Political risks: How to effectively mitigate political risks, deal structure, financing and political risk insurance

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Abstract: Political risk has become an increasingly critical topic for many airport projects, predominantly, but not limited to, projects in emerging economies. There are a considerable number of airport projects that have been subjected to cancellations of concessions or outright expropriation, or where a political impasse has resulted in renegotiations or a sale to a new concessionaire. What are the types of political risks that may threaten the stability of a project, and how can these be mitigated? This paper looks at selected aspects of the deal structure and of the finance structure as potential mitigants to political risk. It finally discusses key features of political risk insurance as a tool to find protection against risks an investor cannot avoid by proper structuring alone.

Keywords: airports, concessions, political risk, political risk insurance, PRI, financing, PPP, bankability, investment protection

Dietrich F. R. Stiller has been a partner in the Frankfurt am Main office of Clifford Chance since 1995. He works in the areas of banking and capital markets, privatisation and cross-border investment law, including domestic and international project financing and build-operate-and-transfer structures. Dietrich has extensive experience in airport projects in Asia and Europe.