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World Bank Attracting Private Capital for Sustainable Infrastructure Development Presentation to French Business Delegation March 2012. Outline. Private Participation in Infrastructure and Bank Strategy Private Participation in Infrastructure by French Companies

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  1. World BankAttracting Private Capital for Sustainable Infrastructure DevelopmentPresentation to French Business DelegationMarch 2012

  2. Outline Private Participation in Infrastructure and Bank Strategy Private Participation in Infrastructure by French Companies Public-Private Infrastructure Advisory Facility (PPIAF) World Bank Guarantees

  3. Private Participation in Infrastructure and Bank Strategy

  4. Private participation is a key source of funding but is cyclical and uneven across sectors and countries 2 1 PPPs mobilized $170 bn of investment (in 2010) compared to about $95 bn in resources from MDBs andODA(in 2009) Addressing challenges to unlocking enormous potential requires mobilizing innovative instruments and increasing our engagement through different approaches 3 Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org)

  5. 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 Source: Emerging Markets Bank Lending Conditions Survey Q4 2011, Institute of International Finance (IIF), January 2012

  6. The WBG is responding by scaling-up support to the mobilization of private capital

  7. 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

  8. Private Participation in Infrastructure by French Companies

  9. 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)

  10. 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)

  11. Public-Private Infrastructure Advisory Facility (PPIAF)

  12. What is PPIAF? • 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

  13. PPP development process: inception to implementation PPIAF PPIAF PPIAF PPIAF Develop Bidding Documents PPP Procurement PPP Closing/ Signing – Negotiation of contracts Infrastructure Development Strategy Legal/Inst’l Reforms Local PPP Capacity Building Development of a PPP PPIAF Private Operator Selected Inception of PPP Concept PPIAF Building Consensus Assess PPP Options Define Transaction Structure Market to Investors Local PPP Capacity Building PPIAF Partial Risk Guarantee Support for Transactions

  14. Examples of PPIAF assistance in Burkina Faso 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 14

  15. Examples of PPIAF assistance in Egypt 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 2010 • Central PPP Unit was reorganized • PPP Law enacted: Law No. 67 of May 2010 15

  16. World Bank Guarantees

  17. Value Added of World Bank Guarantees for Private Participation in Infrastructure • 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

  18. World Bank Guarantees Types: 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 Loans

  19. Partial Risk Guarantees Typical PRG Structure • 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. • 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

  20. IDA PRG (Standard Coverage and PCG-like component) + IFC A Loan Kribi Power Development Company (Borrower) Government Commitment Agreement Government of Cameroon Cameroon – Kribi Gas Power Project Local Loan Purchase Agreement Local Lenders have right to require GOC to purchase loan at year 7 if Local Loan cannot be extended DFI FCFA (Local Currency) Loan Euro Loans Local Loan Agreement Indemnity Agreement Project Agreement -Reps, warranties and Covenants -Good-faith obligation to extend or refinance Local Loan by year 7 Guaranteed FCFA (Local Currency) Loans 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 Other DFIs Local Lenders (Beneficiaries) Central African Development Bank IDA

  21. IDA PRG (Standby L/C Facility), MIGA PRI (Termination Coverage) and IFC Loans IDA Government of Kenya (Ministry of Finance) Indemnity Agreement Kenya – IPP Projects Off-taker (Kenya Power and Light) PRG Support Agreement L/C Reimbursement and Credit Agreement PRG Guarantee Agreement Power Purchase Agreement (PPA) Project Company (Borrower) Standby L/C L/C Bank (Beneficiary) MIGA Guarantee Agreement for PPA termination Loans Project Agreement Commercial Lenders Other Development Finance Institutions

  22. Uganda – Bujagali Hydro Power Project IDA PRG + IFC A&C Loans + MIGA PRI Political Risk Insurance IPS (K) controlled SPV SG Bujagali Holdings Ltd. Government of Uganda Indemnity Agreement Shareholders’ Financing Government of Uganda Project Agreement IDA Guarantee Agreement Implementation Agreement PRG Guarantee Agreement Bujagali Energy Ltd. (Borrower) Loans Power Purchase Agreement (PPA) Uganda Electricity Transmission Company (UETCL) Commercial Lenders Other DFIs EPC Contractor O&M contractor O&M Contract EPC Contract

  23. Partial Credit & Policy-Based Guarantees • 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 • 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.

  24. PCG to Improve Loan Conditions / First Co-guarantee Operation with a Bilateral Agency Botswana Power Corporation (Borrower) Government of Botswana Equity Investment Botswana – Moropule B Power Project Government Guarantee Guarantee of 100% of Borrower’s principal and interest payments to ICBC Export Loan Indemnity Agreement Project Agreement -Reps and warranties -Covenants IBRD Industrial and Commercial Bank of China (ICBC) (Beneficiary) IBRD Guarantee -Guarantee of 100% of the Borrower’s principal payments for the last 5years of the 20-year financing, plus one interest payment 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

  25. Guarantee Pricing

  26. 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

  27. 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: pgupta2@worldbank.orgwww.worldbank.org/guarantees

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