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IFC Operations & Strategy in Iraq Ziad A. Badr Iraq Country Manager Iraq Finance 2012. Outline IFC At a Glance IFC Activities in Iraq Investments Advisory Services Challenges Facing PPPs in Iraq Role of IFC in supporting the development of PPPs. IFC’s Structure.
IFC At a Glance
IFC Activities in Iraq
Challenges Facing PPPs in Iraq
Role of IFC in supporting the development of PPPs
IFC presence reassures Foreign and local investors, and Governments. It is a Catalyst for other investors and lenders
IFC Activities in Iraq
Building long term relationships in Iraq is key.PROGRAM TO DATE
IFC’s committed portfolio in Iraq currently stands at US$300 million in 6 companies/projects:
Target investments in the range of US$ 800 m over the next 3 years
Four main business lines:
IFC’s Advisory Services Program in Iraq has been re-activated and funding has been secured from the multi-donor Iraq Business Advisory Fund (IBAF) – US$38 Million
Solutions: mostly to be addressed by the government
The process is just as important as the project
Technical Assistance :
support to develop appropriate regulatory/legal frameworks
training for a local work force to support private sector projects
Providing transaction advisory services to governments to implement specific PPP transactions, including full project preparation and management of the process
Direct Financing, Syndications, and political risk insurance
Queen Alia International Ai
Alexandria University Hospitals
year BOT concession for the Prince
year BOT concession contracts for
ammed Bin Abdulaziz
Alia International Airpor
two new hospitals in Alexandria
KAIA Desalination Project
Hajj Airport Terminal
w Cairo Waste Water
year BOT concession to design,
concession for the Hajj
concession to design,
, operate and maintain a
Terminal at King Abdulaziz
finance, build, operate
and maintain a
International Airport in Jeddah
2006IFC Advisory Mandates in MENA - Closed
IFC Web site: www.ifc.org
IFC is a leading provider of PPP Infrastructure Advisory services to Governments in structuring and implementing infrastructure PPPs
Advisory is a new role that the IFC has been developing recently. IFC has made a point of advising frontier markets in the Middle East on their Independent Power Projects (IPPs), including Syria and Yemen. IFC has even made a point of advising not so frontier countries in the region – Egypt on its new IPP program, for example. IFC Advisory Services have already implemented over 150 projects across 80 countries.
Challenge: Well Prepared Projects – Designing a balanced risk allocation
Projects in Iraq will carry higher risk than projects in other countries in the region due to concerns about legal and regulatory framework, security, etc.
As a result Iraq specific risk allocations need to be developed for all projects. Models used in other countries in the region are useful references, but will need to be adjusted to fit the specific circumstances on the ground in Iraq.
Well developed projects are critical. The government needs to work with advisors that can conduct the necessary technical, legal and financial due diligence to properly prepare a project. This will require additional time, but thorough due diligence is necessary to attract qualified companies who are willing to invest time and money throughout a bidding process.
The tender process itself will also likely take longer than in other countries in the region as there needs to be significant time to consult with qualified bidders so that the project risk allocation can be adjusted to reflect the risk appetite of the potential private sector partners.
Key point – the process is just as important as the project – a clear process that allows sufficient time to address all issue is critical. As with the legal/regulatory issues, once a few pilot projects have been implemented, risks will be better understood so it will be possible to shorten timelines.
Challenge: legal/regulatory framework:
legal/regulatory framework does not preclude PPPs in most sectors
BUT lack of a history with PPPs, particularly with respect to how Iraqi regulators will enforce contract provisions and address broader regulatory issues, creates uncertainty for investors
Solutions: several approaches, mostly to be addressed by the government
Develop and convey clear government objectives – If a PPP project clearly fits within stated objectives in terms of overall sector policy, this will provide some comfort. Interministerial cooperation is key to demonstrate commitment to a broader PPP agenda.
Utilize PPP contracts that include provisions for regulation (and examples of how these provisions would be enforced) – this way investors can rely on their contract with the government which will be less subject to interpretation and law changes than general law
Need to establish a track record of PPP contracts – ideally should start with one medium sized project per sector to demonstrate the commitment to a broader PPP program. The first project will carry a higher risk premium due to the uncertainty described above, but as the private sector sees Iraq managing contracts successfully, that risk premium will decrease for future projects.
few banks are willing to provide non-recourse financing to projects in Iraq. There are several reasons
local banks are largely unable to provide long-term financing necessary for infrastructure and have limited capacity to manage complex project financings
foreign commercial banks remain uncomfortable with Iraqi country risk
few well developed projects with balanced risk allocation (for example Iraqi port concession has no termination provisions of any kind)
few projects with sponsors who are acceptable to foreign lenders.
Well developed projects with appropriate risk allocation will attract well qualified sponsors, who in turn have good relationships with lenders.
IFIs will likely need to provide early project financing, which will mean initial projects need to be small enough that they can be financed within the constraints of the handful of IFIs willing to lend. Once you have a few successful smaller to medium size deals, commercial lenders will become more comfortable and more able to lend to larger projects.
Sovereign guarantees will be critical in supporting government payment obligations. There are limitations on Iraq’s ability to provide such guarantees, which could constrain PPP development. Working to resolve this issue is an important step to support multiple PPPs.
Overarching message: Pick a couple of pilot projects and take the time to do them right. Pilot projects should be clearly needed by the country, consistent with government objectives, have strong interministerial support and be less than $500 million in required investment.
The approach to PPPs has to be programmatic. To get the benefits a PPP program can deliver you have to spend a bit more time at the beginning, but this will pay off down the road as you gain investor confidence and understanding.
Providing support to develop appropriate regulatory/legal frameworks
Providing training to ensure there is a well-qualified local work force to support private sector projects
Providing transaction advisory services to governments to implement specific PPP transactions. This includes full project preparation and management of the process through which a private partner is selected. Project preparation is probably the biggest impediment to achieving a successful PPP in Iraq so the need to find this type of advisor has to be their first step. (IFC PPP Advisory )
Sovereign lending (World Bank) – WB loans can be used to fund public contributions to PPP projects.
Private sector lending (IFC)
Infrastructure – very focused on infrastructure sectors and are looking for well developed projects in Iraq to lend on a non-recourse basis.
Other sectors – indirectly supporting private businesses in support sectors, for example construction materials (e.g. cement). This type of additional capacity will be necessary to support the development of PPP projects.
Other risk mitigation products
Partial Risk Guarantees – World Bank product – designed to mitigate the risk of non-payment of government obligations.
Syndications – IFC can bring in commercial lenders under our umbrella to facilitate lending to PPPs
Political Risk Insurance – MIGA offers insurance to private parties investing in projects in Iraq.
Private Sector Goals
Alleviation/removal of the State’s role
Attractive risk weighted returns
Injection of Private capital in public services
Government guarantees mitigate certain risks
Public Private Partnership
A win-win solution
Increased budgetary certainty
Long-term investment opportunities
Introducing private sector efficiencies
Upside from operational outperformance
Maintaining oversight to ensure quality
To operate under a clear regulatory framework
Limited risk transfer
Substantial risk transfer
Full risk transfer
No government control
Most common PPP model
Risk transferred to private sector
As the contract term increases, an increasing amount of risk can be allocated to the private sector
Transaction time line is typically 12-18 months from the kick off meetings, contingent on availability of data and responsiveness of the government decision making process
Marketing to Investors
Implementation of selection process
Prepara-tion of PPP contract
Agreement on IFC as LeadAdvisor
Agreement on Project Structure
Completion of Project’s analysis
Assist-ance to Closing
Define transaction structure
Assess PPP options
Execution - Project Design (4/6 months)
Execution - Project Implementation (8/12 months)