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IFC PowerMarch 2009

Sarajevo, Bosnia and Herzegovina

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The IFC advantage: A wide range of services and products for its Clients

•Variety of products: greenfield projects, corporate loans, acquisition finance and refinancings, partial credit guarantees on loans and bonds, securitization of future cash flows, and a new product for IDA countries (infraventures)

•Competitive maturity and pricing: Fixed/floating rates, currency of choice, commercial rates, repayment tailored to cash flow, long maturities (up to 20 years), etc.

•Political Risk Mitigation: through our affiliation with the World Bank

•Long-term Partnership: IFC works closely with partners in an affected project to address issues

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Track record

Projects:

•129 projects in 44 emerging markets countries

•15,000 MW private generating capacity

•101 generation projects

•10 transmission projects

•17 distribution companies

Financing:

•$ 3.5 billion committed in generation, T & D

•$ 2.5 billion raised through syndication

•$ 16 billion aggregate project values

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Track record

1.Corporate Finance Expansions / Revamping Restructuring / Refinancing

2.Project Finance IPP / Greenfield

3.Equity / Quasi Equity

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Infaventure context: Great Need for Bankable Infrastructure Projects

• Huge critical infrastructure needs in IDA countries, (especially in Sub-Saharan Africa and post-conflict countries). Globally:

1.6 bn lack access to electricity, 1.0 bn lack access to all weather roads, 1.1 bn lack clean water and 2.4 bn lack access to sanitation

95% of those without access are in Asia and Africa; 1.4m children die p/a from water-borne diseases

• Governments aware but unable to address these needs on their own

70% of all infrastructure spending in developing countries in 1990s financed by governments or public utilities’ own resources

Investment needs estimated at $479 bn for years between 2006-2010

• Renewed interest in infrastructure development but while needs are high, sector is underfinanced in most developing countries.

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Private funds available but very few bankable projects

• Great interest from DFIs and private financiers to fund “bankable” infrastructure projects

18 EM infrastructure-focused private equity funds raised $7 bn from 1996-2006; in 2007, 16 funds raised +/-$30 bn

• But, number of “bankable” projects is limited, especially in frontier countries and difficult sectors

Water and sanitation, roads and power

• Sponsors with successful track records of bringing projects to full financing stage are also limited and/or few of them willing to take early stage risks in frontier countries

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Constraints to Private Infrastructure Development

• Overdue sectoral reforms to be implemented by government including Establishing a stable macroeconomic environment Establishing a legal framework for concessions, contract enforcement,

bankruptcy and lender remedies Establishing a stable regulatory framework recognizing project’s lifecycle

needs Developing a domestic debt market

• State-owned utilities are not performing: poor generation performance, lack of investment, high level of losses, low collections

• Tariffs do not always reflect full cost recovery, especially in sensitive sectors like water and sanitation

• Perception of high country risk

• Persistent lack of funds and experienced professionals dedicated to early stage project development

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What is Infrastructure Project Development?

How does it differ from project financing?• Earliest stages of project life cycle – sometimes at conceptual stage

• Risk capital and human resources to move project from concept to financial close

• Project and prototype feasibility studies; pilot tests

• Financial modeling

• Economic, social, technical and environmental studies

• Negotiation of financial and legal terms

• Selection and supervision of project participants

• Negotiation of project documents

• Obtaining required permits

• Sourcing project’s equity and debt financing

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IFC Experience:Pre-IFC InfraVentures

• To date, IFC’s active involvement in project development has been ad hoc (e.g., Kounoune, Pamir)

• IFC’s involvement in project development not adequately compensated

• Experienced staff not dedicated to project development, staff incentives not aligned with project development

• Approval procedure not consistent with early stage project development practices

• High risk profile different from IFC’s mainstream investments

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IFC’s Additionality in Project

Development

• IFC’s identity in market

• Convening power of the World Bank Group

• IFC’s access to all WBG instruments and services

• IFC senior staff depth and breadth of experience

• Track record of “hands-on” project development with sponsors in most challenging environments

• IFC’s involvement reassures all project participants

• IFC’s global presence

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IFC Response:IFC InfraVentures

Fund Composition and Objective

$100 million over 5 years in IDA countries Up to US$ 4 million per project Dedicated, experienced senior professionals

Fund staff to act proactively as project developers, principally with co-developer, or as “surrogate” sponsor

Objective of bringing more projects to financial close and implementation

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IFC Response:IFC InfraVentures

Early Stage Risk Capital

Risk capital (not grant funding) for full range of project development activities

Risk capital (and sweat equity) to be compensated at financial close through stake in equity or development fee

Risk capital to be made available in the form of different instruments

IFC to seek right to arrange and participate in project financing

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IFC Response:InfraVentures

Efficient Processes and Access to other resources

Streamlined processes for approval of use of funds to

projects meeting eligibility criteria

Projects to be “handed over” to mainstream business

lines at financing stage

Leverage other IFC’s and World Bank’s staff and

resources

Cooperation with other private and donor-funded project

development initiatives Possible use of Trust Funds for external consultants

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Project Eligibility Criteria

• Must be private or PPP infrastructure project in IDA country/region

• Must be at early stages of development• Meet IFC Additionality guidelines• Type of projects include :

Sponsor has agreement with Government Projects being tendered Projects not requiring contract with Government “Post-conflict country” initiatives InfraVentures acts as a surrogate sponsor in the initial stages

• Projects that could reach financial close within a few years• Must have high development impact

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