Case Analysis

Project Risk, Communication and HR Management

Poland's A2 Motorway
Muhammad B Khan

1) Overview of the situation

AWSA had won an exclusive concession to build and operate a major
segment of the proposed A2 Motorway, the first private toll road in
Poland. Gebicki had been hired by AWSA in October 1999, to secure a
242 million commercial bank loan as part of the projects 934 million
total cost. The financial plan had undergone numerous changes since
AWSA won the concession in 1997.
Four months earlier, in February 2000, AWSA had chosen Credit
Lyonnais and Commerzbank as joint lead arrangers for the bank
financing. Although the banks had submitted a firm underwriting
proposal, their commitment was subject to due diligence including a
review of the underlying traffic forecasts and financial projections. In this
meeting, the bankers had expressed concerns with the traffic forecasts,
and indicated the deal might require an additional 60 million to 90
million of equity to cover certain pitfalls. Gebicki thought that any change
at this point would entail difficult negotiations with the shareholders and
could derail the entire concession. If the financing were not closed by July
29, less than six weeks away, the concession would expire. Prior to his
recent meeting with the bankers, Gebicki had been convinced that the
project structure was good and that the team undertaking the deal had
effectively assessed, mitigated and allocated all of the major risks. But
now, he knew they would have to revisit many of the key assumptions,
particularly those related to the revenue and traffic forecasts.

2) Briefly state the four options facing Gebicki

Option 1: Convince the bankers that their analysis was too pessimistic.
As evidence, he

could point to the early results from the A4 Toll

Motorway.
Option 2: Issuing additional bonds.
Option 3: Use European Investment Bank (EIB) funds that expressed
renewed interest in financing part of the A2 Motorway.
Option 4: Pull altogether a new financing plan before the deadline.

3)

Recommend

an

option

and

explain

your

decision

(1-2

paragraphs)
The best and the easiest option according to me would be to
convince the banker that analysis was too pessimistic. Gebicki also
thought that the recent Wilbur Smith analysis was probably too
conservative as well. The reason why the Wilbur Smith study is too
conservative is because they cut the revenue projections contained in the
previous studies by as much as 50% just like the consultants before
them. In fact, Wilbur Smith assumed a lower value of driver time, lower
perceived vehicle operating costs, and higher speeds on alternative
routes. The result was a 16% decline in revenue in 2002 and a 50%
decline in 2022.

4) What are the major risks in this project? Have they been
properly identified, assessed, and mitigated under the current
structure?
Political Risk: Poland is a former Soviet Union country where the state
owns most of the businesses. Meanwhile, a critical risk that faced the
project was that there were no previous privately financed projects in the
country.

There

were

no

precedent

regulations,

and

neither

the

government nor the private participants had any previous experience.

Due to the hyperinflation and governments deficit, analysing currency
risk was also important.
Market Risk: There were no prior projects in the country thus the traffic
on the toll road was difficult to estimate. The reaction of the people may
make toll collection impossible because Poland has been a welfare state
for years and citizens are used to price control and subsidies, hence,
paying for using a road may be an issue that public would not accept.
Market

risk

was

mitigated

by

engagement

with

the

repeatable

international institute and hiring qualified contractors.

Construction Risk: The construction risk was transferred by adopting a
fixed price design and construction contract. Besides the operation cost
was

fixed

maintenance

contractually,

AWSA

remained

responsible

for

heavy

5) Who bears the major risks? What factors determine who

should bear the major risks? (1-2 paragraphs)
According to the case, Gebicki is the one who bears the major risk
because of the following factors:

Responsible to negotiate with the shareholders.

Responsible to present better scenario to the financial bank in terms

of revenue and the traffic forecast.

Expiry of the concession

6) How should Wojciech Gebicki respond to the bankers concerns

in June 2000? (1-2 paragraphs)
Firstly, he should convince the bankers that their analysis was too
pessimistic.
Secondly, he should convince the bankers that the early results of the A4
Toll Motorway showed 80% of available traffic whereas bankers had
considered Wilburs assumption for A2 at 50%.
Lastly, he should respond to them saying that European Investment bank
are willing to finance part of the A2 project.