RISK MITIGATION: What are Updates & Proposals on Risk Mitigation Products?

Product Name Partial Risk Guarantee
Link to Product Website
Provider Name World Bank - IBRD (International Bank for Reconstruction and Development)
Product Definition World Bank guarantees are available to all countries eligible for borrowing from the International Bank for Reconstruction and Development (IBRD) or the International Development Association (IDA). The World Bank through its guarantee instruments can help accelerate growth in developing countries by mobilizing private financing for infrastructure development and other projects of national importance.

By covering government performance risks that the market is not able to absorb or mitigate, the World Bank’s guarantee mobilizes new sources of financing at reduced financing costs and extended maturities, thereby enabling commercial/private lenders to invest in projects in developing countries.

Guarantees can mitigate a variety of critical sovereign risks and effectively attract long-term commercial financing in sectors such as power, water, transport, telecom, oil and gas, and mining. Guarantees can also enhance private sector interest in participating in privatizations and public private partnerships (PPPs). It can also help sovereign governments access the international financial markets.

Key features of guarantee instruments:

1. Guarantees are designed to help extend the reach of private financing by mitigating perceived risk and encourage private sector involvement in developing countries.

2. Guarantees provide support to lenders or project companies against a government’s (or government entity’s) failure to meet specific contractual obligations to a private or public project.

3. World Bank guarantees require a counter-guarantee from the Government.

4. The guarantee is “Partial:” The Bank only assumes a portion of risk.

5. The Bank Guarantee is a flexible instrument: different currencies (Local currency or Forex), any sector, variety of structures available to match specific needs of individual transactions.

6. Guarantees are an integral part of Country Assistance Strategies (CAS) / Country Partnership Strategies (CPS).

Partial Risk Guarantees:

PRGs cover private lenders against the risk of a public entity failing to perform its obligations with respect to a private project. PRGs ensure payment in the case of default resulting from the nonperformance of contractual obligations undertaken by governments or their agencies in private sector projects. PRGs typically cover outstanding principal and accrued interest of a debt tranche in full. Payment is made only if the debt service default is caused by risks specified under the guarantee.

Eligible projects: Projects with private participation dependent on certain government contractual undertaking, such as: Build-Operate-Transfer (BOT) and concession projects; Public-Private Partnership (PPP) projects; privatizations. The projects can be both greenfield or existing projects.

Eligible debt: PRGs can be used for any commercial debt instruments (loans, bonds) provided by any private institution, including debt provided by sponsors in the form of shareholder loans. PRGs can cover both foreign currency and local currency debt.

Risk coverage: PRGs can cover a range of risks relating to government performance including, changes in law, failure to meet contractual payment obligations, obstruction of an arbitration process, expropriation and nationalization, foreign currency availability and convertibility, nonpayment of a termination amount or an arbitration award following a covered default, and failure to issue licenses, approvals, and consents in a timely manner.

The World Bank also offers enclave guarantees which are partial risk guarantees structured for export oriented foreign exchange generating commercial projects in IDA-only countries. In this regard, IBRD would consider providing non-accelerable guarantees to such projects provided adequate arrangements are in place to ensure that the host government will be able to meet its obligations to IBRD with respect to the IBRD's guarantee.

Product Type Partial Risk Guarantee
Defined Risks Covered n.a. More on Risks Covered
Eligible Form of Investments Bonds
Bank Loans
Non-Bank Loans
Shareholder Loans
More on Eligible Investments
Eligible Currency of Underlying Investment Covered by this Product Both local and foreign currency
Eligible Countries & Regions n.a.
More on Eligible Countries
Eligible Applicants n.a. More on Eligible Applicants
Eligible Sector No Specific Sector
Maximum Tenor Over 20+ years
Max. Absolute Amount (USD) Over 350+ MM
Max. % of Project Costs Covered Max./under 25%
Max. % of Export Content Covered Over 85+%
Fees Fixed
The Bank charges a guarantee fee, and a front-end fee to provide a guarantee. In addition, the Bank may also charge an initiation fee, and processing fee for a private sector project. Charges are based on the concept of loan equivalency and may differ from one guarantee structure to the other.
More on Fees
Other Conditions Sovereign Counterguarantee: Yes
Anti-Corruption and Governance Standards: Yes
Environmental standards: Yes link
Social standards (incl. Human Rights Standards; Labor Rights Standards): Yes link
Source(s) n.a.
For more information, contact Pankaj Gupta
Manager - Finance Solutions, Finance Economics & Urban Department
Email: pgupta2@worldbank.org
Phone: (202) 473-6188
Attachments n.a.
Additional Links web.worldbank.org/external/default/ma ... 4&menuPK=64143513&contentMDK=20191700
web.worldbank.org/external/default/ma ... 534&menuPK=542645&contentMDK=20263309
web.worldbank.org/external/default/ma ... 4&menuPK=64143522&contentMDK=20274670
siteresources.worldbank.org/INTGUARAN ... nteeBrochureEnglishApril2010Final.pdf
Deals Albania - Power Distribution Privatization, Uganda - Bujagali Hydropower, Mozambique - Southern Africa Regional Gas Pipeline, Lao PDR - Nam Theun 2 Hydropower

Provider Name World Bank - IBRD (International Bank for Reconstruction and Development)
Institution Type PUBLIC: Multilateral Development Bank
Ownership IBRD is owned by 185 member countries; IDA has 168 member countries.
Head Office 1818 H Street, NW, Washington DC, 20433
Provider Home Country United States
Rating n.a.
Main Risk Mitigation Products n.a.
Attachments n.a.
Additional Links web.worldbank.org/external/default/ma ... 4&menuPK=64143514&contentMDK=20274604
web.worldbank.org/external/default/ma ... 4&menuPK=64143522&contentMDK=20274670
Entered On: 06/29/2007 at 01:01 PM
Updated On: 05/07/2013 at 01:57 PM