Leading Advisors in Project Finance


  • Dare To Be Different

    2 April 2020

    The environmental, social and governance aspects of business are undergoing significant expansion and shifts in emphasis.

    The infrastructure industry is rapidly changing in a world which increasingly values commitment to diversity, green issues and social impact. The variety of recent work that we’ve undertaken is indicative of this change and an immergence of environmental, social and corporate governance (ESG) as a genuine concern which is being inbuilt to infrastructure projects and into companies working within the industry.

    Over the past few months, we have provided a due diligence review of the financial model for Axium Infrastructure in support of its acquisition of Wind Energy Transmission Texas – a 500-mile transmission line located in West Texas. In January, a consortium consisting of Belgian Eco Energy and Equitix reached financial close on the development and operation of a 19.9 MW biomass to energy plant in Ghent, Belgium known as Gentse Warmte Centrale. In addition to equity provided by the consortium, the project will be funded by a senior term loan provided by NatWest. We built the financial model on behalf of the consortium whilst an independent Operis team provided a model audit on behalf of NatWest.

    We also recently undertook a financial model audit for a project for Lightsource BP and the senior lenders. Lightsource BP reached financial close in December on the financing of a 254MW solar portfolio located in Almochuel, Spain. The solar energy plants are expected to be operational by the end of 2020.

    As our firm prepares to celebrate its 30th year, it’s natural to reflect upon changes internally and throughout the industry. It’s clear from the conferences and the meetings of industry bodies that I attend that there has been a steep change in attitudes to sustainability. As little as nine months ago, the thing that was being talked about, both as a challenge and, for infrastructure investors, an opportunity, was putting in the infrastructure needed to charge electric cars as we transition away from petrol and diesel.

    Now, at least in the UK, that is discussed as an inevitability and sights are lifted to the more demanding challenges of removing carbon from trucks and buses, and from heating the country’s homes and offices. These are noticeably larger topics, both in the engineering required to address them and the size of the dent they will make in the UK’s carbon emissions. Generally, energy transmission and distribution has been accomplished through regulated utilities much more than project finance, but there may be a trend to unbundling the assets into freestanding assets, which would allow a greater role for project finance in this field.

    By contrast, there is some sense that the producers of more traditional sources of energy, oil and gas, will find themselves with reserves that they have spent a century building and nurturing, but will not be permitted to exploit in their entirety.

    Against this, our clients in less developed economies ridicule the idea that their populations won’t make full use of the resources that they have at hand when their countries are only barely electrified. We know this because two-thirds of our work is outside the UK.

    What keeps project finance specialists busy will, therefore, vary in different territories. How the different regions will pressure each other in coming climate change negotiations will be extremely interesting to watch.

    The UK’s newly elected Conservative government has made extensive promises to increase investment in infrastructure. It remains to be seen how it will procure and pay for it. Though the Private Finance Initiative is not politically popular, the growing budgets of High Speed 2 and Crossrail make the case for having the private sector manage and bear at least some of these risks. It’s hard to imagine that national and local governments have specialists skilled in procurement at the scale required for the new programme.

    As an organisation we’ve also had to adapt and change to incorporate ESG principles. We have a young dynamic team here, backed up by an ESG aspect of business are undergoing significant expansion and shifts in emphasis, says Operis chief executive officer Henrietta Royle experienced leadership group that is 50/50 men and women. When I joined I was impressed by the ambition – combined with the belief in being able to fulfil that ambition. Culture is important here and that really is key for me too. It goes to the heart of what we are.

    I also think there’s a value in having somebody like me that has worked in other different sectors and seen similar issues through different lenses. It’s important to remember that there are many aspects to diversity.

    Renewables is a huge focus for the industry and an area in which we are looking to develop. We are hiring a new senior adviser with renewables expertise and have created two new training courses focussed on solar and wind respectively. We are also now consciously marketing to get more renewables modelling work.

    In order for companies to ensure that they are able to hire and retain the best talent, they need to model good behaviour and act in the best way they can. Top financial firms are competing to entice high-calibre hires and in order to get these good people companies have to show that they are different – and that they are attractive. People are attracted to great training, best training and a quality scheme is of great value to a graduate when they are thinking about starting their first job.

    Even today it is apparent that there are too many industry members who are ‘male, pale and stale.’ I’m delighted to say that change is coming. There is an increasing establishment of ‘women in infrastructure’ and similar groups.

    It’s interesting and significant that six of the 12 head judges for the Partnership Awards are women. I was at an industry breakfast event recently which included the head of Australia’s infrastructure body and the UK equivalent – both were women and needless to say top people. For me that is a clear indication that women are already present in prominent places within the industry.

    It’s overdue but at least it’s happening now, given that the users of infrastructure are an equally diverse group.

    This article was first published in the April/May 2020 issue of Partnerships Bulletin.

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