Risk in Infrastructure Projects


About 15 years ago I did a piece of work for Norweb plc. This was ground-breaking work for me – and for them as well, I suspect. On my side I had never contracted to a blue-chip company. And Norweb; well they didn’t have the modelling resource on-board. So they hired me. My task was simple; model out the consequences of them engaging in PFI projects.

This is the tale:
Back in the mid 1990’s Norweb plc were considering alternative revenue streams. At the time, PFI (Private Finance Initiative) was new and Norweb wanted to know whether entering into such arangements would be the right thing commercially. They entered into exploratory talks on several projects and realised they needed a view of the future financial impacts before making a commitment. PFI projects can span decades. They needed to model the future.
Projects involved a consortium of bidders who negotiated with publiv sector bodies for the right to construct and operate assets such as hospitals. Leaving aside the thorny issue of who actually owned the asset on completion, the idea was to recover the cost of build through future service charges. Several consortia would compete against each other. Consortium partners would interface but they made their own arrangements to determine whether their interest was financially viable.
The investment required by the PFI program was substantial.

Norweb Energi

At that time, Norweb had just been acquired by North West Water. There had been a bruising bidding war with Texas Utilities. (11 October 1995) and although North West Water won, (13 October 1995) there was a suspicion they had been forced to overpay.
North West Water
Just as North West Water began the post-acquisition process to determine which parts of Norweb to shut / sell / merge, I began contracting with Norweb.
My remit was to develop a model that would better inform them of the choices they faced. This process reached a satisfactory conclusion. I developed a framework for analysing risk which right now I am trawling through, to make suitable for the web.

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More to come.

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About Terence Park

Collections: vinyl records, comic books, paperbacks; I've plenty of them all. I also do spreadsheets.
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