Innovative Financing for Infrastructure: The Untapped Potential of Development Finance Institutions to Catalyse Private Investment African Middle-Income Countries Conference Cairo, March 11-12, 2008 Dr. Barbara C. Samuels II Executive Director, The - PowerPoint PPT Presentation

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Innovative Financing for Infrastructure: The Untapped Potential of Development Finance Institutions to Catalyse Private Investment African Middle-Income Countries Conference Cairo, March 11-12, 2008 Dr. Barbara C. Samuels II Executive Director, The

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Title: Innovative Financing for Infrastructure: The Untapped Potential of Development Finance Institutions to Catalyse Private Investment African Middle-Income Countries Conference Cairo, March 11-12, 2008 Dr. Barbara C. Samuels II Executive Director, The


1
Innovative Financing for Infrastructure The
Untapped Potential of Development Finance
Institutions to Catalyse Private Investment
African Middle-Income Countries Conference Cairo,
March 11-12, 2008 Dr. Barbara C. Samuels
II Executive Director, The Global Clearinghouse
President, Samuels Associates UN Financing for
Development Business Steering Committee
2
AGENDA
  • I. The Opportunities Changed Context of
    Development Finance
  • Huge Supply of Private Sector Capital New
    Sources of Finance
  • MDB Ability to Reduce Risk, Enabling Access to
    Private Sector Capital
  • Current Underutilized Role of MDBs in Crowding
    In Private Sector Capital
  • II. Enabling Factors Four Critical Roadmap
    Actions for MDB Effective Innovation
  • Reorient MDB Culture, Capital, and Skills
  • Expand MDB Risk Mitigation Activities, including
    Local Currency Products
  • Establish Investment Climate Building as a
    Central MDB Priority
  • Strengthen Investment Project Pipelines Country
    Macro Environments
  • III. Specific Structures Scaling Up with
    Partners
  • Case Studies Tajikistan Pamir Private Power
    Project, Uganda Umeme Ltd. Power Distribution
    Project, Nicaragua Wind Farm, Costa Rican Thermal
    Plant
  • A BluePrint for Scaling Up with Partners
    Regional Thematic Facilities (e.g., Water,
    Renewables, Subsovereign, etc)
  • IV. Next Steps Contacts

3
The Opportunities Changed Context of Development
Finance Potential Role of MDBs in Unlocking
Capital
  • Huge Supply of Private Sector Capital New
    Sources of Finance
  • Higher track record of private sector
    infrastructure finance versus ODA and MDB Support
    (high of US128 B in 1997 versus ODA US 60 B and
    MDB Loans US15 B)
  • Huge potential of institutional markets (e.g., US
    Market US13 T Developing Country Markets US
    13 T)
  • New Sources Infrastructure Funds, Foundations,
    Social Responsibility Investors example 72 new
    infrastructure funds expected to raise up to US
    120 B
  • Obstacles to accessing capital country
    regulatory and currency risks, lack of project
    development, weak country macro environment
  • Developing country governments recognize need for
    private sector capital donors are committed to
    aid effectiveness (UN Financing for Development,
    Paris Declaration)
  • MDBs have innate enabling functions risk
    mitigation due diligence on social and
    environmental concerns, project development
    support, supplementary programs to improve the
    macro environment
  • Current Underutilized Role of MDBs in Crowding
    In Private Sector Capital
  • Low MDB risk mitigation activity (only US2
    Billion in 2004)
  • Limited project development
  • Underutilized MDB Capital (unused committed
    capital up to US181B in 2004) if leveraged with
    private sector capital, could harness US 1 T for
    infrastructure finance!
  • Sources OECD Development Assistance Committee
    Online Statistics www.oecd.org. OECD
    Guaranteeing Development 2004 World Bank
    ppi.worldbank.org. World Economic Forum
    "Building on the Monterrey Consensus The
    Untapped Potential of Development Finance
    Institutions to Catalyse Private Investment,
    2006 Robert Bestani Infrastructures
    Unbalanced Equation, Euromoney Yearbook 2008
    R. Orr, Global Infrastructure Report, 2007,
    PFIE.

4
Roadmap 1 Reorient Culture, Capital, Skills of
Multilateral Development Banks (MDBs)
  • MDB Boards should shift capital, staff
    resources, and senior management attention to
    areas responsible for risk mitigation and
    capacity-building
  • Ensure capital gearing ratios for risk mitigation
    less than direct loans (41)
  • Increase staffing with needed flexibility to hire
    top quality skilled staff
  • For-profit culture of private sector operations
    of MDBs need to be aligned with the MDB
    development mission
  • Ensure Risk Management practices allow for needed
    risk-taking, albeit with prudent reserve accounts
    that protect credit ratings
  • New internal incentives and performance metrics
    should be established that align staff activity,
    training and promotion activities
  • Establish new criteria rewarding use of risk
    mitigation, project development activities,
    involvement of other donors and NGOs
  • Align with new OECD Development Assistance
    Committee Monitoring Evaluation Processes
  • MDB Risk Mitigation Infrastructure Staff
    invited to proactively participate in INFRADEV
    Network (sponsored by Swiss Government)
  • Broadcast MDB services improve effectiveness
    access to best practices
  • Improve communication and deal flow with
    government officials private sector
    infrastructure participants

5
Roadmap 2 Expand Risk Mitigation Activities as
Aid Multiplier of Official Sector Resources
  • Scale Up Official Sector Risk Mitigation
    Activities to mitigate specific impediments
    restricting developing country access to private
    sector capital for example
  • Partial guarantees such as partial credit and
    risk guarantees and first loss coverage
  • Targeted guarantees of regulatory and currency
    risks, such as Contingent Regulatory Partial Risk
    Guarantees and Foreign Exchange Liquidity
    Facilities
  • Output-Based Aid that enables subsidization of
    infrastructure tariffs for poor people who can
    not pay cost for basic services such as water and
    electricity
  • Develop and Scale Up Modern Financial Structures
    with successful track records in providing long
    term affordable finance from capital markets for
    example
  • Multilateral credit insurance facilities using
    the expertise of monoline credit insurers in
    financing sub sovereign and private sector
    infrastructure projects in developed countries
  • Multilateral securitization facilities such as
    CBOs, CLOs, and CDOs that diversify different
    investments with different cash flow streams,
    risks and returns to create lower-risk fixed
    income instruments (e.g., proposed Global
    Development Bonds for infrastructure projects)
  • Measure Enhanced Aid Effectiveness with New MDB
    Risk Mitigation Performance Measurement
    Indicators, adding to development impact
    assessment
  • Leverage of MDB Funds Amount and type of Private
    Sector Capital mobilized by risk mitigation
    services
  • Project Facilitation Role Amount and type of MDB
    Project Development Assistance
  • Harmonization Aid Effectiveness Coordinate
    with other MDBs, Donors, Foundations

6
Roadmap 2 Continued Include Expanded Risk
Mitigation Support for Local Currency Financing
  • Scale-Up Tenor Extensions Partial Guarantees,
    such as IFC/World Banks Municipal Fund,
    GuarantCo, and USAIDs Development Credit
    Authority (143 guarantees totaling US 419MM,
    mobilizing US 1 B in private investment in 41
    countries see USAID DCA Year in Review 2005)
  • Increase Local Currency Bonds, such as MDB
    issuance of local currency bonds
  • Scale up Pooled Funding, such as that provided by
    USAID in Tamil Nadu, India, using credit
    enhancements, partial guarantees and technical
    assistance that successfully leveraged official
    assistance with domestic private sector funds to
    have a larger development impact
  • Strengthen Local and Regional Sources of
    Development Finance, creating or restructuring
    existing development banks to include private
    sector capital and management in those countries
    and regions where commercial banks do not make
    needed finance available

7
Roadmap 3 Establish Investment Climate Capacity
Building as a Central MDB Priority
  • Create a step change in MDB funding to
    strengthen the enabling environment
  • Legal and regulatory frameworks (including tariff
    regimes and distribution systems)
  • Critical skill sets (accounting, auditing,
    business planning, project development
    management, credit analysis, dispute resolution)
  • Macro environment and sound institutions
    (property rights, contract dispute adjudication,
    bankruptcy frameworks, accounting auditing
    standards, corporate governance, banking
    supervision securities markets
  • Integrate private sector expertise on a more
    systematic performance basis
  • Building a market of experts and country clients
    that match needs with supply, working hand in
    hand with the private sector in response to
    country needs (and not donor country interests or
    tied aid policies)
  • Developing greater core expertise (e.g., SWAT
    Teams and Global Corps of Capacity-Building
    Experts), disciplined with open disclosures of
    client evaluations
  • Integration of demand-driven programmes into
    country fabric, developing customized country
    training programs with local institutions and
    business organizations, including
  • Official communication venues with the private
    sector identifying investment impediments and
    possible remedies ( e.g., use operational tools
    such as Government-Investor Networks)
  • Public benchmarking and development of market
    instruments that directly reward developing
    countries for improved investment climates (e.g.,
    ratings, indices, niche funds, etc.)
  • Leadership in first-time transactions, making
    funding available to cover the very large
    transaction costs associated with these first
    transactions, covering prohibitive legal and
    administrative expenses
  • Learn by doing transaction programs, using
    transactions as critical vehicles for learning
    by doing, effectively demonstrating to country
    government officials and stakeholders the
    imperative for change in the country environment
    (such as legal, regulatory and institutional
    frameworks) and enabling the identification of
    appropriate country-specific priorities.

8
Roadmap 4 Strengthen Investment Project
Pipelines with Project Development Support
  • MDBs need to pool and scale up project
    development funds, making them easier to access,
    utilizing appropriate experts from across the
    public and private sectors to identify quality
    projects and develop acceptable risk mitigating
    financial structures
  • Set Up Funds with Simplified Access
    (subsovereign, national, regional, and global),
    using technical assistance grants or revolving
    funds to finance the development costs of
    projects
  • Create Partnerships for Project Development with
    Experienced Private Sector or Research Entities
    that can collaborate with federal and state
    governments in identifying projects manage the
    procurement process for operators, service
    providers, and contractors
  • Create and Strengthen Regional and Local
    Development Financial Institutions that can
    assist in this process
  • Create Steering Committees of Experts to
    oversee the project development process and the
    development of appropriate policy, legislative,
    and regulatory frameworks
  • Establish Roving SWAT Teams of Experts who can
    respond quickly to private sector opportunities,
    help government officials determine how to
    approach the private sector and structure
    bankable deals, jump-start the project
    identification process, and help interested
    parties quickly access available funding

9
Applied to Infrastructure Projects MDB
Enabling Actions from Inception to Private
Sector Finance
  • MDB Support
  • Project Credit Rating
  • Improved Country Macro Environment
  • MDB Marketing
  • Roadshow
  • Private Sector Market Access
  • MDB Risk Mitigation
  • Regulatory Risk
  • Currency Risk
  • Other Political Risk Insurance
  • OBA
  • MDB Capacity Building for Ministries,
  • Regulatory Agencies, Sponsors

Financial Structuring of the Project
Construction of the Project
Project Idea
Bankable Project
Private Sector Term Finance
  • MDB Financial Support
  • Construction Loans
  • Equity Finance
  • Other Donors, Foundations
  • MDB Project Development
  • Feasibility Study
  • Technical Studies

10
Case Study 1 Tajikistan Pamir Private Power
Project
10mil., 40 years, at 0.75
Swiss Govt.
Govt. of Tajikistan
IDA
Output-based Financing of Lifeline Tariffs
10mil., 20 years, at 6.00
4mil.
5mil. grant
IDA Spread Account
Swiss Grant Account
4.5mil., 10 years, at 10.00
IFC
Average subsidy of 1.85cents/kWh per month for
50 kWhs in summer and 200 kWhs in winter
3.5mil. equity at 10.00 expected rate of return
Residential Consumers
Aga Khan Foundation for Economic Development
Pamir Energy Co.
Lifeline tariff of .25cents/kWh
8.2mil. equity at 10.00 expected rate of return
Consumers
Average tariff of 2.1cents/ kWh instead of
4.65cents/ kWh
11
Case Study 2 Uganda Umeme Ltd. Power
Distribution Project
  • Use of World Bank Partial Risk Guarantee to
    Protect Equity Capital
  • A PRG of US5.5 million was issued in support to
    the concessioning of the Uganda Electricity
    Distribution Companys (UEDCL) assets to Umeme
    Limited, a private consortium involving Globeleq
    Ltd and Eskom Enterprises, which is mandated to
    manage UEDCLs business for a period of 20 years.
    The PRG was issued for the benefit of Umeme Ltd
    to mitigate certain perceived regulatory and
    government agencies electricity payment risks.
  • Under the PRG structure, Umeme will have recourse
    to a Liquidity Facility in the form of a Standby
    Letter of Credit issued by Citibank Uganda
    Limited and backed by the World Bank PRG.
  • The PRG specifically provides protection in
    relation to the following issues.
  • Regulatory Framework events, including Non
    compliance by the Regulator of the pre-agreed
    tariff framework relating to the distribution
    tariff full pass through of the bulk electricity
    supply from UEDCL timely adjustments of tariffs
    (45 days after tariff submission)
  • Government Payment Arrears non-payment of GOU
    Agencies, Electricity Bills (60 days)
  • Termination Payments Buy out amount for
    un-depreciated investments resulting from Early
    Termination of the Concession due to Breach of
    Concession Agreements by GOU and its entities.
  • Source CEPA. PPIAF Mechanisms to Mitigate
    Regulatory Risk in Private Infrastructure
    Investments. Washington, D.C. PPIAF. 2005.

12
Case Study 3 Demo Project I - Proposed Structure
Power Purchaser (Nicaragua)
Project Company
Distributors and End-Users (Nicaragua)
Bondholders
Proceeds of Issue
Electric Power
Electric power
Debt Service Payments
Periodic Payments
Periodic Payments
Contingent FX Liquidity Facility
Partial Risk Guarantee
Government of Nicaragua
BCIE
Foreign Exchange Liquidity Facility
Commitment for Tariff Stability
13
Case Study 4 Demo Project II - Proposed Structure
State- Owned Electricity Agency
Trust (Power Generation Project)
Bondholders
Lease payments
Proceeds of bond issue
Lease
Beneficial Interest
Interest and principal payments
FX Liquidity Facility
PRG
PRI
Legal Owner of Trust
BCIE
14
Blueprint to Scaling Up with Partners Regional
Multilateral Bank Facilities Focused on Key Needs
INDIVIDUAL INFRASTRUCTURE PROJECTS
Project A
  • CHANNEL TO NEEDED PRIVATE SECTOR OTHER FINANCE
  • Institutional Investors
  • Banks
  • Infrastructure Funds
  • SRI Institutional and other High end Investors
  • Expatriate Investors
  • Foundations

MULTILATERAL DEVELOPMENT BANKS Regional Thematic
Facilities (e.g,. Water)
Project B
Project C
  • ENABLING ACTIONS
  • Create bankable projects
  • Project development assistance
  • Risk mitigation for regulatory, political, and
    currency risk
  • Subsidies, if needed
  • Improved macro environment
  • Align with other Donors Foundations
  • (Paris Declaration)

Project D
15
Next Steps Contacts
  • Spring Launch of INFRADEV Network, a
    one-stop interactive marketplace for risk
  • mitigation services with info on
    developing country infrastructure needs
  • INFRADEV Public Page to facilitate open access
    worldwide
  • Working INFRADEV Network for Designated
    Government Officials Responsible for
    Infrastructure, providers of risk mitigation
    products and other critical services, project
    sponsors
  • Suggestions on content members, please email
    infradev_at_globalclearinghouse.org
  • Preparing for UN Financing for Development
    Business Forum
  • Suggested Messages, Models, or Actions to Advance
    Development Finance?
  • Interested in other Financing for Development
    Tools Government-Investor Networks Global
    Investment Info Portal?
  • Contact Barbara_at_globalclearinghouse.org
  • Contact Other Africa Infrastructure Initiatives
  • Hubert Danso, hdanso_at_aiaprojects.com,
    www.africaninfrastructure.com
  • Background Info
  • "Building on the Monterrey Consensus The
    Untapped Potential of Development Finance
    Institutions to Catalyse Private Investment,
    World Economic Forum 2006. http//www.weforum.org/
    pdf/Initiatives/monterrey2006_summary.pdf
  • Review of Risk Mitigation Instruments for
    Infrastructure Financing and Recent Trends and
    Development PPIAF 2007 http//www.ppiaf.org/Tren
    dspolicyseries/Riskmitigationinstruments.pdf

16
APPENDIX
  • INFRADEV NETWORK Global Public Tool to be
    launched in Spring 2008 for enhancing Official
    Sector Effectiveness in collaborating with
    Developing Country Governments, and Private
    Sector Infrastructure Participants
  • INFRADEV Welcome Page
  • Example of Country Infrastructure Program Egypt
    - PPP Unit, Ministry of Finance
  • Example of Risk Mitigation Service AfDB Partial
    Risk Guarantee
  • Example of Leading-Edge Transaction Celtel Kenya
    Ltd. Telecommunication Project
  • Underutilized MDB Capital
  • Up to US 181 Billion in Unused MDB Committed
    Capital as of December 31, 2004
  • From 2000-4, MDB Total Capital is Up 68B vs
    Usage Down 7B
  • Unused MDB Capital is Up 74 vs ODA 46 from
    2000-2004
  • Source "Building on the Monterrey Consensus
    The Untapped Potential of Development Finance
    Institutions to Catalyse Private Investment,
    World Economic Forum 2006.

17
infradev
  • Welcome to the Clearinghouse of Risk Mitigation
    Tools for Developing Country Infrastructure
    Finance
  • mobilizing private sector financing with
    private-public risk-sharing
  • The INFRADEV NETWORK is committed to improving
    the process of risk sharing between public and
    private sector organizations to provide
    developing countries better access to private
    sector capital, especially international and
    domestic bond markets for infrastructure projects
    -- critical for increased economic growth, job
    creation, and improved living standards.
  • We invite you to browse through this site and
    learn more about infrastructure finance in
    developing countries
  • If you have a question or comment, or you need
    additional help, please contact the network
    administrator
  • DEMAND FOR RISK MITIGATION FINANCE AND
    TECHNICAL ASSISTANCE
  • Developing Country Government Officials voice the
    infrastructure needs of their home country and
    present infrastructure projects under development
    to access finance and risk mitigation.
  • SUPPLY OF RISK MITIGATION NEW TYPES OF FINANCE
    AND OF PROJECT DEVELOPMENT ASSISTANCE
  • Public and Private Risk Mitigation and New
    Finance Providers present their Risk Mitigation
    Products.
  • Public and Private Technical Assistance and
    Training Providers present their Project
    Development Assistance Services.
  • SUCCESSES LEADING-EDGE TRANSACTIONS
    DEMONSTRATING THE USE OF RISK MITIGATION
  • Selected completed infrastructure transactions
    illustrate how risk mitigation and new types of
    finance can be used to achieve better access to
    private capital for infrastructure projects.
  • RISK MITIGATION BACKGROUND AND RATIONALE
    INFORMATION RESOURCES
  • If you are a
  • Host Government Official Responsible for
    Infrastructure
  • Project Sponsor or
  • Expert on Risk Mitigation or Infrastructure
    Finance
  • please CLICK HERE

If you are a INFRADEV Member Please click here
18
Demand for Risk Mitigation Country
Infrastructure Program Project Database
19
Supply of Risk Mitigation Risk Mitigation
Product Directory
Please note This profile is built based on
publicly available information.
Profile continues
20
Successes of Risk Mitigation Leading Edge
Transactions Database
21
Key Member Categories Represented in the INFRADEV
Network
22
IBRD
ADB
AfDB
IDB
EBRD
Source "Building on the Monterrey Consensus The
Untapped Potential of Development Finance.
Institutions to Catalyse Private Investment,
World Economic Forum 2006.
23
From 2000-4, MDB Total Capital is Up 68B vs
Usage Down 7B
Source "Building on the Monterrey Consensus The
Untapped Potential of Development Finance
Institutions to Catalyse Private Investment,
World Economic Forum 2006.
24
Unused MDB Capital is Up 74 vs ODA 46
Source "Building on the Monterrey Consensus The
Untapped Potential of Development Finance
Institutions to Catalyse Private Investment,
World Economic Forum 2006.
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