In the realm of international Public-Private Partnerships (PPPs), effectively Managing Foreign Exchange Risk is paramount, as currency volatility can significantly erode project profitability, threaten financial viability, and lead to substantial fiscal exposure for both private investors and public authorities involved in cross-border ventures. PPP projects in emerging and developing markets often generate revenues in local currency while incurring debt obligations or importing critical equipment in hard currencies, creating a fundamental currency mismatch that, if unmanaged, can destabilize even the most meticulously planned projects. This comprehensive training course is meticulously designed to equip public sector officials, project developers, financial institutions, and legal professionals with the advanced knowledge and practical tools required to identify, quantify, allocate, and mitigate foreign exchange (FX) risk across the entire lifecycle of international PPPs, ensuring financial resilience and attracting global investment for critical infrastructure development. Without robust strategies for Managing Foreign Exchange Risk in International PPPs, projects face heightened uncertainty, increased cost of capital, and potential failure, underscoring the vital need for specialized expertise in this critical domain.

Duration: 10 Days

Target Audience

• Public Sector Officials from Ministries of Finance, PPP Units, and Central Banks
• Project Developers and Sponsors involved in international projects
• Investment Bankers and Financial Advisors
• Commercial and Development Bank Professionals
• Foreign Exchange Treasury and Risk Management Specialists
• Legal Professionals advising on project finance and international contracts
• Accountants and Auditors dealing with multi-currency projects
• International Development Practitioners
• Fund Managers and Portfolio Managers with cross-border investments
• Anyone involved in the financial structuring and risk management of international PPPs.

Objectives

• Understand the sources and types of foreign exchange risk in international PPPs.
• Learn about the impact of FX risk on project viability and financial returns.
• Acquire skills in identifying and quantifying FX exposure at different project stages.
• Comprehend techniques for allocating FX risk between public and private parties.
• Explore strategies for mitigating FX risk using financial and contractual instruments.
• Understand the importance of local currency financing solutions for PPPs.
• Gain insights into government support mechanisms for FX risk.
• Develop a practical understanding of accounting and tax implications of FX hedging.
• Master negotiation strategies for FX risk clauses in PPP contracts.
• Acquire skills in monitoring and managing FX risk throughout the project lifecycle.
• Learn to apply international best practices and guidelines for FX risk management.
• Comprehend techniques for assessing counterparty risk in hedging instruments.
• Explore strategies for building institutional capacity for FX risk management.
• Understand the importance of macroeconomic stability in FX risk mitigation.
• Develop the ability to design and implement comprehensive FX risk management frameworks for international PPPs.

Course Content

Module 1: Introduction to Foreign Exchange Risk in PPPs

• Definition of foreign exchange (FX) risk: transaction, translation, and economic exposure.
• Why FX risk is particularly significant in international PPPs (currency mismatch).
• Impact of FX volatility on project cash flows, debt service, and equity returns.
• Overview of common FX risk scenarios in emerging and developing markets.
• The "uninsurable" nature of long-term FX risk in some markets.

Module 2: Sources and Types of FX Exposure in PPPs

• Debt service denominated in hard currency vs. local currency revenues.
• Imported equipment and O&M costs in foreign currency.
• Equity returns requiring repatriation in hard currency.
• Construction period FX exposure on imported inputs.
• Impact of sovereign credit ratings on FX risk perception.

Module 3: Quantifying FX Exposure and Impact

• Identifying FX sensitive cash flows and balance sheet items.
• Calculating the exposure at different stages of the project.
• Financial modeling for FX risk impact analysis (sensitivity, scenario analysis).
• Stress testing project viability under various exchange rate movements.
• Understanding the cost of FX risk on project economics.

Module 4: Risk Allocation of FX Risk in PPP Contracts

• Principles of optimal FX risk allocation (who is best placed to bear it).
• Default allocation of FX risk to the private partner and its consequences.
• Contractual clauses for FX risk sharing (e.g., indexation of tariffs, revenue adjustments).
• Balancing public affordability with private sector bankability.
• Lessons from case studies of FX risk allocation.

Module 5: Financial Hedging Instruments (Part 1: Basic)

• Forward contracts: definition, mechanics, advantages, and disadvantages.
• FX options: calls, puts, and their application in hedging.
• Currency swaps: principles, structure, and use in long-term hedging.
• Hedging tenor and liquidity considerations in emerging markets.
• Market availability and cost of hedging instruments.

Module 6: Financial Hedging Instruments (Part 2: Advanced & Challenges)

• Cross-currency swaps and their complexities.
• Challenges of long-dated hedging in illiquid markets.
• Basis risk, correlation risk, and counterparty risk in hedging.
• Accounting for hedging instruments (hedge accounting basics).
• Regulatory considerations for using derivatives.

Module 7: Local Currency Financing Solutions

• Importance of developing local capital markets for PPPs.
• Mobilizing local institutional investors (pension funds, insurance companies).
• Issuance of local currency bonds for project finance.
• Role of local banks in financing PPPs in local currency.
• Challenges and opportunities in local currency debt markets.

Module 8: Government Support Mechanisms for FX Risk

• Direct government guarantees for FX (e.g., convertibility, transferability).
• Government-backed FX stabilization funds.
• Central bank support and liquidity provision.
• Viability Gap Funding (VGF) to offset FX-induced cost increases.
• Fiscal implications and contingent liabilities of government FX support.

Module 9: MDBs and DFIs Role in FX Risk Mitigation

• Providing local currency loans (on-lending, direct loans).
• Partial risk guarantees for FX.
• Hedging facilities and products offered by MDBs/DFIs.
• Political risk insurance (e.g., MIGA) covering currency inconvertibility.
• Blended finance approaches leveraging DFI capital for FX de-risking.

Module 10: Operational and Contractual Mitigation Strategies

• Natural hedging: matching revenues and costs in the same currency.
• Diversification of revenue streams and financing sources.
• Procurement strategies to minimize foreign currency exposure (local content).
• Renegotiation clauses for extreme FX movements.
• Force majeure provisions related to currency events.

Module 11: Legal and Documentation Aspects of FX Risk

• Drafting FX risk clauses in concession agreements and loan agreements.
• Conditions precedent and covenants related to FX management.
• Termination compensation clauses considering FX fluctuations.
• Governing law and dispute resolution for FX-related disputes.
• Ensuring enforceability of hedging contracts.

Module 12: Accounting and Tax Treatment of FX Risk

• Accounting standards for foreign currency transactions and translation.
• Impact of FX gains/losses on financial statements.
• Tax implications of FX hedging activities.
• Deferred tax assets/liabilities related to FX.
• Best practices for financial reporting of FX risk.

Module 13: Macroeconomic Context and Policy Considerations

• Impact of national monetary and fiscal policies on exchange rates.
• Role of central banks in FX market stability.
• Importance of sound macroeconomic fundamentals for PPPs.
• Policy reforms to deepen local capital markets.
• Engaging with policy makers on FX risk frameworks.

Module 14: Case Studies in FX Risk Management in PPPs

• Analysis of real-world PPP projects impacted by FX risk.
• Examination of successful and unsuccessful FX mitigation strategies.
• Lessons learned from different sectors and geographies.
• Discussions on project failures or successes attributed to FX management.
• Comparative analysis of FX risk approaches in various markets.

Module 15: Building Institutional Capacity and Future Trends

• Developing internal FX risk management expertise within public and private entities.
• Training and awareness programs for project teams.
• Utilizing technology for real-time FX monitoring and analysis.
• Emerging FX risk mitigation instruments and innovative financing solutions.
• The role of regional currency unions and integration in reducing FX risk.

Training Approach

This course will be delivered by our skilled trainers who have vast knowledge and experience as expert professionals in the fields. The course is taught in English and through a mix of theory, practical activities, group discussion and case studies. Course manuals and additional training materials will be provided to the participants upon completion of the training.

Tailor-Made Course

This course can also be tailor-made to meet organization requirement. For further inquiries, please contact us on: Email: info@skillsforafrica.org, training@skillsforafrica.org Tel: +254 702 249 449

Training Venue

The training will be held at our Skills for Africa Training Institute Training Centre. We also offer training for a group at requested location all over the world. The course fee covers the course tuition, training materials, two break refreshments, and buffet lunch.

Visa application, travel expenses, airport transfers, dinners, accommodation, insurance, and other personal expenses are catered by the participant

Certification

Participants will be issued with Skills for Africa Training Institute certificate upon completion of this course.

Airport Pickup and Accommodation

Airport pickup and accommodation is arranged upon request. For booking contact our Training Coordinator through Email: info@skillsforafrica.org, training@skillsforafrica.org Tel: +254 702 249 449

Terms of Payment: Unless otherwise agreed between the two parties’ payment of the course fee should be done 7 working days before commencement of the training.