53161 IFC Support to Infrastructure transactions in power, transport & water Donor partners IFC works closely with many donor partners to increase private-sector participation in infrastructure and improve access to public services. Their support leverages IFC's own contributions and enhances the impact of its operations. Key infrastructure advisory donor partners include: · Australia · Austria · Brazil · Canada · France · Ireland · Italy · Japan · Kuwait · Netherlands · Norway · Sweden · Switzerland · United Kingdom · United States · Public-Private Infrastructure Advisory Facility · Global Partnership for Output-Based Aid · Private Infrastructure Development Group The International Finance Corporation Copyright ©2009. All rights reserved. Infrastructure Challenges for Developing Countries According to the World Bank's Sustainable Infrastructure Action Plan FY2009­2011, the gaps in infrastructure service delivery are significant: worldwide 884 million people lack access to safe water, more than 1.0 billion are without access to telephone services, 1.6 billion have no access to electricity, and 2.5 billion lack proper sanitation facilities. ACCESS GAP MANy PEOPlE IN ThE DEvElOPING WORlD STIll lACk ACCESS TO bASIC INFRASTRuCTuRE SERvICES % 100 South Asia 80 Middle East & North Africa Latin America & Caribbean 60 Eastern Europe & Central Asia 40 East Asia & Pacific 20 Africa 0 Access to electricity Access to water (rural) Access to water (urban) Rural transport index The Millennium Development Goals recognize the catalytic role of infrastructure in poverty reduction by singling out targets for access to water supply and sanitation services to be achieved by 2015. Although not explicitly stated as goals, access to other infrastructure services--electricity, transport, and telecommunications--are indispensable for achieving the poverty, education, gender, health, and environmental objectives spelled out in the United Nations Millennium Declaration. Developing countries' infrastructure challenges are formidable and include: · investment needs estimated at 7 to 9 percent of gross domestic product per year, · poor quality service delivery. Developing countries need sustained support to address the deficiencies of their core infrastructure sectors. In partnership with public sector governance and planning, private sector capital is critical to expand access to those basic services that improve the quality of life of the neediest people and enable them to participate in local economies. TRANSACTIONS IN POWER, TRANSPORT AND WATER 1 IFC and Infrastructure IFC helps increase access to basic services by financing infrastructure projects and advising client governments on public-private partnerships. It also adds additional value by devising innovative projects and public-private partnerships in difficult markets; mitigating risk; and leveraging specialized financial structuring, policy, environmental, and social capabilities. In doing this work, IFC collaborates closely with other parts of the World Bank Group and the donor community; a significant part of IFC's advisory work is supported by external donors. The impact of IFC's infrastructure investment and advisory work can be summarized as follows: · As of the end of calendar year 2007, on a portfolio basis, IFC-supported projects reached more than 660 million beneficiaries, client companies paid US$5.4 billion in taxes, and IFC enabled almost US$10 billion in additional financing from private sources. · In fiscal year 2008, combined infrastructure investment and advisory service commitments and project closings are expected to reach more than 61 million people in developing countries. · For each US$1 million of annual commitments, IFC reaches 21,000 people, mobilizes US$12.2 million from the private sector, and enables US$608,000 in payments of taxes and concession fees to host country governments. · For each annual commitment IFC makes (by number), IFC reaches 653,000 people, mobilizes US$379 million from the private sector, and enables US$18.8 million in payments of taxes and concession fees to host country governments. · In fiscal year 2008, investee companies are expected to pay almost US$16.4 billion in taxes and concession fees to host governments and enable US$4.5 billion in financing from private sources. TRANSACTIONS IN POWER, TRANSPORT AND WATER 3 For all investment approvals before 2005, in spite of the power sector, 77 percent of projects in the water difficult country conditions and risks, portfolio projects and gas sector, as well as 68 percent of projects in the exhibited a solid development impact, with 75 percent transportation sector. This success is attributable in part of projects achieving high ratings compared with 65 to a dramatic ramp-up in IFC's advisory assistance, which percent for IFC as a whole. Significant development laid the groundwork for mobilizing US$1.4 billion in outcomes were achieved in 79 percent of projects in private investment. IFC's advisory services primarily IFC'S DEvElOPMENT IMPACT IN INFRASTRuCTuRE1 ACTIvE INvESTMENT PORTFOlIO (2007) Investment Fiscal impact (US$M) 4,015.2 People with basic services (M) 655.0 Basic services (water, gas, power) 184.5 Transportation (air, rail, roads) 470.6 Investment enabled (US$M) 1,332.0 ACTIvE ADvISORy MANDATES (2007) Advisory Fiscal impact (US$M) 1,406.4 People with basic services (M) 5.7 Investment enabled (US$M) 8,710.0 Advisory figures exclude telecom, health and education IFC'S ENGAGEMENT IN INFRASTRuCTuRE The following figures provide a picture of IFC's involvement ADvISORy MANDATE ClOSINGS & INvESTMENT in the sector: COMMITMENTS (FISCAl yEAR 2008) · Since fiscal year 2000, IFC has arranged more than 250 Advisory Investment Total private infrastructure deals worth a total of US$7.3 bil- Fiscal impact (US$M) 455.5 16,012.0 16,467.5 lion. Customers reached (M) 0.3 61.0 61.3 · Since fiscal year 2004, IFC's dollar investment commit- Basic services ments grew by 125 percent per annum, reaching US$2.4 48.4 48.4 (water, gas, power) billion by fiscal year 2008. Transportation 12.6 12.6 · As of June 2008, IFC's committed investment exposure (air, rail, roads) in the infrastructure sector totaled US$5.4 billion, span- Investment enabled 855.0 3,666.0 4,521.0 ning 155 clients in more than 50 countries. (US$M) · As of June 2008, power represented 52 percent of IFC's committed exposure in the infrastructure sector, transport represented 32 percent, and utilities and infrastructure funds accounted for 16 percent. 1 Investment projects are considered mature for development impact · In fiscal year 2008, the infrastructure advisory portfolio ratings by IFC three years after disbursement. Projects approved from 1990 to 2005 totaled US$121 million with projects in 40 countries. are therefore considered mature from a development impact perspective. Highly rated projects are those rated "mostly successful," "successful," or " highly successful" by IFC's system for tracking development outcomes. 4 iFc sUpport to inFrastrUctUre counsel governments, including municipalities, on ways to engage the private sector in essential public services and restructure state-owned enterprises. IFC's advisory work helps establish public-private partnerships through which governments can realize improved performance despite budget constraints, while benefiting from the private sector's expertise, management, and finance. The focus is primarily on expanding access to public services such as power, water and sanitation, transport, and health and education. Since the establishment of its Advisory Services in Infrastructure in 1989, IFC has worked in over 250 transactions in more than 60 countries and is the only multilateral institution to offer governments advisory services on implementing public-private partnership transactions. IFC is aware of the possibility of conflicts of interest arising from its advisory and investment work. Therefore if a potential conflict of interest--or perception thereof--arises in connection with an IFC advisory mandate and a post-privatization investment, IFC will: · disclose the conflict of interest to its clients and, as necessary, to others, such as loan participants, suppliers, and other important companies; Why IS IFC RECOGNIzED AS ThE lEADING · indicate that the two activities are normally se- MulTIlATERAl ADvISOR IN ThE FIElD? quenced, which should mitigate the conflict of interest (during a competitive bidding process, IFC is recognized as a leader because of its: IFC will not engage with any one bidder on an · reputation for objectivity, independence, and trans- exclusive basis, at most indicating an interest to parency; consider investments only after the winner is · succes in garnering public support and enhancing transaction credibility with strategic investors; selected); · ability to balance the objectives of the government, · propose separate teams with no sharing of con- the needs of the consumers, and the bankability of fidential information, noting that IFC's advice the project while also achieving social and develop- will not be influenced by the investment and that mental objectives; the Investment Department will not have any · extensive experience in designing sound regulatory influence over the advice given by the Advisory frameworks and working with key investors and op- erators across all sectors; Services Department; and · long track record of successful public-private partner- · seek written informed consent to the proposed ships and privatization transactions. arrangements. TRANSACTIONS IN POWER, TRANSPORT AND WATER 5 IFC and Power Electricity at affordable prices is crucial for economic and social development, but meeting the huge demand for power by the world's poor entails numerous challenges in the areas of power generation, distribution, and transmission, as well as energy efficiency. Developing countries face a growing array of difficult challenges in the power sector: insufficient power supplies and transmission constraints that result in overall low electrification and poor or nonexistent service in off-grid areas; volatile fuel prices that drive up consumer electricity costs or necessitate substantial government subsidies; high tariffs that lead to political dissatisfaction and financial difficulties, which in turn adversely affect domestic and foreign direct investments; delays in privatization because of a lack of appropriate regulatory frameworks; and increasing environmental concerns about the construction of power plants, especially hydroelectric plants that require new or expanded dams. In addition, the renewable energy sector faces specific financial challenges. Renewable technologies are seldom the least-cost supply option and are often exacerbated by shortages of key manufacturing equipment, such as wind turbines. At the same time, many developing countries have insufficient, unproven, or even distorting regulatory frameworks. Donor funds are necessary because, in the absence of regulatory support, carbon finance is generally inadequate to make up the cost difference between conventional and renewable technologies. A lack of sectoral and financial expertise among sponsors (governments or investors) limits the ability of private sector participants to overcome many of these obstacles. TRANSACTIONS IN POWER, TRANSPORT AND WATER 7 Azito, Côte d'Ivoire Investment Services IFC is engaged in greenfield projects, as well as in POWER TO ThE PEOPlE providing equity and quasi-equity, financing corporate To address critical power shortages in Côte d'Ivoire, IFC loans, arranging public-private partnerships, and mobilized the first international bank financing of a major power project in Sub-Saharan Africa--Azito Power. arranging acquisition finance and refinancing. As of June 2008, IFC's committed power sector portfolio This natural gas fired plant, located 10 miles from downtown Abidjan, generates more than 40 percent of all power used amounted to US$2.3 billion. in the country and enables electricity exports to Ghana and other neighboring countries. IFC's approach mirrors the dilemma its clients face: IFC made an investment in Azito consisting of A- and maximizing access to energy through private sector B-loans of US$35 million each1, an equity investment of participation while minimizing the generation of US$11 million, and optional risk management of US$5 greenhouse gases. In this context, IFC's investment million equivalent. Azito Power was the second independent strategy focuses on: power producer project in Côte d'Ivoire and introduced a new investor group to the Ivorian power sector, resulting · undertaking joint work with the World Bank on in the mobilization of a significant amount of commercial financing on a limited recourse basis2. the enabling environment for the energy sector; Since going online, Azito power has provided reliable · increasing the focus on demand-side management; electricity with the country's lowest energy tariff: US$ 0.017 per kilowatt-hour excluding fuel costs and US$ 0.041 · increasing investments in renewable energy with per kilowatt-hour including fuel costs. Project operations flexible use of commercial and concessionary included training of local staff, thereby increasing the pool funds; of qualified thermal power plant operators in the country. IFC's involvement led, among other things, to improvements · integrating carbon financing wherever possible; in the regulatory environment of the electricity sector. · continuing to finance small, efficient, subcritical The use of gas for power generation is expected to further coal- and oil-fired generation plants where no promote investors' interest in additional development of the local gas industry. other realistic options exist1. In light of IFC's climate change strategy adopted in 2008, IFC does not finance existing power stations without significant capital expenditures on efficiency improvements; greenfield, subcritical, coal-fired plants; oil-fired power where supercritical coal-fired power 1 A-loans rank above or are equal to those of other lenders, do not have subordination features, and do not have deferability of repayment of is possible; or low efficiency thermal generation principal and/or interest characteristics. B-loans are loans for which IFC is the projects. lender of record and in which commercial banks or other financial institutions acquire participation. 2 Limited recourse financing is a financing arrangement whereby the lender can require the borrower to repay only under special conditions that 1 Subcritical and supercritical refer to the steam pressure as a rough proxy are spelled out in the loan agreement but must otherwise look to the collateral as for the efficiency of electricity generation, that is, subcritical technology generates less a source of repayment. energy and more carbon emissions per unit of coal burned. 8 iFc sUpport to inFrastrUctUre Orzunil, Guatemala DEvElOPING ClEANER SOuRCES OF ENERGy More than 270,000 Guatemalans are enjoying lower cost and more reliable electricity thanks to a 24-MG geothermal power project financed by IFC. In support of the Government's initiative to develop cleaner sources of energy, IFC provided an A-loan of US$14.5 million, a B-loan of US$13.0 million, and equity of US$2.3 million (a 13.3 percent eq- uity stake in the project company) to Orzunil, the company established to implement the geothermal project. IFC's leadership and commitment were important because commercial lenders were only willing to provide long term lending in the country with the IFC "umbrella" provided by the B-loan and a guarantee provided by the World Bank Group's Multilateral Investment Guarantee Agency. The project developed and used an indigenous fuel by converting geothermal steam and brine into electricity from the Zunil geothermal field. In addition to being cost-effective, the geothermal plant is environmentally friendly. The project, a first for Guatemala, increased the role of the private sector in the country's power generation and served as a demonstration project for future development of private geothermal power. The success of Orzunil led to the development of several other geothermal projects in Guatemala, such as Amatitlan, as well as similar facilities in Costa Rica, El Salvador, Mexico, and Nicaragua. TRANSACTIONS IN POWER, TRANSPORT AND WATER 9 Advisory Services IFC's advisory services in the power sector focus on the poorest countries and aim at increasing access to electricity, improving the quality of supply and distribution, and reducing government budget outlays. IFC also helps governments develop best practice regulation in the power sector, with the objective of making the process transparent and easily understood by managers of private corporations, government officials, consumers, and the general public. Moreover, IFC is increasing its advisory work in the fields of renewable energy and rural electrification. The limited number of power transactions completed through a transparent and competitive process has created a perception of high risk among international investors. As a consequence, investors have required high returns, thereby increasing political risk and compromising affordability. A recurrent issue in developing countries is the exit strategy required by investors who need to demonstrate their portfolios' liquidity to shareholders. IFC, however, has generally been able to achieve positive results in its power advisory work in the emerging markets where it operates, including increasing private investment, improving service, and reducing or eliminating government subsidies to power sector utilities. IFC's advisory services in the power sector have helped attract private investment in power generation. Ongoing independent power producer transactions include advising governments on transaction preparation and competitive bidding in Albania and Zambia (hydroelectricity); Indonesia and Vietnam (coal); Bangladesh, Lebanon, and the Republic of Yemen (gas); and Madagascar and the Philippines (small generation units)2. 2 Independent power producers are entities that own facilities to generate electric power for sale to utilities and end users. 10 iFc sUpport to inFrastrUctUre Power Sector, Albania bOOSTING ThE POWER SuPPly Recognizing the growing demand for electricity and concerned about Albania's increasing reliance on high cost imports, the government turned to IFC to help engage the private sector in making the country more energy efficient and resilient. As lead advisor to the government, IFC, in close cooperation with the World Bank, helped Albania achieve in a few years more than the country had been able to achieve in decades: enactment of a new concession law, creation of a special unit in the Ministry to work with the private sector, implementation of a pilot program for Austria's Verbund to build and operate the Ashta hydroelectric plant, and the sale of 76 percent of the national electricity distribution company to the Czech Republic's CEZ Group. The Ashta plant, which will have the capacity to serve 100,000 households, will bring about 166 million in foreign direct investment into the country and save an estimated 35 million from reduced electricity imports. Private sector participation in the national electricity distribution system will substantially improve efficiency. For example, electricity losses are expected to be cut in half during the first five years of operation, thus reducing energy waste an average 100,000 GWH per year, which will have a major impact on climate change. SPUG, Philippines AMPlIFyING RuRAl ElECTRIFICATION In remote parts of the Philippines, a new off-grid power supply agree- ment will enable 185,000 people to gain access to electricity for the first time. Another 145,000 who currently have electricity will have better service at lower cost. The agreement is the result of IFC's work with the government to attract private investment to meet the challenges of rural electrification. To date, new power sales agreements between private generators and electricity cooperatives have been introduced on five remote islands, replacing the National Power Corporation's Small Power Utilities Group (SPUG) as the co-ops' power supply source. Private gen- erators for each off-grid area were selected on the basis of competitive bidding, with the price of electricity being the key bid factor. IFC advised on the design of the regulatory framework, created a fair and transpar- ent bidding process, and developed the model power sales agreement. The government will save more than US$1 million per year because of the reduction in subsidies. TRANSACTIONS IN POWER, TRANSPORT AND WATER 11 IFC and Transport The transport sector--roads, urban transport, railways, ports, and airports that contribute to economic development --faces mounting challenges. In rural areas, nearly a billion of the world's poorest people still do not have access to even one all-weather road. In most of the cities that will experience the largest population growth, public transport systems are struggling to maintain basic service levels. Many countries that have enjoyed strong trade growth in recent years are now facing capacity and quality constraints in relation to transport and logistics. Finally, weak political commitment and limited local government capacity, the lack of appropriate regulatory safeguards, and poor project governance all pose worrisome risks for private investors. Transport contributes to social and economic development by: · fostering economic growth and regional integration through international trade; · making cities work better for their citizens, for the environment, and for economic growth; · creating economic opportunities and growth in rural areas; and · facilitating access to health care and education. TRANSACTIONS IN POWER, TRANSPORT AND WATER 13 Investment Services IFC's strategy for the transport sector includes building · airports and ground handling services; on existing relationships with global players and leading · airlines; business development with new global players, supplying market-driven pricing, providing leadership for innovative · railways; transactions, and maintaining close relationships with · logistics and warehousing; other international financial institutions for business · industrial zones, special economic zones, and development and execution. business parks; Overall IFC aims to maintain a portfolio of high- · infrastructure funds; performing assets across the following areas: · trucking companies; · ports and port services, including tugs, moorings, · bus companies; and and dredging services; · roads. · shipping, including barges and offshore supply vessels; South Asia Gateway Terminals, Sri Lanka MAxIMIzING ThE COMMERCIAl POTENTIAl OF SRI lANkA'S PORTS Sri Lanka's Port of Colombo is strategically located on main East-West shipping routes. Yet high operating costs and low efficiency have diminished the port's attractiveness as a commercial shipping hub. In support of the government's efforts to improve Sri Lanka's ports, IFC, the Asian Development Bank, and the Com- monwealth Development Corporation invested a total US$130 million in South Asia Gateway Terminals Limited (SAGT), a private consortium that was awarded a build-operate-transfer concession to rehabilitate and modernize port facilities after a competitive bidding process. SAGT's investment in the terminal has resulted in faster, more reliable and efficient shipping services at rates that are competitive with those offered by Singapore and other ports in the region. Port congestion has been significantly reduced, transportation costs cut by almost 40 percent, port productivity improved by 33 percent, and delivery costs for both imports and exports lowered. With the support of SAGT, the Port of Colombo became the first port on the Indian subcontinent to comply with the U.S. Customs' Container Security Initiative. SAGT also ensured the Port of Colombo's participation in the U.S. National Nuclear Security Administration's Megaport Initiative, which equips ports with sophisticated radiation detection equip- ment that results in faster clearance of goods. Between 2001 through 2008, SAGT paid about US$36.3 million in royalties, rent, and taxes to the Sri Lankan govern- ment and Port Authority. 14 iFc sUpport to inFrastrUctUre PeruRail, Peru kEEPING PERu'S RAIl SySTEM ON TRACk The lack of an adequate transportation system can be a major obstacle to economic integration and development, particularly in developing countries. This realization was at the heart of the Peruvian government's decision to engage the private sector in modernizing Peru's railway network and making it more competitive. Ferrocarril Transandino S.A., a private company, holds the 30-year concession for PeruRail, the rail line providing tourist, freight, and charter services in southern Peru. As part of its strategy to promote sustainable private sector investment in developing countries, IFC approved an A-loan of US$7.5 million and a C-loan1 of US$1.5 million to Ferrocarril Transandino S.A to upgrade the railway network and purchase telecommunications equipment. IFC also provided a subsequent US$8 million revolving credit. This long term financing enabled PeruRail to make quick improvements in the quality and reliability of passenger and freight service. Track rehabilitation combined with the upgrading of its operational performance and rolling stock brought PeruRail in compliance with developed country standards (U.S. Federal Railway Administration Class II standards). The improvements resulted in safer and more efficient transportation to Machu Pichu and other tourist attractions, and reduced costs for exporters of minerals and agricultural products. PeruRail made a net profit of US$10.5 million in 2007. Tourist passengers increased by nearly 25 percent and improved reliability is helping PeruRail capture major freight contracts, such as the 10-year contract with the Sociedad Minera Cerro Verde S.A., one of the region's largest mining corporations. Local communities have also benefited. In Machu Picchu, for example, PeruRail provides free garbage removal. 1 Loans to Clients which rank above or equal to other lenders which have option features that provide IFC additional upside return potential. TRANSACTIONS IN POWER, TRANSPORT AND WATER 15 Advisory Services IFC provides advice on structuring and implementing privatizations of state-owned assets and supports the establishment of concessions to rehabilitate, restructure, maintain, and operate assets such as roads and ports. Its advisory work in the transport sector has focused on airports, airlines, ports, and roads, although in the past it has also furnished transaction advice on special economic zones, railways, and urban transport. Before developing a structuring plan, IFC undertakes technical, environmental, legal, financial, and regulatory reviews to ensure the sustainability of the transaction and identify solutions to potential social issues. In addition, because some transport projects, such as roads and airports, can have an impact on nearby populations, IFC engages in stakeholder consultations to incorporate public feedback into the transaction structure. Queen Alia International Airport, Jordan buIlDING A STATE-OF-ThE-ART AIRPORT In Jordan, where tourism accounts for 45,000 jobs and more than 10 percent of GNP, the new Queen Alia International Airport in Amman will help promote the country as a regional economic hub and tourist destination. The upgrade is the result of the government transferring control of the airport to private operators. Following a com- petitive bidding process, the 25-year concession was awarded to Aéroports de Paris Consortium, whose bid included a transfer of approximately 55 percent of the gross revenues to the government over the concession's life, the highest revenue-sharing percentage in the world for similar projects. IFC acted as the government's lead advisor and main financier of the project, committing US $120 million from its own account and helping mobilize up to US $160 million in funds from commercial banks. The transaction is the largest private sector investment in Jordan and one of the Middle East's largest private infrastructure projects to date. 16 iFc sUpport to inFrastrUctUre Kenya Airways, Kenya REAChING NEW hEIGhTS African tourism received a major boost as a result of the equity partnership between KLM Royal Dutch Airlines and Kenya Airways, and the restructuring of the country's flagship carrier. Kenya Airways had accumulated massive fi- nancial losses as well as crippling debt arrears from its failure to service its loans. IFC worked with the government to conduct a strategic review of the national carrier, prepare an options report, and develop and implement a restructur- ing action plan. Kenya Airways has been profitable ever since IFC's engagement. Despite financial and economic turmoil, the airline maintained its profitability in the six months that ended on September 30, 2008. Service standards and reliability have improved dramatically, and both passenger traffic and cargo operations have doubled. The government received more than US$70 million from the sale and saw its remaining minority stake increase in value. TRANSACTIONS IN POWER, TRANSPORT AND WATER 17 IFC and Water Increasing the provision of water and sanitation services is vital for economic and social development. The United Nations Development Programme's Human Development Report 2006 states that no socio-economic driver --including health spending, education spending, and energy access--explains more of the variance in the United Nations Human Development Index than access to safe water and basic sanitation. Each dollar invested in water and sanitation yields an US$8 benefit in increased productivity and reduced costs. Developing country governments must cope with a myriad of problems in the water sector, including unsafe water sources and expensive and unreliable water service delivery systems. In addition, many water utilities are on the brink of bankruptcy because of inefficient management and inadequate tariffs that do not cover operating costs. Private sector participation can: · improve service and commercial performance; · increase access to financial resources, since banks and bond makers are more willing to invest in utilities with credible management; · enhance policy clarity and sustainability because of greater transparency in setting tariffs and developing cost saving strategies. For the private sector, investment in the water sector often poses business risks stemming from regulatory requirements, such as a mandatory allocation of water for agricultural use; environmental concerns, such as the impact of utilities on ecosystems; and cost increases, such as raw water charges. In this sector, in particular, private investors may have to overcome the socio-political consequences of raising tariffs to levels that permit cost recovery and reinvestment. In addition, reliance on government subsidies for water providers is a significant risk. TRANSACTIONS IN POWER, TRANSPORT AND WATER 19 A particularly challenging aspect of water sector financing is that financial markets are often hesitant to Investment Services provide non-recourse financing--financing which limits IFC aims to increase private participation in the lenders' recourse to project assets in case of default by water sector by developing a pipeline of bankable the borrower. Rather, markets require that financing projects through project development activities and the be backed by the sponsor's balance sheets. transfer of know-how and technical expertise through Following the financial crises in East Asia and Argentina, partnerships. To do so effectively, IFC works across some international water operators have lost their the public-private continuum to raise awareness of appetite for investment in developing countries. As a and support for new models to address the challenges result, investors have been selective in choosing which inherent to the sector. IFC's water strategy also focuses companies to support and have concentrated on the on providing innovative financing solutions by: more advanced developing countries. · extending debt and equity project finance products to water and sanitation projects; · combining concessional and commercial finance to suit the needs of water and sanitation projects and companies, including the use of output-based aid; · increasing participation in municipal finance to projects and municipalities; · participating in smaller projects and companies through wholesaling and advisory services offered through financial intermediaries; · providing seed capital for clean technology and clean production initiatives. IFC portfolio companies have made notable gains in expanding, maintaining, and upgrading the water sector in a number of countries. IFC-financed projects have reduced network related water losses, increased connections, expanded coverage to provide 24-hour continuous service, and improved the supply of affordable water for poor communities. 20 iFc sUpport to inFrastrUctUre Manila Water Company, Philippines TuRNING ON ThE FAuCETS IN MANIlA Just 12 years ago, only one-fourth of the 325,000 households in metropolitan Manila had access to clean and affordable piped-in water. And at least two thirds of the water produced was lost to leaks and illegal tapping. The situation was becoming critical. With IFC's help, the Philippine Government engaged the private sector in the Metropolitan Waterworks and Sewage System and awarded a 25-year concession to the Manila Water Company to provide water to the eastern zone of the city, where five million people did not have access to 24-hour water service. IFC invested $30 million in an A-loan to finance Manila Water's capital investment program. A second US$30 million A-loan (undisbursed) and US$15 million of equity allowed the company to meet its investment obligation within the constraints. The results are impressive: · As of 2008, Manila Water Company had laid 2,929 kilometers of pipeline and more than tripled its customer base to over 1 million households, equivalent to more than 5 million people served. · System losses fell from 63 percent in 1997 to 20 percent in 2008. · Within the central distribution area, 99 percent of the company's customers now have a 24-hour water supply compared to 26 percent in 1997. · The company has been able to offer large rebates on tariffs, achieve significant improvements in water quality and availability, reduce non-water revenue significantly, and improve other operational efficiencies. · The company has implemented the "Water for the Urban Poor Program," which has benefited some 300,000 households since its inception in 1998. Connected households pay a tariff of approximately US$0.29 (14 pesos) per cubic meter of water, compared with US$2.08 (100 pesos) per cubic meter charged by water vendors. · According to the Metro Manila Drinking Water Quality Monitoring Committee, cases of water borne disease dropped from 107,273 in 1997 to 27,008 in 2007 and the mortality rate for water-borne illnesses dropped by one-third over the same period. Alcantarillado y Aseo de Barranquilla, Colombia GIvING ThE uRbAN POOR ACCESS TO WATER AND SANITATION An US$18.2 million IFC investment in Alcantarillacio y Aseo de Barranquilla (AAA), a local utility company in Colombia, has made it possible for 350,000 people to access water and sanitation services for the first time. AAA provides water, sewage, and solid waste management services to the city of Barranquilla and neighboring towns in the Department of Atlantico in northern Colombia. The IFC financing package enabled AAA to expand its water and sewage treatment networks to cover 99 percent of the city's population. Through its credit enhancement, IFC allowed AAA to issue a locally rated triple-A, long-term, local currency bond with a maturity otherwise not available to the company. The bond issue helped deepen Colombia's capital markets' capacity for longer-term financing, particularly for more difficult sectors such as water, wastewater, and solid waste. AAA's success reflects its willingness to focus on a market segment that other companies tend to avoid--the urban poor. The project demonstrated that a private operator can bring creative solutions to increase access in poor neighborhoods and can find financial instruments that allow it to remain financially viable. Successful implementation of the project supports the government's strategy of attracting private investment to the water sector. Today Colombia has one of the highest levels of private investor participation in the water sector in Latin America. TRANSACTIONS IN POWER, TRANSPORT AND WATER 21 Advisory Services RGAB, Romania IFC advisory services structure public-private partnerships in water, wastewater, and municipal services. IFC does bETTER WATER AND SANITATION SERvICES, this by designing concessions, management contracts, lOWER COST and public-private partnerships to help improve and More than 2 million residents of Bucharest, Romania, expand coverage, enhance water quality, upgrade are enjoying the best water and sanitation service in service levels, and promote sustainable use of water years while paying one of the lowest tariffs in Europe. The improvements are the result a public-private part- in an environmentally responsible way. Its advisory nership to upgrade and operate the municipality's strategy focuses on providing transaction advice to water and sanitation system. IFC worked with the national and subnational governments by: government to develop a 25-year concession contract (which included time-based performance standards · undertaking detailed technical, environmental, for improvements to service quality and delivery) and to attract major international companies to bid. The and social feasibility studies; winner of the tender was Veolia Water of France and · formulating detailed strategies for optimal con- the concessionaire is APA Nova. tractual and financial structures in public-private In the first five years, APA Nova invested US$210 partnerships; million in modernizing services and built a new water treatment plant to reduce dependence on two older · implementing transactions on behalf of client facilities. Water losses have been reduced 44 percent governments, including marketing investment op- and total water demand has been cut in half after a new metering system was introduced and leaks in the portunities to regional and international investors; distribution system eliminated. Customer satisfaction managing due diligence and the bid formulating has also increased dramatically. The concession has process; and providing support and advice for the benefited APA Nova as well. The company reported evaluation of proposals, as well as the selection of net profits of US$31 million in 2006 on revenues of US$132 million. the preferred private investor through contractual negotiations and closing. 22 iFc sUpport to inFrastrUctUre Annexes TRANSACTIONS IN POWER, TRANSPORT AND WATER 23 IFC INVESTMENTS IN INFRASTRUCTURE (2007­2009) PROJECT COuNTRy SECTOR IFC MIllIONS Porr AG Southern Europe Region Fund 27.4 Inter-American Infrastructure Finance Cor- Latin America Region Fund 15.0 poration India Infrastructure Fund India Fund 47.5 Central America Infrastructure Fund Central America Region Fund 40.0 China Environmental Fund III, L.P. China Fund 7.5 Lanco Infratech Limited LITL India Fund 50.0 Macquarie SBI Infrastructure Trust India Fund 74.5 BPZ Energy, Inc. Peru Power 9.7 Bujagali Energy Limited Uganda Power 130.0 Lanco Group India Power 8.0 MSPL Limited India Power 33.0 PNOC Energy Development Corporation Philippines Power 25.0 Karachi Electric Supply Company Limited Pakistan Power 125.0 Hidromaule S.A. Chile Power 9.7 Consorcio Energetico Punta Cana-Macao Dominican Republic Power 20.0 S.A. Tsavo Power Company Ltd. Kenya Power 0.5 USJ Acucar e Alcool S.A. Brazil Power 5.0 BPZ Resources, Inc. Peru Power 7.7 SN Aboitiz Power, inc. Philippines Power 105.0 AD Hydro Power Limited India Power 9.3 Hidroelectrica La Confluencia S.A. Chile Power 83.0 Geometric Power Limited Nigeria Power 4.0 PT Makmur Sejahtera Wisesa Indonesia Power 20.0 Masinloc Power Partners Co. Ltd Philippines Power 275.0 Coastal Gujarat Power Limited India Power 450.0 Enerjisa Enerji Uretim A.S. Turkey Power 247.7 Engro Energy Pakistan Power 56.9 Djiboutico Djibouti Power 4.0 South Eastern Energy Capital Southern Europe Region Power 88.7 Macedonia, Elektrostopanstvo na Makedonija Power 55.3 Former Yugoslav Republic of Companhia Energetica do Maranhao Brazil Power 80.0 Evolution One Limited Partnership Southern Africa Region Power 10.0 REI Indonesia Indonesia Power 4.0 Central Termoelectrica Andino Chile Power 100.0 24 iFc sUpport to inFrastrUctUre IFC INVESTMENTS IN INFRASTRUCTURE (2007­2009) PROJECT COuNTRy SECTOR IFC MIllIONS ENN Solar Energy Co., Ltd China Power 30.0 Century Energy Corporation Colombia Power 7.6 Guanaquitas S.A. E.S.P. Colombia Power 7.8 Engro Energy (Pvt) Limited Pakistan Power 2.8 La Autoridad del Canal de Panama Panama Power 150.0 UABL Limited Paraguay Power 60.0 BPZ Resources, Inc. Peru Power 7.5 SN Aboitiz Power Benguet Philippines Power 100.0 Energy Development Corporation Philippines Power 41.7 Terminales Rio de la Plata S.A. Argentina Transport 35.0 South Luzon Tollway Corporation Philippines Transport 50.2 Concesionaria Irapuato La Piedad, S.A. de Mexico Transport 12.0 C.V. Lima Airport Partners S.R.L. Peru Transport 20.0 Sans Souci Ports,S.A. Dominican Republic Transport 21.0 Peru Rail S.A. Peru Transport 8.0 GOL Transporte Aereos S.A. Brazil Transport 50.0 RVR Investments (Pty) Limited Kenya Transport 32.0 Desarrollada de Proyectos de Infraestruc- Mexico Transport 50.0 tura, S.A. de C.V. BBCOM INT SA Burkina Faso Transport 2.5 Intraspeed S.A.R.L. Rwanda Transport 7.5 Ocean Sparkle Limited India Transport 26.8 Société Concessionaire de l'Aéroport Cambodia Transport 17.5 Arabesque S.R.L. Romania Transport 18.9 Punj LLoyd Limited India Transport 10.0 Airblue Limited Pakistan Transport 22.0 Brunswick Capital Russian Federation Transport 80.0 Tanzania Railway Corporation Tanzania, United Republic of Transport 44.0 Arkas Group Turkey Transport 1.5 Transportes H&H Central America Region Transport 15.0 Delta Petrol Urunleri Ticaret Anonim Sirketi Turkey Transport 22.5 Samson Maritime Limited (Mumbai) India Transport 30.2 Arkas Group Turkey Transport 45.0 Tecon Salvador S.A. Brazil Transport 5.9 Terminal Maritimo Muelles El Bosque S.A. Colombia Transport 15.0 Pakistan International Container Terminal Pakistan Transport 10.0 TRANSACTIONS IN POWER, TRANSPORT AND WATER 25 IFC INVESTMENTS IN INFRASTRUCTURE (2007­2009) PROJECT COuNTRy SECTOR IFC MIllIONS S.C. Transport Trade Services S.A. Romania Transport 15.8 (AIG) - Consortium for QAIA Jordan Transport 120.0 TAV Tunisie S.A. Tunisia Transport 213.4 Antara Holdings (Asia) Ltd Vietnam Transport 7.0 Arabesque S.R.L. Romania Transport 3.5 Avianca Colombia Transport 50.0 MBJ Airports Limited Jamaica Transport 5.0 Buddha Air Private Limited Nepal Transport 10.0 Empresa Generadora de Nicaragua, S.A Nicaragua Transport 2.0 Logopark Ob Ltd Russian Federation Transport 20.0 Petronet LNG Limited India Utilities 75.0 India Project Development Fund II India Utilities 4.9 Epure International Pte Ltd China Utilities 10.0 Manila Water Company, Inc. Philippines Utilities 30.0 Petstar S.A. de C.V. Mexico Utilities 13.5 Gujarat State Petronet Ltd. India Utilities 83.3 Andrade Gutierrez Concessoes S.A. Brazil Utilities 6.5 Petstar S.A. de C.V. Mexico Utilities 0.1 Asia Environment Holdings Ltd China Utilities 15.0 Andrade Gutierrez Concessoes S.A. Brazil Utilities 14.2 Metito Holdings Limited MENA Region Utilities 31.1 Gujarat State Petronet Ltd. India Utilities 30.0 Andrade Gutierrez S.A. Brazil Utilities 50.0 IFC ADVISORY SERVICES IN INFRASTRUCTURE (2007­2009) project coUntry sector Ashta IPP Albania Power Central Java IPP Indonesia Power Electricity Distribution Albania Power FESCO Pakistan Power Kafue Gorge IPP Zambia Power Lebanon IPP Lebanon Power Liberia Power Liberia Power Moraca Hydropower Plant Montenegro Power Olangapo Distribution Philippines Power Small Power Utility Group (SPUG) Basilan Philippines Power 26 iFc sUpport to inFrastrUctUre IFC ADVISORY SERVICES IN INFRASTRUCTURE (2007­2009) project coUntry sector Vietnam IPP Vietnam Power Yemen IPPs Yemen Power Amman Ring Road Jordan Transport Air Vanuatu Vanuatu Transport Air Jamaica Jamaica Transport BA 093 Brazil Transport Bar-Boljare Highway Montenegro Transport BR116 Brazil Transport Cairo-Alexandria Freeway Egypt Transport Cotonou Port Benin Transport Mauritius Port Mauritius Transport Medina Airports Saudi Arabia Transport Mexico Roads Study Mexico Transport Nigeria Airports Advisory Nigeria Transport Ruta del Sol Colombia Transport Saudi Airport Cities Saudi Arabia Transport Vishakhapatnam-Kakinada Coastal Roads India Transport New Cairo Waste Water Egypt Water St. Lucia Water Saint Lucia Water Uganda Rural Water - Small Scale Infrastructure Project Uganda Water Maharashtra Irrigation India Water (irrigation) Pontal Brazil Water (irrigation) Alexandria University Hospitals PPP Egypt Health & Education Bahia Hospitals Brazil Health & Education Botswana International University of Science & Technology Botswana Health & Education Egypt New Schools PPP Egypt Health & Education Mexico Hospitals PPP Mexico Health & Education Uzbek Health PPP Uzbekistan Health & Education Botswana Telecommunications Corporation Advisory Botswana ICT Comoros Telecom & Hydrocarbons Comoros ICT Haiti Teleco Haiti ICT Andhra Pradesh Solid Waste India Other Cape Sierra Hotel Sierra Leone Other Konimansur Silver Mine Tajikistan Other PPP Study Morocco Other Punjab Silos India Other Simandou Iron Ore Advisory Guinea Other TRANSACTIONS IN POWER, TRANSPORT AND WATER 27 Credits we wish to acknowledge the contributions of the following staff in the production of this publication: Daniel de la Morena, Brian Casabianca, Neelam Patel, Abdul Akande, Tracy Garcia and Shirley Geer Design: Jeanine Delay photos: Ana Lucia Horta (cover page and page 3) Ines Maria de las Casas (pages 7 and 15) Angelo Dell'Atti (page 6) Jean Laprevotte (page 13) Nicola Saporiti (pages 18 and 19) Boeing (page 17) Foster + Partners (page 16) RGAB (page 22) 28 iFc sUpport to inFrastrUctUre IFC's advisory work is supported by About IFC IFC, a member of the World Bank Group, creates opportunities for people to escape poverty and im- prove their lives. We foster sustainable economic growth in developing countries by supporting private sector development, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments. Our new investments totaled US$16.2 billion in fiscal year 2008, a 34 percent increase over the previous year. For more information, visit www.ifc.org. FISCAl yEAR 2008 hIGhlIGhTS Investments: 372 new projects in 85 countries Advisory services: 299 new projects in 75 countries US$16.2 billion in financing: US$11.4 billion for IFC's own account, US$4.8 billion mobilized Poorest countries* accounted for 45 percent of IFC investments. Overall US$1.4 billion invested in Sub-Saharan Africa US$1.4 billion invested in the Middle East and North Africa * Those served by the World Bank's International Development Association (IDA) printeD on recycLeD, cHLorine-Free paper. contact information International Finance Corporation 2121 Pennsylvania Avenue NW Washington D.C. 20433 U.S.A. T: +1 202 473 1000 ifc.org 2009