MIGA Supporting Iceland s Investors in Emerging Markets June

MIGA: Supporting Iceland’s Investors in Emerging Markets June 2006 WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY

The World Bank Group created 1944 IBRD International Bank for Reconstruction and Development 1960 IDA International Development Agency 1956 IFC International Finance Corporation 1966 ICSID International Centre for the Settlement of Investment Disputes 1988 MIGA Multilateral Investment Guarantee Agency Promote FDI with the use of guarantees and TA

What is MIGA? § Member of World Bank Group § 167 members § Capital: $2 billion § Capacity: up to $9 billion § Gross/Net Exposure: $5. 1 b/$3. 3 b § FDI Facilitated: Over $50 b § Coverage in more than 85 countries § Private and public partners

MIGA’s Services We promote FDI into developing countries through: § Political risk guarantees for investors/lenders § TA for developing country IPAs § Online investment promotion: – Ipanet, Privatization. Link and FDIXchange § Investment dispute mediation services

On-Line Services for Investors, Lenders The Investment Promotion Network: www. ipanet. net Privatization. Link: www. privatizationlink. com FDI Xchange: www. fdixchange. com

MIGA Guarantees: Insurance… …. but also risk management CREDIT ENHANCEMENT § improves the overall risk-return profile of the project § may reduce provisioning requirements for lenders § may lower cost of financing, lengthen tenors § can protect corporate balance sheet CONFIDENCE § deterrent against host government interference § gives investors confidence investing in frontier markets § mediation of investment disputes STABILITY § provides stable environment for business operations + WORLD BANK GROUP “STAMP OF APPROVAL”

Risk Management ce en fid n political risk insurance for projects Co En C ha re nc dit em en t deterrence of adverse host government actions Better Prospect of compensation investors gain confidence project risk / return profile improves for all investors more deals are closed reduction of both capital costs and financing cost greater interest from debt and equity investors

MIGA Guarantees Commercial Risk Non-commercial Risk Cross border Investors/ financial institutions MIGA Coverages • Transfer restriction and currency inconvertibility • Expropriation • War and civil disturbance • Breach of contract

Coverage: Transfer Restriction/ Inconvertiblity § inability to convert local currency into forex § inability to transfer forex out of host country § excessive delays in acquiring forex § currency depreciation not covered

Coverage: War/Civil Disturbance/Terrorism/Sabotage § damage/disappearance of tangible assets § longer-term business interruption

Coverage: Expropriation § nationalization and confiscation § “creeping” expropriation § expropriation of funds § partial expropriation (case by case) § includes sub-sovereigns

Coverage: Breach of Contract § breach or repudiation of a contract or agreement with government entity § non-enforcement of an arbitration § includes sub-sovereigns

Types of investments covered n n n n New investments (incl. modernization, restructuring, expansion, etc. ) 3 -15 (20) years Up to 90% of investment amount; up to 95% of loans No minimum amount; high ceilings Equity and quasi-equity Shareholder loans and loan guaranties Non-Shareholder loans Capital Markets transactions Technical Assistance Management Contracts Leases Franchising and Licensing Agreements Performance Bonds O&M Agreements

Guarantee process § Preliminary application (online, no fee) – Must be done before investor commits to project – Completely confidential and non-binding § Definitive application § MIGA due diligence § Host country approval § Board concurrence § Guarantee signed by MIGA and investor

Claims Experience n n Over 800 contracts ($14 billion) issued Three claims filed and paid n 2000: Indonesia power plant -- $15 m – expropriation n 2004: Nepal hydroelectric station -- $145, 000 – civil war damage n 2005: Argentina – expropriation (ca. $1. 5 million) Extensive experience successfully mediating disputes n. Most in power, mining sectors Transfer restriction – multilateral exception for MIGA-covered investments: n 1998 – Russia n 2001 – Argentina n 2004 -- Venezuela

Typical Project Structure Loan Guarantee Foreign Investor Bank Equity Loan Iceland Peru Shareholder Loan Project Enterprise

Guarantees Portfolio Europe and Central Asia 45 Latin America/Caribbean 25 Africa 16 Asia and the Pacific 13 Middle East and North Africa 3 Infrastructure 39 Financial 39 Oil, Gas and Mining 9 Agribusiness and Manufacturing 8 Tourism and Services 5 $5. 1 B Gross Exposure, by sector and region*, in percent (as of 06/30/05) * Figures exceed 100% due to master contract with one client

Case Study 1: Hydro Power – Laos The Proposal Laos Tailand Project Significant hydropower potential but very limited internal electricity demand Major electricity market Thailand but limited internal energy resources US$1. 25 B trans-basin Project power plant in Lao PDR with transmission facilities to the Thai border

Case Study 1: Hydro Power – Laos Overcoming Obstacles ISSUES Lao Government budget limitations Limited environmental and technical capabilities of Laos USD 1. 5 B cost Commercial lenders would not assume political risks in Laos or Thailand SOLUTION Public Private Partnership WB advisory and technical assistance + experienced international power developer: EDF Project Finance scheme Political Risk Guarantees

Case Study 1: Hydro Power – Laos Project Structure NTP 1 EDF 1 ADB EGGO Thai Baht Banks Shareholder Agreement & Equity Loans Nam Theun 2 Power Company MIGA World Bank US $ Banks Bilateral Agencies ECAs

Case Study 1: Hydro Power – Laos Risk Allocation § Risks associated with relationship between Laos and Thailand leveraged through contractual obligations of both governments § Additional leverage created through equity ownership by state -owned power companies of both countries § Social and environmental problems resolved through the World Bank involvement § Laos state-owned company contributes equity using IDA funds § Project developed with 80% debt-to-equity ratio. Debt arranged by 9 leading commercial banks along with guarantees from MIGA, PRG, ADB and ECAs § Funds provided by Thai banks

Case Study 1: Hydro Power – Laos Main Risks to Lenders § Breach of Concession in Lao: Non-payment of termination payments triggered by – – § Confiscation of assets Declared wars Embargoes Expropriation Breach of the Power Purchase Agreement in Thailand: – Defaults on payments for electricity by EGAT; – Non-payment of termination payments under the PPA § Transfer Restriction (as a default option for the Breach of Contract) § Expropriation through administrative, legislative and regulatory decisions for which there were no termination payments in the contracts § War and Civil Disturbance unrelated to the actions of both governments

Case Study 1: Hydro Power – Laos MIGA’s Value-Added § Assisted in: syndication of larger amount of funds by Fortis bank and extension of finance period § Provided customized solution to multi-country risks: MIGA covered not only political risks in Laos but risks in Thailand (breach of the purchase agreement between the project and Thai state-owned company, EGAT) § Collaborated with sister agencies MIGA worked side by side with ADB and PRG to provide equal playing field for other arrangers

Case Study 2: Geothermal Power – Kenya §$119 m in guarantees for Or. Power 1 and 4 §Coverage against all 4 risks §Bo. C coverage for Site Agreement §Investor: Ormat (Israel) §Olkaria geothermal fields in Rift Valley §Phase 1: 12 MW; Phase 4: 48 MW §Alternative to hydro §Significant local employment, sourcing of goods and services §Revenues for government §Extensive mediation in past 2 years

Case Study 3: SME Telecoms/IP Investment – Sierra Leone § $2. 8 m guarantee against 3 risks § Conflict-affected country § Limited, unreliable, expensive internet access § Israeli investor ($3 m equity investment) § Fixed line broadband wireless access and voice-over IP network § Covered under MIGA’s Small Investment Program: §coverage up to $5 m (no minimum) §streamlined process §special pricing § 3 -risk “package” (no Bo. C coverage)

thank you! www. miga. org Elena Palei Ph: +1 -202 Fax: +1 -202 -522 -2630 E: epalei@worldbank. org Keith Martin Ph: +1 -202 -473 -2815 Fax: +1 -202 -522 -2630 E: kmartin@worldbank. org