Investment Security in the Mediterranean
Region (ISMED)
Meeting of the MENA-OECD Renewable Energy Task Force,
9 March 2012
1. Context
• The ISMED Working Group was launched by the EC, OECD and
MIGA in 2010. It is open-ended and focuses on large-scale non-oil
and gas infrastructure projects. The renewable energy sector was
highlighted since the beginning as a key sector to work on.
• Investor demand for investment guarantee coverage in the MENA
region has intensified in the wake of recent events due to rising
risk perception. This includes now also Political Risk Insurance.
• Expert consultations underlined that the current publiclysupported investment guarantee offering is fragmented and
could benefit from enhanced cooperation (strengthen mediation
function and expand risk-sharing initiatives).
• Also, new emphasis has been put on the need for legal
investment security following the real (and perceived)
challenging investment climate in some MENA countries.
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2. ISMED Working Group Participants
Original Members
Participants from International and European Financial Institutions
European
Investment Bank
European Bank for
Reconstruction and
Development
International
German
Agence Française Finance
Development Bank de Développement Cooperation
Union for the
Mediterranean
Expert Network
• EC/ECFIN and DEVCO
• Caisse des Dépôts/INFRAMED
• PWC HERMES
• Shearman & Sterling LLP
• SACE
• Lloyd's Syndicat Liberty Mutual
• ANIMA Network
Islamic
Development
Bank
3. Structure of the ISMED Working Group
The ISMED Working Group works in two Subgroups :
Legal, regulatory and institutional risk
ISMED Subgroup I
on legal investment protection
(OECD-led)
Political and economic risks
ISMED Subgroup II
on guarantees and insurance schemes
investors (MIGA-led)
The ISMED process is coordinated with the Union for the Mediterranean’s labelling
procedure for larger regional infrastructure projects, but remains open to other project
selection processes
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4. Outputs of the ISMED Working Group
Output 1: Joint EC-OECD Support
Programme on legal security
assistance
Output 4:
EC/ NIF window for
lowering guarantee
premium costs
Long-term
investments
led by host states
and project
sponsors
Output 3:
EC/EIB risk-sharing
enhancement
Output 2: MIGA or alternate qualified
operator’s role as facilitator in the guarantee
market
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Output 1: EC-OECD ISMED Legal Protection
Support Programme
Findings
• Strong emphasis on legal protection for private investors and public
agencies (e.g. access to international arbitration) for credit
enhancement.
Recommendations
• The ISMED Legal Protection Support Programme aims to assess the legal,
institutional and regulatory investment framework with a view to
supporting specific infrastructure projects.
• Assessment and assistance missions will be conducted upon request
within a short time frame (3-4 months).
• Assessments are intended to provide assistance to host governments and
concrete solutions for stakeholders involved in the projects.
• Project-specific assessments will be based on the “Checklist for Investment
Protection and Security in the Mediterranean Region” developed by the
ISMED Working Group.
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5. Next steps
Output 1: Launch of the EC-OECD ISMED Legal Protection Support Programme in
June 2012;
Output 2: Presentation of a project proposal by MIGA on how to envisage a
facilitation role in the guarantee market for MIGA or for a similarly qualified
alternate operator in early 2012;
Output 3: A study to assess possible new financial mechanisms for the
Mediterranean Region (funded by the UfM Secretariat and the FEMIP Trust Fund
managed by the EIB) and work on a Mediterranean project bond initiative has
started;
Output 4: The Neighbourhood Investment Facility’s (NIF) premium cost-sharing
mechanism should be operational soon.
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“Innovative” Guarantee coverage for feed-in tariffs
•
Under the risk category “breach of contract” Political Risk Insurance can
protect investors against a government’s change in the feed-in tariff that the
investor has relied upon to structure its project;
•
The breach of a power purchase agreement by the host government can also
be covered under PRI;
•
PRI is offered by national ECAs, export-import banks, export credit guarantee
agencies and investment insurance entities or Multilateral PRI providers, but
not all of them cover breach of contract risk;
•
Examples for PRI providers with breach of contract coverage are: MIGA, EDC,
Euler Hermes PWC, OPIC.
•
Independently from the breach of contract coverage, OPIC is developing an
insurance product specifically tailored to the investor’s project and the specific
feed-in tariff scheme which will protect investors against a government’s
change in the feed-in tariff that the investor has relied upon to structure its
project. Compensation will be based upon the investor’s lost business income
due to the change in tariff.
Annexes
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Output 2: Role as facilitator in the
guarantee market
Findings
• Overall recourse to guarantee instruments, public and private, remains below
capacity even as the risk levels have increased;
• In practical terms, investors are looking for easier-to-use instruments, faster
procedures, larger guarantee and insurance coverage and, possibly, more
attractive conditions.
Recommendations
• Need for a Facilitator to identify the investment guarantee instruments most
adapted to the nature, size, duration and location of a particular infrastructure
project and to coordinate their deployment and use;
• This Facilitator could act as a facilitator for the entire needs of the project;
• It could provide technical assistance to investors and sponsors on specific issues
such as environmental and social aspects or refer them to qualified expertise;
• Ideally, the Facilitator should provide technical assistance to Southern and Eastern
Mediterranean countries’ ECAs for their investment guarantee programmes.
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Output 3: EC/EIB risk-sharing enhancement
(1/2)
Innovative EU Finance Instruments could potentially be adapted to the Deauville
countries:
Since 2007, the EC and the EIB have jointly developed instruments to strengthen the
financial profile of promoters and projects and to improve access to debt financing for key
infrastructure projects within the EU:
 Risk-Sharing Finance Facility (RSFF)
 Loan Guarantee Facility for TEN-Transport (LGTT)
The Joint EC communication from 19 October 2011 proposes implementation under the
2007-2013 financial framework of a EU Project Bond Initiative:
 EC Vice-President Tajani mentioned extending project bonds to the Mediterranean neighbour
countries at the 8th ministerial meeting (11-12 May 2011, Malta)
• A potential Mediterranean-wide risk-sharing and project bond initiative would finance
infrastructure in the Deauville countries with a partial coverage of risks by the EU and a
mitigation of project risks by other financiers like European bilateral development
banks and Regional and International Finance Institutions involved in the G8 Deauville
Partnership countries.
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Output 3: EC/EIB risk-sharing enhancement
(2/2)
Loan Guarantee Instrument for TENs
Transport (LGTT)
Risk-Sharing Finance Facility (RSFF)
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Output 4: Creating an EC/NIF window for
lowering guarantee premium costs
Findings
• High premiums can be a significant barrier to increased recourse to
guarantee instruments;
• A guarantee cost-sharing instrument supported by the EC Neighbourhood
Investment Facility (NIF) could make a project more bankable, and more
attractive to the partner country;
• Official investment guarantee instruments show that marketable premium
rates (e.g. PwC/HERMES: starting at 0,5% per year for the region) can create
a strong demand for guarantees.
Recommendations
• The EC/NIF grant support would be applicable to premiums paid by foreign
investors and lenders and by local investors and banks;
• It would be provided within defined ceilings (in percentage, value,
timeframe) depending on factors such as the nature, size, and location of the
projects.
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Contact Information
Mr. Alexander Böhmer
Head of Unit
MENA-OECD Investment Programme
OECD Private Sector Development Division
2 rue André-Pascal, 75016 Paris, France
Tel: +33-1 45 24 1912
Fax: +33-1 44 30 6135
Email: alexander.boehmer@oecd.org