I N S U R I N G I N V E S T M E N T S E N S U R I N G O P P O R T U N I T I E S

Coverage of Sovereign and Sub-sovereign Risks in Infrastructure

Multilateral Investment Guarantee Agency

Second International Conference on

The Role of Specialized Local Funds and Financial Intermediaries , Washington DC October 1, 2004

MIGA

Guarantees Program

Commercial Risk

Investors/ financial institutions

Non-commercial Risk

MIGA

Coverages

• Transfer restriction and currency inconvertibility • Expropriation • War and civil disturbance • Breach of contract

MIGA’S GUARANTEE PROGRAM

Expropriation

Protects against losses arising from  Nationalization and confiscation   Creeping expropriation Partial expropriation (limited coverage) Non-discriminatory measures not covered

MIGA’S GUARANTEE PROGRAM

Breach of Contract

Protects against losses arising from:  Breach or repudiation by Host Government of a contract with the investor  Non-payment of an arbitration award  Wrongful call of Performance Bonds

MIGA’S GUARANTEE PROGRAM

Breach of Contract Mechanism

Amicable Resolution

Termination

Successful Resolution

Mediation International Arbitration

Unsuccessful Arbitration

Successful Arbitration MIGA Pays Claim Enforcement Local Court

Host Government Pays

MIGA Eligibility of Sub-Sovereigns

Article 3 of the Convention  “Host Government means a member, its government, or any public authority of a member in whose territories . . . an investment . . . is to be located”

Expropriation

Probability that a sub-sovereign will exercise public authority

MIGA Risk

Breach of Contract

Probability of a non-enforcement of an arbitral award against a sub-sovereign

MIGA – Sub-Sovereign Risk Framework

  Sub-sovereigns includes State Governments (under Federal system), Provincial Governments, Municipalities, Councils, Boroughs, Regulators and others with public authority Sub-sovereigns normally do not include State owned enterprises operating on a commercial basis

MIGA - Sub-Sovereign Risk

5 Existing Due Diligence Guidelines      Legal: bankruptcy/insolvency of sub-sovereign Privatization of sub-sovereign Credit: Creditworthiness of sub-sovereign “Neutrality” towards Arbitral Forum (I.e. MIGA does not influence the choice of arbitral forum) Premium

Case Studies

 PPP  City of Light

MIGA’S GUARANTEE PROGRAM

PPP Structure

MIGA EPC Contractor Performance Bond EPC Contract B o C Lenders Public Works Guarantee Sovereign/sub sovereign

City of Light, Central Europe

PROJECT STRUCTURE Western Europe Border Parent Company Central Europe Know-How Transfer Sub contractor Delivery & Service Municipality Technical Services SOE Bank SPC Main Contract Build Operate Transfer

City of Light, Central Europe

PROJECT SUMMARY

          Special Purpose Company (SPC) owned by West European Bank Project financed by the Bank through a shareholder loan Main BOT Contract (consisting of a lease contract and a lighting contract, both linked together) concluded between SPC and Technical Services SOE for the Constuction, Operation and Service of Public Lighting Service Contracts between SPC and subcontractor Payment by Technical Services SOE to SPC (20 years financing period) for SPC obligations Payment Guarantee by Municipality for payments to SPC MIGA’s coverage against the inability to enforce the final and binding award or judicial decision 20 years coverage Dispute Resolution – Local Courts

Thank you!

Please visit us at www.miga.org

[email protected]