Transcript The Pledge Guarantee for Health (PGH): A New Platform to
The Pledge Guarantee for Health (PGH):
A New Platform to Improve Efficiency and Impact of Donor Financing for Health Commodities
The Need: Quickly, consistently and cost-effectively delivery health commodities
The Opportunity: The Pledge Guarantee for Health – what it is, and how it works Example PGH deals Q&A
The Pledge Guarantee for Health (PGH)
•
The PGH is a financial product that enables grant recipients to access short-term credit for health commodity procurement
•
PGH enables health commodities to reach recipients more quickly, consistently and cost-effectively
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Several principles guide the design and use of the PGH:
– Increase efficiency of existing resources for health commodities – Leverage existing financing mechanisms and institutions – Enhance country ownership of procurement and local capacity building – Promote aid transparency •
Opportunity for leaders to demonstrate innovation, action and impact --
PGH creates win-win for country grant recipients, funders, and an opportunity for bank partners to catalyze a market
Complex systems for commodity financing, procurement and distribution
Commodity Logistics System in Kenya (as of July 2006) Constructed and produced by Steve Kinzett, JSI/Kenya - please communicate any inaccuracies to [email protected] or telephone 2727210 Commodity Type (colour coded) Contra ceptives and RH equipment Organization Key Government World Bank Loan Bilateral Donor Multilateral Donor NGO/Private JSI/DELIVER Source of funds for commodities U S A I D K f W E U U N F P A Condoms for STI/ HIV/AIDS prevention D F I D W H O STI Drugs GOK Essential Drugs Vaccines and Vitamin A B T C J I C A C I D A G A V I UNICEF TB/Leprosy G D F K N C V Blood Safety Reagents (inc. HIV tests) S I D A D A N I D A Malaria GOK, WB/ IDA US Gov Anti Retro Virals (ARVs) MOH Equip ment Global Fund for AIDS, TB and Malaria Labor atory supp lies MSF Procurement Agent/Body U S A I D K f W E U R O P A U N F P A Crown Agents W H O K E M S A Government of Kenya Japanese Private Company UNICEF MEDS GTZ (procurement implementation unit) C D C J S I PSCMC (Crown Agents, GTZ, JSI and KEMSA) MSF Point of first warehousing Organization responsible for delivery to district levels Organization responsible for delivery to sub district levels KEMSA Regional Depots KEMSA Central Warehouse KEPI Cold Store MEDS NPHLS store NLTP (TB/ Leprosy drugs KEMSA and KEMSA Regional Depots (essential drugs, malaria drugs, consumable supplies) JSI/DELIVER/KEMSA Logistics Management Unit (contraceptives, condoms, STI kits, HIV test kits, TB drugs, RH equipment etc) KEPI (vaccines and vitamin A) MEDS (to Mission facilities) Provincial and District Hospital Laboratory Staff Private Drug Source Mainly District level staff: DPHO, DPHN, DTLP, DASCO, DPHO, etc or staff from the Health Centres, Dispensaries come up and collect from the District level
Country owned procurement approaches are recognized as critical to long term sustainability
As a result [of weak systems], externally funded programmes often institute their own purchasing and distributions systems; while these provide an immediate solution specific to the programme, they cause major difficulties in standardisation and management for the system as a whole, as well as ignoring the long-term issue of reform.
In many cases they do not address the underlying capacities constraints on ministries’ and private sector’s ability to forecast, plan, manage and distribute within the context of a national system for drugs and supplies.
Taskforce on Innovative International Financing for Health Systems, Working Group 1 Report
Funding volatility creates adverse impacts on systems and users
Funding for health has increased, however… …Value destruction due to aid volatility 1 7-28% of value lost $1.00
$1.00
Adverse impact on systems and users
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Lack of access
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Loss of patient confidence
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Extra commodity cost
•
Impaired supply chain management Aid value $0.72
$0.72
ODA, past 15 years
(1) Source: P. 4, Brookings Institution. August 2008. “Smooth and Predictable Aid for Health – A Role for Innovative Financing?”; Dalberg analysis.
Donor volatility within annual funding cycle makes it difficult to effectively plan commodity purchases
Funding flows to one recipient of donor funding from multiple sources, December 2005
– May 2008 ($M) 12.7
9.8
8.0
4.5
4.0
2.1
1.8
1.3
1.4
0.5
0.5
Dec Jan Feb Mar April May June July Aug Sept Oct Nov Dec Jan Feb Mar April May June July Aug Sept Oct Nov Dec Jan Feb Mar April
2005 2006 2007 2008
Donor A Donor B Donor C Donor D Donor E Donor F Donor G Donor H Source: Dalberg analysis with sanitized data from recipient of donor funding (per recipient’s request)
Illustrative donor grant process Unpredictability of timing of first disbursement is more a reality than a problem
Board or legislative authority approves grant application/budget approval Grant agreement Signed/Confirmed First grant disbursement to recipient
6 – 12 months 1 – 5 months
Time Source: The Global Fund database available on its website. Dalberg analysis of >250 grant applications.
Demand for financial products to manage procurement and finances across $6.8B in health commodities purchases – and potentially beyond
Reproductive Health: ~$277M 1 Health commodities: ~ $6.8B
2
Includes Global Fund and PEPFAR
Broad range of development areas
(E.g., micro, agriculture, water, SMEs, education)
(1) RHI 2007 data and UNFPA 2007 3 rd party procurement data; does not include USAID or IPPF funded procurement as both organizations have indicated they would not be a part of PGH; Government funding from McKinsey’s 2006 analysis; donor-funded procurement is defined as funding that has been transferred from donors to entities that procure RH commodities i.e. NGOs or MoHs; government-funded procurement is government revenue-funded or SWAp/non-RH budget line funded procurement (2) The health commodity market is estimated based on Global Fund and PEPFAR disbursements in 2007, with 47% of funding being used for procurement Sources: RHInterchange, www.globalfund.org
, www.pepfar.gov
; UNFPA interviews; Dalberg team analysis
The Need: Quickly, consistently and cost-effectively delivery health commodities
The Opportunity: The Pledge Guarantee for Health – what it is, and how it works
Example PGH deals Q&A
How it works UN Foundation plays a catalytic role in facilitating recipients’ access to credit
1
Donor
5
Grant recipient
2
Supplier
3
UNF / guarantee Bank
4 6
Legend:
Commitment Fund Commodity 1 2 Donor has existing commitment to recipient for health commodities Bank extends credit line for commodity purchase and issues L/C to supplier 3 4 5 Supplier ships health commodities after PGH customer procures through existing channels Bank pays for commodity based on invoice Donor disburses funding to bank to pay back principal 6 UNF provides backing through full / partial guarantee
Access to a Letter of Credit through PGH helps advance procurement ahead of grant disbursement
Board or legislative authority approves grant application
6 – 12 months
Grant agreement signed First grant disbursement to recipient made
1 – 5 months
time
Letter of Credit (9-month) Begins procurement (bidding) process
Speeds up procurement process and results in cost savings
Source: Global Fund database available on its website. Dalberg analysis of >250 grant applications.
Benefits of PGH Cost savings by addressing premiums on commodity purchase Estimated premiums
Emergency shipment
26%
10% Expedited production 5% Potential additional premium for uncertain payment timing Uncertain payment timing 6% 5%
Optimize supply chain and procurement
• • • • Avoid stockout and effect on distribution and inventory downstream Avoid overstocking and its cost implications on storage Reduce wastage/leakage and expiry of essential health products Optimize drugs’ shelf life Source: Studies commissioned by Gates (July 2006) and Dalberg analysis. Excludes premium on sub-scale orders
Illustrative example: 18% savings potential in ARVs could enable large volumes for the same price
Illustrative example for ARV procurement for $5M transaction
390 +18% 330 Quantity of ARV packs Commodity procurement without PGH Commodity procurement with PGH 1. Pricing per ARV (Lamivudine - 3TC), Zidovudine – ZDV or AZT) pack based on Global Fund Price Reporting Mechanism Full Purchase Price Report. 2. Based on 15% commodity price reduction based on studies commissioned by Gates (July 2006) and Dalberg analysis. Excludes premium on sub-scale order. Note: Benefits captured here do not include time value of money and measure of additional lives saved or stock-out avoided. Source: Global Fund PRM, Gates Foundation analysis, Dalberg analysis.
PGH benefits players throughout value chain
Grant recipients
•
Customer-driven tool that supports country ownership
of procurement and supply chains management in line with Paris Declaration •
Deliver essential health commodities
when they are needed, bolstering confidence in the health system •
Reduce premiums
(expedited production, emergency shipment, and payment risk) on commodity costs by 10-30% •
Avoid stock-out
and its cascading effect on distribution, planning and inventory downstream •
Avoid overstocking
that includes storage cost and waste/leakage
PGH benefits players throughout value chain
Donors
• Enables and
rewards countries/NGOs
with a good track record to further manage and optimize health procurement and supply chains •
Improves overall efficiency
, effectiveness and transparency of aid utilization
PGH benefits players throughout value chain
Financial institution
• Opportunity for
new business opportunities
in emerging markets for credit within the philanthropic and international development sectors •
Lowered credit risk
by partial guarantee on the collateral
PGH benefits players throughout value chain
Grant recipients
• • • • • •
Customer-driven tool that supports country ownership
of procurement and supply chains management in line with Paris Declaration
Deliver essential health commodities
when they are needed, bolstering confidence in the health system
Reduce premiums
(expedited production, emergency shipment, and payment risk) on commodity costs by 10-30%
Avoid stock-out
and its cascading effect on distribution, planning and inventory downstream
Avoid overstocking
that includes storage cost and waste/leakage
Donors Financial institution
• • • Enables and
rewards countries/NGOs
with a good track record to further manage and optimize health procurement and supply chains
Improves overall efficiency
, effectiveness and transparency of aid utilization Opportunity for
new business opportunities
in emerging markets for credit within the philanthropic and international development sectors
Lowered credit risk
by partial guarantee on the collateral
Supplier
• • Improved payment certainty and/or terms Plan manufacturing in advance and transfer cost savings downstream
Guarantor
• Catalyze a commercial solution with minimum new resources
The Need: Quickly, consistently and cost-effectively delivery health commodities The Opportunity: The Pledge Guarantee for Health – what it is, and how it works
Example PGH deals
Q&A
Senegal: With low expected default risk of donor funding and the backing of a guarantee, Senegal is able to utilize a Letter of Credit
Basic terms and parties Expected risks
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Product type (maturity)
: Term L/C (9 month) •
PGH user
: Pharmacie Nationale D'approvisionnement (PNA), Ministry of Health, Senegal •
Donor:
Global Fund (GF) •
Bank
: Ecobank Senegal (Its parent company: 600 branches in 31 African countries, $6,550M in assets in 2007, $100M covertible loan invested by the IFC in 2009) •
Global Fund rating of Senegal 1 :
A •
Risks:
Default Length of delay Grant disbursement reduction (1) Alliance Nationale Contre le SIDA: Rated A, A, A1 and then A1 in last four disbursement periods from 12/1/2007 – 5/31/2009; The National AIDS Council of Senegal: Rated A, A2, A1 and then B1 in last four disbursement periods from 3/1/2008 – 5/31/2009.