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.

Africa Region

Regional

Transportation

Joint Railway Concession: (Private Sector) The objective 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.

Botswana

Energy and Mining

Mmamabula IPP Project: (Private Sector) The objective is to support the development and implementation of a  2100 MW (3 x 700 MW) coal fired supercritical power plant and an associated coal mine in eastern Botswana (in the locale of Mookane and Dovedale) to be developed, owned, and operated by a private sector project company. An IBRD partial risk guarantee is being considered in support of the project to backstop certain government obligations. Board presentation scheduled for March 2009.

Kenya

Transport

(R) Nairobi Urban Toll Road: (Private Sector) The objective is to improve traffic efficiency along the Northern Corridor in Kenya by enabling private investment within a toll road concession along the most congested urban sections of the Uhuru Highway. An IDA PRG of about US$120.0 in support of the concession is currently being considered in support of the project.  Board presentation tentatively scheduled for last quarter FY08.

Nigeria

Energy and Mining

(N) Energy Infrastructure Project (Ibom Power IPP): (Private Sector) The objective is to support the development and implementation of an about 1,500 MW power plant in Nigeria. An IDA PRG of about US$ 60.0 is being considered in support of the project. The PRG would help to assist the Government in putting in place an appropriate framework for IPPs as well as the extent of Government support to be provided through the PRGs. Board presentation tentatively scheduled for second quarter FY09.

Senegal

Energy and Mining

Electricity Efficiency Enhancement (Kounoune IPP): (Public Sector) The objective 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 on May 2005. Financial closure is pending.

East Asia and Pacific Region

Philippines

Energy and Mining

Power Sector Reform and Transco Concession: (Private Sector) The objective 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.

Middle East and North Africa Region

Jordan

Energy and Mining

Al Qatrana Power Project (Private Sector): The objective is to catalyze private investment for the construction of an about 370 MW gas-fired combined cycle power station to be developed, owned and operated by a private-sector company in the region of Al Qatrana, Jordan. An IBRD partial risk guarantee of about US$ 50.0 is being considered in support of the project. Board presentation is tentatively scheduled for fourth quarter of FY08.