Intergen Case Analysis and Recommendations

InterGen

Analysis and Recommendations

Tonika Dorsey

OPM615-WB1 Fa18

Question 1: Why does InterGen appear to have only a handful of competitors and why is it so difficult to attract investment into infrastructure industries? This relates to what is known as the "holdup problem," which I explain below.

Time inconsistency challenges enabled payback terms to be restructured to favor the host government at the expense of the investing firm, this is a factor in why the firm has so few competitors in the energy production industry. Political conditions in the Philippine made it undesirable for investors at that time also contributing to the lack of competition.

Question 2: How does InterGen create and add value in the power generation industry? Analyze the logic of independent power projects (IPP) investments:

• Where does the value come from?

The energy crisis caused an increase in demand for electricity which lead to the approval of foreign investors and firms to participate in the exploration and development of electricity.

• What are the issues related to risk?

Based on the given financial analysis, the firm's management determined the Quezon project to be financially attractive with a good return. The project was financially backed and the firm stood to make a good return.

• Why is the Philippines unable to do the project on its own?

The unstable political environment, lack of sustainable reform and corruption prevented the Philippine government from completing the project on their own.

Question 3: Given what was known in late-1994, would you have recommended that InterGen invest in the Quezon project? What would have been your main concerns?

Based on the high demand and return on investment at that time, yes I would recommend it.

Question 4: Given the situation in late-1997, what should Greg Daul recommend to Carlos Riva at the upcoming board meeting?