Fostering Infrastructure in LAC IDB Infrastructure Fund Inter-American Development Bank Federico Basañes Infrastructure Fund Coordinator

Content Challenges in the Region Challenges in the Region IDB Financing in Infrastructure IDB Financing in Infrastructure Refocusing our Actions Refocusing our Actions The IDB Infrastructure Fund The IDB Infrastructure Fund Conclusion Conclusion Contact Information Contact Information

Challenges in the Region Access, quality, and price of infrastructure are critical for competitiveness Infrastructure in LAC expanded over the last decade (particularly in telecom) but lags behind other regions Private investment did not offset public sector decline Private participation (particularly in water) is unpopular Countries need to improve cost recovery and spend more efficiently Governments remain at the heart of the infrastructure challenge

Challenges in the Region LAC requires significant investments to upgrade and maintain infrastructure WB surveys: 55% of businesses in LAC cited infrastructure as a serious problem vs. 18% in E. Asia Current infrastructure investment is around 2% of GDP, which is barely enough to maintain existing base –Exceptions: Chile 6%, Colombia 4% An additional 2-4% of GDP per year in investment is the minimum needed to meet new demand, improve competitiveness and boost growth China invested 9% of GDP in infrastructure in 2005

IDB Financing in Infrastructure Note: Figures for 2006 are for the 3 quarters ending in September.

Refocusing our Actions There are ample opportunities for the IDB –National budgets give emphasis to infrastructure –Potential demand at the sub-national level –Regional initiatives –Public-private partnerships Ability to mobilize public and private funds –New instruments Target: US$12 billion of financing in the next five years

PreparationStructuring Financing Project Preparation is one of the major obstacles to infrastructure investment –Low institutional capacity –Difficult political and economic conditions –Scarcity of financial resources –Project preparation not given adequate importance Refocusing our Actions Needs

Targeted to address infrastructure needs in LAC –Preparing sustainable infrastructure projects for financing –Mobilizing additional resources for project preparation –Assisting public, private and mixed-capital entities in the identification, development and preparation of bankable and sustainable infrastructure projects US$20 million of IDB ordinary capital Open to funding from other donors –Governments, multilaterals, and private sector The IDB Infrastructure Fund

Eligible activities –Project identification and development Pre-feasibility and feasibility studies Project design, stakeholder consultation Viability studies (technical, economic, financial, environmental, social, institutional, legal) Document preparation for bidding processes –Enabling activities for infrastructure investment Targeted business climate enhancement measures –Legal, regulatory and policy issues Public sector capacity building The IDB Infrastructure Fund

The Infrastructure Fund Priority targets/sectors –Projects with a high probability of reaching financial closing –Projects that mobilize private financing for sustainable infrastructure –Development and structuring of sustainable public-private partnerships –Transport, water and sanitation and clean energy projects, specially at the sub-national and local level –Projects in countries that encompass higher risks or more difficult preparation –Projects in smaller economies, where transaction costs are high

Financing Modalities –Non-reimbursable Preparatory activities for promoting investment in infrastructure (not specifically related to a project) Preparation of specific programs, and projects to be funded by the IDB –Contingent recovery Preparation of specific programs, and projects that do not envision IDB financing Financial structuring and rating of project proposals Funds provided to finance TC operations will be recovered if and when the project prepared by the TC operation formalizes its financing The Infrastructure Fund

Key Requirements –Eligible Beneficiaries: private, public and mixed-capital entities from all 26 borrowing member countries Beneficiary projects can be regional, national, sub-national/local Beneficiary entities must demonstrate ability to carry out the works Non-objection from national government is required –Maximum amount per project: US$1,500,000 Expedited approval mechanism for projects < US$500,000 –Counterpart funds: Beneficiary entities must share financial costs of each operation Amount to be decided on a case-by-case basis Not lower than 20% of the total cost (a portion may be “in kind”) –Funds from other sources not available/suitable The Infrastructure Fund

Region’s infrastructure investment needs are extremely high Investing in project preparation is key to transform “needs” into projects that can be financed The IDB intends and is well positioned to be an important player in the process both at the preparation and financing stages Conclusion

Federico Basañes InfraFund Coordinator Esteban Piedrahita Sr. Private Sector Specialist Contact Information