miga, world bank group: mitigating political...

1

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

3MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP

MIGA

Our Role and Priorities


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


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


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


Guarantee Program


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


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


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%


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


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


Portfolio


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


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%


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


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


Case Study: Doraleh Terminal - Djibouti


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


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


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


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


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


Case Study: Maritza 1 Lignite Power Plant-Bulgaria


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


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


Project Structure

SPV in Bulgaria

ADBEBRD

AES

Loans

MIGA

Banks

ECAs

Equity


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.


MIGA’s Value-Added

Assisted in syndication

Provided customized solution to PPA risks

Very long tenors would not be available without MIGA PRI


For more informationon MIGA, please contact:

Elena [email protected]

www.miga.org

31

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]

32

THANK YOU!

Elena Palei, MIGA

PPPs in Infrastructure

miga, world bank group: mitigating political...

Documents