Characterisctics of EPC contractors in large infrastructure projects procured through project finance framework in Sub-Saharan Africa

Abstract

After its success in developing countries, the project finance framework has been gradually introduced in Sub-Sahara Africa (SSA) where it has shown a rapid expansion over the last two decades, particularly to finance and construct large infrastructure projects (LIPs). Such expansion was pushed by African governments eager to close the infrastructure gap hindered by a lack of financing estimated at 93US$ billion each year. Most of these funds are provided on a limited or non-recourse basis which means that the project represents the main collateral for capital invested. Successful completion of projects is the only way for investors to claim their investments. Hence, the selection of a suitable contractor is of paramount importance to reach project completion. The aim of this research is to identify key characteristics of EPC contractors that ensure contractors? eligibility and competitiveness for LIPs in SSA procured through the project finance framework. The potential key attributes and criteria were first drawn from the risk allocation strategy and contractual setting inherent to the project finance framework. Moreover, the research included an assessment of the SSA region through a PEST analysis that aimed at assessing regional features that influence the selection of EPC contractors. A survey, comprising 33 statements each bearing a potential attribute identified in the literature review, was conducted with respondents selected from top development finance institutions, private equity firms and technical and legal advisory firms. Data collected were tested in accordance with the nonparametric Mann-Whitney U test. The results highlighted the existence of nine key characteristics lenders, investors and advisors looked after when selecting an EPC contractor.