Mar 1998

As electricity and fuel markets liberalize, merchant generating plant will proliferate. This trend raises the question of the best capital structure for such generators for successful project financing. Far from following rules of thumb about levels of debt and equity, correct structure must be derived from rigorous modelling of the complete system and the place of the prospective generator within it. Only then can risk be appropriately shared between lenders and investors. Lynn Smull

In its ninth five-year plan (1996-2000), China intends to add 15 000 MW per year to its present generating capacity. In absolute terms, the country has the biggest market potential for additional generation capacity within Asia. In order to meet expected demand, capacity must double and electricity generation must increase from 1080 TWh in 1996 to 2500 TWh in 2010. Foreign investors are expected to cover part of the enormous capital requirements in the electricity sector. Market driven reforms are already under way but further regulations have to be implemented in order to attract foreign investors. Dr Christian Kummert and Matthias Arndt

When the iron curtain came down, Hungary was seen as a former communist country which would find the transition to a market economy easier than most. While progress towards privatization has been impressive, it has not been entirely smooth. After one false start, strategic stakes have now been sold, and EDF operates two of the six distribution companies. Problems remain, however, not least regarding the level of tariffs that can be charged. Pierre Abou

In many ways New Zealand has been a pioneer in liberalizing power markets, a process promoted by governments full of free-market zeal. However, after an initial burst of ideologically-driven reform, the government has left the sector to reform itself. Although this has led to a long list of unfinished business. New Zealand still has important lessons to teach other countries. Calum Gunn

With increasing numbers of IPPs turning to the capital markets to raise finance cost-effectively, the role of the credit rating services has become more important. If projects are to achieve investment grade on their bonds, they will need to manage the risks so that investors can have confidence in a timely return. By paying attention to the crucial factors, developers can gain access to efficient financing available in the capital markets. Michael Wilkins & Peter N. Rigby