world bank attracting private capital for sustainable infrastructure development presentation to...
TRANSCRIPT
World BankAttracting Private Capital for Sustainable
Infrastructure Development
Presentation to French Business Delegation
March 2012
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Outline
• Private Participation in Infrastructure and Bank Strategy
• Private Participation in Infrastructure by French Companies
• Public-Private Infrastructure Advisory Facility (PPIAF)
• World Bank Guarantees
Private Participation in Infrastructure and Bank Strategy
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Private participation is a key source of funding but is cyclical and uneven across sectors and countries
PPPs mobilized $170 bn of investment (in 2010) compared to about $95 bn in resources from MDBs and ODA (in 2009)
Addressing challenges to unlocking enormous potential requires mobilizing innovative instruments and increasing our engagement through different approaches
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3
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Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org) 4
Banking sector conditions continue to deteriorate, restricting access to commercial finance
Euro crisis has weakened banking industry and reduced risk appetite of private financiers: Restrictive Credit Standards
European lenders are de-leveraging en masse
BASEL III regulations are increasing funding costs, particularly for long-term non-recourse debt, discouraging loans at project level
Lenders are operating under new model: “Originate and Distribute”, “Do not HOLD”
Risk Mitigation Instruments, such as WBG Guarantees are key for keeping the flow of private financing
5Source: Emerging Markets Bank Lending Conditions Survey Q4 2011, Institute
of International Finance (IIF), January 2012
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The WBG is responding by scaling-up support to the mobilization of private capital
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• Magnitude of the infrastructure investment gap• Limited donor resources increases the importance of leveraging the
balance sheet (G-20)
Broad agreement on the need to mobilize private sector capital:
• Double the amount of resources mobilized from other parties and the number of PPP projects and advisory services by FY 2015
Infrastructure Strategy Update calls for the WBG to
significantly increase its private capital mobilization
activities:
• Making PPP support a corporate priority• Taking an integrated approach to PPP Projects (World Bank, IFC, and
MIGA)• Modernizing the WBG instruments to support PPPs• Improving the reporting of private capital mobilization activities• Building key capacities in client countries
There are ongoing initiatives to scale WBG
support for PPPs by:
• Enabling a “Pipeline” and “Transaction” mindset for PPPs• Providing Project finance training for staff• Developing Operational Incentives to mobilize private capital• Simplifying procurement guidelines
And new proposals to create the required
incentives within the Bank:
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Transformation through InfrastructureWBG Infrastructure Strategy, FY12-15
Pillar 1 – Core Engagement
Mono-sector interventions to address access and growth
Driven by country demand and sector strategies
70/80% of WBG infrastructure business
Increased effectiveness in the areas of poverty, governance, gender and knowledge
Pillar 2 – Transformational Engagement
Reaching out beyond the line ministries and traditional partners
Repositioning the Group in global forums to lead the infrastructure debate
Facilitating knowledge transfer between clients instead of merely generating it
Delivering a new type of project – those that optimize spatial, green, inclusive and co-benefits
Pillar 3 – Mobilization of private capital to go beyond existing/own capital
Alignment with regional programs through six Regional Action Plans
Private Participation in Infrastructure by French Companies
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French private participation in infrastructure projects in low- and middle-income countries (1/2)
Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org)
02000400060008000
100001200014000160001800020000
0
5
10
15
20
25
Infrastructure projects with private participation from French firms in low- and middle-income countries
Montant des projets annulés Investissements en milliards de dollars Nombre total de projets
2010 US$ billion Number of projects
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French private participation in infrastructure projects in low- and middle-income countries (2/2)
Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org)
17%
10%
33%
27%
13%
Breakdown by region (1990-2010)
East Asia and Pacific Europe and Central AsiaLatin America and the Carribean Middle East and North AfricaSub-Saharan Africa
40%
1%28%
2%
9%
7%
13%
Breakdown by sector (1990-2010)
Energy Energy (cancelled) Telecom Telecom (cancelled) Transport
Water Water (cancelled)
Public-Private Infrastructure Advisory Facility (PPIAF)
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Multi-donor technical assistance grant facility
Established in 1999 as a joint initiative of Japan, UK, WB
Created to act as a catalyst to increase private sector investment in infrastructure in low- and middle-income countries
Provides technical assistance grants to governments in support of a sound enabling environment to foster PPPs
Infrastructure development strategies
Designing and implementing legal and institutional reforms
Building consensus
Developing local capacity
Supporting transactions
Post-transaction assistance
What is PPIAF?
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Development of a PPPInception of PPP Concept
Private OperatorSelected
Infrastructure Development
Strategy
Legal/Inst’l Reforms
Building Consensus
Local PPP Capacity Building
Support for Transactions
Assess PPP Options
Define Transaction
Structure
Market to Investors
Develop Bidding
Documents
PPP Procurement
PPP Closing/ Signing –
Negotiation of contracts
PPIAF
PPIAFPPIAF
PPIAF
Local PPP Capacity Building
Partial Risk Guarantee
PPIAF
PPIAF
PPIAF
PPP development process: inception to implementation
ENERGY SECTOR (2002–2005):
Analysis of institutional and regulatory reforms for the power sector, including creation of regulatory agency
Draft Decree for the regulatory agency
OUTCOMES November 20, 2007: Law n° 027-2007/AN for the Regulation of the Electricity Subsector provides for the creation and functions of the regulatory agency June 24, 2008: Decree no. 2008-369/PRES/PM/MCE/MCPEA related to the functions, organization, and functioning of the regulatory entity
April 16, 2010: Creation of Autorité de Régulation du Sous-Secteur de l’Electricité
Examples of PPIAF assistance in Burkina Faso
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WASTEWATER AND INSTITUTIONAL REFORM (2007–2010):
2007–2009 PPP options study and transaction support for the New Cairo Waste Water Treatment Plant (WWTP) and 6th of October WWTP
2008–2010 Diagnostic and Institutional Development Plan for Egypt’s Central PPP Unit and review of draft PPP Law
OUTCOMES A 20-year concession contract, worth $482m, was awarded in June 2009 for the New Cairo WWTP; project reached financial closure in February 2010Central PPP Unit was reorganized
PPP Law enacted: Law No. 67 of May 2010
Examples of PPIAF assistance in Egypt
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World Bank Guarantees
Value Added of World Bank Guarantees for Private Participation in Infrastructure
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Enable the flow of private investment for development
Bank involvement is generally in larger and riskier projects with demonstrated developmental impacts
Facilitates access to domestic and international markets by enhancing credit profile of public and private sector borrowers
Improve the viability of infrastructure projects by significantly extending debt tenors and lowering cost of borrowing
Ensure the application of prudent environmental and social safeguards
Global expertise in developing, preparing, and executing projects in complex and challenging environments
Bank: Country/sector relationships and leverage with client countries to ensure project/investment sustainability
MIGA: Ability to mobilize significant re-insurance capacity in the market
IFC: Structuring and financing capabilities
World Bank GuaranteesTypes:
Partial Risk Guarantees (PRGs): support private sector projects by covering debt service default caused by government non-performance of its contractual obligations to a specific investment project IBRD & IDA Countries
IBRD Enclave (for export oriented projects) in IDA Countries
Debt (Loans/Bonds/Notes) & Shareholder Loans
Policy-Based Guarantees (PBGs) and Partial Credit Guarantees (PCGs): support sovereign borrowing & public sector projects by covering a part of the debt service default/credit risk of public-sector borrowers IBRD Countries only
PBGs support budgetary financing (associated with policy reform operations), while PCGs support financing of goods and services in investment operations
Debt (Loans/Bonds/Notes) & Shareholder Loans18
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Partial Risk Guarantees
Kribi Power in Cameroon: PRG mobilized substantive local commercial financing – extended tenors, thus opening new sources of financing for infrastructure
Bujagali Hydropower in Uganda: PRG made the project “bankable” – reduced project risk, lower cost of capital; extended tenors
PRGs cover lenders against the risk of Government non-performance of its contractual obligations to a specific project, including the risk of non-payment by a Government/SOE, regulatory risk, expropriation risk, etc.
Typical PRG Structure
Cameroon – Kribi Gas Power Project
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IDA PRG (Standard Coverage and PCG-like component) + IFC A Loan
Government of Cameroon
IDA
Indemnity Agreement
Local Lenders
(Beneficiaries)
Kribi Power Development Company(Borrower)
PRG Guarantee Agreement-Guarantee of payment by Government of Local Loan’s share of specified Government obligations under the Government Commitment Agreement and Local Loan Purchase Agreement
Local Loan Purchase Agreement
Local Lenders have right to require GOC to purchase loan at year 7 if Local Loan cannot be extended
Government Commitment Agreement
Local Loan
Agreement
Project Agreement-Reps, warranties and Covenants-Good-faith obligation to extend or refinance Local Loan by year 7
Other DFIs
Euro Loans
GuaranteedFCFA (Local
Currency) Loans
Central African Development
Bank
DFI FCFA (Local
Currency)Loan
Kenya – IPP Projects
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Government of Kenya(Ministry of Finance)
Off-taker(Kenya Power and Light)
Project Company(Borrower)
L/C Bank(Beneficiary)
Indemnity Agreement
Project Agreement
Standby L/C
PRG Support Agreement
Power Purchase Agreement (PPA)
L/C Reimbursement
and Credit
Agreement
PRG Guarantee Agreement
Commercial Lenders
Other Development
Finance Institutions
Loans
MIGA Guarantee
Agreement for PPA
termination
IDA
IDA PRG (Standby L/C Facility), MIGA PRI (Termination Coverage) and IFC Loans
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Bujagali Energy Ltd.(Borrower)
O&M contractor
EPC Contractor
Uganda Electricity Transmission
Company(UETCL)
Government of Uganda
Government of Uganda
IPS (K) controlledSPV
SG BujagaliHoldings Ltd.
IDA
CommercialLenders
Other DFIs
Uganda – Bujagali Hydro Power Project
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EPC Contract
Political Risk
Insurance
IDA PRG + IFC A&C Loans + MIGA PRI
Indemnity Agreement
Shareholders’ Financing
O&M Contract
PRG Guarantee Agreement
Loans
Project Agreement
ImplementationAgreement
Power Purchase
Agreement(PPA)
Guarantee Agreement
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Partial Credit & Policy-Based Guarantees
Moropule B in Botswana: By covering part of the debt service default, PCG improved the terms of commercial debt – longer maturities and lower interest costs – resulting in lower tariffs for electricity consumers.
PCGs and PBGs guarantee a portion of debt service to lenders or bond holders, regardless of the cause of default
PCGs can be offered to Governments, their political subdivisions and state-owned enterprises
PBGs can be offered to Governments or their political subdivisions
Typical PCG Structure
Botswana – Moropule B Power Project
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PCG to Improve Loan Conditions / First Co-guarantee Operation with a Bilateral Agency
Government of Botswana
IBRD
Indemnity Agreement
Industrial and Commercial Bank of
China (ICBC)
(Beneficiary)
Botswana Power Corporation(Borrower)
IBRD Guarantee-Guarantee of 100% of the Borrower’s principal payments for the last 5years of the 20-year financing, plus one interest payment
Project Agreement-Reps and warranties-Covenants
Export Loan
China Export and Credit Insurance
Corporation(Sinosure)
Sinosure Guarantee-Guarantee of 95% of the Borrower’s principal and interest payments for the first 15 years of the 20-year financing
EquityInvestment
Government GuaranteeGuarantee of 100% of Borrower’s principal and interest payments to ICBC
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Guarantee Pricing
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Modernization of the Bank Guarantees Proposed reforms to enhance the use of Bank Guarantees
Streamlining and consolidating policy requirements, removing unnecessary and outdated restrictions
Expanding the applicability of Bank guarantees
Reforms will help the Bank to better respond to client needs and reflect G20 discussions on the possible greater use of WBG guarantees Extending PCGs/PBGs to IDA-only countries
Further aligning PRGs and PCGs with Investment Lending
Further aligning PBGs with Development Policy Lending
The Approach Paper, “Modernizing the World Bank’s Operational Policy on Guarantees” outlines the proposed reforms Global consultations are underway until April 30; final OPCS-led Policy Paper is expected
in June
For further information on World Bank Guarantees please contact:
Pankaj GuptaManager, Financial Solutions GroupSustainable Development Vice PresidencyThe World Bankoffice: +1 202 473 6188mobile: +1 240 535 6969e-fax: +1 202 614 1188e-mail: [email protected]/guarantees