Risk Mitigation Facility (RMF)

Objective and Additionality

The RMF seeks to catalyze private sector investment in large-scale infrastructure and Public-Private Partnerships (PPPs) by providing the following risk mitigating products: (i) liquidity support instruments backstopping payment obligations of state-owned enterprises (SOEs) to private projects; and (ii) political risk insurance (PRI) and government counterparty coverage for project finance loans and equity investments.

The RMF will be utilized only when existing WBG instruments are not able to meet demand (for instance, where the client country’s IDA country envelope is insufficient to directly deploy a guarantee or are earmarked for other priorities), and its use will be in line with the WBG approach to expanding guarantee products.

The RMF will be deployed using two products: liquidity support and PRI. The RMF liquidity support guarantee is envisaged to backstop ongoing payment obligations of SOEs (e.g., government-owned utilities) for infrastructure projects or PPPs. For instance, take the case of a project Special Purpose Vehicle (SPV) which is contracted to develop, build and operate a power plant, with an agreement from a state-owned off-taker to purchase the capacity and energy generated by said plant.  IFC would be either the debt and/or equity provider to the project SPV, along with other lenders and equity investors. The project SPV is exposed to the risk of non-payment by the state-owned off-taker, and the RMF liquidity support instrument would help mitigate this risk. The RMF instrument can be structured as a guarantee on a revolving standby Letter of Credit (LC) issued by a commercial bank (or by IFC, if no commercial bank is available to issue the LC). This LC can be drawn by the project SPV for up to an agreed amount, should the off-taker fail to honor its payment obligations.

If the LC/liquidity provider is unable to receive reimbursement from the state-owned off-taker following a draw on the LC after a pre-agreed period of time has lapsed, the LC/liquidity provider would be reimbursed by the IDA-PSW through a RMF guarantee (PRI).

Contact: Juan Carlos Pereira, Principal Investment Officer, IFC, jpereira@ifc.org


Illustration: Liquidity support for Power Transaction

  • IFC’s as either debt and/or equity provider to the project SPV, with other lenders and equity investors.
  • Structured as a guarantee on a revolving standby Letter of Credit (LC) issued by a commercial bank (or by IFC, if no commercial bank is available to issue the LC).

 

Illustration: PRI for Power Transaction

  • For PRI, covered risks could be any or all of the traditional PRI products, i.e. expropriation, war and civil disturbance, currency convertibility and transfer risks, and breach of contract.