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I N S U R I N G I N V E S T M E N T S E N S U R I N G O P P O R T U N I T I E S

I N S U R I N G I N V E S T M E N T S E N S U R I N G O P P O R T U N I T I E S. Coverage of Sovereign and Sub-sovereign Risks in Infrastructure Multilateral Investment Guarantee Agency Second International Conference on FINANCING MUNICIPALITIES & SUB-NATIONAL GOVERNMENTS

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I N S U R I N G I N V E S T M E N T S E N S U R I N G O P P O R T U N I T I E S

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  1. I N S U R I N G I N V E S T M E N T S E N S U R I N G O P P O R T U N I T I E S Coverage of Sovereign and Sub-sovereign Risks in Infrastructure Multilateral Investment Guarantee Agency Second International Conference on FINANCING MUNICIPALITIES & SUB-NATIONAL GOVERNMENTS The Role of Specialized Local Funds and Financial Intermediaries , Washington DC October 1, 2004

  2. MIGAGuarantees Program Investors/ financialinstitutions CommercialRisk Non-commercial Risk MIGA • Coverages • Transfer restriction and currency inconvertibility • Expropriation • War and civil disturbance • Breach of contract

  3. MIGA’S GUARANTEE PROGRAMExpropriation Protects against losses arising from • Nationalization and confiscation • Creeping expropriation • Partial expropriation (limited coverage) Non-discriminatory measures not covered

  4. MIGA’S GUARANTEE PROGRAMBreach of Contract Protects against losses arising from: • Breach or repudiation by Host Government of a contract with the investor • Non-payment of an arbitration award • Wrongful call of Performance Bonds

  5. MIGA’S GUARANTEE PROGRAMBreach of Contract Mechanism Termination Amicable Resolution Mediation International Arbitration Successful Resolution Unsuccessful Arbitration Successful Arbitration Enforcement Local Court Host Government Pays MIGA Pays Claim

  6. MIGA Eligibility of Sub-Sovereigns Article 3 of the Convention • “Host Government means a member, its government, or any public authority of a member in whose territories . . . an investment . . . is to be located”

  7. MIGA Risk Breach of Contract Expropriation Probability of a non-enforcement of an arbitral award against a sub-sovereign Probability that a sub-sovereign will exercise public authority

  8. MIGA – Sub-Sovereign Risk Framework • Sub-sovereigns includes State Governments (under Federal system), Provincial Governments, Municipalities, Councils, Boroughs, Regulators and others with public authority • Sub-sovereigns normally do not include State-owned enterprises operating on a commercial basis

  9. MIGA - Sub-Sovereign Risk 5 Existing Due Diligence Guidelines • Legal: bankruptcy/insolvency of sub-sovereign • Privatization of sub-sovereign • Credit: Creditworthiness of sub-sovereign • “Neutrality” towards Arbitral Forum (I.e. MIGA does not influence the choice of arbitral forum) • Premium

  10. Case Studies PPP City of Light

  11. MIGA’S GUARANTEE PROGRAM PPP Structure EPC Contractor Lenders EPC Contract Performance Bond Public Works MIGA BoC Sovereign/sub-sovereign Guarantee

  12. City of Light, Central EuropePROJECT STRUCTURE Parent Company Western Europe Bank Border Equity + Shareholder Loan Know-How Transfer Central Europe Sub- contractor SPC Service Contract Delivery & Service Contract for Lighting Main Contract Build Operate Transfer Municipality Technical Services SOE Payment Guarantee

  13. City of Light, Central EuropePROJECT SUMMARY • Special Purpose Company (SPC) owned by West European Bank • Project financed by the Bank through a shareholder loan • Main BOT Contract (consisting of a lease contract and a lighting contract, both linked together) concluded between SPC and Technical Services SOE for the • Constuction, Operation and Service of Public Lighting • Service Contracts between SPC and subcontractor • Payment by Technical Services SOE to SPC (20 years financing period) for SPC obligations • Payment Guarantee by Municipality for payments to SPC • MIGA’s coverage against the inability to enforce the final and binding award or judicial decision • 20 years coverage • Dispute Resolution – Local Courts

  14. Thank you!Please visit us at www.miga.org

  15. Ldodero@worldbank.org

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