MOS - Guarantee Operations

In September 1994, the Bank’s Executive Directors approved a proposal to make guarantees a mainstream instrument of Bank operations. These guarantees are most likely to be used for infrastructure financing, where the demands for funding are large, political and sovereign risks are significant, and the need for long-maturity financing is often critical to a project’s viability.

By covering some of the risks that the market is not able to bear or adequately evaluate, the Bank’s guarantee can attract new sources of finance, reduce financing costs, and extend maturities. The guarantee can be especially valuable where activities traditionally undertaken and financed by the government are being shifted to the private sector but where the government remains as a regulator or provider of inputs and a buyer of outputs. The Bank’s participation as guarantor can also facilitate the transparency of these transactions.

Since the guarantee is intended to be a catalytic instrument, the Bank offers only partial guarantees, and risks are clearly shared between the Bank and private lenders. The Bank’s objective is to cover risks that it is well-positioned to bear given its credit, its experience with developing countries, and its special relationships with governments. The risk-sharing may be for specific risks (the partial risk guarantee) or for part of the financing (the partial credit guarantee).

A partial risk guarantee covers risks arising from nonperformance of sovereign contractual obligations or from force majeure aspects in a project. A partial credit guarantee typically extends maturities beyond what private creditors could otherwise provide, for example, by guaranteeing late-dated repayments or by providing incentives for lenders to roll over medium-term loans.

For more information on the Bank’s guarantee program and to obtain a copy of the pamphlet “The World Bank Guarantees: Leveraging Private Finance for Emerging Markets” (available in English, French, Portuguese and Spanish), please contact the Project Finance and Guarantees Group. Tel: (202) 458-8111; Fax: (202) 522-0761, or visit www.worldbank.org/guarantees.

AfricaRegion

Regional

Transportation

Joint Railway Concession: (Private Sector) The objective of the project is to mobilize commercial debt financing in support of the joint concessioning of the Kenya and Uganda railways. Two IDA partial risk guarantees in support of the project, which is a component of the East Africa Community Transport Facilitation project, were approved by the Executive Directors on 23 January 2006.  The project achieved financial closure in December 2006. Effectiveness of the Partial Risk Guarantees is still pending.

Senegal

Energy and Mining

Electricity Efficiency Enhancement (Kounoune IPP) (Public Sector): The objective of the project is to improve efficiency in the power sector and meet increasing demand for electricity. An IDA partial risk guarantee of US$ 7.2 was offered as an inducement for third-party co-financing of the investment project for which an IDA credit of US$ 15.0 was approved by the Executive Directors in May 2005. Financial closure is pending.

Sierra Leone

Energy and Mining

Bumbuna Hydroelectric Completion(Private Sector): The objective of the project is to complete a 50 MW run-of-the-river hydropower plant on the Sell River to deliver quality electricity services at low cost in the western area, including Freetown, and to promote private sector participation in the power sector. An IDA partial risk guarantee of US$ 38.0 was approved by the Executive Directors on 16 June 2005. Due to changes in the risk allocation among the project’s stakeholders, which differs from the allocation approved by the Board in 2005, the project requires another Board approval. Board presentation to be determined. Estimated total cost: US$ 91.8. An IDA grant of US$ 12.5 was also approved by the Executive Directors on 16 June 2005.

Uganda

Energy and Mining

Bujagali Power (Private Sector): The objective of the project is to catalyze financing for the construction of a 250 MW hydropower facility on the Victoria Nile Rive near Jinja. An IDA partial risk guarantee of US$ 50.0-80.0 is being considered in support of the project. The project was approved by the Executive Directors on 26 April 2007. Guarantee effectiveness still pending.

East Asia and Pacific Region

Philippines

Energy and Mining

Power Sector Reform and Transco Concession (Private Sector): The objective of the project is to implement a power sector reform and privatization program by facilitating the concession of a nationwide power transmission system. An IBRD partial risk guarantee of US$ 250.0 is being considered. Board presentation is tentatively scheduled for the fourth quarter of FY08.

Europe and Central Asia Region

Russian Federation

Energy and Mining

SUAL Partial Risk Guarantee Facility (Private Sector): The objective of the project is to catalyze the required commercial funding to develop a large scale integrated aluminum complex sponsored by the aluminum company, SUAL, in the Republic of Komi. An IBRD partial risk guarantee of US$ 50.0 is being considered to support a commercial bank loan as part of the project financing. Estimated project cost: US$ 1,200.0. Board presentation tentatively scheduled for third quarter FY08.