miga – catalyzing private sector investments in mozambique may 2007

MIGA – Catalyzing Private Sector Investments

in Mozambique

May 2007

2MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP

Our Mission

To promote foreign direct investment

(FDI) into developing countries to help

support economic growth, reduce poverty,

and improve people's lives.


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


Our Development Priorities:

Focusing on sustainable development

Opening up difficult or frontier markets, especially in

countries affected by conflict

Supporting investments in Africa and the world’s poorest

countries

Supporting infrastructure projects (including sub-

sovereign risk)

Promoting cross-border investments between developing

countries


… political risks still exist

Increased geopolitical instability

Recent investor experience:– repossession of privatized assets

– defaults on government obligations

– concession revocation

– financing difficulty

– contract frustration due to poor legal frameworks

– war and civil disturbance events

Risks increase as sub-sovereign partners involved

1998 - Russia issues a moratorium on private foreign capital payments (projects insured by MIGA exempted)

2002 - Argentina restricts exchange and transfer (loans insured by multilateral and bilateral organizations not subject to this)

2006 - Venezuela and Bolivia impose restriction on transfer of interest payments and announce expropriation of assets in the extractive industries and infrastructure sectors


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


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

Value Added to Government


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)


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


Eligibility

1. Must be cross border between member countries (Cannot

participate in purely local deals)

2. Must be “new” investment, but there is considerable flexibility here

– Expansion or modernization of old plant

– Acquisition of existing project if there is a financial restructuring etc.

3. Minimum term of 3 years; coverage up to 15 years, on

occasion – 20 years


Eligibility (cont.)

4. Investment Types:– Equity, including shareholder loans and various profit sharing

agreements

– Loans, but only if there is an equity cover

– Loan guarantees (could be used to cover sponsor support agreements)

– Non-shareholder loans

– Non-equity direct investment

5. Coverage – Equity covered up to 90%, Debt up to 95%

6. Amounts: MIGA typically can arrange cover for all amounts,

either on its own books or through co/reinsurance


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


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


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


FY04Coverage Issued, $1.1 B

Africa12%LAC

5% Asia9%

MENA7%

ECA67%

Africa14%

LAC19%

Asia12%

MENA10%

ECA46%

FY06Coverage Issued, $1.3 B

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)


Africa portfolio

50

100

150

200

250

300

350

400

450C

amer

oon

Bur

undi

Cap

e V

erde

DR

CTo

goB

enin

Sie

rra

Leon

eM

adag

asca

rC

ote

d'Iv

oire

Sen

egal

Leso

tho

Eq.

Gui

nea

Ang

ola

Zam

bia

Sou

th A

frica

Bur

kina

Fas

oM

aurit

ania

Gui

nea

Sw

azila

ndM

ali

Uga

nda

Ken

yaTa

nzan

iaG

hana

Nig

eria

Moz

ambi

que

Gro

ss A

mo

un

t Is

sue

d,

$m

50

100

150

200

250

300

350

400

450C

amer

oon

Bur

undi

Cap

e V

erde

DR

CTo

goB

enin

Sie

rra

Leon

eM

adag

asca

rC

ote

d'Iv

oire

Sen

egal

Leso

tho

Eq.

Gui

nea

Ang

ola

Zam

bia

Sou

th A

frica

Bur

kina

Fas

oM

aurit

ania

Gui

nea

Sw

azila

ndM

ali

Uga

nda

Ken

yaTa

nzan

iaG

hana

Nig

eria

Moz

ambi

que

Gro

ss A

mo

un

t Is

sue

d,

$m

Guarantees Issued in Africa by Country, Since Inception


Selected projects in the Africa regionGuarantee 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.


Projects in Mozambique

Projects supported by MIGA in MozambiqueIssued, % since inception

Over the years, MIGA has catalyzed more than $1.5bn of private sector investments in Mozambique in a number of sectors

Agribusiness & Mfg 29%Financial 1%Infrastructure 20%Mining 7%Oil and Gas 42%

Tourism & Services 1%

Case Studies


70.8125.62

Delay in obtaining an electrical connection (days)

Number of electrical outages (days)

1997- Government begins sector reforms- Privatization and IPP models developed

2004 - Bujagali delay yields supply strain- Tarriffs and outages rise

2006

- Drought exacerbates problems- Foreign investors threaten to leave- Government agrees to new concession

- Power sector publicly owned & managed

- Severe generation and distribution problems

1990

•Strategic Plan (1997)•Electricity Act (1999)•Eskom generation concession (2002)

MIGA/IDA guarantees provide comfort needed to retain investors

In 2003, 40% of Ugandan firms listed

electricity as a severe

constraint to investment

Umeme Power Project


Project

Profile

ClientConcerns

West African Gas Pipeline

US$590 million, 678 km pipeline to transport natural

gas from Nigeria to Ghana, Benin and Togo, and to

convert existing units to gas

Part of NEPAD’s action plan.

Upstream production and delivery risks

Completion and operational risks

Downstream/offtake risks

Co-completion risks


Nigeria Gas Company

NNPC/CNL Joint

Venture

NNPC/SPBC Joint Venture

PRODUCERS

TRANSPORTER

NATURALGAS FLARE West Africa Gas

Pipeline Co.

Communauté Électriquedu Bénin

Volta River Authority

OFFTAKERSGAS SALES AGREEMENTS

Key customers: CEB (8%) and VRA (92%) NNPC: Nigerian National Petroleum Corporation CNL: ChevronTexaco N-Gas Limited SPBC: Shell Overseas Holdings Limited

IDA, $50 M

$200 M total PRI TERMINATION EVENTS

MIGA

$83 M

Private insurers, $83 M

West African Gas Pipeline

Togo Electricité

Other Services


ATF: Africa Trust Fund

A new MIGA facility

Supports technical advice on environmental and social

issues to investors

Works on a case by case basis with MIGA clients and

prospective clients in Africa

Examples: – assistance in preparing an environmental management plan

for expanded operations

– advice on developing a local supply chain

– help in planning land acquisition and resettlement


Mediation Services

MIGA can mediate investment disputes – whether or not

a MIGA guarantee is involved

Especially appropriate where 1 or more disputes are

harming investment climate

MIGA as neutral party – confidence of host countries

and investors

Collaborative, informal process (less costly, time-

consuming than formal arbitration)


Online Services – FDI.net

A portal on foreign direct investment with comprehensive information for investors consolidating MIGA’s existing services

Includes: customized e-mail alerts, newsletter, database of sources of finance

Spotlights on privatization, infrastructure

Country information, investment opportunities - “greenfield”, joint ventures and privatizations


Online Services – PRI-Center

A risk management

information service for

investors and practitioners

Includes country analyses,

research and tools, news

and events and directories

Quick access to country

research from home page


For more information

Jason Lu

Senior Underwriter

[email protected]

www.miga.org

miga – catalyzing private sector investments in mozambique may 2007

Documents

world bank group umbrella

projects guarantee

investment opportunities

guaranteed investment

guarantee holder of

foreign direct investment

government actions

conflictsupporting investments