MIGA A Multilateral Risk Mitigator

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MIGA A Multilateral Risk Mitigator June 22,
2005 Ileana Boza Baltimore
WORLD BANK GROUP MULTILATERAL INVESTMENT
GUARANTEE AGENCY
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World Bank Group
WORLD BANK GROUP
1944
1960
IDA
IBRD
Loans to govts.
1988
1966
ICSID
MIGA
PRI, tech. asst., IPAs
IFC
1956
Loans equity
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NON-COMMERCIAL RISKS
Non-Commercial Risk
Investors/ FinancialInstitutions
CommercialRisk

• 758 guarantees for projects issued in 86
  developing countries
• more than 14 billion in coverage.
• MIGA's gross exposure totals 5.5 billion.

Non-Commercial Risk

• Coverages
• Transfer Restriction and Currency
  Inconvertibility
• Expropriation
• War and Civil Disturbance
• Breach of Contract

Cross border
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Non-Commercial Risks How Real?
NON-COMMERCIAL RISKS

• Increased geopolitical instability in recent
  years has heightened investor awareness of
  political risks
• Recent investor experience includes
• repossession of privatized assets
• defaults on government obligations
• revocation of concessions given by previous
  governments
• financing difficulty for new projects
• contract frustration due to inadequate legal
  regulatory frameworks
• Risk arena widening, as sub-sovereign partners
  increasingly involved

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Non-Commercial Risks How Real?
NON-COMMERCIAL RISKS

• Claims history of public insurers since the
  70s, 402 claims for US1.9 billion
• 14 Transfer Restriction
• 37 Expropriation
• 49 War and Civil Disturbance
• Recent events
• 1997 - Indonesian government cancels 27 power
  purchase agreements (MIGAs first claim)
• 1998 - Russian Government issues a 90-day
  moratorium on private foreign capital payments
  projects insured by MIGA are exempted
• 2002 - Argentina currency crisis loans insured
  by multilateral and bilateral organizations are
  not subject to new currency exchange and transfer
  restrictions
• 2004 Venezuela controls moratorium

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Types of Political Risk Coverage
GUARANTEE PROGRAM

• Currency transfer restriction and
  inconvertibility protects against losses arising
  from
• inability to convert local currency into forex
  for transfer outside the host country
• excessive delays in acquiring forex (currency
  depreciation not covered)
• Expropriation protects against losses arising
  from
• nationalization and confiscation
• creeping expropriation, partial expropriation
  (limited coverage)
• non-discriminatory measures not covered
• War and civil disturbance protects against losses
  arising from
• damage/disappearance of tangible assets due to
  war or civil disturbance (including revolution,
  insurrection, coups d'état, sabotage, and
  terrorism)
• business interruption when investment is a total
  loss
• Breach of contract Protects against losses
  arising from
• breach or repudiation of a contract with the
  investor
• non-enforcement of an arbitration

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A Risk Management Tool
THE VALUE OF MIGAS PRI

• CREDIT ENHANCEMENT
• improves the overall risk-return profile of the
  project
• reduces provisioning requirements for lenders and
  expansion of country limits
• Facilitates access to finance, lowers cost of
  financing and extends tenors
• Enables investment grade ratings and allows bonds
  to pierce sovereign ceiling
• CONFIDENCE
• deterrent against host government interference
• gives investors confidence in investing in new
  frontier markets
• STABILITY
• provides stable environment for business
  operations
• VALUE ADDED
• MIGA complements not competes with public and
  private insurers
• capacity to act as lead arranger with
  private/public insurers
• helps mobilize insurance capacity and encourage
  other insurers to go into frontier markets and
  for longer terms

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THE VALUE OF MIGAS PRI
Our Unique Strengths

• Pre-Claim Efforts
• Leverage with Host Countries, our members
• Mediation helps clients by preventing
  cancellation of projects
• Good Offices for impartial mediation
• Claims paid when reasonable mediation fails
• Umbrella of deterrence ability to resolve
  pre-claim situations to satisfaction of investor
  (consequently only 3 claims paid in 16 years,
  fully recovered)
• Objective intermediary between governments and
  investor countries
• Extensive resources and in-depth knowledge of
  emerging economies from all parts of World Bank
  Group

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Gross Exposure (as of April 30, 2005)
GUARANTEE PORFOLIO
Regions
of portfolio
Sectors
of portfolio
Europe Central Asia Latin American
Caribbean Asia Sub-Saharan Africa Middle East and
N. Africa
Financial Infrastructure Oil, Gas,
Mining Agribus.,Mfing, Services
43 27 12 16 3
40 36 10 14

• Top Five Largest OutstandingCountry Exposures
  MM
• Brazil 10.0 533.1
• Bulgaria 7.0 375.1
• Croatia 6.2 329.4
• Serbia and Montenegro 6.2 326.9
• Romania 6.0 319.8
• Total 35.4 1,884.3

Top 6 Investor Countries Percentage Share of
Outstanding Portfolio Austria 25.4 United
States 12.6 France 12.2 Spain
5.0 Netherlands 4.8 Czech Republic
4.6 Total 64.6
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Terms and Conditions
TERMS

• Eligibility New cross-border investments (min.
  3 years)
• Investment types
• Equity
• Shareholder loans
• Loan guaranties
• Loans from financial institutions
• Non-shareholder loans
• Non-equity direct investment
• Tenors Coverage up to 15 years (on occasion 20
  yrs)
• Amounts MIGA typically can arrange cover for
  all amounts (no minimum size), either on its own
  books or through co/reinsurance
• Coverage Equity covered up to 90 Debt up to
  95
• Pricing Premiums determined by country and
  project risk

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MIGA in Africa
MIGA IN AFRICA

• Provide access to investors in countries
  perceived to be high risk
• Support to frontier markets and conflict-affected
  countries through guarantees e.g. post-conflict
  guarantee facility
• 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
• Online information services include
• IPAnet - Investment opportunities, operating
  conditions, market analysis www.ipanet.net
• FDI Xchange e-mail alert service on investment
  opportunities www.fdixchange.com
• Privatization Link Project pipeline and country
  information www.privatizationlink.com

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MIGA in Africa
MIGA IN AFRICA

• Countries recently the subject of civil strife
  suffer from poor investor perception
• MIGAs guarantees act as a potent deterrent from
  government actions

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FDI into Africa Some Successes, Many Challenges
MIGA IN AFRICA

• Downturn in FDI in Africa has been less severe
  than other regions, although investments remain
  low
• However, several of the regions countries have
  registered significant increases (Mozambique,
  Uganda, Tanzania, Senegal and Benin) as
  investment climates have improved in those
  countries
• Africa now represents 16 of MIGAs portfolio

MIGA Guarantees Issued in Sub-Saharan Africa
Net FDI into Sub-Saharan Africa (bn)
Source WDR 2005
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MIGA Projects in Africa Some Examples
MIGA IN AFRICA
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Finarca - Interfin
CASE STUDIES
Interfin
Interfin
Banks or other buyers
Shareholder Loan
Equity
Non-shareholder Loan
Costa Rica
1
3
4
2
Nicaragua


Bond Issue or Securitization

Finarca
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Case Study - West Africa Gas Pipeline Project
(WAGP)
CASE STUDIES

• Pipeline system (678km) that will transport
  natural gas from Nigeria to Ghana, Togo and Benin
• Financing totals 590m
• Government of Ghana 96m
• Nigerian National Petroleum Board 147m
• Chevron Nigeria 216m
• Shell Nigeria 106m
• SoBeGaz 12m
• SoToGaz 12m
• Guarantees
• IDA guarantee for Republic of Ghana 50m
• MIGA guarantee for WAPco 75m
• Zurich guarantee for WAPco 125m (reinsured by
  OPIC)

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WAGP
CASE STUDIES
NNPC Nigerian National Petroleum
CorporationCNL Chevron Nigeria LtdSPDC Shell
Nigeria NCG wholly owned sub of
NNPCWAPco newly formed entity owned by
ChevronTexaco WAGP (38.2), NNPC (26), Shell
(18.8), Govt of Ghana (17)
Upstream gas suppliers
NNPC/SPDC/Agip/Elf Joint Venture
NNPC/CNL Joint Venture
NIGERIAN GAS COMPANY (NGC)
WEST AFRICAN PIPELINECOMPANY (WAPco)
Natural Gas Flow
Zurich
Transporters
90
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Volta River Authority
Communauté Electrique du Benin
Offtaker(Ghana)
Offtaker(Benin, Togo)
IDA
Govt of Ghana
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Case Study Société des Grands Moulins de Guinée
SA
CASE STUDIES

• Construction and operation of flour mill to
  produce wheat flour and bran
• Location Guinea
• Equity US 2.9 million
• Shareholder loans US 0.3 million
• Non-shareholder loans US 7.6 million
• Total Project Cost US 10.8 million

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Société des Grands Moulins de Guinée SA
CASE STUDIES
Debt US7.6 M
Quasi-equity US0.25 M
Equity US2.9 M
Faisal Finance Switzerland) Banque
Belgolaise Belgium Credit Lyonnais
Belgium Banque islamique de Guinée Local
Businessmen
SPFI Luxembourg AIID Switzerland Promofin
Luxembourg
SPFI Luxembourg
AIID Switzerland
Promofin Luxembourg
SGMG Guinea
The African DevelopmentBank US2 M
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Société des Grands Moulins de Guinée SA
CASE STUDIES

• MIGA coverage against risks of
• Currency transfer
• Expropriation
• War and civil disturbance
• 15 years coverage (equity and shareholder loans)
• 7 years coverage (non-shareholder loans)
• Main issues
• Assets pledged to various lenders as a collateral
  
• Solution
• Line waiver by banks
• Guarantee holder assign MIGA compensation to
  lenders

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Société des Grands Moulins de Guinée SA
CASE STUDIES
Equity
Debt
Quasi-equity
SGMG
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Thank you! For more information visit
www.miga.org