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World Bank Guarantee Program for the Consultation of “Modernizing the World Bank’s Operational Policy on Guarantees” January 2012 Why World Bank Guarantees? Guarantees are viewed as a key financial instrument to support the flow of private investments for development The leveraging power of the guarantee instrument is particularly relevant in attracting private capital where investors and lenders are seeking to mitigate risk Greater use of guarantees is called for, in particular, to support developing countries’ infrastructure investment plans help countries’ access to the markets during the ongoing financial crisis Guarantees could be useful in addressing local currency financing and in developing local currency markets 2 World Bank Guarantee Products and Requirements World Bank Guarantee Products: Partial Risk Guarantees (PRG) support private sector investment projects, including Public-Private Partnership (PPP) projects, green-field and rehabilitation/expansion projects, concession and privatization transactions. PRG can be structured to protect lenders of limited-recourse project finance debt, or to protect the project company (“Letter of Credit” or “Deemed Loan” PRGs) Partial Credit Guarantees (PCG) support commercial borrowing of either the government or non-government borrower (e.g. state-owned utilities, banks) chiefly in support of public investment projects Policy-Based Guarantees (PBG) is a version of a PCG in support of commercial borrowing of the government for budget financing and to support a reform program Country eligibility: PRGs are available to all IBRD and IDA countries, PCGs and PBGs only to IBRD-eligible countries. IBRD may provide PRGs for enclave projects in IDA-only countries Indemnity: All guarantees require a counter-guarantee from the member country Coverage: The World Bank provides guarantees only to the extent necessary to mobilize the private financing 3 World Bank Partial Risk Guarantees Typical PRG Structure PRG covers lenders against the risk of Government non- performance of its contractual obligations to a specific project, such as the risk of non-payment by Government/SOE, change in law/regulatory risk, expropriation risk, etc. RRG reduces project risk for private financiers, and thus improve bankability of the project to enable/facilitate financing, reduce cost of capital and extend debt tenor to better meet project needs World Bank PRGs are often provided to Public-Private Partnership projects along with MIGA political risk insurance and IFC loan/equity investments World Bank Partial Credit Guarantees & Policy-Based Guarantees Typical PCG Structure PCG/PBG guarantees part of debt services to lenders or bond holders regardless the cause of default Can be offered for Government (PCG/PBG); or SOE and other borrower, so long as there is a sovereign counter-guarantee (PCG) By covering part of debt services, PCG/PBG improves terms of commercial debt by extending maturity, lowering interest rate costs, increasing issue amount and/or enabling access to new markets (loans & bonds), making commercial debt more suitable for development support (e.g. infrastructure projects, budgetary financing) 5 World Bank Guarantee Operations to date (Cumulative results) 37 guarantee operations have been approved to date for cumulative amount of $4.5 billion in 30 countries across Regions $27 billion project financing has been helped mobilized by $3 billion financially closed guarantees Many of the guarantee operations are PRGs in support of private sector projects: 25 PRGs, 8 PCGs and 4 PBGs Given the full line up of guarantee products (i.e. PRG/PCG/PBG), IBRD has provided more guarantee support vs. IDA: 24 IBRD guarantees and 13 IDA guarantees Recent transactions include: Botswana PCG approved in FY10; Serbia PBG approved in FY11; Cameroon PRG and Macedonia PBG approved in FY12 so far; for a total of $860 million for FY10-12 6 IDA and IBRD guarantee volumes FY2005 - 2012 IBRD/IDA Guarantees in Recent Years FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 IBRD No. of 2 1 1 1 1 1 Projects/Operations Guarantee Amount 277 45 78 243 400 135 (in US$ million) IDA No. of 4 1 1 1 1 Projects/Operations Guarantee Amount 137 55 115 400 82 (in US$ million) Note: All the above guarantee operations except 2 PBGs have been for infrastructure— power, oil & gas and transport 7 Guarantee Breakdown by Sector and Region (Cumulative Results) Guarantee Allocation by Sector (in US$ million) Guarantee Allocation by Region (in US$ million) Multi-Infra, AFR, $270 OTHER, $200 ECA, $1,119.90 $1,209.60 Fiscal Support, $944 EAP, $688.00 OIL & GAS, $660 SAR, $367.90 POWER, MNA, TRANSPORT, LAC, $789.00 $375.00 FINANCE, $2,051 $55 TELECOM, $120 $250 8 Benefits of World Bank Guarantees for client governments Leverage IBRD/IDA resources by mobilizing additional capital resources Improve commercial borrowing terms to meet the requirements of infrastructure and other development operations and Public and Private Partnership (PPP) projects Mobilize private investments/greater amount of capital, enabling governments to share risks of project development and financing with the private sector Bank guarantees can be structured flexibly to meet clients’ financing needs e.g. local currency guarantee Provide opportunity for the Bank to help government build capacity e.g. PPP project development and implementation Procurement flexibility (“economy and efficiency”) World Bank guarantees backed by its sector dialogue with and indemnity from governments anchor and facilitate the participation of IFC/MIGA; collaboration with IFC/MIGA leverage World Bank’s limited resources www.worldbank.org/guarantees 9 Annex: Details on World Bank Group Guarantee 10 World Bank Guarantee Operations to date by Sector (Board approval basis) Power Gas & Pipeline Transport Others Fiscal Support PCG PCG PBG China (3) Jordan (telecom) Argentina Philippines Colombia Lebanon Serbia Thailand Macedonia Botswana PRG PRG PRG PRG Pakistan (2) Mozambique (2 Uganda Russia (telecom) Bangladesh Enclave PRG) Kenya Ukraine (telecom) Vietnam Ghana Russia Lao PDR Nigeria (coal/forestry) Morocco West Africa (multi- Jordan infra) Romania Peru (multi-infra Code d’Ivoire PRG) Uganda (2) Senegal Sierra Leone Albania Cameroon 11 World Bank Guarantee Operations to date by Region (Board approval basis) AFR EAP ECA LAC MNA SA PCG PCG PBG PCG PCG Botswana China (3) Serbia Brazil Jordan Philippines Macedonia PBG Lebanon Thailand Argentina Colombia PRG PRG PRG PRG PRG Code d’Ivoire Vietnam Russia (2) Morocco Pakistan (2) Mozambique Lao PDR Ukraine (2) PRG Jordan Bangladesh Uganda (2) Romania Peru Ghana Albania West Africa Senegal Sierra Leone Kenya Nigeria Cameroon 12 World Bank (IBRD) Partial Credit Guarantee help government & utility’s access to the loan market Botswana: Morupule B Power Generation Project (PCG for international loan) World Bank PCG helped World Bank Guarantees mobilize $825 million $243 m (29% of $825m) commercial loan with 20- principal payments (plus one year maturity accrued interest payment ) callable on and after •World Bank exposure under year 15+ 1 day the PCG is $120m (present value of the PCG) •Only $30m (25% of $120m) to be charged to country exposure limit 0 15 20 (new ruling after CY10) partly covered by ECA (Sinosure ) World Bank guaranteed Transaction summary is available at www.worldbank.org/guarantees 13 World Bank Group Main Guarantee/Insurance Products MIGA IFC IBRD/IDA Political Risk Insurance • Direct Debt Substitute • Partial Risk Guarantee Partial and Full Credit Guarantee – covers lenders against risk of default • Transfer restriction covers non payment by private by governments (or government borrowers entities)’ contractual obligations in a • Expropriation • Commercial Operation private sector project • War and civil disturbance credit enhancement guarantees such • Partial Credit Guarantee (IBRD only) • Breach of contract as guarantees of bid and covers credit risk in public sector performance bonds projects of governments/public • Non-honoring of sovereign financial obligations • Global Trade Finance Program borrowers covers non payment by L/C issuing • Policy-Based Guarantees (IBRD only) banks covers credit risk of the government • Global Offshore Liquidity Facility covers transfer and convertibility risk • B-loan program Implicitly offers risk mitigation similar to MIGA’s transfer restriction • Local currency guarantees 14 World Bank Guarantees and WBG Collaboration Key Product Positioning World Bank MIGA IFC Risk Coverage Credit Risk (PCG/PBG) Credit Risk (PCG) & Political Risk (PRG) Political Risk (PRI) Type of Eligible Debt (& Equity Equity & Debt Debt Investment through PRG Instruments for cover structuring) Product Flexibly defined Narrowly defined Widely defined Characteristics product products (PRI) product Eligible Projects Narrowly targeted Widely targeted Widely targeted (Government’s priority projects only with indemnity) Major Clients Host Government Private Sector Private Sector Origination Mainly with client Mainly with private Mainly with private countries sector investors & sector investors & lenders lenders 15 WBG Joint Operations Examples Country/ Project IBRD/IDA and IFC/ MIGA Support Cameroon – November 2011 IDA US$ 82 million equiv. PRG Kribi Power Project IFC US$86 million A Loan Albania – May 2009 IBRD US$ 78 million equiv. PRG Power Distribution Privatization IFC advisory Uganda – April 2007 IDA US$ 115 million PRG Bujagali Hydropower IFC US$ 100 million A loan; US$ 30 million C loan MIGA US$ 115 million PRI Uganda – December 2006 IDA US$ 6 million credit used as PRG Umeme Power Project MIGA US$ 40 million PRI Kenya & Uganda – January 2006 IDA US$ 45 million PRG (Kenya) Kenya Uganda Joint Railway Concession IDA US$ 10 million PRG (Uganda) IFC US$ 40 million A and C loans Lao PDR – March 2005 IDA US$ 42 million PRG; US$20 million credit Nam Theun 2 Hydropower MIGA US$ 91 million PRI Romania - December 2004 IBRD – EUR 60 m PRG (P only) Power Dist. Privatization IFC – Investment of about EUR 170 m Mozambique - November 2003 IBRD – US$20 m & US$10 m “enclave” PRGs (P only) S. African Regional Gas Project (SASOL) MIGA – US$ 72 m guarantee (P&I) IFC – Investment of US$ 18.5 m (approx) Note: Typical joint operations are for complex infrastructure projects, with Bank PRG, MIGA insurance and/or IFC equity/loan 16 Example of WBG Collaboration UGANDA-BUJAGALI HYDRPOWER: ROLES OF IDA, IFC AND MIGA IDA PRG + IFC A&C Loans + MIGA PRI GOU IPS (K) controlled SG Bujagali (Equity in kind) SPV Holdings Ltd. PRI Shareholders’ Financing Indemnity Agreement Government of IDA Project Implementation Uganda PRG Agreement Agreement Guarantee Commercial Agreement Lenders Bujagali Energy Ltd. UETCL Loans Power Purchase Agreement other DFIs EPC Contract O&M Contract EPC Contractor: O&M contractor: Salini/Alstom Sithe Affiliate Transaction summary is available at www.worldbank.org/guarantees 17
"World Bank Guarantee Program"