Question

Analyze a mega project along the following framework .You can choose one of the large projects implemented in GCC region or other geographical region

1) How the project is structured – What are the requirements in terms of security design agreements .

2) Discuss the sources of financing for the project

3) How the valuation of the project was done –Analyze using cash flow and investment appraisal system.

4) What are the major risks involved .Discuss both macro economic and commercial risks involved in project.

Answer 1

General mega projects are defined as projects which operate with huge investment ($1 billion or more) and involve lots of public intrests and have a substantial impact on society and government too.

1. Megaproject planners and managers would therefore be ill advised to count on Hiding Hands, creative errors, or any other general principle according to which underestimates of costs would be balanced by similar underestimates of benefits. We also now know it would be equally foolhardy to assume that downstream human creativity may be generally counted on to solve problems that planners and managers overlook or underestimate when the decision is made to go ahead with a project. The data show that for too many projects with front-end problems, such creativity never materializes and projects end up seriously impaired or non-viable. Initial problems, if not dealt with up front, tend not to go away. The iron law of megaprojects is Hand at a high level of statistical significance, and we know why. The Hiding Hand is itself an example of optimism and does therefore not capture the reality of megaproject management. For such capture, and true explanatory power, we must turn to theories of optimism bias, the planning fallacy, strategic misrepresentation, and principal–agent behavior.
2. The government's are looking towards export credit agency (ECAs) as this will be heavy for bankers and other financial institution to support . This will create a short supply of money in the local markets .
3. The valuation will be done by the % of work completed and work in progress based on cash flows -

• The amount which is needed to start the project .
• The cash the project generates while operating .
• Terminal cash flows final outcome of the project.

4. There are many factors which are involving risk in framing the projects some of them are -

• Political risks
• Construction risks
• Maintenance and operating risks
• Legal risks
• Unanticipated changes etc...