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MIGA, World Bank Group:Mitigating Political Risks
Elena Palei, MIGA, World Bank Group
Day 3Session 13.4
PPPsPPPs in Infrastructure in Infrastructure
2
Day4
Day 4Implementation & Way Forward
Advisory
Financing
Session 16
IFC view of PPPs
Energy
Water
Session 16
Sector Issues
Session 17
Overview byParticipants
Session 18
Way Forward(World Bank)
Ports
MIGA in Infrastructure
Session 17Transport Sector
Session 17.2
MIGA: Mitigating Risks
Ports and Power
4MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
1988 MIGA Multilateral Investment Guarantee Agency
MIGA …. A member of the World Bank Group
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
5MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA promotes foreign direct investment by providing: Noncommercial risk insurance (guarantees) for investors and lenders Online information on investment opportunities and operating
conditions in developing countries (fdi.net, pri-center.com)
What we do
6MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Our development priorities
Focusing on sustainable development Opening up difficult or frontier markets, especially in conflict-affected
countries Supporting investments in world’s poorest countries Supporting infrastructure projects (including sub-sovereign risk) Promoting cross-border investments between developing countries
8MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA’s political risk insurance coverage
Currency transfer restriction and inconvertibility cover protects againstlosses arising from:– inability to convert local currency into forex for transfer outside the host
country– inability to transfer/excessive delays in acquiring forex (currency
depreciation not covered) War and civil disturbance cover protects against losses arising from:
– damage/disappearance of tangible assets due to war or civil disturbance(including revolution, insurrection, coups d'état, sabotage, and terrorism)
– prolonged business interruption Expropriation cover protects against losses arising from:
– nationalization and confiscation– creeping expropriation, partial expropriation (limited coverage)– non-discriminatory measures may not be covered
Breach of contract cover protects against government (including sub-sovereign) actions resulting in:– breach or repudiation of an agreement with the investor and non-
enforcement of an arbitration award
9MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Issues for PRI coverage
Regulatory/policy risk– Regulatory frameworks are in many cases not implemented or untested– Independence of regulator– Role of creeping expropriation relating to regulatory pronouncements
Breach of contract– Offtaker’s status as sovereign, regulator or privatized company
Sub-sovereign risk– Growing trend to decentralize government control of services such as water
delivery from national to local authorities– Linkage between state, local or municipal authorities to central government
10MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Eligibility requirements
Eligible Investments– Minimum 3 years, up to 15 years (on occasion 20 years)– Cross-border from one member country (developed or developing) into
another developing member country– New, or, if an existing investment, must be associated with an
expansion, modernization or a financial restructuring Investment types
– Equity– Shareholder loans– Loan guaranties– Non-shareholder loans (i.e. loans from financial institutions)– Non-equity direct investment
Amounts and Coverage– MIGA typically can arrange cover for all amounts, either on its own
books or through co/reinsurance– No minimum amount for guarantee or size of investment– Equity covered up to 90% & debt up to 99%
11MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Why investors choose MIGA
Umbrella of deterrence– MIGA is a member of the World Bank Group– MIGA’s shareholders are the countries who are also Host Countries of
investments– Only a small proportion of MIGA-supported projects encounter difficulties
Facilitation of settlement of disputes– Host Country tends to be motivated to find a solution, otherwise its
reputation in the international investment community might be damaged– Project sponsors and financiers have a vested interest in continuing
success of project– 3 claims paid out of 556 projects supported (Indonesia, Argentina, Nepal)
Extensive resources and in-depth knowledge of emerging economies from allparts of the World Bank Group
Environmental and social expertise, particularly for extractive industries where acompany’s reputation is at stake
May facilitate financing– Lower costs of borrowing– Longer tenor of loans
12MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Terms of the SIP guarantee
Terms of up to 10 years (3 years minimum), with possibility ofextension at end of term of up to 5 years
Maximum amount guaranteed is US$5 million – SIP covers up to 90%equity and 95% debt
Guarantee Coverage: Currency Inconvertibility and TransferRestriction, Expropriation, War and Civil Disturbance– Breach of Contract is not covered
14MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA’s Current Gross Exposure
Gross Exposure, by Region%, at June 30, 2007
Gross Exposure, by Sector%, at June 30, 2007
Africa 18%Asia 14%ECA 36%LAC 27%MENA 5%
AMS 17%Financial 29%Infrastructure 41%Oil, Gas & Mining 13%
5.08
5.19
5.09
5.36
FY03 FY04 FY05 FY06
MIGA’s gross portfolioFY03-06, US$ B
5.30
FY07
15MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
FY07 activities
100
200
300
400
500
600
Africa Asia ECA LAC
100
200
300
400
500
600
AMS Financial Infrastructure OGM
$1.4bn of guarantees issued in FY07 Key transactions included:
– $75m issued to MTN for a projectin Afghanistan
– $10.2m issued for a securitizationof mortgages in Kazakhstan
– $39.6m issued for the Umemeelectricity project in Uganda(modification)
– $115m for the Bujagali powerproject in Uganda
– $300m for a pulp mill in Uruguay– $50m Sasol refinancing– 12 deals under $10m, of which 5
SIP deals
Guarantees issued, by Region$bn, at June 30, 2007
Guarantees issued, by Sector$bn, at June 30, 2007
23%
9%
31%37%
26%
35% 36%
4%
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Infrastructure Portfolio
Around $4.8bn of guaranteesissued, since inception
Current Gross Exposure, Infrastructure%, at June 30, 2007
Africa 18%Asia 30%ECA 17%LAC 32%MENA 4%
Guarantees Issued in Infrastructure, by RegionFY00-07, US$m
Top 10 Host Countries, InfrastructureGuarantees Issued from FY00-07, US$m
0
200400
600
800
1,0001,200
1,400
1,6001,800
2,000
Africa Asia ECA LAC MENA
0
100
200
300
400
500
600700
800
900
Brazil
Bulgari
a
Ecuad
or
Dom. R
ep.
Nigeria
Nicarag
ua
Ugand
a
China
Vietna
mTurk
ey
41% of MIGA’s current total grossoutstanding portfolio is in the infrastructuresector – representing over $2.2bn. inguarantees
17MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Selected Infrastructure Projects
2007
2006,2004
2007
2007
2006
2004
2005
Year
Uganda$115World Power HoldingsLuxembourg S.à.r.l.
Bujagali Energy Ltd.
Vietnam$58.2Crédit Lyonnais, S.A.Phu My 3 BOT PowerCompany
$7.6
$110
$25
€99
$91
Amount(million)
Darco Environmental Pte. Ltd.
Compagnie Générale des Eaux
Goden State Waste ManagementCorporation
Calyon
EDF International, Fortis BankNV, Fortis Banque SA
Guarantee Holder(s)
China2nd Darco Water Project
ChinaShenzhen Water (Group)Company Ltd. andShanghai Pudong – VeoliaWater Corporation, Ltd.
ChinaBeijing Gaoantun Waste toEnergy Co. Ltd
BulgariaAES-3C Maritza East 1EOOD
Lao PDR,Thailand
Nam Theun II
Host CountryProject
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The Proposal
Growing containerdemand in the region.Unique geographiclocation.
The existing containerterminal is operating atfull capacity
USD400 million new 1.5teus container port
Project
Djibouti
Djibouty
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Doraleh Container Terminal Project in Djibouti –addressing the complex needs of a unique IslamicProject Financing Structure…
Development, construction andoperation of 2000 meter quay-length Container Terminalw/annual handling capacity of1.5 million twenty footcontainer equivalent units(TEUs).
Highly strategic location on thevital east-west shipping lanes
Huge potential astransshipment hub forCOMESA region
De-facto Port for Ethiopia,handling some 85% of all in /outbound trade traffic.
DoralehDoraleh
DubaiDubai
21MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Overcoming Obstacles
Government does not haveexperience or resources
DPW does not want to sinksignificant capital
Commercial risks are to high
Sovereign crediworthiness isweak
Political instability in theregion
Attraction strong and experienceoperator, DPW
Islamic Project Finance from DIB,SCB and West LB
Government takes additionalresponsibilities for some risks
Political risk insurance from MIGA
Political risk insurance from MIGA
SOLUTIONISSUES
22MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Doraleh ContainerTerminal S.A.
PAID(State-ownedport company)
Governmentof Djibouti
CommercialBanks
DP WorldDjibouti FZCO
Djibouti
Concession
Equity(33% ownership)
• Financing
• Swaps
• Premium$422 M
WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
“Musharaka” guarantee
Equityguarantee
DCT Musharaka Joint Venture
Doraleh Container Terminal Project
67% ownership
Contribution
Contribution
ForwardLease
Agreement
DirectAgreement
Project Structure
23MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA Value Added
Transfer Restrictions and Inconvertibility risks due to localcurrency revenues
War and Civil Disturbance Damage risk and its impacts on trade Terrorism risk Risks of Non-payment of termination payment or other liabilities
by the Government (small economy) Change in Law, regualtory risks
Mitigating the following risks
Large amount of financing would not be availablewithout PRI on such favorable terms and conditions
24MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Case Study: Maritza 1 Lignite Power Plant-Bulgaria
25MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
The Proposal
Growing demand forelectricity. Highdependency on costlyimported fuels
Coal-based and nuclearcapacity is outdated andhas to be de-commissioned with theaccessions into EU
US$1 B lignite powerplant to replace old de-commissioned plant
Project
Bulgaria
Bulgaria
26MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Overcoming Obstacles
Future deregulation of BulgarianElectricity market
Uncertainty related to PPAcounterparty risk
Lignite is perceived to be “dirtyfuel”
High technology standardsinflate capital costs.AES has to control its balancesheet exposure
Commercial lenders would notassume political risks
Long-Term PPA
A Letter of Support from the GoB
Technology based on higheststandards for lignite
Project Finance structure withhigh debt/equity ratio
Political risk insurance fromMIGA, Coface and Hermes
SOLUTIONISSUES
27MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Project Structure
SPV in Bulgaria
ADBEBRD
AES
Loans
MIGA
Banks
ECAs
Equity
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Main Risks to Lenders
Sector restructuring could strand PPA if:– wholesale prices fall below those in the PPA contract– the off-taker’s level of dispatch is lower than anticipated
If contact is stranded, then potential for:– cancellation of PPA by GoB after deregulation of market– GoB to force alteration of PPA’s economic formula
Planned restructuring of state-owned NEK could:– affect ability of NEK to meet its payment obligations under PPA
War and Civil Disturbance related to the situation in the Balkans.
29MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA’s Value-Added
Assisted in syndication
Provided customized solution to PPA risks
Very long tenors would not be available without MIGA PRI
30MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
For more informationon MIGA, please contact:
Elena [email protected]
www.miga.org
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Contacts
For comments or further details contact:
Penny Williams [email protected] Palei [email protected] Mandri Perrott [email protected] Escobedo [email protected] Stiggers [email protected] Palei [email protected]