Brave New World – Selected Jurisdictional Pitfalls when Acting on International Waste-to-Energy Projects

Infrastructure investments such as investments in WtE projects require a detailed risk analysis, risk allocation and risk mitigation. One of the many risks that an investor faces when investing in a foreign country is the sovereign risk or, in other words, country risk. This risk is associated with the host country characteristics. Sovereign risk comprises both political and financial risks that can arise due to host country's vulnerable political and financial situation. Political risks are the result of the host country's political instability or its fairly trifling institutional quality. Some examples of political risks are host country's internalor external conflicts; its potential corrupted system; its governmental instability; its democratic accountability; its ethnic and religious tensions. Financial risks refer to the host country's capacity to repay its foreign liabilities. The assessment of these risks can be based on the host country's external debt as a percentage of its GDP, its external debt service as a percentage of exports of goods and services, its revenues and expenditures expressed as a percentage of its GDP, its inflation rate etc. Sometimes, foreign investors seek to avoid such financial risks by funding their project with state independent loans such as loans from the World Bank or the European Investment Bank reducing in that
way their exposure to exchange rates fluctuations.