Jlu Lusaka Final
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Transcript of Jlu Lusaka Final
MIGA and World Bank Group Guarantee Instruments for Multi-Country Projects
June 2007
2MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Agenda
The World Bank Group and MIGA
MIGA Guarantees
MIGA in Africa
IDA/IBRD Guarantees
Case Study: Nam Theun 2
The World Bank Groupand MIGA
4MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA… a member of the World Bank Group
1988 MIGA Multilateral Investment Guarantee Agency
Promotes FDI with the use of guarantees and online services
1944 IBRD International Bank forReconstruction and Development
1960 IDA International Development Agency
1956 IFC International Finance Corporation
1966 ICSID International Center for the Settlement of Investment Disputes
5MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
World Bank Group Instruments
IFC MIGA IBRD/IDA
IFC A-Loan
IFC B-Loan
IFC C-Loan
IFC Guarantees (partial credit
structures usually for local
financing)
Interest Rate and Currency Swaps
Political Risk Insurance
expropriation
transfer restriction
breach of contract
war & civil disturbances
Guarantees
partial risk
partial credit
IBRD Loan
IDA Credit
Tech. Assistance
MIGA Guarantees
7MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA Mission
To promote foreign direct investment
(FDI) into developing countries to help
support economic growth, reduce poverty,
and improve people's lives.
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MIGA helps investors by providing:
Non-commercial risk insurance (guarantees) for investors
and lenders
Dispute mediation services, to remove possible obstacles
to future investment
Online information on investment opportunities and
operating conditions in developing countries
9MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA attracts and retains private
sector investments
Attracts private sector funding into the
country
Ensures best practice environmental and
social safeguards for projects
Guarantee does not create additional
liability to government than it would
otherwise have– Host Country Approval does not contradict
this
– Subrogation to MIGA in the event of a claim
Honest mediator in the event of dispute
MIGA Value Added to Government
10MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA Value Added to Private Sector Investors
Credit enhancements– Improved access to financing
– Extended tenors of capital; and
– Often reduced capital and financing costs
Greater Confidence. The World Bank Group “umbrella” has a
deterrent effect against government actions that could disrupt
investments. MIGA can influence the resolution of potential disputes
between investors and host governments, thereby preventing claims
Extensive Knowledge– Unparalleled knowledge of emerging economies through
extensive resources of the World Bank Group
– Ensure environmental and social safeguard standards are met
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MIGA Guarantees: Four Coverages
1. Currency transfer and inconvertibility– Protects against losses arising from:
• Inability to convert local currency into foreign exchange
• Inability to transfer
2. Expropriation: government action(s) which deprives the
guarantee holder of ownership or control of the guaranteed
investment or deprives the guarantee holder of a substantial
benefit of the investment
– Protects against losses arising from:
• Nationalization and confiscation
• Creeping expropriation
• Partial expropriation (expropriation of funds)
12MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA Guarantees: Four Coverages (cont.)
3. War and civil disturbance– Protects against losses arising from:
• Damage/disappearance of tangible assets (including revolution, insurrection, coups d'état, sabotage, and terrorism)
• Prolonged business interruption
4. Breach of contract: failure of the host government to honor an
arbitral award following a breach of contract
– Protects against losses arising from:• Breach or repudiation of a contract between the investor and the Host
Country authorities (Non-enforcement of an arbitration award is a prerequisite)
– Applied to breach of supply/take-off contract, a license agreement, etc., and breach of a sub-sovereign guarantee obligation
13MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA Outstanding Portfolio Distribution
$5.4 billion
by Sector
InfrastructureFinancial
Oil, Gas and MiningAgribusiness & Manufacturing
Tourism and Services
413314
76
%
by Host Region
Europe & Central AsiaLatin American & Caribbean
Sub-Saharan AfricaAsia & the Pacific
Middle East & North Africa
47201614
5
%
Gross Exposure, as of June 30, 2006
14MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA Outstanding Portfolio Distribution
Top Investor and Host Countries, as at June 30, 2006
GrossInvestor Country Exposure
(%)
Austria 19.1
France 17.7
United States 8.4
Czech Republic 5.9
Cayman Islands 5.2
Netherlands 4.2
Spain 4.1
South Africa 3.9
Japan 3.6
Egypt, Arab Rep. of 2.9
Total 75 %
Gross
Host Country Exposure
(%) $M
Russian Federation 10.0 536
Bulgaria 7.4 396
Serbia and Montenegro 7.3 393
Mozambique 4.9 264
Romania 4.9 262
Bosnia and Herzegovina 4.3 231
Brazil 4.2 227
Ghana 3.4 184
Ukraine 3.3 176
Croatia 3.1 164
Total 52.8 % $ 2, 833
MIGA
In Africa
16MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA’s strategy in Africa
Provide access to investors in countries perceived to be
high risk, particularly in infrastructure– Support to frontier markets and conflict-affected countries
through guarantees
– Focus on strategic collaboration with existing facilities and trade agreements such as NEPAD, BOAD, AGOA
– Help attract investments through implementation of outreach programs and technical assistance
– Increase knowledge of investment opportunities through sector/country benchmarking, online information services
17MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
FY04Coverage Issued, $1.1 B
Africa12%LAC
5% Asia9%
MENA7%
ECA67%
Africa14%
LAC19%
Asia12%
MENA10%
ECA46%
FY06Coverage Issued, $1.3 B
MIGA’s Africa portfolio
FY06Africa Exposure, %
Infrastructure 40%Financial 2%Oil, Gas & Mining 23%Tourism & Services 12%Agribusiness & Mfg. 23%
Last fiscal year, Africa was MIGA’s top destination for projects in terms of guarantees issued (21 contracts supporting 13 projects)
18MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
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Guarantees Issued in Africa by Country, Since Inception
MIGA’s Africa portfolio
19MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
MIGA’s Selected Projects in the Africa region
Guarantee
Holder
Project Name Host
County
Investor
Country
Description*
Proparco Barclays Bank of Ghana,
Ltd.
Ghana France Loan to Barclays Ghana to
support manufacturing enterprise
(Polytank Ghana) Ltd.
Barloworld
Equipment (UK)
Barloworld Equipamentos
Angola Limitada
Angola United
Kingdom
Earthmoving equipment
dealership
DAGRIS Société Cotonnière du
Gourma
Burkina Faso France Cotton ginning
Intertek SL Intertek Sierra Leone United
Kingdom
Scanning equipment for port
IDC of South Africa Agriflora Ltd. Zambia South Africa Agriculture company
Mr. Chatthe, IDC Kibos Sugar and Allied
Industries Limited
Kenya UK, S. Africa Sugar factory
Ericsson Vee Networks Ltd. Nigeria Sweden Equipment supply for GSM
mobile telephone network
Note: Full descriptions available on miga.org and MIGA annual reports.
IDA/IBRD
Guarantees
21MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
World Bank Guarantees: Key features
IBRD/IDA balance sheet
available to all countries eligible for borrowing from IBRD or IDA
Bank Guarantees back government obligations
Bank Guarantees cover private debt against a government’s (or government entity’s) failure to meet specific obligations to a private or public project
mobilize private sector participation and help catalyze debt with extended maturities and lower financing costs
flexibility – structured to meet borrower and project requirement
an integral part of Country Assistance Strategy
counter guarantee from Member Country– Bank Articles requirement – indicates project priority for Government and Bank
benefits from the ongoing sector and country engagement of the Bank
22MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
World Bank Guarantees: Benefits
to governments…
catalyzes private financing for key sectors such as infrastructure
provides access to capital markets as well as commercial banks
reduces cost of private financing to affordable levels
facilitates privatizations and public private partnerships
reduces government risk exposure by passing commercial risk to the private sector
encourages cofinancing
to private sector…
reduces risk of private transactions in emerging countries
mitigates risks that the private sector does not control
opens new markets
improves project sustainability
23MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Types of IDA or IBRD Guarantees
Partial Risk Guarantees (PRGs) –in support of private
projects:
– Cover debt amounts against specific risks
Partial Credit Guarantees (PCGs)- in support of public
projects:
– Cover part of bond/loan repayments against all risks
Policy Based Guarantees (PBGs) – in support of
development policy operations:
– Cover part of bond/loan repayments against all risks
24MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Partial Risk Guarantees (PRGs):
Cover private lenders against the risk of a public entity failing to perform its obligations with respect to a private project.
PRG reinforces obligations of the Government – does not add to them.
Structured to provide minimum coverage necessary to mobilize private financing
The World Bank also offers enclave guarantees which are PRGs structured for export oriented foreign exchange generating commercial projects in IDA-only countries.
A flexible instrument – various structures available
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PRG Covered Risks:
tariff
regulatory risk
collection risk
arbitration
change in law
convertibility
transferability
subsidy payments (e.g. Output-Based Aid)
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Cover private lenders against all risks during a specific period of the financing term of debt for a public investment
Specially designed to extend maturity and improve market terms
Lengthen the maturity of the private debt financing beyond that available in private markets by covering a part of the scheduled repayments of private loans or bonds against all risks
PCGs are flexible, allowing different structures for meeting different client needs, such as:– Bullet guarantee– Latter maturities– Rolling non-reinstatable– Amortizing syndicated loan
At present, partial credit guarantees are available only for countries eligible for loans from IBRD.
No overlap with MIGA or IFC instruments
Partial Credit Guarantees (PCGs):
27MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Guarantees cover lenders in the event that the Government does not meet its commitments
Counter-guarantee of the member country is normally in the form of an Indemnity
Agreement.
Commercial Lenders
Project Company
Government
GuaranteeAgreement
Indemnity Agreement
Project Agreement(Government Undertakings)
Loans
World Bank
Guarantee Structure Requires Counter-Guarantee
28MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
If a guarantee is called under the Guarantee Agreement, IBRD/ IDA has the possibility to demand immediate reimbursement of amounts paid under the Guarantee Agreement including interest; and
In the event of a default to reimburse, IBRD/IDA may trigger a cross default affecting the country’s entire portfolio (risking a suspension on current loans and credits).
Call on a Guarantee
29MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
The host government’s indemnity of the World Bank
does not increase the government’s liabilities when the
government is already directly obligated to the private
sector on the same liabilities.
WB Guarantees Do Not Increase the Government’s Contingent Liabilities
IFC MIGA IBRD/IDA
Products Partial Credit Guarantees
Hedges for clients
(interest rate, currency
and commodity swaps)
Non-commercial risk
insurance
PRG – IBRD & IDA
PCG & PBG – IBRD Only
Loans Yes Yes Yes
Equity
(Quasi-Equity)
Yes Yes No
Coverage (Risk) Full and timely payment
of principal and/or interest
up to a specified amount -
IFC covers all risks that
may result in non-
payment of a client’s
obligations.
Currency
convertibility and
transferability
Expropriation
War and Civil
Disturbance (incl.
terrorism and
sabotage)
Breach of Contract
Government contractual
Obligations including:
Currency convertibility and
transferability
Expropriation
Political Violence
Breach of Contract
Regulatory
Subsidy payment (e.g. OBA)
Comparison of World Bank Group Risk Mitigation Instruments
IFC MIGA IBRD/IDA
Guaranteed
Percentage
Determined on a case by case
basis.
Debt: up to 95%
Equity: up to 90%
Up to 100% of a tranche
Eligibility Must be a member country Must be a member country Must be a member
country
Tenors Market based but IFC’s
involvement can lengthen tenors
Up to 15 years (20 years in
some cases)
Market based
Limits Based on client’s needs Project: up to $190mm (net)
Country: up to $600mm (net)
Based on project and
country needs and CAS
allocation.
Priority Areas
of Focus
All IFC recipient member countries.
Providing long-term local currency
financing and development of
domestic capital markets.
Africa
IDA eligible countries
South-South investments
SMEs
Infrastructure
IDA eligible countries
Government
Counter
Guarantee
No No Yes
Public Sector
Projects
No No Yes
Collaboration Joint project preparation, environmental analysis, Board processing, etc.
32MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
PRGs can be considered in the following situations:
– Sectors in early stages of reform
– Larger size/riskier operations
– Operations highly dependent on support/undertakings of governments
– Clout of the Bank needed
Joint transactions
Coordination
Guiding Principles on Deployment of WBG Risk Mitigation Instruments
Case Study
Nam Theun 2 Hydroelectric Dam
(Laos and Thailand)
34MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Nam Theun 2: Overview
US$ 1.45 billion,1070 MW project in Lao PDR, the largest ever foreign investment in the country.
The project is being implemented by Nam Theun 2 Power Company limited (NTPC), which was established as a limited liability company.
As part of the Concession Agreement (CA), NTPC will develop, finance, construct and operate the plant system.
After a period of 25 years, the plant will revert back to the Government of Laos (GOL).
NT2 will primarily export electricity to EGAT of Thailand. About 5% would be for domestic use.
35MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Project identified in the 1980s.
Concession awarded in 1993.
Project subject to a long anti-dam campaign.
Project preparation discontinued following Asian financial crisis (1997).
Preparation resumed successfully in 2001 when the parties agreed on a mutually binding set of actions to reach financial close.
Since 2001, extensive due diligence has been undertaken by project participants.
Took about 4 years of preparation (2001-2005)
Financial Close - June 15, 2005.
Nam Theun 2: Background
36MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Largest private financing in the region at the time.
Non-availability of US$ debt (about 500m) w/out cover.– Export Credits– Political Risk Guarantees– Direct US$ loans– EGAT credit risk– Tenors and pricing
Availability of THB debt (about US$ 500m equivalent).– Non availability of long-term fixed-rate debt– Project location outside Thailand
Cross Border Risk
Funding for GOL Equity (about US$ 90m); HIPC
Nam Theun 2: Financing Challenges
37MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
The project generates revenues (US$ 80 million on average), through socially and environmentally sustainable development of NT2’s hydropower potential.
NT2 revenues finance Lao PDR's poverty reduction and development strategy, key elements of Lao PDR's NGPES and the GOL’s MDG targets in 2015 (about 3% to 5% of gross revenues).
The use of NT2 revenues for these purposes was envisioned in the Decision Framework agreed between the GOL and the Bank in 2001 and reiterated in the Government's Letter of Implementation Policy (GLIP) in 2005.
Nam Theun 2: Rationale for Bank involvement
38MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
IDA Grant– To finance E&S expenditures (as GOL Equity in
NTPC)
IDA Guarantee– To mobilize private capital by mitigating Lao PDR
political risks– Covered GOL obligations under project documents
IDA Credit to GOL for associated impacts – LeNs
MIGA guarantee– Covered key Thai & Lao political risks
Nam Theun 2: Bank Group Support
39MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Nam Theun 2 project has a standard emerging market power
project finance structure … A SPC (NTPC) to implement the project on a BOOT
basis under a limited recourse finance scheme A turnkey construction contract A Concession Agreement with the Government of Laos A main PPA with EGAT as offtaker and a PPA with EdL
Nam Theun 2: Classic Project Finance Structure
40MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Nam Theun 2 Power Company Limited (“NTPC”) is a Lao company established in Aug. 2002 by :
35% EDF International (EDFI)
25% Electricity Generating Public Company Limited (EGCO)
25% Government of the Lao PDR (GOL)
15% Italian-Thai Development Public Company Limited (ITD)
EDF is acting as Head Contractor, managing three Civil Work subcontracts and two Electromechanical Works subcontracts.
EDF & EGCO are also providing personnel & technical assistance
Experienced sponsors brought development expertise
41MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Meeting Lenders’ requirements under an acceptable project framework, risk allocation and timeframe
2004-05 prevailing financial market conditions were attractive
high liquidity in bank market, relatively low interest rate environment & few good power projects in the region to attract investments
but Lao risk assessment led to full political risk cover requirement from Lenders & standard emerging market contractual risk allocation
Sponsors require effective financing phase management and timely completion of financing plan
the project financing plan was clear and adequately structured from the outset, project agreements were detailed and based on international standards
these conditions, under proper management, contributed to a smooth and relatively brief financing phase (15 months)
Timely project development is possible with appropriate expertise
42MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
The finance plan is built on a limited recourse project finance scheme
Substantial financing amount required: raising USD 1,581 million eq. in a country without access to commercial funding
The Project finance plan revolves primarily around MLAs, BLAs and ECAs to allow the Project bankability given
the quantum of financing required
the perceived sovereign risks
Laos unproven track record re. private investments
Strong involvement of Thai commercial banks to allow local currency funding and mitigate forex risk
A suitable response to allow a smooth financing phase
43MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Early market sounding has shown expectations from
ECAs and commercial banks for a strong IFI / World Bank
involvement in the Project to ensure compliance with highest E&S standards to share or cover political risk
Involvement of the World Group from 1995 substitution of MIGA for IFC due to lack of attractiveness of
“B” loans post Asian crisis
Involvement of the ADB from 2002
ADB and MIGA provide pioneering dual-country PRI to accommodate the cross-border nature of the deal
A requirement for MLA support
44MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Diverse ECA, MLA and BLA & Thai commercial banks participation
World Bank Group and ADB were joined by ECAs upon selection of the electro-mechanical equipment suppliers
Coface (France) EKN (Sweden) GIEK (Norway)
Nordic Investment Bank (a MLA)
and by other institutions to complete the finance plan AFD (French Agency for Development) Proparco (subsidiary of AFD) Thai Exim
All acted as either PRI providers (PRI and commercial risk cover from ECAs) or direct lenders.
Commercial facilities were allocated to 7 Thai banks and 9 international banks on a club-deal basis.
7 Thai commercial banks provide in THB half of the long term loan facilities, and together with Thai Exim, all of the US$131 m. long term L/Cs
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The finance plan comprises 27 financial institutions: 5 MLAs; 4 ECAs; 2 BLAs; 16 Thai & international commercial banks.
d. to d. tenor: USD 16.5 yrs
THB 15 yrs i.e. up to 12 year repayment
Resulting Financing Structure
… complex but detailed preparation enabled timely financial close
46MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Contractual Structure
LHSE EGCO EDFI
Nam Theun 2 Power Company
Shareholders Agreement & Equity
Head Construction Contract
EM1 & EM2 CW1, CW2, &
CW3
Construction Sub-Contracts
GOL EGAT EDL
EGAT PPA
EDL PPA
Concession Agreement
Technical Services and Management Services
Agreements
GOL Undertaking
ITD
ECAs
MIGA
Loans
PRG / PRI
ESCO Multilateral & Bilateral Agencies
US$ Banks
World Bank
THB Banks
EIB
ADB
GOL Equity Funding
AFD
EDF
Shareholders’ Agreement
Coverage
47MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Global Financial Stake in NT2
WB (US$ 62 million); MIGA (US$ 42 million); ADB (US$ 110 million)
EIB and NIB (about US$ 85 million)
European ECA’s (US$ 200 million)
French Development Agencies (US$ 60 million)
Nine International Dollar Banks (US$ 500 million)
Seven Thai Commercial Banks (US$ 500 million equivalent)
Thai Exim (US$ 30 million)
48MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Summary: Issues and Solutions
Lao Government budget limitations
Limited Environmental and technical capabilities of Laos
USD1.5 B cost
Commercial Lenders would not assume Political risks in Laos or Thailand
Public Private Partnership
WB advisory and technical assistance + experienced international power developer: EDF
Project Finance scheme
Political Risk Guarantees
ISSUES SOLUTIONS
49MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Summary: Risk Allocation
Risks associated with relationship between Laos and Thailand leveraged through contractual obligations of both governments
Additional leverage created through equity ownership by state-owned power companies of both countries
Social and environmental problems resolved through the involvement of the World Bank
Laos state-owned company enabled to make its equity contribution by using IDA funds
Project developed with 80% debt-to-equity ratio. Debt arranged by 9 leading commercial banks along with guarantees from MIGA, PRG, ADB and ECAs
Some funds provided by Thai banks
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Summary: MIGA Value Added
Assisted in: syndication of larger amount of funds by Fortis bank and extension of finance period
Provided customized solution to multi-country risks: MIGA covered not only political risks in Laos but risks in Thailand (breach of the purchase agreement between the project and Thai state-owned company, EGAT)
Collaborated with sister agencies MIGA worked side by side with ADB and PRG to provide equal playing field for other arrangers
51MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Key Lessons Learnt...for Large Hydros
MIGA and PRG Lenders were made accountable for Prohibited Activities undertaken by Company and/or Head Contractor
MIGA and PRG provide appropriate risk mitigation for large private hydropower schemes.– Political risks– Cross border risks
Optimization of the Financing Package is essential.– Over-commitment by lenders/guarantors– Over 25 project participants– Number of overlapping institutional requirements– Inter-guarantor and lender coordination
52MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
Key Lessons Learnt...for Large Hydros
Long arduous negotiations on the Concession
Concession deemed “fair” by all parties.– Inclusion of detailed E&S obligations in concessions
could be replicated in future large infrastructure projects
Due Diligence should be of high quality– Fine balance between requirements and cost
implications
Common E&S regime acceptance by all lenders and
guarantors facilitates project implementation
– Harmonization of IFI safeguards requirements is a replicable innovation
53MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
For more information
Jason Lu
Senior Underwriter
www.miga.org