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: [email protected]
Keith MartinPh: +1-202-473-2815Fax: +1-202-522-2630E: [email protected]
www.miga.org
thank you!