Researching Mid-Stream Actors
What are mid-stream actors?
Developing a large project requires many stakeholders. This online resource focuses mostly on the companies that own the project, along with their shareholders, lenders and buyers. But other actors are often involved in developing a project, such as insurers, advisors and contractors. These are known as mid-stream actors because they are directly involved in the project — and may even be visible to communities on the ground. However, only some of them are likely to be strong pressure points for advocacy.
What makes a mid-stream actor a pressure point?
Mid-stream actors vary in how much leverage they have over how a project is developed and how much incentive they have to raise concerns about human rights and the environment.
Mid-stream actors should be assessed as pressure points for advocacy using our step-by-step guide.
When doing that pressure point analysis, there are a couple of additional factors — specific to mid-stream actors — that are worth keeping in mind:
- What is their relationship with the project? Many mid-stream actors are hired to perform a very specific task for a fee. For instance, an equipment supplier may provide components for a power plant. Once this supplier is paid, its involvement (and leverage) ends. Eeven if this supplier were to insist that the project respect human rights and the environment, the developer could hire a different supplier that raises fewer objections.
- When do mid-stream actors have the most leverage? Some may have significant leverage, but only for a limited time. For instance, a financial advisor may be hired to find lead arrangers to join a project loan. Without that loan, the project can’t be developed, making the financial advisor extremely important. But once the advisor has found banks to sign the loan agreement, its leverage ends.
What are the most important mid-stream actors?
Below are four types of mid-stream actors that may be pressure points worth engaging.
Insurers: Cover a project’s financial risks
- What do insurers provide? Developing large, complex projects involves significant financial risk. Many things can go wrong: The project could go over budget, construction could be delayed, or a host government could decide to cancel it. Events like these cost developers — and their investors and financiers — large sums of money. To lessen the risk of financial loss, projects require insurance coverage. Insurance firms provide coverage through contracts known as policies, which set out the conditions of the insurance being provided. A large project may have many insurance policies. Some of the key ones to look out for are construction insurance, political risk insurance, liability insurance and project finance insurance.
- Why are they important? Securing insurance is a crucial step in the development process. Without insurance, a project is not considered “bankable,” meaning lenders won’t finance it — and it can’t be built. This is especially important if your advocacy goal is to stop a project from being developed. Insurance can also be important if an existing project has caused harm. In the case of a disaster that has harmed local communities, such as the collapse of a hydropower dam, liability insurance may provide compensation to people who have experienced losses.
- How do you find insurers? The insurance market is not transparent. In most countries, insurance coverage is considered a commercial secret. Making things even more difficult, large insurance policies are often re-insured — meaning insurers may find other insurers to cover their own risk — on exchanges such as Lloyd’s of London. This creates multiple layers of coverage that can be difficult to decipher. Your best bet is to pay close attention to the mention of insurance during your research into the other parts of the project’s investment chain. In addition, since government-controlled export credit agencies provide insurance for large projects, you can file freedom of information requests to the appropriate agency to determine if they are involved. Google searches for “insurance” and the project or developer name may also yield results.
Financial Advisors: Identify banks for the project loan
- What do financial advisors provide? Developers hire a financial advisor to counsel them on business decisions from the beginning stages to construction of the project. The financial advisor does many things throughout this process, from securing permits, to deciding on the debt-equity split, to identifying specialized legal and insurance advisors. Typically, they are commercial banks or specialized financial advisory firms.
- Why are they important? Arguably the most important task a financial advisor performs is to find the banks that will be the lead arrangers of the project loan. This is key because, without project finance, a large project cannot be funded and developed. The financial advisor may also conduct due diligence — including on human rights and environmental impacts — on behalf of prospective lead arrangers. This makes the financial advisor an important gatekeeper for project finance. After the loan is signed, though, its importance is diminished.
- How do you find financial advisors? Project developers often publicly announce when they have secured the services of a financial advisor. They might announce this in a press release, on an earnings call, or in a filing with a stock exchange. It can be helpful to search through these documents on a company’s website for mentions of a financial advisor. The financial advisor may announce this on its website. In addition, Google searches for “financial advisor” and the project or developer name can yield results.
Engineering, Procurement and Construction (EPC) Contractors: Design and build the project
- What do EPC contractors provide? Typically, developers hire a single contractor that is responsible for the design and construction of a project. The EPC contractor may then sub-contract parts of the design and construction work to other firms. Ultimately, though, the EPC contractor is responsible for executing the project on time and within budget. Note that in some cases, a developer — especially if it is part of a joint venture that owns the project — may also be the EPC contractor. This is becoming increasingly true for Chinese firms.
- Why are they important? Developers hire an EPC contractor because they do not have the expertise, equipment and experience to build the project themselves. Advocacy calling for EPC contractors to end their involvement in the project before it begins may cause reputational damage to the developers. This may also make it difficult for the developers to find a new EPC contractor.
- How do you find EPC contractors? Project developers may disclose the identity of the EPC contractor in annual reports or other company filings. It can be helpful to search through these documents on a company’s website for mentions of the EPC contractor. In addition, Google searches for “EPC contractor” or “engineering, procurement and construction” and the project or developer name can yield results.
Environmental and Social Impact Assessment (ESIA) Firms: Predict a project’s impacts on local communities before construction begins
- What do ESIA firms provide? The developers may hire one or more firms to predict the environmental and social impacts a project will have on local communities. The ESIA contractor will often spend time on the ground to gather this information, potentially meeting with local communities.
- Why are ESIA firms important? Lenders or other financial backers of the project may review these assessments as part of their due diligence processes. For their part, developers may claim that they will use these assessments to mitigate impacts on local communities. But in reality, developers often use these assessments as “evidence” to push back against concerns raised by local communities. Advocating for ESIA firms to consider legitimate community concerns in their assessments — or to stop working on a project altogether — can help ensure such deception does not happen.
- How do you find them? As with financial advisors, developers often announce when they have hired a firm to conduct an ESIA. It can be helpful to review a company’s website for such announcements. In some cases, the full text of the assessment may be publicly available. Google searches for “impact assessment” and the project or developer name can yield results. These assessments may also be disclosed on stock exchanges or on the website of development finance institutions, which often fund such assessments. It is worth searching for the project name in the Development Bank Investment Tracker.