MIGA: Who We Are and What We Do MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP

MIGA: Who We Are and What We Do

MULTILATERAL INVESTMENT GUARANTEE AGENCYWORLD BANK GROUP

I N S U R I N G I N V E S T M E N T S E N S U R I N G O P P O R T U N I T I E S

MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 3

1988 MIGA Multilateral Investment Guarantee Agency

Promote FDI with the use of guarantees and technical assistance

1944 IBRD International Bank forReconstruction and Development

1960 IDA International Development Agency

1956 IFC International Finance Corporation

1966 ICSID International Center for the Settlement of Investment Disputes

The World Bank Group


Guarantees partial risk partial creditIBRD LoanIDA credits and grantsTech. Assistance

Political Risk Insurance expropriation transfer restriction breach of contract war & civil

disturbances NHSFO

IFC A-LoanIFC B-LoanIFC C-LoanIFC Guarantees (partial credit structures usually for local financing)Interest Rate and Currency Swaps

World Bank Group Instruments


About MIGA

MIGA was created in 1988 as a member

of the World Bank Group to promote private foreign

direct investment into developing countries

to support economic growth, reduce poverty, and

improve people’s lives


What We Do

Noncommercial risk insurance (guarantees) for investors and lenders

Investment dispute mediation

Technical assistance to help countries attract and retain FDI

Online information on investment opportunities and operating conditions in developing countries (pri-center.com)


Our Strategic Priorities

Focusing on sustainable development

Opening up difficult or frontier markets, especially in conflict-affected countries

Supporting investments in Africa and the world’s poorest countries

Supporting complex projects

Promoting cross-border investments between developing countries


Types of Investments Covered

Equity Shareholder loans Loan guarantees Loans from financial institutions Non-shareholder loans Non-equity direct investment

…other forms of investment such as technical assistance and management contracts, asset securitizations, capital market bond issues, leasing, services, franchising and licensing agreements, may also be eligible for coverage.


Eligibility Requirements

Eligible investments

Cross-border from one member country (developed or developing) into another developing member country

Primarily “greenfield” investments

If an existing investment, must have high developmental impact


Terms of Coverage

Amount of coverage MIGA can typically arrange cover for all amounts, either on its own books or

through co/reinsurance No minimum amount for guarantee or size of investment Amounts can include interest principal for debt and future retained earnings for

equity Equity covered up to 90% and debt up to 99%

Tenor Minimum 1 year, up to 20 years; investor decides on the duration of a guarantee Investor can cancel the contract after the 3rd anniversary

Pricing Premium rates are decided on a per project basis and vary by country, sector,

transaction and the type of risk insured Premiums are paid annually or semi-annually and are calculated as a percentage

rate applied to the amount of coverage


Overview: MIGA’s Coverages

Inconvertibility and Transfer Restriction

Expropriation

War and Civil Disturbance

Breach of Contract

Non-Honoring of Sovereign Financial Obligations


Political Risks Covered by MIGA (I) Inconvertibility and Transfer Restriction

Protects against losses arising from inability to convert local currency into foreign exchange within the host country transfer funds out of the host country

In case of convertibility restrictions, MIGA’s compensation is based on official rate of exchange at the Date of Loss

Currency depreciation and devaluation not covered

Conversion and transfer have to be lawful in the Host Country at the time when MIGA’s coverage is issued


Political Risks Covered by MIGA (II) Expropriation

Protects against losses arising from: Nationalization and confiscation Creeping expropriation (a series of acts that are expropriatory taken in sum, e.g.

gradual changes in tax regime) Expropriation of funds (e.g., “account freeze”)

Expropriation also if the Project Enterprise is deprived of a substantial benefit constituting a fundamental right (e.g., under a Project Agreement) essential to its overall financial viability (normally this implies insolvency or

impending insolvency of the Project Enterprise)

Non-discriminatory regulatory measures not covered, unless such measures have a confiscatory effect


Political Risks Covered by MIGA (III)War and Civil Disturbance

Three forms of coverage Loss of Assets Temporary Loss of Income (for equity) Permanent Loss of Use

Loss has to be a direct and immediate result of acts of war, revolution, rebellion, insurrection, coup d’état, civil war, civil commotion, riots

Act of sabotage or terrorism can also be covered

Acts must pursue a broad political or ideological objective


War and Civil Disturbance (cont.) Temporary Loss of Income (Equity Investments)

Short-term business interruption coverage not offered on a stand-alone basis, but added to the WCD coverage upon request

Compensation based on lost business income, unavoidable continuing expenses and extraordinary expenses to resume operations


Political Risks Covered by MIGA (IV)Breach of Contract

Protects against loss arising from breach or repudiation of a project agreement (e.g., in infrastructure and power projects)

Project agreement must be entered between the Host Government on the one hand and Guarantee Holder and/or Project Enterprise (for Equity investments only) on the other hand

MIGA covers “denial of justice” risks: Failure to pay on a valid arbitral award or judgment by a state court rendered

against host government or No recourse to judicial or arbitral forum by the investor or Project Enterprise

May cover obligations of sub-sovereigns and SOEs, subject to certain restrictions


Breach of Contract (cont.)Coverage of SOEs

New guidelines permit coverage of contracts with an SOE where: It is controlled by the Host Government or its political subdivision It performs a public service or fulfills a governmental function (like a utility) and Either:

• The Host Government, as a matter of law, is responsible for its financial liabilities or

• It is creditworthy on a stand-alone basis

In some cases where the contract is with an SOE that does not meet these criteria (e.g. Dakar Ports), MIGA has the option of covering a Host Government guarantee in BoC


Political Risks Covered by MIGA (V) Non-Honoring of Sovereign Financial Obligations

For unconditional financial payment obligations or guarantees of the Host Government

Examples: Host Government unconditionally guarantees repayment of loan by Project

Enterprise Host Government assumes unconditional obligation to inject equity or other

funding on demand or at date certain Not Eligible: Host Government issues performance guarantee relating to power

purchase agreement (guarantee not unconditional)

No arbitral award is required


Non-Honoring of Sovereign Financial Obligations Eligibility Requirements

Sovereign Financial Obligation must be associated with: an eligible investment project with measurable developmental impacts

Whose obligations are eligible? Central governments (e.g., guarantee issued by MoF) Sub-sovereign obligations (i.e., provincial or municipal governments) eligible on

a case-by-case basis Guarantees issued by an SOE not eligible


Investor Marketing and origination Preliminary Application

MIGA (1–3 months)

Definitive Application Early Screening Project Review Meeting

(“ESM”)-chaired by the Director of Operations Group Underwriting and host country approval

Developmental impact Environmental, Social review Pricing and reinsurance Economic financial viability, country risk World Bank Group policy

Project Review Committee (“PRC”)-Track “A” projects (complex/high risk)

Final Approval Meeting (“FAM”)-Track “B” projects (simpler/low risk)

Investor and MIGA

Sign contract of guarantee Monitoring, evaluation, contract maintenance 3

2

MIGA’s Underwriting Process

1 •Available online•Free, confidential•2 pages•Determines eligibility

• More detailed analysis of a project

• Fees due ($5k up, depending on the type of project)

• Starts underwriting process


MIGA’s Claims Track Record

Over 600 projects with MIGA support, more than 90 cases treated as possible claims, but in which no claim has been paid.

MIGA has successfully facilitated the settlement of disputes in all currency transfer/inconvertibility issues and since inception has paid claims in 6 cases:

Afghanistan ($575 for war and civil disturbance in FY11) – (paid by MIGA Administered Trust Fund)

Indonesia ($15 million for expropriation in FY00)

Nepal ($144,600 for war and civil disturbance in FY05)

Argentina ($558,311 for expropriation in FY05)

Kenya ($491,100 for war and civil disturbance in FY09)

Madagascar ($12,824 for war and civil disturbance in FY09)

All other cases have been resolved (before or after the claim was filed) or the claim was withdrawn

Deterrence effect ensures that only a small number of projects that MIGA supports encounter problems


Why Investors Choose MIGA

Expertise in complex projects and in challenging environments Credit enhancement Longer tenors (up to 15-20 years) World Bank Group “umbrella” of deterrence Track record in dispute resolutions Mobilization of reinsurance capacity Best practices in environmental and social management Prompt claims payment Access to World Bank Group expertise and resources


ANNEX: Key Statistics about MIGA


MIGA’s 2011 HighlightsGross exposure 1990 -2011 ($ billion)

Key Figures• Issued 1,030 guarantees for 651

projects for a total of $24.5 billion during 1990-2011

• Gross exposure: $9.1 billion in FY11• Issued $2.1 billion in FY11 in support

of 38 projects• $415.3 million for investments in IDA-

eligible countries (of which $228 million was in sub-Saharan Africa)

• Four new host countries: Iraq, Kosovo, Liberia, Republic of Congo

5.25.3

6.5

5.15.4

7.7

9.1

11100908070605040302

5.35.1 5.2

7.3


Gross Exposure in 2011

Guarantees Issued in FY11, by Region(by number of projects)

Guarantees Issued in FY11, by Sector(by $ volume)


Contact InformationWashington, D.C.: Izumi KobayashiExecutive Vice President [email protected] Michel WormserVice President and Chief Operating [email protected] Edith P. QuintrellDirector, [email protected]

Singapore:

Kevin W. LuRegional Director, Asia-Pacific

[email protected]

Ana-Mita BetancourtDirector and General Counsel, Legal Affairs and Claims [email protected]

Lakshmi Shyam-SunderDirector and Chief Financial Officer, Finance and Risk [email protected]

Paris:

Olivier Lambert

Manager, [email protected]

Ravi VishDirector and Chief Economist, Economics and Policy [email protected] Marcus S.D. WilliamsAdviser, Strategy and [email protected]


www.miga.org

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MIGA: Who We Are and What We Do MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP

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