Project Finance and Procurement: Risk Factors, Mitigation Strategies, and Agreements

This report discusses the risk factors associated with the Argentina Power reinforcement project, along with mitigation strategies and agreements such as Power Purchase Agreement, Engineering, Procurement and Construction Agreement, and Operate and Maintain Agreement. It covers topics such as limited funds, security-related issues, political risk, contract negotiation, currency exchange risk, and supply-related risk. The report also includes strategies to mitigate these risks, such as supply management, operation management, cost management, and quality control. The subject is Project Finance and Procurement, and the course code and college/university are not mentioned.

PROJECT FINANCE AND
PROCUREMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
Task .................................................................................................................................................3
Q.1 (a)..........................................................................................................................................3
Q. 1 (b).........................................................................................................................................4
Q.2 (a)..........................................................................................................................................5
Q.2 (b)..........................................................................................................................................6
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Procurement strategy is defined as a long term strategy or a plan to acquire necessary
supplies in a cost effective manner. This report is based on the case study of “Argentina Power
don't cry for me Argentina”. This project will discuss various risk that are associated with the
project. Risk mitigation strategies will also be a part of this project. Further, various agreements
that are made to complete the entire project will also summarise in this study.
Task
Q.1 (a)
Procurement risk is the possibility of failure the entire procurement process involve in
construction project. There are plenty of risk factors become a part of the construction project
which can highlight in the following manner:
Limited funds
Financial resources are limited in number which create funding related challenge for the
project manager. Identifying the proper source of funding is also a major financial risk associated
with the reinforcement project. As the infrastructure related to the electricity project contain the
massive amount of cost that need to be incurred by the stakeholder that will require huge amount
of investment done by the stakeholders (Icaza, Borge-Diez and Galindo, 2022). Identifying the
potential and authentic sources that can also allocate sufficient funds on a regular basis is also a
massive risk factor associated with the project. For example in a reinforcement project done in
the power sector of Argentina faced massive issues due to the availability of lack of financial
resources. The case study specify the fact that the total expected cost of project is $532 million.
This could further result into delay in completing the entire project. Extra time further require
extra cost to invest over the project which also resulted as improved cost of reinforcement over
the project.
Security related issues
Financial entity take security in against to sanction the loan. Project manager are not
authorise to provide an asset over a security to lender. Further the entire process of submitting
asset as security require extra time to take authority from designates and respective authorise
personal in government. This is also not feasible for the government to provide security to every
lender take part in the reinforcement project. Also, the security deposited to lender in against to
the loan is taken improve the financial risk in the project. For example in case of Argentina

reinforcement project took place in energy sector could face many delay due to the security
issues taken place in against to fund the relevant project. Government sanction a certain amount
of funds and beyond that it also approach to local lender and bank to provide extra finances.
Such lenders and bank required securities in against to provide a loan. This could create issues in
final completion of the entire project.
Political risk
Big projects like reinforcement project also hold the political risk factor. The project take
longer duration to complete which also create a possibilities like government gets change in
centre that many times result into many project stay on hold that was started by previous
government. International inclusion is also there many times in big ambitious projects that also
create an extra political risk in the project. For example political risk related to the political
change has always been occurred in the Argentina. The impact of that has seen in the for of
political risk incurred over the reinforcement project in energy sector took place in the country
(Fuentes, 2019). Due to change in political scenario project got stopped many times that could
involve extra cost to the project.
Contract at negotiation price
Big construction project involve the bunch of small contracts and agreement that also
become a part of the project. The event of constructing contract require negotiation from the
government with all material suppliers, labour suppliers, equipment and many more contract that
involve negotiations as well. The demand in these projects is generally high which allow the
suppliers to ask extra funds to meet such heavy demand. This result into extra cost incurred over
the project. For example in the completion phase of reinforcement at Argentina project EFC will
enter into a series of PPA's with CAMMESA that is Argentina state entity. Bunch of small
contracts are made that involve the contract of negotiation which will further result into extra
cost incurred over the project. The extra cost will result into the financial losses government and
the project manager has to suffer from the project is done. Many supplies also involve
international transactions that involve foreign currency exchange. The result of this is in the form
of currency risk. The result of this is in the form of increased cost of the project as the currency
exchange rate is directly affected to the project total cost (Ifadloh and Nufus, 2018). The
infrastructure project cost is directly associated with the cost of raw material, labour and such
other. The construction project further take time to complete the same. In the longer time spam

require to complete to whole project the rate of all different material equipment also changed that
could bring extra cost. All this result into the increased cost of the construction in the project.
The big projects like energy reinforcement contain the huge amount of risk that may damage the
entire significance of the project.
Currency exchange risk
The big construction project involve many international transaction that require foreign
currency exchange to complete the transaction. The rate of foreign currency changes every day
which is very difficult to predict the total cost that will be requiring to complete the whole trade.
For example the institute determines the fact that the payment against the reinforcement project
was supposed to provide in US dollars but the payable in pesos. The risk related to the foreign
exchange currency will become a part of the project. Risk related to the exchange rate in transfer
price is always will be a part of the project till the final completion. The foreign exchange
currency rate always keep changing that require the project manager to make budget more
flexible to cover up such change in currency rate. This would further improve the overall
estimated cost of completion (de Asúa, 2021). The inflation in the economy is a big risk that is
associated with the finances in the project.
Supply related risk
Big project involve heavy supply of raw material, labour, builders, operator, equipments,
machineries, sponsors and many other. This is important that all these resources must be
available at the construction site so that entire project can complete in a given time duration. The
demand of reinforcement projects is also high as compare to other small projects. Henceforth, the
heavy demand further create a huge supply risk for the project manager. For example Argentina
reinforcement project also involved the team of engineers, architect, supplies of materiel, labour
and many more. Many times the proper supply was not available at the construction which could
lead to delay in the final completion of the project.
All different risk factors involve in the project would lead to the major losses involve in
the project. It is important that the stakeholder frame proper strategies to overcome and eliminate
all these various risk factors associated with the project.
Q. 1 (b)
Risk mitigation strategies is defined as practices followed to overcome risk involve in
completion of the construction project. These are the strategies adopted to negotiate the financial

risk and other risk involve in the project. The strategies that can be adopted to mitigate the risk
involve in big construction projects are disclose in the following points.
Supply management system (high): is a practice that take care of the supply related risk
involve in the project. This practice take care of all types of supply which involve builders,
architect, engineers, labour, material, finance and all other. This practice require a bunch of
professionals who, can look after to all the required aspects related to supply chain management
at construction site. For example the reinforcement project will include bunch of builders over
the different segments of the reinforcement project. Along with the builders other suppliers were
also there that involve labour, operator, sponsor, engineers and many more (Lampe, 2020).
The role of supply chain management practice is to ensure that proper supply was done at
construction site related to respective streams. Proper communication system was used by the
supply team so that all areas of supply could make sure at a given time.
Operation management (medium): is a practice that is use to manage operations involve in the
big construction projects. This practice involve appointing an operation manager that can look
after to all the issues related to the operations in the project. This approach will allow the project
manger to overcome the risk of project quality, corruption and such risk involve in the project.
For example the project manager appointed the operation manager over the reinforcement
project. This is important that the operation manager at reinforcement project practised proper
approaches and practices that could favour the project management task in the best way possible.
The involvement of more than one operator would contain extra cost in the project further this
may lead to a risk of mismanagement in the project.
Cost management practice (high): is taken place in case of big construction projects. This is a
practice that completely look after to the cost incurred over the project. Many cost management
techniques are involved such as batch costing, job costing, construction costing and many more.
This practice is well effective to overcome the risk of corruption, over-costing and such other
risk factors. For example in a reinforcement project taken at Argentina this approach was used.
In the completion of the project risk of sponsor is also there which would lead to extra cost
included in the project. More than one sponsor would consider extra cost involve in the project
that will further lead to mismanagement in the entire reinforcement task is conducted. Buyers of
the project also face the issue due to the extra cost of the project. As the costing is a big concern
and the big scale project further require the huge costing incurred over the project. This will

further create a direct impact over the buyers of the project. They get to pay the extra cost in the
project which will further lead to the collative damage for the customers.
Quality control (high): is also one of the key strategic choice adopted in case of big
construction project. The quality controlled look all the matter related to the project. Quality
controller play role in taking care of the issues like corruption, transparency, costing and such
like of strategies. For example in the reinforcement project at Argentina project manager
appointed quality controller. The controller could take care of risk factors like political risk,
transparency risk and corruption involve in the project (Cheng and et.al., 2022). Quality
controller will take care of transparency and corruption that may involve in the construction
project. The role of the quality controller is to concern about the project quality which involve
ensuring proper material has been used in building the structure, make sure standard quality is
maintained while developing the whole structure and assure all quality related risk involve in the
project. All these risk may damage the advantage government is aiming to derive out of the
reinforcement project. Lack of transparency may completely damage the quality of the project.
Corruption may reduce the quality of material and other resource involve in the project. All these
risk factor may damage the financial feasibility of the entire project. Investor may take out the
money invested in the project which further create a huge financial loss for the government in
reinforcement project.
Q.2 (a)
Agreement is also made in order to arrange resources in the project along with sustaining
the effective control over the project. Power Purchase Agreement is one of the core agreements
that is a part of reinforcement project. This agreement could play role in covering the impact of
fluctuating price of power. This is important for the customer that government aimed to offer its
services at the fixed price structure. The regular fluctuation in the price would further lead to
confusion in the mind of the customers (Leguizamón, 2020). Power purchase agreement will
favour the customers who will become a part of the project to entertain the fixed price structure
irrespective to any change in the price of power government face. In the power generation sector
the customer satisfaction become a key area of concern organisation need to entertain. This
agreement could lead to a control over the fluctuation over the pricing practice adopted by the
organisation.

Engineering, procurement and construction agreement is another agreement that is
formulated in between the stakeholders associated with the project. This is an agreement that will
involve procurement of different material and equipment that is used to complete the respective
project. Procurement and construction agreement summarise with different agreements and
contracts that are formed to develop the entire structure. This includes the agreements with all
the different stakeholders such as suppliers, quality team, engineers and many more agreements
(Montez, 2018). All these agreements are associated with this one single agreement that is call as
procurement and construction agreement. This will eliminate the risk of finances, operation
related risk, pricing related risk and such other. The proper supply related issue will further be
eliminated with the use of this agreement in the project. This agreement allows the stakeholder to
resist any kind of confusion arises in the entire construction situation.
Operate and maintain agreement is another crucial agreement that is formed by the
management in delivering the entire reinforcement project. This is about to overcome the
maintenance related issue involve with the project. The maintenance is always a critical part of
handling any project. Reinforcement is among the major area and aspect that support the
management to sustain the efficiency of the project. This will eliminate the risk of further
damage in the project and further to maintain the whole set up.
Q.2 (b)
The reinforcement project is among the most ambitious project of the Argentina
government. This will completely overcome the electricity relate issue of the country. EFC
committee must invest in the project as it hold the strong government support. This is among the
major reason behind the potential success of this project (Cardone, 2022). Any of the proposal
can only achieve the success if it hold the government support to complete the respective project.
The support given by the government will eliminate any kind of risk involve with the project.
The another reason behind is the demand of the product in market. The success of any
business idea is totally influenced with the demand of the project in the market. The Argentina
hold the very large amount of consumption of different luxury products like AC and many more.
All this causes the huge consumption of the electricity (Urdinez, Knoerich and Ribeiro, 2018).
Hence, the high demand in the market become one of the major reason behind the success of this
project idea. It can state as a fact that the project would lead to a heavy success due to the high
consumption.

The one more reason is that this project will result into the positive brand value in the
entire country. This will further support the future projects of the organisation. It can state that all
these are the major reason why the EFC should invest in the project. All these are the major
reason behind the project get investment. This project will lead to a huge amount of profitability
that will eventually support the growth and success of the organisation.
Negotiation approach may take into the place. The government may negotiate with all the
suppliers and investor who look interested in the project. The respective authority need to
negotiate with all the stakeholders that involve suppliers, investor, sponsors, technical team and
many more that directly will involve in the project. Negotiation approach will lead the suppliers
to bring material and labour supply sufficient and at a lower cost than the market rate. This
practice will also play role in convincing investors to investment capital in the project at a lowest
interest rate possible. Negotiation practice will also benefit the project manager to reduce time
duration of completing the entire reinforcement project. Negotiation may also result into
financial loss for the project manager. In order to complete the big reinforcement project on a
given time duration many times supplier ask extra cost against making the timely delivery of
supply of raw material and labours. This eventually improve the total cost of construction.
Negotiation practice in big construction projects is a risky approach as in order to reduce some
cost many time quality of the project get challenged as in order to reduce the cost contractor tend
to use low quality of material and equipment which damage the construction quality. The
Argentina reinforcement project will comprises with 10 plants hence, in case of any damage in
quality will lead to a massive financial loss to the government and investor involve in the project.
The proposed reinforcement project hold various limitations that further oppose the
EFC's committee to also not invest in the project. The proposed project will only eliminate to a
demand related issue of Argentina at some levels still it will not be enough to meet the entire
need of the country. Furthermore, the predicted cost of per unit is more than the price customers
was paying earlier. The energy sector globally is going to a massive digital transformation which
is not included in this project. Plenty of areas that create a concern for the EFC's to invest in the
project.
CONCLUSION
Reinforcement project is taken place at Argentina involve many risk that involve political
risk, corruption, Project manager has used different strategies to mitigate the risk involve in the

reinforcement project that include supply chain management system, operation management,
cost management and such like of practices ot overcome different risk involve in the projects
(Garcia and Burns, 2022). Different agreements are also framed that include Power Purchase
Agreement, Engineering, procurement and construction agreement and Operate and maintain
agreement to complete the entire project on a given time.
REFERENCES
Books and Journal
Cardone, I. J., 2022. Prelude to a Brazilian Antarctic Policy. In The Antarctic Politics of
Brazil (pp. 27-75). Palgrave Macmillan, Cham.
Cheng, C. and et.al., 2022. Progress Report on China’s Green Finance Policy 2018.
In Environmental Policy and Reform in China (pp. 351-375). Springer, Singapore.

de Asúa, M., 2021. Science, Catholicism, and the French (Latin) Pattern of Secularization. The
Case of Argentina (1820–1958). Studies in Religion/Sciences Religieuses. 50(2). pp.237-
257.
Fuentes, M. A., 2019. Performance constellations: Networks of protest and activism in Latin
America. University of Michigan Press.
Garcia, R. M. and Burns, S. L., 2022. Bureaucratic politics in protected areas: The voided power
projection efforts of conservation vis-à-vis forest bureaucracies in Patagonia,
Argentina. Forest Policy and Economics. 134. p.102630.
Icaza, D., Borge-Diez, D. and Galindo, S. P., 2022. Analysis and proposal of energy planning
and renewable energy plans in South America: Case study of Ecuador. Renewable
Energy. 182. pp.314-342.
Ifadloh, N. and Nufus, Z., 2018. THE ANALYSIS OF CLAUSE COMPLEX IN THE
STUDENTS’CASUAL CONVERSATION. LET: Linguistics, Literature and English
Teaching Journal. 7(2). pp.120-133.
Lampe, S., 2020. ‘Look at Me’, I’m femininity: The female persona in 1970s musical
theatre. Studies in Musical Theatre. 14(3). pp.321-330.
Leguizamón, A., 2020. Seeds of Power: Environmental Injustice and Genetically Modified
Soybeans in Argentina. Duke University Press.
Montez, N., 2018. Memory, Transitional Justice, and Theatre in Postdictatorship Argentina. SIU
Press.
Urdinez, F., Knoerich, J. and Ribeiro, P. F., 2018. Don’t cry for me “Argenchina”: unraveling
political views of China through legislative debates in Argentina. Journal of Chinese
Political Science. 23(2). pp.235-256.