Transcript No Slide Title

MIGA:
Supporting Iceland’s
Investors
in Emerging Markets
June 2006
WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
The World Bank Group
created
1944
IBRD
International Bank for
Reconstruction and Development
1960
IDA
International Development Agency
1956
IFC
International Finance Corporation
1966
ICSID
International Centre
for the Settlement of Investment Disputes
1988
MIGA
Multilateral Investment Guarantee Agency
Promote FDI with the use
of guarantees and TA
What is MIGA?
 Member of World Bank Group
 167 members
 Capital: $2 billion
 Capacity: up to $9 billion
 Gross/Net Exposure: $5.1 b/$3.3 b
 FDI Facilitated: Over $50 b
 Coverage in more than 85 countries
 Private and public partners
MIGA’s Services
We promote FDI into developing countries through:
 Political risk guarantees for investors/lenders
 TA for developing country IPAs
 Online investment promotion:
– Ipanet, PrivatizationLink and FDIXchange
 Investment dispute mediation services
On-Line Services for Investors, Lenders
The Investment Promotion Network:
www.ipanet.net
PrivatizationLink:
www.privatizationlink.com
FDI Xchange:
www.fdixchange.com
MIGA Guarantees: Insurance…
….but also risk management
CREDIT ENHANCEMENT
 improves the overall risk-return profile of the project
 may reduce provisioning requirements for lenders
 may lower cost of financing, lengthen tenors
 can protect corporate balance sheet
CONFIDENCE
 deterrent against host government interference
 gives investors confidence investing in frontier markets
 mediation of investment disputes
STABILITY
 provides stable environment for business operations
+ WORLD BANK GROUP “STAMP OF APPROVAL”
Risk Management
political risk insurance for projects
deterrence of
adverse host
government actions
Better
Prospect of
compensation
investors
gain
confidence
project risk /
return profile
improves for all
investors
more deals
are closed
reduction of both
capital costs and
financing cost
greater interest
from debt and
equity investors
MIGA Guarantees
Commercial
Risk
Non-commercial
Risk
Cross border
Investors/ financial
institutions
MIGA
Coverages
• Transfer restriction and
currency inconvertibility
• Expropriation
• War and civil disturbance
• Breach of contract
Coverage:
Transfer Restriction/ Inconvertiblity
 inability to convert local currency
into forex
 inability to transfer forex out of
host country
 excessive delays in acquiring forex
 currency depreciation not covered
Coverage:
War/Civil Disturbance/Terrorism/Sabotage
 damage/disappearance of tangible
assets
 longer-term business interruption
Coverage: Expropriation
 nationalization and confiscation
 “creeping” expropriation
 expropriation of funds
 partial expropriation (case by case)
 includes sub-sovereigns
Coverage: Breach of Contract
 breach or repudiation of a contract or
agreement with government entity
 non-enforcement of an arbitration
 includes sub-sovereigns
Types of investments covered
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New investments (incl. modernization, restructuring, expansion, etc.)
3-15 (20) years
Up to 90% of investment amount; up to 95% of loans
No minimum amount; high ceilings
Equity and quasi-equity
Shareholder loans and loan guaranties
Non-Shareholder loans
Capital Markets transactions
Technical Assistance
Management Contracts
Leases
Franchising and Licensing Agreements
Performance Bonds
O&M Agreements
Guarantee process
 Preliminary application (online, no fee)
– Must be done before investor commits to project
– Completely confidential and non-binding
 Definitive application
 MIGA due diligence
 Host country approval
 Board concurrence
 Guarantee signed by MIGA and investor
Claims Experience
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Over 800 contracts ($14 billion) issued
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Three claims filed and paid
2000: Indonesia power plant -- $15 m – expropriation
2004: Nepal hydroelectric station -- $145,000 – civil war damage
2005: Argentina – expropriation (ca. $1.5 million)
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Extensive experience successfully mediating disputes
Most in power, mining sectors
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Transfer restriction – multilateral exception for MIGA-covered
investments:
1998 – Russia
2001 – Argentina
2004 -- Venezuela
Typical Project Structure
Loan
Guarantee
Foreign Investor
Bank
Equity
Loan
Iceland
Peru
Shareholder
Loan
Project Enterprise
Guarantees Portfolio
Europe and Central Asia
45
Latin America/Caribbean
25
Africa
16
Asia and the Pacific
13
Middle East and North Africa
3
Infrastructure
39
Financial
39
Oil, Gas and Mining
9
Agribusiness and Manufacturing
8
Tourism and Services
5
$5.1 B
Gross Exposure, by sector and region*, in percent (as of 06/30/05)
* Figures exceed 100% due to master contract with one client
Case Study 1: Hydro Power – Laos
The Proposal
Laos
Tailand
Project
Significant hydropower
potential but very
limited internal
electricity demand
Major electricity market
Thailand
but limited internal
energy resources
US$1.25 B trans-basin
Project
power plant in Lao
PDR
with transmission
facilities to the Thai
border
Case Study 1: Hydro Power – Laos
Overcoming Obstacles
ISSUES
SOLUTION
Lao
Government
budget
limitations
Public Private
Partnership
Limited
environmental
and technical
capabilities of
Laos
WB advisory and
technical assistance
+ experienced
international power
developer: EDF
USD1.5 B cost
Project Finance
scheme
Commercial
lenders would
not assume
political risks in
Laos or Thailand
Political Risk
Guarantees
Case Study 1: Hydro Power – Laos
Project Structure
NTP 1
EDF 1
ADB
EGGO
Thai Baht
Banks
Shareholder Agreement & Equity
Loans
Nam Theun 2 Power
Company
MIGA
World
Bank
US $
Banks
Bilateral
Agencies
ECAs
Case Study 1: Hydro Power – Laos
Risk Allocation
 Risks associated with relationship between Laos and Thailand
leveraged through contractual obligations of both
governments
 Additional leverage created through equity ownership by
state-owned power companies of both countries
 Social and environmental problems resolved through the
World Bank involvement
 Laos state-owned company contributes equity using IDA
funds
 Project developed with 80% debt-to-equity ratio. Debt
arranged by 9 leading commercial banks along with
guarantees from MIGA, PRG, ADB and ECAs
 Funds provided by Thai banks
Case Study 1: Hydro Power – Laos
Main Risks to Lenders

Breach of Concession in Lao: Non-payment of termination payments
triggered by
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Confiscation of assets
Declared wars
Embargoes
Expropriation
Breach of the Power Purchase Agreement in Thailand:
– Defaults on payments for electricity by EGAT;
– Non-payment of termination payments under the PPA
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Transfer Restriction (as a default option for the Breach of Contract)
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Expropriation through administrative, legislative and regulatory
decisions for which there were no termination payments in the contracts
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War and Civil Disturbance unrelated to the actions of both governments
Case Study 1: Hydro Power – Laos
MIGA’s Value-Added
 Assisted in: syndication of larger amount of funds
by Fortis bank and extension of finance period
 Provided customized solution to multi-country
risks: MIGA covered not only political risks in Laos
but risks in Thailand (breach of the purchase
agreement between the project and Thai state-owned
company, EGAT)
 Collaborated with sister agencies MIGA worked
side by side with ADB and PRG to provide equal
playing field for other arrangers
Case Study 2: Geothermal Power – Kenya
$119 m in guarantees for OrPower 1 and 4
Coverage against all 4 risks
BoC coverage for Site Agreement
Investor: Ormat (Israel)
Olkaria geothermal fields in Rift Valley
Phase 1: 12 MW; Phase 4: 48 MW
Alternative to hydro
Significant local employment, sourcing of goods and
services
Revenues for government
Extensive mediation in past 2 years
Case Study 3:
SME Telecoms/IP Investment – Sierra Leone
 $2.8 m guarantee against 3 risks
 Conflict-affected country
 Limited, unreliable, expensive internet access
 Israeli investor ($3 m equity investment)
 Fixed line broadband wireless access and voice-over IP
network
 Covered under MIGA’s Small Investment Program:
coverage up to $5 m (no minimum)
streamlined process
special pricing
3-risk “package” (no BoC coverage)
thank you!
www.miga.org
Elena Palei
Ph: +1-202Fax: +1-202-522-2630
E: [email protected]
Keith Martin
Ph: +1-202-473-2815
Fax: +1-202-522-2630
E: [email protected]