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A brisk building boom of hydropower mega-dams is underway from China to Brazil. Whether benefits of new dams will outweigh costs remains unresolved despite contentious debates. We investigate this question with the “outside view” or “reference class forecasting” based on literature on decision-making under uncertainty in psychology. We find overwhelming evidence that budgets are systematically biased below actual costs of large hydropower dams—excluding inflation, substantial debt servicing, environmental, and social costs. Using the largest and most reliable reference data of its kind and multilevel statistical techniques applied to large dams for the first time, we were successful in fitting parsimonious models to predict cost and schedule overruns. The outside view suggests that in most countries large hydropower dams will be too costly in absolute terms and take too long to build to deliver a positive risk-adjusted return unless suitable risk management measures outlined in this paper can be affordably provided. Policymakers, particularly in developing countries, are advised to prefer agile energy alternatives that can be built over shorter time horizons to energy megaprojects.
How do large companies buy infrastructure (e.g. electricity, gas or rail)? Mainstream economics literature proposes that in the absence of an intermediating government, the bargaining power of large customers in procuring infrastructure will be weak. Drawing on a spatial, temporal and relational framework, this article critiques this proposition through a case study of a large manufacturing firm, ThyssenKrupp (TK) AG, which recently invested €7 billion in steel processing facilities in Brazil and USA. I find that prior to making durable and immobile investments large firms—like TK—can exert symmetric bargaining power against sellers of infrastructure, provided the firm has competitive alternatives available in making a location decision. TK exerted strong bargaining power by doing extensive analysis; keeping its commitment to any given location alternative low; inducing a ‘relational auction’ among alternatives it found desirable and by demanding tailored infrastructure services, rather than off-the-shelf commodities. Public sector infrastructure megaprojects, built without active co-development with lead users, are likely to be wasteful investments.
In this paper we characterise the propensity of big capital investments to systematically deliver poor outcomes as "fragility," a notion suggested by Nassim Taleb. A thing or system that is easily harmed by randomness is fragile. We argue that, contrary to their appearance, big capital investments break easily — i.e. deliver negative net present value — due to various sources of uncertainty that impact them during their long gestation, implementation, and operation periods. We do not refute the existence of economies of scale and scope. Instead we argue that big capital investments have a disproportionate (non-linear) exposure to uncertainties that deliver poor or negative returns above and beyond their economies of scale and scope. We further argue that to succeed, leaders of capital projects need to carefully consider where scaling pays off and where it does not. To automatically assume that "bigger is better," which is common in megaproject management, is a recipe for failure.
The Principles of Project Finance reviews the technique of project finance. It explores, step-by-step, the key ingredients of the concept. The book is aimed at a business savvy audience, but one which is not necessarily up to speed on the concept, and has a global reach by covering both OECD countries and the emerging markets.
‘Stranded assets’, where assets suffer from unanticipated or premature write-offs, downward revaluations or
are converted to liabilities, can be caused by a range of environment-related risks. This report investigates the
fossil fuel divestment campaign, an extant social phenomenon that could be one such risk. We test whether
the divestment campaign could affect fossil fuel assets and if so, how, to what extent, and over which time
Divestment is a socially motivated activity of private wealth owners, either individuals or groups, such as
university endowments, public pension funds, or their appointed asset managers.1 Owners can decide to
withhold their capital—for example, by selling stock market-listed shares, private equities or debt—firms
seen to be engaged in a reprehensible activity. Tobacco, munitions, corporations in apartheid South Africa,
provision of adult services, and gaming have all been subject to divestment campaigns in the 20th century.
Building on recent empirical efforts, we complete two tasks in this report. First, we articulate a theoretical
framework that can evaluate and predict, albeit imperfectly, the direct and indirect impacts of a divestment
Second, we explore the case of the recently launched fossil fuel divestment campaign. We have documented
the fossil fuel divestment movement and its evolution, and traced the direct and indirect impacts it might
generate. In order to forecast the potential impact of the fossil fuel campaign, we have investigated previous
divestment campaigns such as tobacco and South African apartheid.