Illustrative Case Studies of Potential PSW-Enabled Investments

MIGA GUARANTEE FACILITY AT WORK

Viable, large-scale projects in IDA countries and FCS sometimes cannot get off the ground because private insurers and reinsurers lack capacity to provide risk mitigation in substantial amounts and over long horizons. As a result, MIGA has been unable to support transformational projects such as the large-scale, long-term energy project example summarized below.

The Challenge

Hydropower has tremendous potential in this IDA country, where just 16% of the population has access to electricity. A $10 billion project under consideration would offer 5,000 MW of new capacity—double the country’s current electricity output. Because of the project’s scale, in order for MIGA to provide the support needed to move the project ahead, it will need more guarantee coverage than private reinsurers can provide.

The Solution

Alongside multiple sources of financing, MIGA is able to provide non-commercial risk coverage for contractual obligations and termination payment risk. Through the new MIGA Guarantee Facility, an IDA PSW allocation would offer $1-$2 billion in additional guarantee coverage—thus enabling this pioneering project. (More Information »)

RISK MITIGATION FACILITY AT WORK

The Challenge

The power sector of this small West African economy faces multiple challenges including small grids, low availability generation capacity, heavy reliance on imports, and fuel oil-based generation. Due to local conditions, solar PV represents a prime opportunity to increase electricity supply at competitive prices and establish energy security. The financial fragility of the off-taker and absence of payment track record under Power Purchase Agreements (PPAs) with Independent Power Producer (IPP) discourage private investment in the sector.

The Solution

IFC is seeking to finance the country’s first solar IPP, which can be supported by the World Bank Group through the Risk Mitigation Facility (RMF). The RMF Liquidity Support Guarantee would help mitigate nonpayment risk by the off- taker, while the RMF Political Risk Insurance would help mitigate breach of contract and termination risk. (More Information »)

LOCAL CURRENCY FACILITY AT WORK

The Challenge

In a country where nearly half of the population lives below the poverty line, IFC is looking to support a hospital operator’s investment in increasing access to quality healthcare and set standards of excellence. The client is susceptible to high foreign exchange risks, however, and long-term local currency financing is not available in the country. Under normal circumstances, IFC would issue a local currency-denominated bond. However, it is difficult in practice to match the timing and the repayment schedule of the bond with those of the underlying project.

The Solution

By partnering with IDA, IFC would issue a local currency-denominated bond, with the proceeds to be invested in government/corporate paper until they are needed by the project. As the project makes scheduled payments on the local currency loan IFC extended, the cash will need to be invested/managed onshore until payments on the bond funding the project are due. Because IFC cannot under its risk guidelines absorb the credit risk of low-rated instruments in which the cash would be invested, the Local Currency Facility would do so in its place. By bearing the credit risk associated with the liquidity management instruments (local government and corporate bonds), the IDA Local Currency Facility will facilitate: (1) local currency financing to a health care client and (2) an IFC local currency bond issuance, furthering the WBG’s capital market development agenda. (More Information »)

BLENDED FINANCE FACILITY AT WORK

The Challenge

In this IDA country, energy generation depends on imported diesel, resulting in high energy costs. Viable renewable energy and energy efficiency projects have been too costly for investors. As a result, one project in particular has failed to take off over the past three years due to a lack of financing solutions.

The Solution

Partnering with a bank, IFC would create a risk-sharing facility to support a portfolio of renewable energy and energy efficiency loans in this country. IFC would cover 50% of the credit risk; the PSW’s Blended Finance Facility would cover a first loss of 20% of IFC’s maximum risk amount. (More Information »)