The One Belt One Road (OBOR) initiative in China is an estimated $5 trillion infrastructure program spanning across Asia, the Middle East, Europe, and Africa.
Almost 70 countries and international organizations have signed up for the mega-infrastructure project, focused mainly on transport and energy including: roads, railways, bridges, ports, power plants and gas pipelines.
OBOR has created vast opportunities for construction companies focusing on infrastructure projects. With so many OBOR projects routinely launching, the question looms: how can companies best structure their project management and obtain finances to begin these projects?
OBOR and public-private partnerships
While some of the larger-scale projects will be funded by government-to-government grants, other projects will leverage traditional export credit models, such as buyer and supplier credits. The two most common forms of financing are: EPCs (engineering, procurement and construction) and PPP’s (public-private partnerships—a contractual arrangement between a public agency and a private sector entity).
Despite the EPC financing structure’s increasing popularity, EPCs still face numerous challenges:
- Funding: Potential shortfalls in funding contributes to sluggish economic growth.
- Political: Countries face a tenuous landscape of conflicting political and geopolitical perspectives and regular administration changes.
- Legal uncertainty: Underdeveloped and complex legal systems both pose precarious obstacles.
- High competition: International organizations and alliances challenge EPC funding.
Because EPCs face numerous challenges, many companies have turned to PPP financing instead. A PPP project is created by the government and a private company; both of whom will invest in the project until it’s finalized. Once the project is complete, the government will transfer the project “lease” over to the private company to maintain. This type of financing provides numerous structural, economic and legal benefits including:
- Equity interest: PPP models support foreign investment in their projects in the form of equity stakes.
- Infrastructure gaps: Many oil-based companies in the Persian Gulf & wider Middle East regions are looking to invest in infrastructure projects for equity gains – the perfect fit for a PPP project.
- Legal impediments: Host nations want to maintain ownership and control of their infrastructure programs and avoid legal restrictions.
- Joint ventures: PPPs are one of the more convenient and workable project models for contractors interested in pursuing international joint ventures.
- Project financing: The PPP model is increasingly becoming more refined, robust, and financially lucrative.
OBOR hurdles for construction companies
Like all major projects, OBOR stakeholders – including high speed railway, energy, bridges and parks – directly influence the livelihood, economy and future development of people within at least 65 impacted countries. Companies considering the PPP model will need to overcome several obstacles first, beginning with the bidding process.
Bids on the project cost, timeline – and other factors relating to the project itself – can easily determine the success of a project. PriceWaterhouseCoopers (PwC) found that construction companies who experienced a steady decline in share prices had recently announced the delay or end of a major project. Shortly following these companies’ announcements, the average share price had decreased 12 percent. If the bidding process can’t be carried out as scheduled, projects will be delayed.
Companies must be ready to adapt to different legalities and cultural values in China. Companies looking to grow their business need guidance, education and support from the host country on how to successfully live and work abroad, including: language, culture, working and lifestyle habits, education of local law and regulations, etc.
Each of the projects in OBOR range from several billion dollars to $10 billion plus, with dozens of varying sized companies involved in the actual implementation – from construction and design, to materials, transportation, management, and finance. With tens of thousands of staff members involved, project managers will need to deal with many issues over the course of the project. And not only that, tenderers also need to provide ongoing drawings of the project during the bidding process – and these drawings are subject to change throughout the entire project lifespan. Distributing the latest drawings to all the engineers and workers as soon as they are created is essential.
Collaboration between private and public partnerships involves numerous obstacles. To overcome these hurdles, effective communication is essential between all parties involved. Host countries must provide policy support—ranging from educating companies about cultural norms to local law – and regularly engage with companies to ensure the project is successful. OBOR project collaborations between government and business also face working in remote or multiple locations throughout the process, creating challenges exchanging information with one another.
To implement a successful OBOR project using a PPP model, communication and collaboration are essential. To ensure the quality and progress of projects, it’s important to introduce state-of-the-art technologies and expertise throughout the full duration of the project.
Starting with the bidding process through project implementation, organizations must have transparent communication to ensure their projects are successful. This allows clients to put together larger, cross-border investment opportunities with fewer challenges.
Aconex is the #1 global platform for digital project delivery, driving infrastructure performance by connecting your project teams, processes, and data. Contact us today to find out how Aconex can help with your OBOR PPP project to reduce risks in your complex projects.
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