World Bank
Attracting Private Capital for Sustainable
Infrastructure Development
Presentation to French Business Delegation
March 2012
Outline
• Private Participation in Infrastructure and Bank Strategy
• Private Participation in Infrastructure by French Companies
• Public-Private Infrastructure Advisory Facility (PPIAF)
• World Bank Guarantees
2
Private Participation in
Infrastructure and Bank
Strategy
Private participation is a key source of funding but is
cyclical and uneven across sectors and countries
1
2
PPPs mobilized
$170 bn of
investment (in
2010) compared to
about $95 bn in
resources from
MDBs and ODA (in
2009)
Addressing
challenges to
unlocking
enormous
potential requires
mobilizing
innovative
instruments and
increasing our
engagement
through different
approaches
3
4
Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org)
4
Banking sector conditions continue to deteriorate,
restricting access to commercial finance
Source: Emerging Markets Bank Lending Conditions Survey Q4 2011, Institute
of International Finance (IIF), January 2012

Euro crisis has weakened banking industry
and reduced risk appetite of private
financiers: Restrictive Credit Standards

European lenders are de-leveraging en
masse

BASEL III regulations are increasing
funding costs, particularly for long-term
non-recourse debt, discouraging loans at
project level

Lenders are operating under new model:
“Originate and Distribute”, “Do not
HOLD”

Risk Mitigation Instruments, such as
WBG Guarantees are key for keeping the
flow of private financing
5
The WBG is responding by scaling-up support to
the mobilization of private capital
Broad agreement on the need to
mobilize private sector capital:
Infrastructure Strategy Update calls for
the WBG to significantly increase its
private capital mobilization activities:
• Magnitude of the infrastructure investment gap
• Limited donor resources increases the importance of leveraging
the balance sheet (G-20)
• Double the amount of resources mobilized from other parties and
the number of PPP projects and advisory services by FY 2015
There are ongoing initiatives to scale
WBG support for PPPs by:
• Making PPP support a corporate priority
• Taking an integrated approach to PPP Projects (World Bank, IFC,
and MIGA)
• Modernizing the WBG instruments to support PPPs
• Improving the reporting of private capital mobilization activities
• Building key capacities in client countries
And new proposals to create the
required incentives within the Bank:
• Enabling a “Pipeline” and “Transaction” mindset for PPPs
• Providing Project finance training for staff
• Developing Operational Incentives to mobilize private capital
• Simplifying procurement guidelines
6
6
Transformation through Infrastructure
WBG Infrastructure Strategy, FY12-15
 Pillar 1 – Core Engagement

Mono-sector interventions to address access and growth

Driven by country demand and sector strategies

70/80% of WBG infrastructure business

Increased effectiveness in the areas of poverty, governance, gender and knowledge
 Pillar 2 – Transformational Engagement

Reaching out beyond the line ministries and traditional partners

Repositioning the Group in global forums to lead the infrastructure debate

Facilitating knowledge transfer between clients instead of merely generating it

Delivering a new type of project – those that optimize spatial, green, inclusive and cobenefits
 Pillar 3 – Mobilization of private capital to go beyond existing/own capital
 Alignment with regional programs through six Regional Action Plans
7
Private Participation in
Infrastructure by French
Companies
French private participation in infrastructure
projects in low- and middle-income countries (1/2)
Infrastructure projects with private participation from French firms
in low- and middle-income countries
2010 US$ billion
Number of projects
20
18
16
14
12
10
8
6
4
2
0
25
20
15
10
5
0
Montant des projets annulés
Investissements en milliards de dollars
Nombre total de projets
9
Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org)
French private participation in infrastructure
projects in low- and middle-income countries (2/2)
Breakdown by region (1990-2010)
13%
Breakdown by sector (1990-2010)
13%
17%
7%
10%
40%
9%
27%
2%
33%
28%
1%
East Asia and Pacific
Europe and Central Asia
Energy
Energy (cancelled)
Telecom
Latin America and the Carribean
Middle East and North Africa
Telecom (cancelled)
Transport
Water
Sub-Saharan Africa
Water (cancelled)
10
Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org)
Public-Private Infrastructure
Advisory Facility (PPIAF)
What is PPIAF?
 Multi-donor technical assistance grant facility
 Established in 1999 as a joint initiative of Japan, UK, WB
 Created to act as a catalyst to increase private sector investment in infrastructure in
low- and middle-income countries
 Provides technical assistance grants to governments in support of a sound enabling
environment to foster PPPs
 Infrastructure development strategies
 Designing and implementing legal and institutional reforms
 Building consensus
 Developing local capacity
 Supporting transactions
 Post-transaction assistance
12
PPP development process:
inception to implementation
PPIAF
PPIAF
Infrastructure
Development
Strategy
Legal/Inst’l
Reforms
PPIAF
Develop
Bidding
Documents
Local PPP
Capacity
Building
PPP
Procurement
PPP Closing/
Signing –
Negotiation of
contracts
PPIAF
Inception of
PPP Concept
Private Operator
Selected
Development of a PPP
PPIAF
Building
Consensus
Assess PPP
Options
Define
Transaction
Structure
Market to
Investors
PPIAF
Local PPP
Capacity
Building
PPIAF
Support for
Transactions
Partial Risk
Guarantee
13
Examples of PPIAF assistance in Burkina Faso
ENERGY SECTOR (2002–2005):
 Analysis of institutional and regulatory reforms for the power sector, including
creation of regulatory agency
 Draft Decree for the regulatory agency
OUTCOMES
 November 20, 2007: Law n° 027-2007/AN for
the Regulation of the Electricity Subsector
provides for the creation and functions of the
regulatory agency
 June 24, 2008: Decree no. 2008369/PRES/PM/MCE/MCPEA related to the
functions, organization, and functioning of the
regulatory entity
 April 16, 2010: Creation of Autorité de
Régulation du Sous-Secteur de l’Electricité
14
Examples of PPIAF assistance in Egypt
WASTEWATER AND INSTITUTIONAL REFORM (2007–2010):
 2007–2009 PPP options study and transaction support for the New Cairo Waste Water
Treatment Plant (WWTP) and 6th of October WWTP
 2008–2010 Diagnostic and Institutional Development Plan for Egypt’s Central PPP Unit
and review of draft PPP Law
OUTCOMES
 A 20-year concession contract, worth $482m,
was awarded in June 2009 for the New Cairo
WWTP; project reached financial closure in
February 2010
Central PPP Unit was reorganized
PPP Law enacted: Law No. 67 of May 2010
15
World Bank Guarantees
Value Added of World Bank Guarantees for
Private Participation in Infrastructure

Enable the flow of private investment for development

Bank involvement is generally in larger and riskier projects with
demonstrated developmental impacts

Facilitates access to domestic and international markets by enhancing credit
profile of public and private sector borrowers

Improve the viability of infrastructure projects by significantly extending debt
tenors and lowering cost of borrowing

Ensure the application of prudent environmental and social safeguards

Global expertise in developing, preparing, and executing projects in complex
and challenging environments

Bank: Country/sector relationships and leverage with client countries to
ensure project/investment sustainability

MIGA: Ability to mobilize significant re-insurance capacity in the market

IFC: Structuring and financing capabilities
17
World Bank Guarantees
Types:


Partial Risk Guarantees (PRGs): support private sector projects by covering
debt service default caused by government non-performance of its
contractual obligations to a specific investment project

IBRD & IDA Countries

IBRD Enclave (for export oriented projects) in IDA Countries

Debt (Loans/Bonds/Notes) & Shareholder Loans
Policy-Based Guarantees (PBGs) and Partial Credit Guarantees (PCGs):
support sovereign borrowing & public sector projects by covering a part of
the debt service default/credit risk of public-sector borrowers

IBRD Countries only

PBGs support budgetary financing (associated with policy reform operations), while PCGs
support financing of goods and services in investment operations

Debt (Loans/Bonds/Notes) & Shareholder Loans
18
Partial Risk Guarantees
Typical PRG Structure

PRGs cover lenders against
the risk of Government nonperformance of its
contractual obligations to a
specific project, including the
risk of non-payment by a
Government/SOE, regulatory
risk, expropriation risk, etc.

Kribi Power in Cameroon: PRG mobilized substantive local commercial financing –
extended tenors, thus opening new sources of financing for infrastructure

Bujagali Hydropower in Uganda: PRG made the project “bankable” – reduced
project risk, lower cost of capital; extended tenors
19
Cameroon – Kribi Gas Power Project
IDA PRG (Standard Coverage and PCG-like component) + IFC A Loan
Government of
Cameroon
Government
Commitment
Agreement
Local Loan Purchase
Agreement
Local Lenders have right to require
GOC to purchase loan at year 7 if
Local Loan cannot be extended
Indemnity
Agreement
Project Agreement
-Reps, warranties and
Covenants
-Good-faith obligation to
extend or refinance Local
Loan by year 7
PRG Guarantee Agreement
-Guarantee of payment by Government of Local
Loan’s share of specified Government obligations
under the Government Commitment Agreement
and Local Loan Purchase Agreement
IDA
Kribi Power Development Company
(Borrower)
DFI
FCFA
(Local
Currency)
Loan
Local
Loan
Agreement
Euro Loans
Guaranteed
FCFA
(Local
Currency)
Loans
Local
Lenders
(Beneficiaries)
Central African
Development
Bank
Other
DFIs
20
Kenya – IPP Projects
IDA PRG (Standby L/C Facility), MIGA PRI (Termination Coverage) and IFC Loans
IDA
Government of Kenya
(Ministry of Finance)
PRG Support
Agreement
Indemnity
Agreement
Off-taker
(Kenya Power and Light)
PRG
Guarantee
Agreement
Power Purchase Agreement
(PPA)
MIGA
Guarantee
Agreement
for PPA
termination
Project Company
(Borrower)
Standby
L/C
L/C Bank
(Beneficiary)
Loans
Project Agreement
Commercial
Lenders
Other
Development
Finance
Institutions
21
Uganda – Bujagali Hydro Power Project
IDA PRG + IFC A&C Loans + MIGA PRI
Government of
Uganda
IPS (K) controlled
SPV
Political
Risk
Insurance
SG Bujagali
Holdings Ltd.
Indemnity Agreement
Shareholders’
Financing
Government of
Uganda
Project
Agreement
IDA
Implementation
Agreement
PRG Guarantee
Agreement
Commercial
Lenders
Loans
Bujagali Energy Ltd.
(Borrower)
Power
Purchase
Agreement
(PPA)
Guarantee
Agreement
Uganda Electricity
Transmission
Company
(UETCL)
Other
DFIs
EPC
Contractor
EPC Contract
O&M Contract
O&M
contractor
22
22
Partial Credit & Policy-Based Guarantees

PCGs and PBGs guarantee a
portion of debt service to
lenders or bond holders,
regardless of the cause of
default

PCGs can be offered to
Governments, their political
subdivisions and state-owned
enterprises

PBGs can be offered to
Governments or their
political subdivisions

Moropule B in Botswana: By covering part of the debt service default, PCG
improved the terms of commercial debt – longer maturities and lower interest
costs – resulting in lower tariffs for electricity consumers.
Typical PCG Structure
23
Botswana – Moropule B Power Project
PCG to Improve Loan Conditions / First Co-guarantee Operation with a Bilateral Agency
Government of
Botswana
Equity
Investment
Botswana Power
Corporation
(Borrower)
Government Guarantee
Guarantee of 100% of Borrower’s
principal and interest payments to
ICBC
Export
Loan
Indemnity
Agreement
IBRD
Project Agreement
-Reps and warranties
-Covenants
IBRD Guarantee
-Guarantee of 100% of the Borrower’s principal
payments for the last 5years of the 20-year
financing, plus one interest payment
China Export
and Credit
Insurance
Corporation
(Sinosure)
Sinosure Guarantee
-Guarantee of 95% of the Borrower’s principal and
interest payments for the first 15 years of the 20year financing
Industrial and
Commercial Bank of
China (ICBC)
(Beneficiary)
24
Guarantee Pricing
25
Modernization of the Bank Guarantees
 Proposed reforms to enhance the use of Bank Guarantees
 Streamlining and consolidating policy requirements, removing unnecessary and
outdated restrictions
 Expanding the applicability of Bank guarantees
 Reforms will help the Bank to better respond to client needs and reflect
G20 discussions on the possible greater use of WBG guarantees
 Extending PCGs/PBGs to IDA-only countries
 Further aligning PRGs and PCGs with Investment Lending
 Further aligning PBGs with Development Policy Lending
 The Approach Paper, “Modernizing the World Bank’s Operational Policy on
Guarantees” outlines the proposed reforms
 Global consultations are underway until April 30; final OPCS-led Policy Paper is expected
in June
26
For further information on World Bank Guarantees please contact:
Pankaj Gupta
Manager, Financial Solutions Group
Sustainable Development Vice Presidency
The World Bank
office: +1 202 473 6188
mobile: +1 240 535 6969
e-fax: +1 202 614 1188
e-mail: pgupta2@worldbank.org
www.worldbank.org/guarantees