AMC Financing Arrangements Rome Technical Working Group Meeting 7th September 2006

The success of the AMC will depend on the strength of the financing structure. In order to influence industry incentives and behaviour, financing arrangements need to be: Legally-binding Clear Credible

The financing structure needs to be flexible enough to accommodate different donor preferences and systems Donors: Will be several Will have different domestic authorisation and appropriation laws and processes May not have budgetary systems that lend themselves to making legally binding financial commitments that are contingent on a future event Have different payment profile preferences

The use of an intermediary financial vehicle could deliver a structure that is both sufficiently credible for industry and sufficiently flexible for donors The intermediary structure would: Hold donor commitments Bundle commitments into a single asset Translate commitments into cash as needed to pay suppliers Smooth timing mismatches between commitments and payments

There are three basic financing options available to donors (i) Full up-front financing of their entire AMC share Delivers maximum credibility High opportunity costs

Financing options (ii) (ii) Up-front commitment to the whole AMC amount with the stream of payments made on an ‘annuity’ basis. Total resources would be built up in line with expected future disbursements. Potential balance between credibility of financing and productivity of public expenditure for late-stage products

Financing options (iii) (iii) Up-front commitment to the whole AMC amount with payments only starting when the IAC declared a product to be compliant with contract specifications and ready for supply. maximizes the productivity of donor public spending on AMCs. budgetary and accounting systems of many donors do not lend themselves to making legally-financial commitments, contingent on a future event (the production of the specified vaccine).

The risk-adjusted assets should be equal to the amount necessary to elicit a response from industry The financial structure must bundle assets into a single financial instrument on a risk-adjusted basis. Not only will commitments vary in terms of payment profile (i.e. cash, pledges) But, given political and budgetary realities, as well as uncertainty over the timing of future AMC payments, there may be some timing/collection/payment risks associated with some donor commitments Additionally, donors may have preferences as to which intermediary institution to make commitments to

Details of the financing structure will depend on the nature of donor pledges and the precise role of intermediary institutions Possible elements might include: Third-party assurance provided by a commercial entity, or possibly an international financial institution Use of cash to offset discount associated with payment risks Face value donor pledges in excess of burden-share where necessary