1. Supporting Iceland’s Investors
MIGA:
Supporting Iceland’s Investors
in Emerging Markets
June 2006
WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY

2. The World Bank Group
created
1944 IBRD International Bank for Reconstruction and Development
1960 IDA International Development Agency
1956 IFC International Finance Corporation
1966 ICSID International Centre for the Settlement of Investment Disputes
1988 MIGA Multilateral Investment Guarantee Agency
Who is MIGA? As many of you know, MIGA — the Multilateral Investment Guarantee Agency — is a part of the World Bank Group, and the only global entity that has as its sole mission the promotion of foreign direct investment into developing countries. I believe this mission is critical to the World Bank Group's overall goal of reducing poverty, since public spending and domestic private investment alone will not generate the needed economic growth.
Promote FDI with the use of guarantees and TA

3. What is MIGA? Member of World Bank Group 167 members
Capital: $2 billion
Capacity: up to $9 billion
Gross/Net Exposure: $5.1 b/$3.3 b
FDI Facilitated: Over $50 b
Coverage in more than 85 countries
Private and public partners
Member of WBG
164 members
Capital base: $2 billion; capacity: up to $9 billion
Objective:
- Facilitate flow and distribution of FDI into developing countries through risk mitigation
Risk Mitigation Products:
- TA for investment promotion
- Online investment promotion tools
- Guarantees against non-commercial risks
- Mediation

4. MIGA’s Services We promote FDI into developing countries through:
Political risk guarantees for investors/lenders
TA for developing country IPAs
Online investment promotion:
Ipanet, PrivatizationLink and FDIXchange
Investment dispute mediation services
MIGA has several products. MIGA's best-known product — its political risk insurance — is a powerful instrument for facilitating investments. Furthermore, our technical assistance and online information services help countries promote themselves to foreign investors, and link investors with investment opportunities. MIGA brings some unique advantages to its private sector partners and clients. By being part of the World Bank Group, and having as its shareholders both host countries and investor countries, MIGA brings security and credibility to an investment that is unmatched. Our presence in a potential investment can literally transform a "no-go" into a "go". MIGA's principal benefit is that we act as a potent deterrent against government actions that may adversely affect investments. And even if disputes do arise, our leverage with host governments frequently enables us to resolve differences to the mutual satisfaction of all parties. This allows existing investments to continue and other new investments are not discouraged.

5. On-Line Services for Investors, Lenders
The Investment Promotion Network:
PrivatizationLink:
The Investment Promotion Network an online portal to investment opportunities and business environment information
FDI Xchange:
PrivatizationLink country and sector information service featuring profiles of enterprises slated for divestiture in emerging markets
FDI Xchange customized alert service delivering new market analysis and investment opportunities
FDI Promotion Center toolkit, investor research, and e-learning for investment promotion practitioners

6. MIGA Guarantees: Insurance… ….but also risk management
CREDIT ENHANCEMENT
improves the overall risk-return profile of the project
may reduce provisioning requirements for lenders
may lower cost of financing, lengthen tenors
can protect corporate balance sheet
CONFIDENCE
deterrent against host government interference
gives investors confidence investing in frontier markets
mediation of investment disputes
STABILITY
provides stable environment for business operations
+ WORLD BANK GROUP “STAMP OF APPROVAL”

7. political risk insurance for projects adverse host government actions
Risk Management
Confidence
Credit Enhancement
political risk insurance for projects
deterrence of
adverse host government actions
Better
Prospect of
compensation
reduction of both
capital costs and
financing cost
investors
gain
confidence
project risk /
return profile
improves for all
investors
greater interest
from debt and
equity investors
more deals
are closed

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

9. Coverage: Transfer Restriction/ Inconvertiblity
inability to convert local currency into forex
inability to transfer forex out of host country
excessive delays in acquiring forex
currency depreciation not covered
Currency Transfer Restriction and Inconvertibility
Protects against losses arising from: Inability to convert local currency into foreign exchange and inability to transfer.
Expropriation
Protects against losses arising from nationalization and confiscation, creeping expropriation, and partial expropriation (expropriation of funds). Non-discriminatory measures not covered.
War and Civil Disturbance
Protects against losses arising from damage/disappearance of tangible assets (including revolution, insurrection, coups d'état, sabotage, and terrorism), and prolonged business interruption.
Breach of Contract
Protects against losses arising from breach or repudiation of a contract between the investor and the host country authorities (non-enforcement of an arbitration award is a prerequisite). Applied to breach of supply/take-off contract, a license agreement, etc., and breach of a sub-sovereign guarantee obligation.

10. Coverage: War/Civil Disturbance/Terrorism/Sabotage
damage/disappearance of tangible assets
longer-term business interruption
Currency Transfer Restriction and Inconvertibility
Protects against losses arising from: Inability to convert local currency into foreign exchange and inability to transfer.
Expropriation
Protects against losses arising from nationalization and confiscation, creeping expropriation, and partial expropriation (expropriation of funds). Non-discriminatory measures not covered.
War and Civil Disturbance
Protects against losses arising from damage/disappearance of tangible assets (including revolution, insurrection, coups d'état, sabotage, and terrorism), and prolonged business interruption.
Breach of Contract
Protects against losses arising from breach or repudiation of a contract between the investor and the host country authorities (non-enforcement of an arbitration award is a prerequisite). Applied to breach of supply/take-off contract, a license agreement, etc., and breach of a sub-sovereign guarantee obligation.

11. Coverage: Expropriation
nationalization and confiscation
“creeping” expropriation
expropriation of funds
partial expropriation (case by case)
includes sub-sovereigns
Currency Transfer Restriction and Inconvertibility
Protects against losses arising from: Inability to convert local currency into foreign exchange and inability to transfer.
Expropriation
Protects against losses arising from nationalization and confiscation, creeping expropriation, and partial expropriation (expropriation of funds). Non-discriminatory measures not covered.
War and Civil Disturbance
Protects against losses arising from damage/disappearance of tangible assets (including revolution, insurrection, coups d'état, sabotage, and terrorism), and prolonged business interruption.
Breach of Contract
Protects against losses arising from breach or repudiation of a contract between the investor and the host country authorities (non-enforcement of an arbitration award is a prerequisite). Applied to breach of supply/take-off contract, a license agreement, etc., and breach of a sub-sovereign guarantee obligation.

12. Coverage: Breach of Contract
breach or repudiation of a contract or agreement with government entity
non-enforcement of an arbitration
includes sub-sovereigns
Currency Transfer Restriction and Inconvertibility
Protects against losses arising from: Inability to convert local currency into foreign exchange and inability to transfer.
Expropriation
Protects against losses arising from nationalization and confiscation, creeping expropriation, and partial expropriation (expropriation of funds). Non-discriminatory measures not covered.
War and Civil Disturbance
Protects against losses arising from damage/disappearance of tangible assets (including revolution, insurrection, coups d'état, sabotage, and terrorism), and prolonged business interruption.
Breach of Contract
Protects against losses arising from breach or repudiation of a contract between the investor and the host country authorities (non-enforcement of an arbitration award is a prerequisite). Applied to breach of supply/take-off contract, a license agreement, etc., and breach of a sub-sovereign guarantee obligation.

13. Types of investments covered
New investments (incl. modernization, restructuring, expansion, etc.)
3-15 (20) years
Up to 90% of investment amount; up to 95% of loans
No minimum amount; high ceilings
Equity and quasi-equity
Shareholder loans and loan guaranties
Non-Shareholder loans
Capital Markets transactions
Technical Assistance
Management Contracts
Leases
Franchising and Licensing Agreements
Performance Bonds
O&M Agreements

14. Preliminary application (online, no fee)
Guarantee process
Preliminary application (online, no fee)
Must be done before investor commits to project
Completely confidential and non-binding
Definitive application
MIGA due diligence
Host country approval
Board concurrence
Guarantee signed by MIGA and investor

15. Claims Experience Over 800 contracts ($14 billion) issued
Three claims filed and paid
2000: Indonesia power plant -- $15 m – expropriation
2004: Nepal hydroelectric station -- $145,000 – civil war damage
2005: Argentina – expropriation (ca. $1.5 million)
Extensive experience successfully mediating disputes
Most in power, mining sectors
Transfer restriction – multilateral exception for MIGA-covered investments:
1998 – Russia
2001 – Argentina
Venezuela

16. Typical Project Structure
Loan
Guarantee
Foreign Investor
Bank
Equity
Loan
Iceland
Peru
Shareholder
Loan
Project Enterprise

17. Guarantees Portfolio
Europe and Central Asia
Latin America/Caribbean
Africa
Asia and the Pacific
Middle East and North Africa 45 25 16 13 3
$5.1 B
Infrastructure
Financial
Oil, Gas and Mining
Agribusiness and Manufacturing
Tourism and Services 39 9 8 5
Gross Exposure, by sector and region*, in percent (as of 06/30/05)
* Figures exceed 100% due to master contract with one client

18. The Proposal Case Study 1: Hydro Power – Laos
Significant hydropower potential but very limited internal electricity demand
Major electricity market but limited internal energy resources
US$1.25 B trans-basin power plant in Lao PDR with transmission facilities to the Thai border
Laos
Tailand
Thailand
NOTE: Each rating agency and each transaction type has different PRI requirements, depending also on the rating requirements of the arrangers/issuers. It is important to involve us early in the discussions so that we can ensure that the transaction is appropriately structured in a way that allows for the most effective, efficient use of MIGA’s guarantee.
Project
Project

19. Overcoming Obstacles Case Study 1: Hydro Power – Laos ISSUES SOLUTION
Lao Government budget limitations
Limited environmental and technical capabilities of Laos
USD1.5 B cost
Commercial lenders would not assume political risks in Laos or Thailand
Public Private Partnership
WB advisory and technical assistance + experienced international power developer: EDF
Project Finance scheme
Political Risk Guarantees
NOTE: Each rating agency and each transaction type has different PRI requirements, depending also on the rating requirements of the arrangers/issuers. It is important to involve us early in the discussions so that we can ensure that the transaction is appropriately structured in a way that allows for the most effective, efficient use of MIGA’s guarantee.

20. Nam Theun 2 Power Company
Case Study 1: Hydro Power – Laos
Project Structure
World Bank
ADB
MIGA
NTP 1
EDF 1
EGGO
US $ Banks
Shareholder Agreement & Equity
Thai Baht Banks
Bilateral Agencies
ECAs
NOTE: Each rating agency and each transaction type has different PRI requirements, depending also on the rating requirements of the arrangers/issuers. It is important to involve us early in the discussions so that we can ensure that the transaction is appropriately structured in a way that allows for the most effective, efficient use of MIGA’s guarantee.
Loans
Nam Theun 2 Power Company

21. Risk Allocation Case Study 1: Hydro Power – Laos
Risks associated with relationship between Laos and Thailand leveraged through contractual obligations of both governments
Additional leverage created through equity ownership by state-owned power companies of both countries
Social and environmental problems resolved through the World Bank involvement
Laos state-owned company contributes equity using IDA funds
Project developed with 80% debt-to-equity ratio. Debt arranged by 9 leading commercial banks along with guarantees from MIGA, PRG, ADB and ECAs
Funds provided by Thai banks
NOTE: Each rating agency and each transaction type has different PRI requirements, depending also on the rating requirements of the arrangers/issuers. It is important to involve us early in the discussions so that we can ensure that the transaction is appropriately structured in a way that allows for the most effective, efficient use of MIGA’s guarantee.

22. Main Risks to Lenders Case Study 1: Hydro Power – Laos
Breach of Concession in Lao: Non-payment of termination payments triggered by
Confiscation of assets
Declared wars
Embargoes
Expropriation
Breach of the Power Purchase Agreement in Thailand:
Defaults on payments for electricity by EGAT;
Non-payment of termination payments under the PPA
Transfer Restriction (as a default option for the Breach of Contract)
Expropriation through administrative, legislative and regulatory decisions for which there were no termination payments in the contracts
War and Civil Disturbance unrelated to the actions of both governments

23. MIGA’s Value-Added Case Study 1: Hydro Power – Laos
Assisted in: syndication of larger amount of funds by Fortis bank and extension of finance period
Provided customized solution to multi-country risks: MIGA covered not only political risks in Laos but risks in Thailand (breach of the purchase agreement between the project and Thai state-owned company, EGAT)
Collaborated with sister agencies MIGA worked side by side with ADB and PRG to provide equal playing field for other arrangers
NOTE: Each rating agency and each transaction type has different PRI requirements, depending also on the rating requirements of the arrangers/issuers. It is important to involve us early in the discussions so that we can ensure that the transaction is appropriately structured in a way that allows for the most effective, efficient use of MIGA’s guarantee.

24. Case Study 2: Geothermal Power – Kenya
$119 m in guarantees for OrPower 1 and 4
Coverage against all 4 risks
BoC coverage for Site Agreement
Investor: Ormat (Israel)
Olkaria geothermal fields in Rift Valley
Phase 1: 12 MW; Phase 4: 48 MW
Alternative to hydro
Significant local employment, sourcing of goods and services
Revenues for government
Extensive mediation in past 2 years

25. SME Telecoms/IP Investment – Sierra Leone
Case Study 3:
SME Telecoms/IP Investment – Sierra Leone
$2.8 m guarantee against 3 risks
Conflict-affected country
Limited, unreliable, expensive internet access
Israeli investor ($3 m equity investment)
Fixed line broadband wireless access and voice-over IP network
Covered under MIGA’s Small Investment Program:
coverage up to $5 m (no minimum)
streamlined process
special pricing
3-risk “package” (no BoC coverage)

26. thank you! www.miga.org Elena Palei Ph: +1-202- Fax: +1-202-522-2630E:
Keith Martin
Ph:
Fax: E: