Confidential 1 Comparative Review of IFI Risk Mitigation Instruments June 2005 Discussion Presentation of Analysis done for The World Bank in 2004

PricewaterhouseCoopers Confidential 2 IFI Guarantee Activities Number of Guarantees IssuedValue of Guarantees Issued Since 2001, 123 guarantees have been issued. Fifty-one of these were for infrastructure projects, but of these, only 3 were for water projects—accounting for less than 1% of all guarantees by value and 1.5% of all infrastructure guarantees. Of the 3 guarantees issued in water, 2 were issued by IFC and 1 by MIGA. One of the two IFC water projects was the result of the new efforts by the IFC/IBRD Municipal Finance Unit launched in 2003.

PricewaterhouseCoopers Confidential 3 Core Findings IFI Risk Mitigation instruments were being used in countries where they were needed (largely below investment grade countries) The majority issued were in non-infrastructure sectors Those in infrastructure were concentrated in energy Water received little attention, little demand and few guarantees WSS investors were looking for regulatory and forex cover products that did not exist IFIs were active in evaluating their products and services and were intent on making changes

PricewaterhouseCoopers Confidential 4 Closing Thoughts Then IFIs are uniquely positioned to provide risk mitigation for WSS projects in the emerging markets. Private sector insurers are unlikely to enter these markets until products and coverages, particularly for contractual/regulatory and forex instruments, are better defined and tested. IFIs have the ability to invest in product development and expansion in this area. IFIs have the ability to help shape and develop projects to the point where guarantees can make a difference in private sector participation. IFIs have the leverage to enforce guarantees and serve as honest brokers between government and the private sector. But guarantees alone won’t solve the WSS financing need –they are part of the solution to bringing private capital, management and know-how to the sector –considerable effort is still needed at the sector level to bring projects to the point of potential private sector interest

PricewaterhouseCoopers Confidential 5 Where are we today? World Bank, MIGA and IFC have refocused guarantee programs to: –Consolidate WB and MIGA products –Consider revising MIGA charter to enable sub-sovereign and pure debt wrap covers –Invested considerable efforts to develop successful sub-sovereign programs –Expand range of current instruments to sector products (transport, power, ….) Other donors appear to be following suit New instruments of investment are being evaluated –Pooled finance facilities –Non-equity structures Still, little has been done to radically scale up guarantee efforts –Regulatory and forex risks still difficult to cover –Investment demand is not applying sufficient pressure The Banks are active, but have not been revolutionary New and better products are only one part of the solution