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World Bank Guarantee Program

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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

				
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