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

MIGA Guarantees Program Commercial Risk Investors/ financial institutions MIGA Coverages Transfer restriction and currency inconvertibility Expropriation War and civil disturbance Breach of contract Non-commercial Risk

MIGA’S GUARANTEE PROGRAM Expropriation Protects against losses arising from  Nationalization and confiscation  Creeping expropriation  Partial expropriation (limited coverage) Non-discriminatory measures not covered

MIGA’S GUARANTEE PROGRAM Breach 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

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

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”

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

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

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

Case Studies  PPP  City of Light

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

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

City of Light, Central Europe PROJECT 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

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