Transcript U.S. Agency For International Development Financing Water Using Partial Loan Guarantees Jacqueline E.

1
U.S. Agency For International Development
Financing Water
Using Partial Loan Guarantees
Jacqueline E. Schafer
Deputy Assistant Administrator
Bureau for Economic Growth, Agriculture & Trade
John Wasielewski,
Director, Office of Development Credit
2
USAID’s Approach to Water Finance
Adapted from US experience with Clean Water Act
of 1972
• Grant funding: limited and unsustainable
• Pressing need to mobilize private funding for public
services
• New approach provides for increased security over
direct investment in emerging economies
• New approach uses a combination of grant
funds/technical assistance, and loan guarantees as
security to attract private investors
3
Water Revolving Funds (WRF)
• WRFs offer pooled-financing mechanisms
that can mobilize private sector investment
on commercial terms
• Each WRF will raise capital from local
markets for on-lending to municipal &
private entities for water infrastructure
4
Water Revolving Funds (WRFs)
Supporting Activities:
• Technical assistance in local financial market
development
• Partial loan or bond guarantees
• Intercept agreements on inter-governmental
transfers
• Initial capital funds from donors & reserve
fund support
5
USAID Approach: Using Loan Guarantees
• Over the past 4 years USAID has used partial loan
guarantees to mobilize local capital for investment in a
variety of sectors
• We believe that this approach can work for the provision
of potable water and for waste water treatment
6
What is DCA?
• A financial tool used by USAID to achieve its development
objectives
• Loan Guaranty Authority allowing USAID to issue partial
guarantees to private sector lenders
• Available for all sectors: SME, Microfinance,
Infrastructure, Water, Health, Energy, Environment, etc
• Projects are financially sound and economically viable
• Financial risk is shared with local financial institutions;
lenders typically carry 50% of the risk
7
DCA Projects by Sector
As of December 1, 2003
Water
11.62%
Env.
4.06%
Energy Health/Educ.
2.00%
.21%
Housing
23.37%
Infra.
16.89%
Agri.
12.97%
SME
15.44%
Micro
13.44%
8
Financing Clean Water in India Through DCA
Municipal Bond Guarantees:
Tamil Nadu Water & Sanitation Pooled Fund,
Karnataka Water & Sanitation Pooled Fund Trust
9
Activity Description
•
•
•
•
•
Tamil Nadu
The pooled financing mechanism supported by guarantee will provide
investment funds to small and medium Urban Local Bodies (ULBs) in Tamil
Nadu, India, to implement water and sanitation projects, which will benefit
low-income populations in these localities
50% bond guarantee of equivalent of US$6,400,000 for TNUDF
Individual bonds will carry a face value equivalent to US$2,000 with 9.5%
interest rate and 15 year maturities
Guarantee is embedded in the project structure behind two payment
mechanisms: 1) an escrow account and 2) debt service reserve fund backed
by intercepted state transfers
Supports USAID/India’s Strategic Objective (SO) 4.3, “Improved urban
environmental infrastructure built and services delivered in selected cities”
10
Project Diagram, Tamil Nadu
•Country: India
•Type: Bond Guarantee
•Amount: $6,400,000
•Guarantee Ceiling: $3,200,000
•Leverage Ratio: 16 to 1. The
estimated cost to the US Government for
issuing the Guarantee on the $6,400,000
bond amount is approximately
$392,960.
Funds from Bond Issue
Private Placement
Bondholders
Water & Sanitation
Pooled Fund (WSPF)
Debt Service Payments (Semi-annual
Interest and Annual Principal )
Loan/Bond
Disbursement
Debt
Service
Payments
Municipalities
ULB Cash Flows
Escrow
DSRF
DCA
Projects
11
Activity Description
Karnataka
• The guarantee facility will provide credit enhancement to the
issuance of a bond to raise capital for a water supply and sewerage
infrastructure development project in 8 municipalities within the
Bangalore Metropolitan Area
• 50% bond guarantee of equivalent of $21,700,000 for Karnataka
Urban Infrastructure Development & Finance Corp.
• Guarantee is embedded in the project structure behind two payment
mechanisms: 1) an escrow account and 2) debt service reserve fund
backed by intercepted state transfers
12
Project Diagram, Karnataka
Funds from bond issue
Private Placement
Bondholders
Managed by KUIDFC
Water and Sanitation
Pooled Fund (WSPF)
Debt Service Payments (Annual Interest
and Principal )
•Total Loans Available for coverage:
$21,700,000
•Term: 15 years
•Portion Guaranteed: $10,850,000
•Bond Guarantee Type: Doublebarreled
•Coupon: 7.5% - 8.0%
•Trustee: WSPF (KUIDFC)
•Investors: Private placement
Loan/Bond
 Escrow Account
•
•
•
(Water Project Account)
Funded up-front by the ULBs from general funds
(Current Account) and State Annual Operating
Grants to cover 1.5 times annual debt service
requirements on market borrowing.
Held in secure, short-term fixed deposit
investments or other liquid instrument.
Replenished by ULBs’ Current Accounts and State
Annual Operating Grants, and intercept of SFC
devolution funds.
 Bond Service Fund (BSF)
•
•
•
•
Established by separate funds of GOK contributed upfront. May be reimbursed by PFDF of GOI as per its
guidelines.
Maintained to Rs 255 million at any given time.
Held in secure, short-term fixed deposit investments or
other liquid instrument in the name of WSPF.
GOK, via a government order, may divert transfer
payments (intercept) to replenish BSF in case of shortfall.
 Third-Party Guarantee
•
•
USAID guarantees 50% of principal.
Possible guarantee from financial institutions, such as
IDECK, IDFC, ICICI for the balance 50% of principal
and interest.
Debt
Service
Payments
Urban Local
Bodies (ULBs)
ULB Cash Flows



BWSSB for
Implementation
Of Water Supply
Projects
13
Expanding Access to Sustainable Utility Services in
Egypt Through DCA Loan Portfolio Guarantees:
Commercial International Bank (CIB)
14
Activity Description
• Equivalent of US$40,000,000 loan portfolio guarantee for CIB
• Guarantee has a 12 year term and covers 50% principal on the
portfolio of loans
• Estimated number of sub-loans to be extended is twenty at
approximately $2,000,000 per borrower for a term of 5-7 years
• All borrowers must be Private Sector Provision (PSP)
enterprises, offering goods or services pursuant to an
agreement with a public water or wastewater utility
15
Project Diagram
•Country: Egypt
Commercial
International
Bank (CIB)
•Type: Loan Portfolio Guarantee
•Amount: $40,000,000
50%
DCA
Guarantee
•Guarantee Ceiling: $20,000,000
•Leverage Ratio: Mission funding of approximately
$1 million will leverage the Egyptian pound equivalent
of approximately $56 million in loans from local
private banks to PSPs.
Loan
Loan
Loan
Private Sector Provision (PSP)
Enterprises
16
DCA Global Reach
As of December 1, 2003
Europe & Eurasia (22)
Armenia (4)
Kazakhstan
Bosnia (4)
Romania
Bulgaria (5)
Russia
Croatia
Ukraine
Moldova (4)
Latin America &
Caribbean (17)
Ecuador
Guatemala (2)
Honduras (3)
Jamaica
Mexico (2)
Nicaragua
Peru (5)
Regional (2)
Africa (17)
Ghana (2)
Kenya (3)
Mali (2)
South Africa (3)
Uganda (7)
Asia & Near East (20)
Bangladesh (2)
Egypt (2)
India (2)
Morocco (9)
Philippines (2)
Vietnam (3)
Note: Number in parentheses represents the number of deals per country/region
17
U.S. Agency For International Development
US Agency for International Development
Ronald Reagan Building
1300 Pennsylvania Ave NW
Washington, DC 20523-3800
Phone: +1.202.712.1380
Fax: +1.202.216.3593
Email: [email protected]
http://www.usaid.gov/our_work/economic_growth_and_trade/
development_credit/index. html