MIGA:Supporting Iceland’s

Investorsin Emerging Markets

June 2006

WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY

The World Bank GroupThe World Bank Group

1944 IBRD International Bank forReconstruction and Development

1960 IDA International Development Agency

1956 IFC International Finance Corporation

1966 ICSID International Centre for the Settlement of Investment Disputes

1988 MIGA Multilateral Investment Guarantee Agency

created

Promote FDI with the use of guarantees and TA

What is MIGA?What is MIGA?

Member of World Bank Group

167 members

Capital: $2 billion

Capacity: up to $9 billion

Gross/Net Exposure: $5.1 b/$3.3 b

FDI Facilitated: Over $50 b

Coverage in more than 85 countries

Private and public partners

MIGA’s ServicesMIGA’s Services

Political risk guarantees for investors/lenders

TA for developing country IPAs

Online investment promotion:– Ipanet, PrivatizationLink and FDIXchange

Investment dispute mediation services

We promote FDI into developing countries through:

The Investment Promotion Network: www.ipanet.net

PrivatizationLink: www.privatizationlink.com

FDI Xchange: www.fdixchange.com

On-Line Services for Investors, LendersOn-Line Services for Investors, Lenders

MIGA Guarantees: Insurance…….but also risk management

MIGA Guarantees: Insurance…….but also risk management

CREDIT ENHANCEMENT improves the overall risk-return profile of the project may reduce provisioning requirements for lenders may lower cost of financing, lengthen tenors can protect corporate balance sheet

CONFIDENCE deterrent against host government interference gives investors confidence investing in frontier markets mediation of investment disputes

STABILITY provides stable environment for business operations

+ WORLD BANK GROUP “STAMP OF APPROVAL”

greater interestfrom debt and

equity investors

project risk / return profile

improves for allinvestors

investors gain

confidence

more dealsare closed

political risk insurance for projects

deterrence ofadverse host

government actions

reduction of bothcapital costs and

financing cost

BetterProspect of

compensation

Risk Management

ConfidenceCredit

Enhancement

MIGA GuaranteesMIGA Guarantees

CommercialRisk

Investors/ financialinstitutions

MIGA

Coverages• Transfer restriction and

currency inconvertibility• Expropriation• War and civil disturbance• Breach of contract

Non-commercial

Risk

Cross border

Coverage: Transfer Restriction/ InconvertiblityCoverage: Transfer Restriction/ Inconvertiblity

inability to convert local currency into forex

inability to transfer forex out of host country

excessive delays in acquiring forex

currency depreciation not covered

Coverage: War/Civil Disturbance/Terrorism/Sabotage

Coverage: War/Civil Disturbance/Terrorism/Sabotage

damage/disappearance of tangible assets

longer-term business interruption

Coverage: ExpropriationCoverage: Expropriation

nationalization and confiscation

“creeping” expropriation

expropriation of funds

partial expropriation (case by case)

includes sub-sovereigns

Coverage: Breach of ContractCoverage: Breach of Contract

breach or repudiation of a contract or agreement with government entity

non-enforcement of an arbitration

includes sub-sovereigns

Types of investments covered

New investments (incl. modernization, restructuring, expansion, etc.)

3-15 (20) years Up to 90% of investment amount; up to 95% of loans No minimum amount; high ceilings

Equity and quasi-equity Shareholder loans and loan guaranties Non-Shareholder loans Capital Markets transactions Technical Assistance Management Contracts Leases Franchising and Licensing Agreements Performance Bonds O&M Agreements

Guarantee processGuarantee process

Preliminary application (online, no fee)– Must be done before investor commits to

project

– Completely confidential and non-binding

Definitive application MIGA due diligence Host country approval Board concurrence Guarantee signed by MIGA and investor

Claims Experience

Over 800 contracts ($14 billion) issued

Three claims filed and paid2000: Indonesia power plant -- $15 m – expropriation2004: Nepal hydroelectric station -- $145,000 – civil war damage2005: Argentina – expropriation (ca. $1.5 million)

Extensive experience successfully mediating disputesMost in power, mining sectors

Transfer restriction – multilateral exception for MIGA-covered investments:

1998 – Russia2001 – Argentina2004 -- Venezuela

Foreign Investor

Project Enterprise

Equity

Bank

Loan

Typical Project StructureTypical Project Structure

Shareholder Loan

LoanGuarantee

Iceland

Peru

Guarantees PortfolioGuarantees Portfolio

$5.1 BInfrastructure

Financial

Oil, Gas and Mining

Agribusiness and Manufacturing

Tourism and Services

Europe and Central Asia

Latin America/Caribbean

Africa

Asia and the Pacific

Middle East and North Africa

45

25

16

13

3

* Figures exceed 100% due to master contract with one client

39

39

9

8

5

Gross Exposure, by sector and region*, in percent (as of 06/30/05)

The ProposalThe Proposal

Significant hydropower potential but very limited internal electricity demand

Major electricity market but limited internal energy resources

US$1.25 B trans-basin power plant in Lao PDR with transmission facilities to the Thai border

Laos

Thailand

Project

Tailand

Project

Case Study 1: Hydro Power – Laos

Overcoming Obstacles Overcoming Obstacles

Lao Government budget limitations

Limited environmental and technical capabilities of Laos

USD1.5 B cost

Commercial lenders would not assume political risks in Laos or Thailand

Public Private Partnership

WB advisory and technical assistance + experienced international power developer: EDF

Project Finance scheme

Political Risk Guarantees

SOLUTIONISSUES

Case Study 1: Hydro Power – Laos

Project StructureProject Structure

Nam Theun 2 Power Company

World Bank

ADB

Thai Baht Banks

US $ Banks

Bilateral Agencies ECAs

EDF 1 EGGONTP 1

Shareholder Agreement & Equity

Loans

MIGA

Case Study 1: Hydro Power – Laos

Risk AllocationRisk Allocation Risks associated with relationship between Laos and Thailand

leveraged through contractual obligations of both governments

Additional leverage created through equity ownership by state-owned power companies of both countries

Social and environmental problems resolved through the World Bank involvement

Laos state-owned company contributes equity using IDA funds

Project developed with 80% debt-to-equity ratio. Debt arranged by 9 leading commercial banks along with guarantees from MIGA, PRG, ADB and ECAs

Funds provided by Thai banks

Case Study 1: Hydro Power – Laos

Main Risks to LendersMain Risks to Lenders Breach of Concession in Lao: Non-payment of termination payments triggered by

– Confiscation of assets– Declared wars– Embargoes– Expropriation

Breach of the Power Purchase Agreement in Thailand: – Defaults on payments for electricity by EGAT;– Non-payment of termination payments under the PPA

Transfer Restriction (as a default option for the Breach of Contract)

Expropriation through administrative, legislative and regulatory decisions for which

there were no termination payments in the contracts

War and Civil Disturbance unrelated to the actions of both governments

Case Study 1: Hydro Power – Laos

MIGA’s Value-AddedMIGA’s Value-Added

Assisted in: syndication of larger amount of funds by Fortis bank and extension of finance period

Provided customized solution to multi-country risks: MIGA covered not only political risks in Laos but risks in Thailand (breach of the purchase agreement between the project and Thai state-owned company, EGAT)

Collaborated with sister agencies MIGA worked side by side with ADB and PRG to provide equal playing field for other arrangers

Case Study 1: Hydro Power – Laos

Case Study 2: Geothermal Power – Kenya

$119 m in guarantees for OrPower 1 and 4Coverage against all 4 risksBoC coverage for Site AgreementInvestor: Ormat (Israel) Olkaria geothermal fields in Rift ValleyPhase 1: 12 MW; Phase 4: 48 MWAlternative to hydroSignificant local employment, sourcing of goods and servicesRevenues for government

Extensive mediation in past 2 years

Case Study 3: SME Telecoms/IP Investment – Sierra Leone

$2.8 m guarantee against 3 risks Conflict-affected country Limited, unreliable, expensive internet access Israeli investor ($3 m equity investment) Fixed line broadband wireless access and voice-over IP

network Covered under MIGA’s Small Investment Program:

coverage up to $5 m (no minimum)streamlined processspecial pricing3-risk “package” (no BoC coverage)

Elena PaleiPh: +1-202-Fax: +1-202-522-2630E: epalei@worldbank.org

Keith MartinPh: +1-202-473-2815Fax: +1-202-522-2630E: kmartin@worldbank.org

www.miga.org

thank you!