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					AMC Financing Arrangements


  Rome Technical Working Group Meeting
              7th September 2006
 The success of the AMC will depend on
  the strength of the financing structure.
In order to influence industry incentives and behaviour,
   financing arrangements need to be:

• Legally-binding

• Clear

• Credible
        The financing structure needs to be
    flexible enough to accommodate different
          donor preferences and systems

Donors:

•    Will be several

•    Will have different domestic authorisation and appropriation laws
     and processes

•    May not have budgetary systems that lend themselves to making
     legally binding financial commitments that are contingent on a future
     event

•    Have different payment profile preferences
   The use of an intermediary financial
    vehicle could deliver a structure that
        is both sufficiently credible for
     industry and sufficiently flexible for
                     donors

The intermediary structure would:
• Hold donor commitments
• Bundle commitments into a single asset
• Translate commitments into cash as needed to pay
   suppliers
• Smooth timing mismatches between commitments
   and payments
                       There are three basic financing options
                                 available to donors
1. (i) Full up-front financing of their entire AMC share
                                     Financing Option (I)                                                                   Financing Option (I)
                             Late-Stage Product (Pneumococcus)                                                         Early-Stage Product (Malaria)

                900                                                                                  1200
                800
                                                                                                     1000                              AMC payments
                700                               AMC payments
 USD millions




                600                                                                                                                    Donor disbursements




                                                                                      USD millions
                                                  Donor disbursements                                800
                500
                400                                                                                  600
                300
                                                                                                     400
                200
                100                                                                                  200
                  0
                                                                                                       0
                      2006   2008   2010   2012     2014    2016        2018   2020
                                                                                                            2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028




                         •Delivers maximum credibility
                         •High opportunity costs
                                                  Financing options (ii)

  (ii) Up-front commitment to the whole AMC amount with
       the stream of payments made on an ‘annuity’ basis.
       Total resources would be built up in line with
       expected future disbursements.
                                    Financing Option (ii)                                                               Financing Option (ii)
                            Late-Stage Product (Pneumococcus)                                                       Early-Stage Product (Malaria)

               450                                                                             350
               400                   AMC payments                                              300                    AMC payments
               350
                                     Donor disbursements
USD millions




                                                                                                                      Donor disbursements




                                                                                USD millions
               300                                                                             250
               250                                                                             200
               200
                                                                                               150
               150
               100                                                                             100
                50                                                                             50
                 0
                                                                                                0
                     2006   2008   2010    2012     2014   2016   2018   2020
                                                                                                     2006   2008   2010   2012   2014   2016   2018   2020   2022   2024   2026   2028




                            •Potential balance between credibility of financing and
                            productivity of public expenditure for late-stage products
                           Financing options (iii)
(iii) Up-front commitment to the whole AMC amount
with payments only starting when the IAC declared a
product to be compliant with contract specifications
and ready for supply.
                                                Financing Option (iii)
                                        Late-Stage Product (Pneumococcus)

                           450
                           400                    AMC payments
                           350
                                                  Donor disbursements
            USD millions




                           300
                           250
                           200
                           150
                           100
                            50
                            0
                                 2006   2008   2010     2012     2014   2016   2018   2020




•maximizes the productivity of donor public spending on AMCs.
•budgetary and accounting systems of many donors do not lend
themselves to making legally-financial commitments, contingent
 on a future event (the production of the specified vaccine).
The risk-adjusted assets should be
 equal to the amount necessary to
  elicit a response from industry

 The financial structure must bundle assets into a single financial
   instrument on a risk-adjusted basis.

 – Not only will commitments vary in terms of payment profile (i.e.
   cash, pledges)

 – But, given political and budgetary realities, as well as
   uncertainty over the timing of future AMC payments, there may
   be some timing/collection/payment risks associated with some
   donor commitments

 – Additionally, donors may have preferences as to which
   intermediary institution to make commitments to
   Details of the financing structure will
  depend on the nature of donor pledges
   and the precise role of intermediary
                 institutions
Possible elements might include:

• Third-party assurance provided by a commercial entity, or possibly an
  international financial institution

• Use of cash to offset discount associated with payment risks

• Face value donor pledges in excess of burden-share where necessary

				
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posted:10/2/2011
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