World BankAttracting Private Capital for Sustainable

Infrastructure Development

Presentation to French Business Delegation

March 2012

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Outline

• Private Participation in Infrastructure and Bank Strategy

• Private Participation in Infrastructure by French Companies

• Public-Private Infrastructure Advisory Facility (PPIAF)

• World Bank Guarantees

Private Participation in Infrastructure and Bank Strategy

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Private participation is a key source of funding but is cyclical and uneven across sectors and countries

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

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3

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Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org) 4

Banking sector conditions continue to deteriorate, restricting access to commercial finance

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

5Source: Emerging Markets Bank Lending Conditions Survey Q4 2011, Institute

of International Finance (IIF), January 2012

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The WBG is responding by scaling-up support to the mobilization of private capital

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• Magnitude of the infrastructure investment gap• Limited donor resources increases the importance of leveraging the

balance sheet (G-20)

Broad agreement on the need to mobilize private sector capital:

• Double the amount of resources mobilized from other parties and the number of PPP projects and advisory services by FY 2015

Infrastructure Strategy Update calls for the WBG to

significantly increase its private capital mobilization

activities:

• 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

There are ongoing initiatives to scale WBG

support for PPPs by:

• Enabling a “Pipeline” and “Transaction” mindset for PPPs• Providing Project finance training for staff• Developing Operational Incentives to mobilize private capital• Simplifying procurement guidelines

And new proposals to create the required

incentives within the Bank:

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Transformation through InfrastructureWBG 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 co-benefits

Pillar 3 – Mobilization of private capital to go beyond existing/own capital

Alignment with regional programs through six Regional Action Plans

Private Participation in Infrastructure by French Companies

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French private participation in infrastructure projects in low- and middle-income countries (1/2)

Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org)

02000400060008000

100001200014000160001800020000

0

5

10

15

20

25

Infrastructure projects with private participation from French firms in low- and middle-income countries

Montant des projets annulés Investissements en milliards de dollars Nombre total de projets

2010 US$ billion Number of projects

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French private participation in infrastructure projects in low- and middle-income countries (2/2)

Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org)

17%

10%

33%

27%

13%

Breakdown by region (1990-2010)

East Asia and Pacific Europe and Central AsiaLatin America and the Carribean Middle East and North AfricaSub-Saharan Africa

40%

1%28%

2%

9%

7%

13%

Breakdown by sector (1990-2010)

Energy Energy (cancelled) Telecom Telecom (cancelled) Transport

Water Water (cancelled)

Public-Private Infrastructure Advisory Facility (PPIAF)

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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

What is PPIAF?

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Development of a PPPInception of PPP Concept

Private OperatorSelected

Infrastructure Development

Strategy

Legal/Inst’l Reforms

Building Consensus

Local PPP Capacity Building

Support for Transactions

Assess PPP Options

Define Transaction

Structure

Market to Investors

Develop Bidding

Documents

PPP Procurement

PPP Closing/ Signing –

Negotiation of contracts

PPIAF

PPIAFPPIAF

PPIAF

Local PPP Capacity Building

Partial Risk Guarantee

PPIAF

PPIAF

PPIAF

PPP development process: inception to implementation

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. 2008-369/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

Examples of PPIAF assistance in Burkina Faso

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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 2010Central PPP Unit was reorganized

PPP Law enacted: Law No. 67 of May 2010

Examples of PPIAF assistance in Egypt

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World Bank Guarantees

Value Added of World Bank Guarantees for Private Participation in Infrastructure

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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

World Bank GuaranteesTypes:

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 Loans18

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Partial Risk Guarantees

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

PRGs cover lenders against the risk of Government non-performance of its contractual obligations to a specific project, including the risk of non-payment by a Government/SOE, regulatory risk, expropriation risk, etc.

Typical PRG Structure

Cameroon – Kribi Gas Power Project

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IDA PRG (Standard Coverage and PCG-like component) + IFC A Loan

Government of Cameroon

IDA

Indemnity Agreement

Local Lenders

(Beneficiaries)

Kribi Power Development Company(Borrower)

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

Local Loan Purchase Agreement

Local Lenders have right to require GOC to purchase loan at year 7 if Local Loan cannot be extended

Government Commitment Agreement

Local Loan

Agreement

Project Agreement-Reps, warranties and Covenants-Good-faith obligation to extend or refinance Local Loan by year 7

Other DFIs

Euro Loans

GuaranteedFCFA (Local

Currency) Loans

Central African Development

Bank

DFI FCFA (Local

Currency)Loan

Kenya – IPP Projects

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Government of Kenya(Ministry of Finance)

Off-taker(Kenya Power and Light)

Project Company(Borrower)

L/C Bank(Beneficiary)

Indemnity Agreement

Project Agreement

Standby L/C

PRG Support Agreement

Power Purchase Agreement (PPA)

L/C Reimbursement

and Credit

Agreement

PRG Guarantee Agreement

Commercial Lenders

Other Development

Finance Institutions

Loans

MIGA Guarantee

Agreement for PPA

termination

IDA

IDA PRG (Standby L/C Facility), MIGA PRI (Termination Coverage) and IFC Loans

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Bujagali Energy Ltd.(Borrower)

O&M contractor

EPC Contractor

Uganda Electricity Transmission

Company(UETCL)

Government of Uganda

Government of Uganda

IPS (K) controlledSPV

SG BujagaliHoldings Ltd.

IDA

CommercialLenders

Other DFIs

Uganda – Bujagali Hydro Power Project

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EPC Contract

Political Risk

Insurance

IDA PRG + IFC A&C Loans + MIGA PRI

Indemnity Agreement

Shareholders’ Financing

O&M Contract

PRG Guarantee Agreement

Loans

Project Agreement

ImplementationAgreement

Power Purchase

Agreement(PPA)

Guarantee Agreement

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Partial Credit & Policy-Based Guarantees

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.

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

Typical PCG Structure

Botswana – Moropule B Power Project

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PCG to Improve Loan Conditions / First Co-guarantee Operation with a Bilateral Agency

Government of Botswana

IBRD

Indemnity Agreement

Industrial and Commercial Bank of

China (ICBC)

(Beneficiary)

Botswana Power Corporation(Borrower)

IBRD Guarantee-Guarantee of 100% of the Borrower’s principal payments for the last 5years of the 20-year financing, plus one interest payment

Project Agreement-Reps and warranties-Covenants

Export Loan

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 20-year financing

EquityInvestment

Government GuaranteeGuarantee of 100% of Borrower’s principal and interest payments to ICBC

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Guarantee Pricing

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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

For further information on World Bank Guarantees please contact:

Pankaj GuptaManager, Financial Solutions GroupSustainable Development Vice PresidencyThe World Bankoffice: +1 202 473 6188mobile: +1 240 535 6969e-fax: +1 202 614 1188e-mail: pgupta2@worldbank.orgwww.worldbank.org/guarantees