Strategic Infrastructure Mitigation of Political & Regulatory Risk in Infrastructure ProjectsPrepared in collaboration with The Boston Consulting GroupFebruary 2015Industry Agenda World Economic Forum91-93 route de la CapiteCH-1223 Cologny/GenevaSwitzerlandTel.: +41 (0)22 869 1212Fax: +41 (0)22 786 2744Email: contact@weforum.orgwww.weforum.orgWorld Economic Forum® © 2014 – All rights reserved.No part of this publication may be reproduced orTransmitted in any form or by any means, includingPhotocopying and recording, or by any informationStorage and retrieval system.REF 050215 3Mitigation of Political & Regulatory Risk in Infrastructure ProjectsContents4 Foreword8 Contributors10 Executive Summary12 1. Introduction and Landscape of Risk14 1.1 Landscape of political & regulatory risk19 1.2 Best-practice framework for risk mitigation20 2. Public-Sector Measures20 2.1 Robust infrastructure regulation and contracts21 2.2 General stability of laws and regulation22 2.3 Reliable and efficient administration23 2.4 Reliable dispute-resolution mechanisms24 2.5 International commitments28 3. Private-Sector Measures28 3.1 Appropriate use of financial instruments32 3.2 Effective interaction with the public sector33 3.3 Inclusive community engagement34 3.4 Responsible business conduct36 4. Joint Public-Private Measures 38 5. The Way Forward 40 Abbreviations41 Appendix: Landscape of Political & Regulatory Risk42 Endnotes44 Bibliography 4Mitigation of Political & Regulatory Risk in Infrastructure Projectsproject lifecycle. The approach elicits four categories of risks: business factors, political and regulatory risk, macroeconomic and social environment, and force majeure. Political and regulatory risk is a categorization that includes those risks arising from individual political and regulatory decisions that affect an infrastructure project or an existing asset. In particular, the approach distinguishes political and regulatory risk affecting specific projects and those affecting the whole economy. In this context, the three groups of risk-mitigation measures covered in this report are: public sector measures, private sector measures, and joint public-private measures. For each of these groups, the report identifies and illustrates specific best practices for risk mitigation, namely:- Robust infrastructure regulation and contracts- General stability of laws and regulations- Reliable and efficient administration- Reliable dispute-resolution mechanisms- International commitments- Appropriate use of financial instruments- Effective interaction with public sector- Inclusive community engagement- Responsible business conduct- Culture of open dialogueThe Strategic Infrastructure Initiative – and its Knowledge Series Reports – has been providing a roadmap to steer governments and key stakeholders to comprehensive frameworks and actionable best practices that cover the whole infrastructure life cycle, namely origination, preparation and implementation of physical assets. This report is an extension of the Knowledge Series as it was felt that the World Economic Forum needed to specifically address the political and regulatory barriers to infrastructure financing and investment. This work is already positioned under the broader umbrella of the Global Challenge Initiative on Infrastructure, Long-term Investing and Development, which will continue to carve out an exceptional space for a number of regional and national discussions in the years to come, including Latin America and Asia and also Europe and North America. These efforts will continue to substantiate the globally acquired body of knowledge and experience into concrete measures that contribute to boosting strategic infrastructure development, including its dissemination through the B20 and G20.This report is a direct result of a cooperative process with leaders from government, civil society and the private sector, particularly the engineering and construction, financial services and investors industries. In this regard, we would like to thank and acknowledge the World Economic Forum Partner companies that served on the Strategic Infrastructure Initiative Steering Committee: ABB, Aecon, Alcoa, Amec Foster Wheeler, APM Terminals (A.P. Møller-Maersk), Arup, Bilfinger, CCC, CH2M HILL, Danfoss, Fluor Corporation, GE, Hindustan Construction Company, Kokusai Kogyo (Japan ForewordForeword from the World Economic ForumCurrent demand for infrastructure is about $4 trillion in annual expenditure with a gap of at least $1 trillion every year. In spite of the growing gap in building new infrastructure, it should be emphasized that the worldwide stock of existing infrastructure is worth about $50 trillion. This existing stock also offers a real opportunity to narrow the infrastructure gap if governments are capable and willing to optimize their infrastructure assets as a viable alternative to build new assets. One of the most important a