1

BUSINESS SEMINAR ON THE GLOBAL INFRASTRUCTURE FACILITY (GIF)

Jordan Schwartz

Head of the Global Infrastructure Facility (GIF)

November 10, 2014

World Bank Tokyo Office

Context: Demand for the GIF

2

Governments

o Need long-term finance for more

infrastructure investment

o Need to diversify sources of financing

o Over 80% of infrastructure purely public

o Over half of the “private” publicly financed

Compatible demands…

What’s not working?

Private investors

o Sponsors need competitive financing

packages

o Banks need exit options

o Institutional investors seek long-term

investments with predictable cash

flows

69%

24%

3%

46%

28%

21%

9%

Private vs. PPP Priv & Public Debt & Equity

Debt

Equity Private

Public

Public

Private

Telecoms

Divestiture

PPP

o Insufficient leverage

No pipeline of

projects that satisfy

both financial &

political economy

questions

Commercial close

Challenge: Project Preparation & Structuring

• Large contingencies remain

• Incomplete E&S assessments

TA

Investment decision

Financial close

Transaction Preparation Financing Identification Transaction Transaction Financing

• Driven by incumbent developer

• No assessment of Value for Money or best procurement approach

• Inadequate due diligence

• Missing legislation

• No land registry

• No pricing study

• Viability gap larger than expected

• Seek IDA for VGF, IBRD or RDB for loan

• No fiscal analysis

• Protracted post bid negotiations

• Resetting incumbent’s equity share

• Bilateral agencies stepping in to offer new tied structures and lending

MDB

Financing

• Government commitments not bankable

Credit

Enhancement

Challenge: What could we do differently?

Comprehensive preparatory work could require: : • Engineering, E&S, and pricing studies • Regulatory review and strengthening • Investment appraisal, including cost-benefit and fiscal

assessment • Commercial viability assessment • PPP structuring and decisions on best use of credit

enhancements

Commercial close

Financial close

Preparation Identification Transaction Financing

• Government or private sector identify investment need

• Government takes project to WBG or GIF partner

Platform

convened

• WBG • RDB

• Government • Domestic &

International Financiers

Investment Decision

• PPP structure and bid parameters refined

• Bid Documents developed

• Credit enhancement package prepared

TA Financial

arranging

Financial

instruments

• Financial structure finalized based on credit enhancement package

Potential Impact:

More efficient use of resources…

5

No change

+ 30%

- 30%

+ 20%

+ 10%

-20%

- 10%

19% 18%

- 19% - 17% -10%

-17%

-27%

-32%

13.5%

- 5%

13%

Source: Andres, Schwartz, Guasch, Uncovering the Drivers of Utility Performance, World Bank (2013)

Effects of Private Participation and Regulation

Consumer Tariffs

6

… More efficient financing structures

Base Case Project

GIF-Structured Project

Financial

close

FC

+ 4

YR

s

20 YRs

11 USc/kWh

9 USc/kWh

300 MW Combined Cycle Gas-to-Power Plant

FC

+ 2

YR

s

Commercial

Operations Date

Savings of an estimated

3% of a $2,000 annual

gross income; or 10% of

income at $2 per day

What is GIF: Partnership, Resources, Focus

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The Global Infrastructure Facility is an open

platform for collaboration between public and

private partners to prepare and structure complex

infrastructure projects that are potentially

commercially viable

What GIF will do: Activities

Enabling

Environment

& Project

Definition

Project

Preparation &

Investment

Feasibility

Transaction

Support &

Financial

Structuring

Financial

Arranging &

Credit

Enhancement

Investment decision

Commercial close

Financial close

Activities Project

Milestone

o End-to-end development and structuring for complex private infrastructure projects

o Gap-filling support complements other resources

o Partnership approach to implementation…

o Revolving facility shares preparation cost and risk

o … Leveraging WBG capacity

How GIF will work: Institutional Options

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Independent

entity Internal WBG

mechanism

WBG Partnership

Program

Open structure

conducive to

partnerships

Less credibility and

convening power

Replication of

skills required

Capitalize on

WBG skill,

experience, and

convening power

Less conducive to

partnerships

How GIF will work: Proposed Structure

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Institutional

Investors

Global Infrastructure Facility

Management Unit

Banks & Other

Financial

Institutions

Governance Council

Advisory Partners Funding Partners Technical Partners

Advisory Council

WBG Partnership

Program

Donors MDBs

Bilaterals,

SDBs, ECAs

GIF Pilot Phase: Global Test of GIF Model

11

Hydro generation: Can

BOO designed for energy

export be structured to

produce domestic

economic returns?

Rail to mines: Can

multiple mines

jointly concession a

rail line?

Rail: Can rail

extensions to

agricultural regions be

financed on back of

mine-mouth trunk line?

Urban rail: Can projects

be structured so NDBs

convert their role from

lender to backstopper?

Water: Can

desalination be

structured for

eventual trade?

Air transport: How

should a large set of

provincial airports be

packaged as PPPs? Power: Can transmission

lines be structured so

that domestic and

international institutional

investors come in with

long-term finance? What

instruments can be used

to lengthen local

currency swap markets?

i2

i2

GIF Pilot Phase: Global Test of GIF Model

12

i2

N

N

N

N

N

Key: N i2 D

D

D

D

N

N

i2

Multilateral

Development Bank

National Infra Fund or

Development Bank

Institutional

Investor Donor

RDB

MDB

i2

i2

RDB

WBG

RDB

i2

i2 i2

i2

RDB RDB

MDB

i2

D

o $80 - $100 million target for initial capitalization

o GIF Team to finalize partnership agreement with Funding,

Technical, and Advisory partners and commence operations

o Review after 3-year pilot phase: structure, scope, and scale of

activities

GIF Pilot Phase: Next Steps

13

Consultations with Partners

and EDs

Board Date

Sept 11

Signing at WB Annual

Meetings

Oct 9

Prepare and finalize Partnership

Agreements / define Pilot Projects

Start GIF Operations

August September October Nov - Feb March