1. Inter-American Development Bank Private Sector Financing and the IDB Presentation by the IDB Private Sector Department February 2004

2. INTER-AMERICAN DEVELOPMENT BANK PRIVATE SECTOR DEPARTMENT (PRI)

3. Creation of the Private Sector Department (PRI) The Bank initiated direct financing operations with the private sector without government guarantees in January 1995. Eligible infrastructure sectors include: –Energy –Transportation –Water and Sanitation –Telecommunications In addition, the Bank has authorization to support: – Local capital markets development – Trade finance facilities Inter-American Development Bank Private Sector Department

4. The Role of the Private Sector Department The Role of the Department may be summarized as follows: Promote investment in infrastructure in IDB borrower countries Support projects with sound credit fundamentals and developmental impact Generate more and better options for debt financing Attract commercial banks and institutional investors Inter-American Development Bank Private Sector Department

5. Private Sector Department: Financial Products The Bank has a variety of private sector financial instruments that can be tailored to the specific needs of each project: Direct IDB “A-Loans” Syndicated “B-Loans” Credit Guarantees Political Risk Guarantees Inter-American Development Bank Private Sector Department

6. PRI Portfolio of Loans in Execution Track record of operations (year-end 2003): 51 projects closed 13 countries plus one multi-national investment fund Over 80 financial institutions participating in the B-Loan program Total project costs supported: US$13.8 billion A-Loans closed: US$1.8 billion B-Loans closed: US$2.7 billion Political Risk and Financial Guaranties: US$540.5 million Inter-American Development Bank Private Sector Department

7. Private Sector Department: Development Fundamentals The Bank requires that the project demonstrate strong economic benefits and sound developmental impacts for the host country: Consistency with host country development strategy Competitive award process for concession Control with private sector shareholders from IDB members Sound environmental and social impacts and mitigations On-going monitoring of compliance during the life of the project On-going public disclosure of information Inter-American Development Bank Private Sector Department

8. Private Sector Department: Credit Fundamentals The Private Sector Department of the IDB also requires strong commercial credit fundamentals from its borrower entities: Long-term commitment from experienced project sponsors Robust project financial/economic profile Sound project security structure Technical, market, insurance reviews by independent advisors Legal review of all project contracts Appropriate in-country legal and regulatory frameworks Inter-American Development Bank Private Sector Department

9. PRIVATE SECTOR DEPARTMENT (PRI) BUSINESS OPPORTUNITIES

10. Inter-American Development Bank Due Diligence Opportunities If the project is determined to be “eligible” for Bank financing, a Mandate Letter is signed and due diligence commences, including: –Independent Engineering Appraisal –Environmental Appraisal –Social Appraisal (i.e. resettlement, health and safety, archaeological issues) –Traffic and Revenue Appraisal –Insurance Appraisal –Local and International Legal Due Diligence Inter-American Development Bank Private Sector Department

11. Inter-American Development Bank On-Going Project Monitoring Opportunities Once the project is approved and the financing is signed, the Bank then hires a variety of Monitoring Consultants that aid in the on- going review of the project: –Technical Monitoring –Environmental and Social Monitoring –Insurance Monitoring –Market Updates (if necessary) –On-going Legal Review when issues arise Inter-American Development Bank Private Sector Department

12. Inter-American Development Bank Bidding for Advisory Services The selection of consultants is handled as follows: –Consulting groups typically send information or meet with the Department in order to present their capabilities and track record –Consultants are added to database according to specialty –When new mandate is signed, RFP’s are sent to 3-5 bidders –Proposals are typically due in 10-15 business days –Proposals are evaluated by the project team according to pre-specified criteria –Winning bidders are announced and retainers are signed Inter-American Development Bank Private Sector Department

13. PRIVATE SECTOR DEPARTMENT (PRI) CASE STUDY: AGUAS DEL ILLIMANI S.A. La Paz, Bolivia

14. Case Study: Aguas del Illimani S.A. Challenge: Project is part of the Government’s long-term program of investments and actions designed to increase the water distribution and sewerage collection capacity of in La Paz and El Alto: 30-year Concession from the GOB’s Superintendent of Water Pilot project for the Government (no private sector track record) Difficult market for private investors – Long tenors needed to recover investment – Large project costs in excess of $50 million – Uncertain demand for new installations – Both international and local groups as shareholders Inter-American Development Bank Private Sector Department

15. Case Study: Aguas del Illimani S.A. Actions: IDB works with GOB government to clarify concession IDB Board approves its participation in the project IDB works with IFC and CAF to create greater leverage Multilaterals create joint monitoring plan to satisfy requirements Multilateral participation creates interest from local banks Results: Increase in water production capacity in La Paz and El Alto Supply of 100% water coverage in La Paz Installation of 38,000 sewer connections Construction of a new wastewater treatment plant in El Alto In spite of turbulence in Bolivia, project continues to perform Debt of AGIL S.A. upgraded once in 2003 and again in 2004 Inter-American Development Bank Private Sector Department

16. Inter-American Development Bank Private Sector Department (PRI) John Graham Investment Officer Private Sector Department, IDB Tel: (202) 623-2278 Johngra@iadb.org