method of Off-Balance-Sheet Partnerships For the MD of Citigroup Jonathan Lindenberg and the MD of the Carlyle Group Barry Gold, Enrons techniques had not much to do with classic project finance, which is not based on off-balance-sheet partnerships but on more consistent risk-shifting mechanisms and counterparty creditworthiness. Yet Enron used and even misused this traditional and angelic vision of project finance to cook it its own way. In fact, Enron primarily used the method for taxation contained in Internal Revenue Code Section 475 and called the mark-to-market accounting technique, or fair value accounting, which is part of the US Generally Accepted Accounting Practices (GAAP) since the early 1990s. The idea is that the value of the instrument is based on its current market price, as opposed to over-the-counter (OTC) technique based on calculations intrinsic to the financial contracts signed between the buyer and the seller. Since most of its profits and revenue were the results of deals with special purpose entities created as off-shore entities, Enrons debts and losses were not reported in its financial statements and anticipated future revenues were tabulated as if currently real21. For instance, The Washington Post revealed that Enron accountants recorded a $65 million profit for the Cuiaba gas pipeline before it actually came into service22. This behavior was the first and direct cause for the fall of investors confidence in the company and its immediate cataclysm. Yet the smartest guys in the room did not stop there23. With the intention of saving their skin and yet in a final move to dig their own grave, Enrons executives committed the lastminute crime of insider trading. The false profits had been registered under Chief Financial Officer Andrew Fastow and CEO and Chief Operating Officer Jeffrey Skilling. As a result, on August 2000, Enrons stock value reached $90, the highest point of its whole history. Enron executives began to sell their stocks; as they sold, prices began to drop. In August 2001, they reached $42, and fell to $15 in December. In the meanwhile, investors were recurrently told that the stock would continue to

21

The accounting firm Arthur Andersen, responsible for Enrons accounting, was dissolved in December 2001 for false accounting and found guilty of obstruction of justice in 2002 for destroying documents related to the Enron audit. 22 th James V. Grimaldi, Enron Pipeline Leaves a Scar on South America, The Washington Post, May 6 , 2006. 23 Bethany McLean and Peter Elkind, Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, Penguin Books, London, 2003.

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rise up. CEO Kenneth Lay made particularly noisy interventions to defend its company. At the time, Executive Paula Rieker, for example, had bought 18,380 shares for $15.51 each. She sold them in July 2001 for $49.77, while she knew that the company was on a downward curve. Lay himself sold $90 million worth of stock in August. On November 28th, 2001, between 10 am and 10.20 am, his wife sold 5000,000 shares for a value of $1,2 million. On this same day, at 10.30 am, Enrons stock was worth a few cents and thousands of equity stockholders were left over on the gambling table.

Under Section 16 of the 1934 Securities Act, insider trading is heavily punished. Indeed, a series of trials followed the bankruptcy up to 2006, when the company was bought back by Warren Buffet. The affair constituted the foundation stone and the most well-know manifestation of Enrons unpleasant financial aftertastes. But this only came as the final step of a long walk through several misled project financings throughout the world, which might be themselves at the very origin of the catastrophe.

2. The Problem of Due Diligence and the Case of the Cuiaba Pipeline The case of Enron in Cuiaba is especially illustrative. The Cuiaba Gas Pipeline was a 630 km installation to be built from Rio San Miguel (Bolivia) to Cuiaba (Brazil) for a concessionary contract of 40 years. The initial cost was of $475 million, which had to be financed by the governments of Brazil, Bolivia, Germany and the United States, especially thanks to a $200 million loan from the Overseas Private Investment Corporation (OPIC). The construction began in June 1999. Nonetheless, since the beginning, the project was heavily criticized by different local groups and international organizations united behind WWF and Amazon Watch because it crossed the protected ecosystems of the Chiquano Dry Forest and the Pantanal Wetlands, two primary tropical forests deemed to be protected under international law24. As a substitute, Enron offered a US $20 million fund to five conservation groups and proposed to implement an indigenous peoples development program. Demonstrations ensued as the public opinion

24

www.amazonwatch.org

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considered to have been fooled. At the height of the protest, the project was stopped for 3 months; the delay stretched for 3 years in total and costs finally soared up to $750 million.

3.The Problem of Renegotiation and the Case of the Dabhol Power Project The pitfalls of Enron in India are also very illustrative. At the beginning of the 90s, Enron planned to create a terminal end in Dabhol, India, for the HBJ gas pipeline built between Turkmenistan and India (New Delhi). The idea was to access the seaports of South Korea and Japan, the largest consumer of natural gas in the world. On June 20 th, 1992, a Memorandum of Understanding was signed between Enron and the Indian State of Maharashtra for a total cost of US $3 billion. Although the document was not legally binding, it already raised much criticism because of its haste, as it was signed after a three days visit of Enron executives in India, and because of the lack of bidding competition and hence transparency in the process. The Maharashtra government itself, in its 1995 Report of the Cabinet Sub-Committee to Review the Dabhol Power Project, and even the World Bank, deemed the Memorandum too much in favor of Enron. Indeed, the pre-contractual arrangement was based on high prices, no audit was planned to verify their adequacy to the actual cost of production and its evolution over time, and the State was obligated to pay for electricity on a regular basis, even if it was not actually available and even if the Dabhol Corporation was not itself bound to a minimum fuel delivery. Furthermore, no date was given to indicate the beginning of the 20-year contract.

Despite all those problems, the Indian Central Electricity Authority (CEA) gave a provisional clearance in 1993. Under the Indian Electricity Supply Act, a statutory clearance is needed to allow the foreign direct investment. Nonetheless, the State of Maharashtra took this decision as final and immediately signed a Power Purchase Agreement with Enron, thus engaging itself to pay an annual $220 million fee for 20 years. In the meanwhile, the State of Maharashtra and the central government both signed a twelve-year counter-guarantee, each time assorted with an immunity waiver25. The $1.87 billion project was to be based on 5 loans provided by Indian financial institutions including Bank of India, commercial banks including
25

The disposition was designed to pass on the effects of rupee devaluation and rises in international petroleum prices.

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ABN AMRO, Crdit Suisse, Citibank, Bank of America, Crdit Lyonnais, and governmental institutions including OPIC and the Japanese government. To carry the projects debt, a Special Purpose Vehicle (SPV) was set up: the Dabhol Power Corporation. The entity was instituted as a 100 % foreign-owned private limited liability company incorporated in India by Enron (80%), Bechtel Enterprise Holdings (10%) and General Electric Capital Structured Finance Group (10 %) and controlled through partner companies based in the tax haven of Mauritius.

Treated as highly confidential, the contracts were not publicized and even refused to disclosure before local organizations and opponents of the project. Voices began to rise that Enron had paid $20 million as educational gifts and accused the company of bribery, which has obviously never been assessed yet. More, the agreement had been signed in the midst of local elections in Maharashtra which had opposed the party in power, the Congress Party, to the Alliance partners, including Janata Dal and the Peasants and Workers Party, which both had a severe anti-foreign investment agenda. The whole Dabhol project became a meeting point for opponents to the regime, local organizations, NGOs, social workers and environmentalists. In May 1995, riots exploded. They were severely brought into line by the police. Human Rights Watch and Amnesty International charged the security forces guarding the site for human rights abuses and Enron for complicity; later on, they added charges against human rights abuses including land resettlement, lack of compensation to affected fisherman and lack of pollution control measures. Enron became a symbol of anti-imperialist contestation in India. In August 3rd, 1995, for fear of retaliation, the state of Maharashtra ordered the project to be altered. Enron had already invested $300 million in the construction of the site. The project was suspended for five months, as Enron could not restart construction until the 25 law suits brought by workers unions and environmentalists against the project were solved before the Indian courts. Furthermore, costs rose to $3 billion and the affair gave them extremely negative public exposure, thus increasing their future reputational risks.

The project was finally achieved in January 1996. Yet, during the first year of its operation, the Maharashtra State Electricity Board (MSEB) refused to honor its $220 million
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annual payment, while bound by the take-off contract that had been signed. Meanwhile, a change of power had occurred and the Alliance partners got the majority in the Maharashtra state over the Congress Party. They invoked excessive prices 26 and accused the former government of having badly negotiated the contract. Enron consequently decided to renegotiate the Power Purchase Agreement 27 . On February 23rd, 1996, to preserve the contract, they offered to cut off the price of power by 20 % and the capital costs from $2.8 billion to $2.5 billion. More, they increased Dabhols output from 2,015 megawatts to 2,184 megawatts and offered the Maharashtra State a 30 % equity interest in the Dabhol project, for a value of $137 million. Enrons share dropped to 50 % ceteris paribus while GE Capital and Bechtel Enterprises kept their 10 % interest. In May 1999, the MSEB finally refused to pay. A series of black-outs paralyzed the region and the plant was finally silenced for 6 years. It is now the property of the Qatar based company Ratnagiri Gas and Power Private Limited since 200528.

The lessons that we can draw from this case are threefold. First, the whole process was established in a very harmful haste. Enron did not proceed to due diligence on all aspects of the project. On the contrary, it entered into an agreement in a context surrounded by lack of transparency. No competitive bidding had been undertaken prior to the implementation of the project, and not enough attention had been given to the set up, including local opinion groups and balance of interests. Second, the lack of equity in the transaction process has had severe consequences on the future of the contract. Indeed, the Maharashtra State had to spend half of its entire annual budget for the payment of the Dabhol project. By fixing up a price above the level of reasonableness, Enron created an unbearable situation that incited local officials to opportunistic behavior. Third, the case also raised the issue of renegotiation in project

26

According to the government, the price of Enrons power was double than the price of power bought to other suppliers in the state (Tony Allison, Enrons eight-year power struggle in India, www.atimes.com). 27 They didnt use the $28 million Letter of Credit guarantee given by Canara Bank as an immediate remedy to MSEBs default. 28 They started operation in May 2006 but also encountered a series of problems because of lack of operational maintenance abilities and lack of supply.

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financings. Indeed, financiers feared that a dangerous message would be sent to emerging countries29, as this behavior paved the way for justification of sovereign default.

Thus, this case is a perfect illustration that transactional lawyers should really rely on ex-ante rules to make public entities abide by the provisions of the contract in the pure tradition of the pacta sunt servanda theory, according to which agreements must be kept. For ex-post resolutions are often deemed to fail.

In fact, for some authors (Hoffman, 2007), Enron was just a victim of a poorly planned governmental strategy. For others (Kantor, 2001), it just illustrated the fact that arbitrability is often a fiction30. Indeed, in this case, analysts agree on the fact that litigation would have destroyed the project, as it is a low and difficult process. As a matter of fact, Enron could also have used the $23 million Letter of Credit provided by the Canara Bank, but this recourse would only have served as a temporary solution. Some observers also deplore the fact that the Clinton administration failed to condemn the Maharashtra State for its behavior31. Yet, as a matter of fact, collusion between Enron, the World Bank and the American government has also been pointed at by some journalists32. Indeed, different cases have been revealed which question the relationships between the three institutions. In 1981, President Ronald Reagan announced that its administration would support the World Bank provided that policy prescriptions would focus on privatization and deregulation of oil, gas and power markets. In India, for example, the World Bank pressured the Indian government in 1991 to deregulate, especially in the petroleum field, and open up to foreign direct investment. One year later, Enron contracts with the Indian local State. In the year 2001, Enrons CEO published an article in The Financial Times warning the State of Maharashtra that the United States would stop foreign aid if they were to expropriate the project. In Columbia, the World Bank

29 30

Scott L. Hoffman, Law and Business of International Project Finance, Cambridge University Press, October 2007. Mark Kantor, International Project Finance and Arbitration with Public Sector Entities: When is Arbitrability a Fiction?, 24 Fordham Intl L.J. 1122, 1125 (2001). 31 Danielle Mazzini, Stable International Contracts in Emerging Markets: an Endangered Species?, 15 Boston University International Law Journal 343, 1997. 32 Daphne Wisham and Jim Vallette, id.

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successively issued a $30 million and a $35 million loan, in 1994 and 1996, to the Promigas Pipeline Project where Enron was the operator. In 1999, Columbia President Andres Pastrana meets with Texas Governor George Bush and Enron executives to discuss privatization of the industry. In the Dominican Republic, Enron acquired a 50 % ownership of a power plant financed by the World Bank in 1995. In the meanwhile, the World Bank delivers a loan to the Dominican government provided that they liberalize their power sector. In 2000, World Bank insist that the Dominican Republic should fully privatize its power distribution sector to benefit from additional loans. In June 2001, the US Embassy of India defends Enron against charges of fraud in the country. In December 2001, the trials finally reveal that the price at which the Dominican public assets had been sold during the market privatization was about $1 billion lower than the actual value. Without surprise, the auditing company responsible for the valuation of the Dominican public assets was a local subsidiary of Arthur Andersen. In Panama finally, the International Financial Corporation (IFC) pressures the government to privatize its power sector in 1998, and one year later Enron becomes the main shareholder of the Bahias Las Minas power plant. The bidding process was soon followed by charges of fraud in the power purchase process. In fact, throughout the 90s, OPIC received $3 billion from Enron, thus making the energy company be its number one business partner. Enron even fought in the congressional corridors for the maintaining of the institution that some congressmen deemed unnecessary. In February 2006, OPIC cancelled the $200 million loan it had granted Enron for the Cuiaba pipeline. But the institution is still marred by the long relationship that it enjoyed with Enron and the scar33 it left on the South American soil.

3.2. CONSEQUENCES
Besides the fact that the Houston Astros Baseball Club is no longer called the Enron Field but the Minute Maid Park, the Enron case has had drastic consequences both on financial regulations and on project finance practices themselves. Immediately after the scandal
33

James V. Grimaldi, Id.

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exposure, several power companies decided to cancel their projects and sell their related assets. For fear of accusation, to force transparency and to reassure investors, they transferred many of their off-balance-sheet financings to their internal budget expenditures. Since the scandal, several companies have even made public vows not to use any off-balance-sheet structures and a constant effort has been done to delineate the difference between legitimate nonrecourse debt and the former Enron structures. Interviews with different CEOs34 and specialized lawyers35 right after the bankruptcy all confirm: project financiers generally feared a backlash on their capacity to attract investors and all fostered increased transparency and financial disclosure.36 Mr. Gold, from the Carlyle Group, even talks of an era of conservatism: he witnesses that conference room discussions aimed at drafting prospectuses for project finance deals are now focused on both the need to communicate about earnings and the desire to execute a clear and straight-forward strategy.

On the one hand indeed, the discourse changed considerably. Deeper attention is now given to project legitimization. Thus, the creation of Special Purpose Vehicles (SPVs) is specifically analyzed; project sponsors together with their bankers and lawyers make special effort to explain the purpose of the entity and to show how it is exclusively focused on the achievement of the project itself. Similarly, the origin of the companies cash-flows is highly detailed and every change in the off-balance sheet arrangements is expressly justified.

On the other hand, risk ratios for project financings skyrocketed in the aftermath of Enron as a result of the change in investors perceptions. For Davis37, emerging-market IPP (Independent Power Producers) projects began to seem more like a danger than an opportunity. As a consequence, the pace of project financings themselves drastically slowed

34 35

Jacob Worenklein, from US Power Generating Company. Dino Barajas, from Hastings, Janovsky and Walker LLP. 36 Henry A. Davis, How Enron has affected Project Finance, The Journal of Structured Finance, Vol. 8, Spring 2002. 37 Henry Davis, Id.

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down (Fabozzi, 2006)38, while counterpart credit-risk and project legitimization talks gained momentum in the transactions deals.

Moreover, the Enron case has also affected the way security interests are dealt with (Feldman, Harris, 2003). As Harris explains, Enrons alleged tendency to set its own rules for making gas, electricity, and others raised some interesting questions about collateral and security. Historically, security in power plants was established by mere contracts. Today, counterparty arrangements and security in physical assets has become a prerequisite for the settlement of negotiations. In particular, the nature of the liens and collaterals at stake has become more important in the deals.

3.3. LESSONS FOR LEGAL MANAGEMENT IN EMERGING COUNTRIES

Lessons to be drawn for legal management of infrastructure financings in emerging markets both concern ethics and dispute resolution practices.

As far as ethics are concerned, transactional lawyers involved in project financings should pay meticulous attention to due diligence. This includes compliance reviews of the project contextual anchorage both on the environmental and social levels. In complement, documents should be more widely disclosed and with increased transparency (Fabozzi, 2006).

The Enron case is also a good revelator of the challenge of dispute resolution within project financings. In fact, many projects in the power sector are forced into suspension or renegotiation. Over the last decade for example, 27 IPPs were obligated to suspend or renegotiate their contracts in Indonesia39. Similarly, in Pakistan, 19 projects under construction

38 39

Franck J. Fabozzi, Henry A. Davis, Moorad Choudhry, Introduction to Structured Finance, Fabozzi Series, 2006. th The Future of Independent Power Producers, Indon.Com.Newsl., December 19 , 2000.

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were harassed or cancelled by the government.40 Observers and practitioners advise different strategies.

To avoid the breach of contract, different devices are recommended. First, the deal should be structured so as to compel the involvement of other public actors besides the host State. In addition, central governments should give direct assurances to the governmental organizations backing the infrastructure project; if project owners deal with federate states, they should always require that the federal government be an underwriter to the contractor (Kantor, 2003). Another possibility is to expand the use of standby letters of credit. Those should be of significant weight so as to matter in the negotiations and they should be located as much as possible outside of the realm of the local jurisdiction, so as to be more efficiently enforceable (Id.). Different clauses can also be foreseen. Thus, Danielle Mazzini suggests the use of stabilization clauses (to prevent future events from altering the deal), revision clauses (to force renegotiation of the deal in case future events occur, for example in the case of price increases in construction costs), unilateral change clauses (for minor contractual provisions that do not alter the contract in its entirety), change clauses (to force renegotiation if events have created imbalance between the parties), and termination for cause clauses (to list breaches that could justify default and termination of the contract, excluding lower than expected profits).

As for the potential answers to unilateral cancellations of infrastructure financing deals, the Enron case brings back into question the two everlasting recourses of litigation and arbitration. As we saw in the Dabhol project, litigation as a dispute resolution for project financings is not an easy way out, since it is often a quick process. In fact, the Enron executives could for example have relied on the U.S. Foreign Sovereign Immunities Act (FSIA) to try and find an issue before their home jurisdictions. Indeed, under Section 1605, public entities can waive their sovereign immunity either explicitly (through treaty or contract) or implicitly (if they agree on arbitration), as it was the case in the Dabhol Power Project. In order for the US
40

Hill, A military Coup doesnt change the fact that Pakistan is under Contract to pay Western Power Producers for Electricity it cant afford, Project Finance, November 1999.

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courts to have jurisdiction, two requirements are needed: the object of litigation must be a commercial activity (Texas Trading, Janini v. Kuwait University, Walter Fuller) and it must have a direct effect in the United States (Republic of Argentina v. Weltover, United World Trade Inc. v. Mangyshlakneft Oil Production Assn). As analysts show it, those two requirements would have been met in the Dabhol case since the weight of Enron was of significant impact on the US economy41.

But often, neither is arbitration a quicker alternative to litigation. For Kantor, it is even a fiction42, since the project financier is often trapped if he did not foresee strong enough exante contractual mechanisms to remedy to the payment default (Kantor, 2001). For instance, Enron executives did not beneficiate from a MIGA assurance. Indeed, Paragraph 1.43 of MIGAs Regulations foresee that an assurance can be obtained to compensate against lack of recourse from judicial or arbitral proceedings and in cases where their financial decision could not be enforced or when they did not render a decision within a reasonable amount of time. Yet this assurance is very expensive and not always assured but after a lengthy and uncertain process. In fact, to obtain it, the assured party first needs to demonstrate that the project companys payment default on its covered loan was directly caused by breach of contract on the part of the host State. Then, it must provide an arbitral award to support that determination prior to making payment under the guarantee. In other terms, the process takes time and it does not always cover the total expenditures that the assured party has to face because of the default.

In fact, for Richard N. Dean, Partner lawyer for Baker and McKenzie LLP in Washington D.C. and specialist of financial transactions in emerging countries and more particularly in Russia43, the ultimate solution and often the sole recourse in case of payment defaults in such contexts is relationships. Since the rule-of-law is often unstable, his advice for transactional lawyers is to learn how to rely on relationships to renegotiate the deals and solve the issues.

41 42

Danielle Mazzini, Id. Mark Kantor, International Project Finance and Arbitration with Public Sector Entities: When is Arbitrability a Fiction ?, 24 Fordham International Law Journal, 1122, 2000-2001. 43 th Interview with Richard N. Dean, November 30 , 2009.

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4. REGULATORY SCHEMES ADOPTED IN THE AFTERMATH OF ENRON

For Feldman, the CEO of Andrews Kurth, the opacity that surrounded the Enron cases revealed the inefficiency of the financial regulation mechanisms44. Thus, in the aftermath of Enron, a series of regulatory schemes was adopted to overcome the threats posed by the scandal and streamline a system which had proved its deficiencies. In particular, three important rules were set up: the Sarbanes-Oxley Act in 2002, the Equator Principles in 2003 and the Basel II Accord in 2004.

4.1. THE SARBANES-OXLEY ACT

The Sarbanes-Oxley Act was enacted on July 30th, 2002. Its aim was to get more effective control on the companies financial statements. Its 11 titles apply to all the public companies registered in the United States, thus excluding all privately held companies. They aim in particular at punishing accounting fraud and refusal to disclose elements and at expanding CEOs responsibilities as regards the accuracy of their companies financial statements. Section 404 notably provides that the companys internal accounting should be the object of a detailed annual examination. If the enactment of the act has been highly praised by many analysts for its efficiency and its positive effects on financial regulations, it is also criticized by many companies for its cost, especially for minor companies which have fewer resources to devote to compliance costs. Indeed, according to the American Shareholders Association, regulatory costs increased from 4.8 % to 9.9 % of the market capitalization rate. As a consequence, many companies have then decided to go private: the International Strategy and Investment Group show that 191 public companies have decided to change their registration strategies right after the enactment of the Act.

44

Feldman, Interview by Harris, 2003.

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4.2. THE EQUATOR PRINCIPLES

The Equator Principles were launched in June 2003 and extended in July 2006. They were developed by a group of commercial banks led by Citigroup, ABN AMRO, Barclays and West LB right in the aftermath of Enron to alleviate the negative externalities that the scandal had on their project finance activities45. The purpose is to issue a number of environmental and social standards for the design of project financings. In consultation with project sponsors, project engineers, and non-governmental organizations (NGOs), 67 financial institutions have decided to comply with those rules by November 2009. The Equator Principles only concern all new project financings of total capital costs of US$ 10 million or more, as provided by the 2006 extension. The Principles have also been extended to expansions or upgrades of existing facilities and to project finance advisory activities: from then on, member institutions commit to inform their clients about the Principles and request from them the explicit intention to adhere to the rules. In order to do so, projects are graded according to the significance of their social and/or environmental impact, from A (significant impacts), to B (limited impacts) and C (minimal or no impacts). Then, different actions should be undertaken and documents handled, including social and environmental assessments for all projects categorized A or B, covenants, actions plans and agreements between banks and their clients on how to mitigate and monitor the risks, evidence of consultation with stakeholders, NGOs and project affected groups, annual disclosure reports. In addition, applicable social and environmental standards should be listed (use of renewable natural resources, protection of human health, cultural properties, biodiversity, including endangered species and sensitive ecosystems, use of dangerous substances, fire prevention, life safety, land acquisition and land use, involuntary settlement, impacts on indigenous people and communities, etc.) and a grievance mechanism has to be foreseen. Finally, an independent review, from an independent expert, should also be issued to the financial institution.

45

www.equator-principles.com

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Nonetheless, the Equator Principles have been criticized for several reasons. First, some observers have raised concern over their integrity. Some of them point at the highly controversial case of the Baku-Tbilisi-Ceyhan pipeline in the Caspian See, connecting Azerbaijan, Georgia and Turkey. In this case, 8 financial institutions registered as members of the Equator Principles list decided to finance the project in 2004, together with the IFC, despite an NGO assessment alleging 127 breaches of the Principles. They answered that their independent consultant had confirmed the fact that the Principles were respected. Similarly, some NGOs deplore the fact that one of the Equator Principles members, the Dutch ABN AMRO bank, is the most climate-unfriendly bank in the Netherlands, producing 1% of the total annual worldwide CO2 emissions. Others criticize the existence of free-riders and opportunistic members, the lack of enforceability of the Principles or the fact that banks might lobby the IFC to weaken the standards46. To answer those attacks, many banks publish summaries of their actions in favor of the Equator Principles and the list of projects that they refused because of noncompliance47.

4.3. THE BASEL II ACCORD

The last regulation adopted in the aftermath of Enron was the Basel II Accord. Published in June 2004, it was adopted between 2008 and 2009 by most of the world jurisdictions and their credit institutions. Its purpose is to have international standards to determine the minimal capital and credit requirements necessary for the involvement of the credit institution in the project financings. The Accord was adopted after a series of deliberations from central and commercial banks united under the so-called Basel Committee on Banking Supervision. Those standards should be determined according to internal ratings including the credit volume of the bank issuing the loan. The idea is to ensure greater stability of the international financial system and avoid the occurrence of credit crunch situations. According to Freshfields law firm, project finance transactions are now structured in order to minimize the regulatory capital
46 47

William Baue, Are the Equator Principles Sincere or Spin?, Sustainability Investment News, June 4 , 2004. www.equator-principles.com

th

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requirements of the loan. For them, this may become more and more of a focus in negotiations.48 As a consequence, banks have the incentive to use numerous sources of financing so as to broaden the number of participants and get greater leverage effect.

5. CONCLUSION: CURRENT TRENDS AND THE EFFECTS OF THE FINANCIAL CRISIS ON INFRASTRUCTURE FINANCINGS IN EMERGING MARKETS
Studying the Enron cases, that is to say not only the famous case of false accounting and insider trading but also the less famous issues of the companys pitfalls in India or Bolivia, is particularly interesting for different reasons. For Enron revealed several deficiencies in the sphere of project finance and the way it was approached.

First, different mechanisms such as the mark-to-market accounting method or the offbalance-sheet financial strategy turned out to be misleading for investors: regulatory schemes were thus foreseen to remedy to the lack of legislation in the matter.

Second, Enron showed that the lack of analysis of the contextual elements interacting with the project could result in quagmires for the parties. This finding also contributed to elaborating new rules.

Third, the cases finally illustrate the difficulty of renegotiation of those long-term project financings; the risk of hold-up is so high than serious ex-ante mechanisms should be foreseen to avoid reliance on mere ex-post relationships.

On a practical standpoint, project financiers usually drew two lessons from Enron. First, they insist on transparency and disclosure. As a result, the project contextual analysis and the
48

Freshfields Bruckhaus Deringer, Basel II: Capital Management Strategies for Project Finance Loans, Briefing, February 2007.

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due diligence processes gain more and more importance in the work of the transactional lawyer in charge of supervision on such projects. Furthermore, the new systems of regulation to comply with, i.e. the Sarbanes-Oxley Act, the Equator Principles, and the Basel II Regulation, even if their efficiency is still to be improved, give a new framework to legal management in this field. Second, project financiers began to give increased scrutiny to governmental actors and partners in emerging markets. As a consequence, projects security and collateral have become key elements of the negotiations. More, since there is higher risk, structuring the deal means involving a bigger number of actors and financiers so as to ensure a better mitigation. This is all the more relevant since financial moroseness spread onto the markets, and since the current scarcity of funding has drastically shortened the number of project financings worldwide.

Yet, to go further and understand the current evolutions, different trends need to be witnessed in the planet of project finance. Since the skepticism that followed the Californian crisis of 2000-2001, the general context is one of deregulation and privatization. As a result and because of the financial crisis, the higher scarcity of funding resources and the decrease in risk tolerance, companies have stopped their expansion to new industries and locations and rather stay focus on less risky domains, i.e. either by focusing on more industrialized countries or by broadening their geographical scope so as to diversify their portfolio. Now, to invest in emerging markets, they require much more support from sponsors, multilateral agencies, export credit agencies and insurance companies, especially since the Russian default of 1998 and the Brazilian devaluation of 1999. In the specific case of insurance, for instance, companies increasingly use targeted risk coverage instead of the traditional general insurances49. More, they actually use securitization more extensively. In particular, observers witness the growing use of bonds and the broadening of the base of institutional investors, which leads to a growth in the credit-rated project debt50. Finally, there is more and more a blending of project and corporate finance to mitigate the risk.

49 50

The Future of Project Finance: The Crisis in Perspective, London, Ed. By Rod Morrison, Thomson Reuters, 2009. Davide Tocchi, The Impact of the Financial Crisis on Project Finance, Thesis, Bocconi Business School, 2009.

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But the doldrums of the world economy do not sound the death knell of project finance. Quite the contrary, new tools and strategies can be imagined, as we saw, to leverage its effects. For the main quality of project finance is precisely to provide flexible and case-by-case solutions. In the sector of infrastructure financings for emerging countries in particular, it appears as very suitable to answer the numerous needs of growing populations. Jeffrey Sachs51 noted that the focus on infrastructure, both social and economical, could be one way towards the end of poverty; the genuine Keynesian method of the New Deal had effectively put new life into the post-1929 world. Today, Dubai the anthill has record employment rates of 97.4 % and a GDP per capita of $40,400 (CIA World, 2008): when infrastructures have structured the superstructure, or when the post-Enron era is one of the rise and fall of empires. As theres hope

51

Jeffrey Sachs, The End of Poverty: Economic Possibilities for Our Future, Penguin Press, 2005.

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Bibliography
General Literature on Project Finance

Davide Tocchi, The Impact of the Financial Crisis on Project Finance, Thesis, Bocconi Business School, 2009. Franck J. Fabozzi, Henry A. Davis, Moorad Choudhry, Introduction to Structured Finance, Fabozzi Series, 2006. Freshfields Bruckhaus Deringer, Basel II: Capital Management Strategies for Project Finance Loans, Briefing, February 2007. Hill, A military Coup doesnt change the fact that Pakistan is under Contract to pay Western Power Producers for Electricity it cant afford, Project Finance, November 1999. Martin Stuart-Smith, Private Financing and Infrastructure Provision in Emerging Markets, 26 Law and Policy of International Business, 987, 1994-1995. Scott L. Hoffman, Law and Business of International Project Finance, Cambridge University Press, October 2007. The Future of Project Finance: The Crisis in Perspective, London, Ed. By Rod Morrison, Thomson Reuters, 2009. William Baue, Are the Equator Principles Sincere or Spin?, Sustainability Investment News, June 4th, 2004.

On Enron

Bethany McLean and Peter Elkind, Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, Penguin Books, London, 2003. Daphne Wysham and Jim Vallette, Chronology of Enrons Empire, Sustainable Energy and Economy Network, April 2002. Henry A. Davis, How Enron has affected Project Finance, The Journal of Structured Finance, Vol. 8, Spring 2002. James V. Grimaldi, Enron Pipeline Leaves a Scar on South America, The Washington Post, May 6th, 2006.

On the energy industry

The Future of Independent Power Producers, The Indonesian Commercial Newsletter, December 19th, 2000.

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On emerging markets

Clive Harris et al., Infrastructure Projects, A review of canceled private projects, Public Policy for the Private Sector, World Bank, Note No. 252, Jan. 2003. Jeffrey Sachs, The End of Poverty: Economic Possibilities for Our Future, Penguin Press, 2005. Peter Rigby, Emerging Market Infrastructure, Global Project Finance Yearbook 2007. Stephan von Klaudy, Apurva Sanghi, Georgina Dellacha, Emerging Market Investors and Operators: a New Breed of Infrastructure Investors, PPIAF Documents, Working Papers No.7

On Public-Private Partnerships

Frdric Marty, Arnaud Voisin, Les difficults dexcution des partenariats public-privs : le retour dexprience des contrats de Private Finance Initiative, OFCE, N2007-26, Septembre 2007. Neil Roger, Recent trends in Private Participation Infrastructure, Public Policy for the Private Sector, WB Note No. 196, Sept. 99. Philippe Marin, Lefficacit relle des partenariats public-privs pour les services deau urbains dans les pays en dveloppement , Quel rle pour le secteur priv dans laccs leau potable dans les pays en dveloppement, Numro 2, Juillet 2009. Pierre J. Hamel, Les partenariats publics-privs et les municipalits : au-del des principes, un bref survol des pratiques , Groupe de recherche sur linnovation municipale, INRS, Canada, 2004. P.M. Coupry, Controverse sur la privatisation de leau dans les pays du Sud , www.novethic.com, March 2005. World Bank, Public-Private Infrastructure Advisory Facility: Public-Private Partnerships for Urban Water Utilities: A Review of Experiences in Developing Countries, by Philippe Marin, 2009.

On Infrastructure

Annez P., Urban Infrastructure Finance from Private Operators: What have we learned from recent experience?, World Bank Policy Research Working Paper 4045, November 2006. David Canning and Peter Pedroni, Infrastructure and Long Run Economic Growth, Center for Analytic Economics, Cornell University, July 1999. R.J. Barro, Government Spending in a Simple Model of Endogenous Growth, Journal of Political Economy, 98, 1990. Sanford V. Berg, Michael G. Pollitt, Masatsugu Tsuji, Private Initiatives in Infrastructure: priorities, incentives and performance, 2008. 32 | P a g e

UN Habitat, Housing Finance Mechanisms in Zimbabwe, The Human Settlements Finance Systems Series, Nairobi, 2009. On Dispute Resolution

Clayton P. Gillette and Robert E. Scott, The Political Economy of International Sales Law, International Review of Law and Economics, September 2005. Dugu Christophe, Dispute Resolution in International Project Finance Transactions, Fordham International Law Journal 1064, 2000-2001. Mark Kantor, International Project Finance and Arbitration with Public Sector Entities: When is Arbitrability a Fiction ?, 24 Fordham International Law Journal, 1122, 2000-2001. Laura A. Malinasky, Rebuilding with Broken Tools: Build-Operate-Transfer Law in Vietnam, 14 Berkeley Journal of International Law 438, 1996.

Other Online Ressources

www.worldbank.org http://info.worldbank.org/etools/PPPIPortal/2008PPPI/doc/08Presentations/Day4%20Session3%20pr5.pdf (PPI Club Medafrique) www.jpmorganequityfunds.com http://online.wsj.com : Nathan Becker, The Wall Street Journal, S&P cuts Six Dubai entities to Junk, December 3rd, 2009. www.amazonwatch.org www.equator-principles.com

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