Transcript Document 7215828

Innovative Financing for Infrastructure:
The Untapped Potential of Development Finance
Institutions to Catalyse Private Investment
African Middle-Income Countries Conference
Cairo, March 11-12, 2008
Dr. Barbara C. Samuels II
Executive Director, The Global Clearinghouse & President, Samuels Associates
UN Financing for Development Business Steering Committee
AGENDA
I. The Opportunities: Changed Context of Development Finance

Huge Supply of Private Sector Capital & New Sources of Finance

MDB Ability to Reduce Risk, Enabling Access to Private Sector Capital

Current Underutilized Role of MDBs in “Crowding In” Private Sector Capital
II. Enabling Factors: Four Critical Roadmap Actions for MDB Effective Innovation

Reorient MDB Culture, Capital, and Skills

Expand MDB Risk Mitigation Activities, including Local Currency Products

Establish Investment Climate Building as a Central MDB Priority

Strengthen Investment Project Pipelines & Country Macro Environments
III. Specific Structures & Scaling Up with Partners

Case Studies: Tajikistan Pamir Private Power Project, Uganda Umeme Ltd. Power
Distribution Project, Nicaragua Wind Farm, Costa Rican Thermal Plant

A BluePrint for Scaling Up with Partners: Regional Thematic Facilities (e.g., Water,
Renewables, Subsovereign, etc)
IV. Next Steps & Contacts
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The Opportunities: Changed Context of Development
Finance & Potential Role of MDBs in Unlocking Capital
Huge Supply of Private Sector Capital & New Sources of Finance

Higher track record of private sector infrastructure finance versus ODA and MDB Support
(high of US$128 B in 1997 versus ODA US$ 60 B and MDB Loans US$15 B)

Huge potential of institutional markets (e.g., US Market: US$13 T: Developing Country
Markets: US$ 13 T)

New Sources: Infrastructure Funds, Foundations, Social Responsibility Investors; example:
72 new infrastructure funds expected to raise up to US$ 120 B

Obstacles to accessing capital: country regulatory and currency risks, lack of project
development, weak country macro environment

Developing country governments recognize need for private sector capital & donors are
committed to aid effectiveness (UN Financing for Development, Paris Declaration)

MDBs have innate “enabling“ functions: risk mitigation & due diligence on social and
environmental concerns, project development support, supplementary programs to
improve the macro environment
Current Underutilized Role of MDBs in “Crowding In” Private Sector Capital
 Low MDB risk mitigation activity (only US$2 Billion in 2004)
 Limited project development

Underutilized MDB Capital (unused committed capital up to US$181B in 2004); if
leveraged with private sector capital, could harness US $1 T for infrastructure finance!
Sources: OECD Development Assistance Committee: Online Statistics www.oecd.org. OECD: “Guaranteeing Development;” 2004; World Bank:
ppi.worldbank.org.; World Economic Forum: "Building on the Monterrey Consensus: The Untapped Potential of Development Finance
Institutions to Catalyse Private Investment,” 2006; Robert Bestani: “Infrastructure’s Unbalanced Equation,” Euromoney Yearbook 2008; R.
Orr, “Global Infrastructure Report,” 2007, PFIE.
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Roadmap 1: Reorient Culture, Capital, & Skills
of Multilateral Development Banks (MDBs)
 MDB
Boards should shift capital, staff resources, and senior management attention to
areas responsible for risk mitigation and capacity-building:
• Ensure capital gearing ratios for risk mitigation less than direct loans (4:1)
• Increase staffing with needed flexibility to hire top quality skilled staff
“For-profit” culture of private sector operations of MDBs need to be aligned with the
MDB “development mission”:
• Ensure Risk Management practices allow for needed risk-taking, albeit with prudent
reserve accounts that protect credit ratings
New internal incentives and performance metrics should be established that align staff
activity, training and promotion activities:
• Establish new criteria rewarding: use of risk mitigation, project development activities,
involvement of other donors and NGOs
• Align with new OECD Development Assistance Committee Monitoring & Evaluation
Processes
MDB Risk Mitigation & Infrastructure Staff invited to proactively participate in
INFRADEV Network (sponsored by Swiss Government)
• Broadcast MDB services &improve effectiveness & access to best practices
• Improve communication and deal flow with government officials & private sector
infrastructure participants
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Roadmap 2: Expand Risk Mitigation Activities
as “Aid Multiplier” of Official Sector Resources
Scale Up Official Sector Risk Mitigation Activities to mitigate specific impediments
restricting developing country access to private sector capital; for example:
• Partial guarantees such as partial credit and risk guarantees and first loss coverage
• Targeted guarantees of regulatory and currency risks, such as Contingent Regulatory
Partial Risk Guarantees and Foreign Exchange Liquidity Facilities
• Output-Based Aid that enables subsidization of infrastructure tariffs for poor people who
can not pay cost for basic services such as water and electricity
Develop and Scale Up Modern Financial Structures with successful track records in
providing long term affordable finance from capital markets; for example:
• Multilateral credit insurance facilities using the expertise of monoline credit insurers in
financing sub sovereign and private sector infrastructure projects in developed countries
• Multilateral securitization facilities such as CBOs, CLOs, and CDOs that diversify different
investments with different cash flow streams, risks and returns to create lower-risk fixed
income instruments (e.g., proposed Global Development Bonds for infrastructure projects)
Measure Enhanced “Aid Effectiveness” with New MDB Risk Mitigation Performance
Measurement Indicators, adding to development impact assessment:
• Leverage of MDB Funds: Amount and type of Private Sector Capital mobilized by risk
mitigation services
• Project Facilitation Role: Amount and type of MDB Project Development Assistance
• Harmonization & Aid Effectiveness: Coordinate with other MDBs, Donors, & Foundations
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Roadmap 2 Continued: Include Expanded Risk
Mitigation Support for Local Currency Financing
 Scale-Up Tenor Extensions & Partial Guarantees, such as IFC/World Bank’s Municipal
Fund, GuarantCo, and USAID’s Development Credit Authority (143 guarantees totaling US
$419MM, mobilizing US $1 B in private investment in 41 countries; see USAID DCA: “Year in
Review 2005”)
Increase Local Currency Bonds, such as MDB issuance of local currency bonds
Scale up Pooled Funding, such as that provided by USAID in Tamil Nadu, India, using credit
enhancements, partial guarantees and technical assistance that successfully leveraged official
assistance with domestic private sector funds to have a larger development impact
Strengthen Local and Regional Sources of Development Finance, creating or restructuring
existing development banks to include private sector capital and management in those countries
and regions where commercial banks do not make needed finance available
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Roadmap 3: Establish Investment Climate
Capacity Building as a Central MDB Priority
Create a step change in MDB funding to strengthen the enabling environment:
•
Legal and regulatory frameworks (including tariff regimes and distribution systems)
•
Critical skill sets (accounting, auditing, business planning, project development & management, credit
analysis, dispute resolution)
•
Macro environment and sound institutions (property rights, contract dispute adjudication, bankruptcy
frameworks, accounting & auditing standards, corporate governance, banking supervision & securities
markets
Integrate private sector expertise on a more systematic performance basis:
•
Building a market of experts and country clients that match needs with supply, working hand in hand with
the private sector in response to country needs (and not donor country interests or tied aid policies)
•
Developing greater core expertise (e.g., SWAT Teams and “Global Corps of Capacity-Building Experts”),
disciplined with open disclosures of client evaluations
Integration of demand-driven programmes into country fabric, developing customized
country training programs with local institutions and business organizations, including:
•
Official communication venues with the private sector identifying investment impediments and possible
remedies ( e.g., use operational tools such as “Government-Investor Networks”)
Public benchmarking and development of market instruments that directly reward
developing countries for improved investment climates (e.g., ratings, indices, niche funds, etc.)
Leadership in first-time transactions, making funding available to cover the very large
transaction costs associated with these first transactions, covering prohibitive legal and
administrative expenses
“Learn by doing” transaction programs, using transactions as critical vehicles for “learning by
doing”, effectively demonstrating to country government officials and stakeholders the imperative
for change in the country environment (such as legal, regulatory and institutional frameworks) and
enabling the identification of appropriate country-specific priorities.
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Roadmap 4: Strengthen Investment Project
Pipelines with Project Development Support
MDBs need to pool and scale up project development funds, making them easier to
access, utilizing appropriate experts from across the public and private sectors to
identify quality projects and develop acceptable risk mitigating financial structures:
Set Up Funds with Simplified Access (subsovereign, national, regional, and global), using
technical assistance grants or revolving funds to finance the development costs of projects
Create Partnerships for Project Development with Experienced Private Sector or Research
Entities that can collaborate with federal and state governments in identifying projects & manage
the procurement process for operators, service providers, and contractors
Create and Strengthen Regional and Local Development Financial Institutions that can assist
in this process
Create “Steering Committees” of Experts to oversee the project development process and the
development of appropriate policy, legislative, and regulatory frameworks
Establish Roving SWAT Teams of Experts who can respond quickly to private sector
opportunities, help government officials determine how to approach the private sector and
structure bankable deals, jump-start the project identification process, and help interested
parties quickly access available funding
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Applied to Infrastructure Projects:
MDB “Enabling Actions” from Inception to Private Sector Finance
MDB Support
MDB Risk Mitigation:
• Regulatory Risk
• Currency Risk
• Other Political Risk Insurance
• OBA
MDB Capacity Building for Ministries,
Regulatory Agencies, Sponsors
• Project Credit Rating
• Improved Country Macro Environment
MDB Marketing
• Roadshow
• Private Sector Market Access
Project
Idea
Bankable
Project
MDB Project
Development
Financial
Structuring of
the Project
Construction
of the
Project
Private Sector Term
Finance
MDB Financial Support
• Construction Loans
• Feasibility Study
• Equity Finance
• Technical Studies
• Other Donors, Foundations
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Case Study 1: Tajikistan Pamir Private Power Project
$10mil.,
40 years,
at 0.75%
IDA
$10mil., 20 years, at 6.00%
$4mil.
$4.5mil., 10 years,
at 10.00%
IFC
Output-based Financing of
Lifeline Tariffs
IDA Spread
Account
$8.2mil. equity at
10.00% expected
rate of return
$5mil.
grant
Swiss Grant
Account
Average subsidy of 1.85cents/kWh
per month for 50 kWhs in summer
and 200 kWhs in winter
$3.5mil. equity at
10.00% expected
rate of return
Aga Khan
Foundation for
Economic
Development
Swiss
Govt.
Govt. of
Tajikistan
Pamir
Energy
Co.
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Lifeline tariff of
.25cents/kWh
Average tariff of 2.1cents/
kWh instead of 4.65cents/
kWh
Residential
Consumers
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Case Study 2: Uganda Umeme Ltd.
Power Distribution Project
 Use of World Bank Partial Risk Guarantee to Protect Equity Capital
• A PRG of US$5.5 million was issued in support to the concessioning of the
Uganda Electricity Distribution Company’s (UEDCL) assets to Umeme
Limited, a private consortium involving Globeleq Ltd and Eskom Enterprises,
which is mandated to manage UEDCL’s business for a period of 20 years.
The PRG was issued for the benefit of Umeme Ltd to mitigate certain
perceived regulatory and government agencies electricity payment risks.
• Under the PRG structure, Umeme will have recourse to a Liquidity Facility in
the form of a Standby Letter of Credit issued by Citibank Uganda Limited and
backed by the World Bank PRG.
• The PRG specifically provides protection in relation to the following issues.
–
Regulatory Framework events, including: Non compliance by the Regulator of the
pre-agreed tariff framework relating to the distribution tariff; full pass through of the
bulk electricity supply from UEDCL; timely adjustments of tariffs (45 days after tariff
submission)
–
Government Payment Arrears – non-payment of GOU Agencies, Electricity Bills (60
days)
–
Termination Payments – Buy out amount for un-depreciated investments resulting
from Early Termination of the Concession due to Breach of Concession Agreements
by GOU and its entities.
Source: CEPA. PPIAF Mechanisms to Mitigate Regulatory Risk in Private Infrastructure Investments.
Washington, D.C.: PPIAF. 2005.
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Case Study 3: Demo Project I - Proposed Structure
Distributors
and
End-Users
(Nicaragua)
Electric
Power
Periodic
Payments
Power
Purchaser
(Nicaragua)
Electric
power
Project
Company
Periodic
Payments
Partial Risk
Guarantee
Government of Nicaragua
Commitment for
Tariff Stability
BCIE
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Proceeds
of Issue
Bondholders
Debt Service
Payments
Contingent FX
Liquidity Facility
Foreign Exchange
Liquidity Facility
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Case Study 4: Demo Project II - Proposed Structure
Lease payments
StateOwned
Electricity
Agency
Proceeds of
bond issue
Lease
Trust
Beneficial Interest
(Power
Generation
Project)
PRI
Legal Owner
of Trust
PRG
Interest and
principal payments
Bondholders
FX
Liquidity
Facility
BCIE
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Blueprint to Scaling Up with Partners:
Regional Multilateral Bank Facilities Focused on Key Needs
INDIVIDUAL
INFRASTRUCTURE
PROJECTS
Project A
Project B
CHANNEL TO NEEDED
PRIVATE SECTOR &
OTHER FINANCE
MULTILATERAL
DEVELOPMENT BANKS
Regional Thematic
Facilities (e.g,. Water)
Project C
ENABLING ACTIONS
Create bankable projects
Project development assistance
Project D
Institutional Investors
Banks
Infrastructure Funds
SRI Institutional and other
High end Investors
Expatriate Investors
Foundations
Risk mitigation for regulatory,
political, and currency risk
Subsidies, if needed
Improved macro environment
Align with other Donors & Foundations
(Paris Declaration)
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Next Steps & Contacts

Spring Launch of INFRADEV Network, a one-stop interactive marketplace for risk
mitigation services with info on developing country infrastructure needs
• INFRADEV Public Page to facilitate open access worldwide
• Working INFRADEV Network for Designated Government Officials Responsible for
Infrastructure, providers of risk mitigation products and other critical services, &
project sponsors
• Suggestions on content & members, please email: [email protected]

Preparing for UN Financing for Development Business Forum
• Suggested Messages, Models, or Actions to Advance Development Finance?
• Interested in other Financing for Development Tools: Government-Investor Networks &
Global Investment Info Portal?
• Contact: [email protected]

Contact Other Africa Infrastructure Initiatives:
• Hubert Danso, [email protected], www.africaninfrastructure.com

Background Info:
• "Building on the Monterrey Consensus: The Untapped Potential of Development Finance
Institutions to Catalyse Private Investment“, World Economic Forum 2006.
http://www.weforum.org/pdf/Initiatives/monterrey2006_summary.pdf
• “Review of Risk Mitigation Instruments for Infrastructure Financing and Recent Trends and
Development” PPIAF 2007;
http://www.ppiaf.org/Trends&policyseries/Riskmitigationinstruments.pdf
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APPENDIX
INFRADEV NETWORK: “Global Public Tool” to be launched in Spring 2008 for
enhancing Official Sector Effectiveness in collaborating with Developing Country
Governments, and Private Sector Infrastructure Participants
• INFRADEV Welcome Page
• Example of Country Infrastructure Program: Egypt - PPP Unit, Ministry of Finance
• Example of Risk Mitigation Service: AfDB Partial Risk Guarantee
• Example of Leading-Edge Transaction: Celtel Kenya Ltd. Telecommunication Project
Underutilized MDB Capital*
• Up to US$ 181 Billion in Unused MDB Committed Capital as of December 31, 2004
• From 2000-4, MDB Total Capital is Up $68B vs Usage Down $7B
• Unused MDB Capital is Up 74% vs ODA 46% from 2000-2004
*Source: "Building on the Monterrey Consensus: The Untapped Potential of Development
Finance Institutions to Catalyse Private Investment“, World Economic Forum 2006.
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Welcome to the Clearinghouse of Risk Mitigation Tools for Developing Country Infrastructure Finance:
mobilizing private sector financing with private-public risk-sharing
The INFRADEV NETWORK is committed to improving the process of risk sharing between public and private sector organizations to
provide developing countries better access to private sector capital, especially international and domestic bond markets for
infrastructure projects -- critical for increased economic growth, job creation, and improved living standards.
We invite you to browse through this site and learn more about infrastructure finance in developing countries
If you have a question or comment, or you need additional help, please contact the network administrator
DEMAND FOR RISK MITIGATION & FINANCE AND TECHNICAL ASSISTANCE
• Developing Country Government Officials voice the infrastructure needs of their home country and present infrastructure projects
under development to access finance and risk mitigation.
SUPPLY OF RISK MITIGATION & NEW TYPES OF FINANCE AND OF PROJECT DEVELOPMENT ASSISTANCE
• Public and Private Risk Mitigation and New Finance Providers present their Risk Mitigation Products.
• Public and Private Technical Assistance and Training Providers present their Project Development Assistance Services.
SUCCESSES: LEADING-EDGE TRANSACTIONS DEMONSTRATING THE USE OF RISK MITIGATION
Selected completed infrastructure transactions illustrate how risk mitigation and new types of finance can be used to achieve better
access to private capital for infrastructure projects.
RISK MITIGATION: BACKGROUND AND RATIONALE & INFORMATION RESOURCES:
• Learn the basics on key financial instruments and types of risks and past trends by region, sector, and prior transactions in
infrastructure finance. Understand how effective risk mitigation in infrastructure finance can benefit everybody.
• The electronic library includes reports, toolkits and links to learn more on infrastructure finance, risk mitigation, country
infrastructure needs, best practices & unresolved problems, currently active project sponsors and past infrastructure transactions.
PLEASE CLICK HERE TO ACCESS THE INFRADEV PUBLIC PAGE
If you are a INFRADEV Member:
Please click here
If you are a
• Host Government Official Responsible for Infrastructure;
• Project Sponsor; or
• Expert on Risk Mitigation or Infrastructure Finance
please CLICK HERE
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Demand for Risk Mitigation: Country Infrastructure Program & Project Database
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Supply of Risk Mitigation: Risk Mitigation Product Directory
Please note: This profile
is built based on publicly
available information.
Profile continues…
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Successes of Risk Mitigation: Leading Edge Transactions Database
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Key Member Categories Represented in the INFRADEV Network
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Up to US$ 181 bn Unused Committed Capital at the Multilateral
Development Banks as of December 31, 2004
$100
$78 bn
US$ Billions
$75
$49 bn
$50
$25 bn
$23 bn
$25
$7 bn
$0
IBRD
ADB
AfDB
IDB
EBRD
Multilateral Development Banks
Source: "Building on the Monterrey Consensus: The Untapped Potential of Development Finance. Institutions to Catalyse
Private Investment“, World Economic Forum 2006.
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From 2000-4, MDB Total Capital is Up $68B vs Usage Down $7B
Total of Loans, Guarantees and Equity Investments versus Total
Capital US$ Billions as of December 31, 2004
IBRD, IFC, ADB, AfDB, IDB, EBRD
$500
US $ Billions
$400
$300
$200
$100
$0
2000
2001
2002
2003
Total of Loans, Guarantees and Equity Investments
2004
Total Capital
Source: "Building on the Monterrey Consensus: The Untapped Potential of Development Finance Institutions to Catalyse
Private Investment“, World Economic Forum 2006.
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Unused MDB Capital is Up 74% vs ODA 46%
Underutilized MDB Capital versus Total ODA: 2000-2004
$200
US $ Billions
$150
$100
$50
$0
2000
2001
2002
Total Underutilized Capital
2003
2004
Total ODA
Source: "Building on the Monterrey Consensus: The Untapped Potential of Development Finance Institutions to Catalyse
Private Investment“, World Economic Forum 2006.
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