In the run up to the Road Infrastructure and Development Congress in Cape Town, Brigette Bailie, partner at law firm Herbert Smith Freehills South Africa LLP, speaks to us about the challenges facing the development of road infrastructure in Africa and the importance having the right partners on the journey.
What are some of the biggest challenges facing the stakeholders when it comes to the development of roads?
HSF: The wrong type of traffic (disproportionate number of heavy vehicles); vehicle overloading; social resistance to tolls; environmental and social concerns; traffic volume risk; reluctance of governments to underwrite traffic volumes; competing road and rail projects and governments' reluctance to give protection.
What particular skills do you and HSF bring to the table that enable you to navigate this and other infrastructure projects?
HSF: Having done a number of large transactions in the heavy infrastructure sector in Africa (from ports to rail (light and heavy) to airports to roads), we understand from the outset that these projects face challenges, some of which can threaten the existence of the project. In these situations, it is necessary to think laterally and come up with innovative solutions.
These projects also usually involve a number of participants from the shareholding group, the lender group, the various contractors, the government stakeholders and often social stakeholders. It is essentially to ensure that all these groupings are being brought along at the same pace and that no one group is lagging behind as that is when the project can hit serious bumps in the road.
Pragmatism and a commercial approach that does not compromise the thoroughness and quality of the legal advice is essential to all projects.
What advice can you give to anyone wanting to develop large infrastructure projects?
HSF: Make such that the law allows the project to be undertaken and that it also allows the project to be undertaken in the form envisaged. It is absolutely essential to undertake the project in compliance with all applicable laws. It is essential to secure government support and to ensure that government is fully supportive of the project, as well as to determine upfront the extent of the government support.
Determine the source of the revenue that will be generated by the project and whether this is sufficient to cover debt and equity service within the planned lifespan of the project. Ensure that there are equity investors and debt funders who would be prepared to participate in the project and whether the project can afford their terms.
Consult comprehensively with all stakeholders impacted by the project and ensure that all issues raised by social groupings have been resolved. Make sure that all regulatory, water and environmental permits, licences and authorisations are obtained in a timely fashion.
Don't waste time in the legal negotiations on pure wording or immaterial issues – there can be a small window with which a project can reach financial close and be undertaken and projects have been lost due to time being spent on trivial matters.