World Bank Group Mashreq Maximizing Finance for Development (MFD) Strategy 2 0 1 9 – 2 0 2 1 Standard Disclaimer This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The Mashreq | Maximizing Finance for Development (MFD) Strategy findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. 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Cover photos: © World Bank 2 Table of Content Acknowledgments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 I. THE PRIORITY OF MFD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 II. RATIONALE AND KEY ELEMENTS OF THE MFD APPROACH IN THE MASHREQ. . . . . . . . . . . . . . . . . . . 12 III. MASHREQ MFD STRATEGY - OBJECTIVES, PRINCIPLES AND RESULTS.. . . . . . . . . . . . . . . . . . . . . . . . . . 16 A. Objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 B. The Principles.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 C. The Results Targeted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 IV. COUNTRY STATUS FOR MFD READINESS AND WBG PRIORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 A. JORDAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 B. LEBANON. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 C. IRAQ. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 V. ORGANISING FOR DELIVERY – JOINT IMPLEMENTATION PLANS, INSTITUTIONAL ARRANGEMENTS AND RISK FACTORS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 A. JOINT IMPLEMENTATION PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 B. INSTITUTIONAL ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 C. STRATEGY RISKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 VI. ANNEX I – KEY INDICATORS FOR MFD READINESS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 VII. ANNEX II – MASHREQ MFD STRATEGY - RESULTS FRAMEWORK MATRIX. . . . . . . . . . . . . . . . . . . . . . 42 VIII. ANNEX III – MFD PIPELINE FY18-20. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 A. IBRD pipeline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 B. IFC Projects Pipeline.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 C. MIGA Exposures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 IX. ANNEX IV – KEY REFORMS BY SECTOR AND COUNTRY - MASHREQ MFD REFORM MATRICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58  3 4 Mashreq | Maximizing Finance for Development (MFD) Strategy Acknowledgments This document was co-authored by Peter Mousley (Program Leader, Equitable Growth, Finance and Institutions Global Practices – World Bank), Dalia Wahba (Country Manager, Levant – IFC), and Mena Cammett (Risk Management Officer - Multilateral Investment Guarantee Agency) with the support of Patricia Haydamous (Consultant, Finance, Competitiveness and Innovation Global Practice, World Bank) who worked closely with the team gathering data and coordinating the input from across the World Bank Group. The other core member of the team is Clive Harris (Head, Maximizing Finance for Development, World Bank) who provided invaluable advice and institutional support in the preparation of the Strategy. The Strategy benefited also from the support generously provided by World Bank, IFC and MIGA managers and their teams. This includes: from the World Bank - Erik Magnus Fernstrom (Practice Manager, Energy); Olivier Le Ber (Practice Manager, Transport); Carmen Nonay (Practice Manager, Water); Julian A. Lampietti (Practice Manager, Agriculture); Ayat Soliman (Practice Manager, Urban); Kevin Carey (Practice Manager, Macro-economics, Trade and Investment); Nabila Assaf (Practice Manager, Finance, Competitiveness and Innovation); Renaud Seligmann (Practice Manager, Governance); Yolanda Tayler (Practice Manager, Procurement); Hana Brixi (Practice Manager, Social Protection and Jobs); Ernest E. Massiah (Practice Manager, Health); Safaa El Tayeb El-Kogali (Practice Manager, Education); Benu Bidani (Practice Manager, Poverty Reduction); from IFC - Kudret Akgun (Manager, Finance), Erik Becker (Manager, Infrastructure), Lukas Casey (Manager, Manufacturing, Agriculture and Services); and from MIGA - Nabil Fawaz (Sector Manager, Infrastructure), Marcus William (Sector Manager, Energy). Extensive technical input was also provided from a wide range of colleagues from across the World Bank Group and the co-authors extend their sincere thanks for these contributions. Too many to but this includes Aijaz Ahmad; Abdulhamid Azad; Arnaud Dornel; Bjorn Philipp; Carlos Alberto Lopez; Haocong Ren; Ibrahim Dajani; Joel Kolker; Juan Manuel Moreno; Kanthan Shankar; Layali Abdeen; Luis Prada; Mazen Alsad; Mohammed Thabet Audah; Muneer Ferozie; Marcel Rached; Matthew Wai-Poi; Omer Karasapan; Piers Merrick; Rajesh Advani; Rapti Goonesekere; Sajjad Ali Shah; Syed Mehdi Hassan; Stephan Massing; Saad Sabrah; Ziad Badr; Christos Kostopoulos; Paul Welton; Ziad Nakat; Luca Bandiera; Paul Baringanire; Mikul Bhatia; Bekzod Shamsiev; Sameh Mobarek; Emmanuel Cuvillier; Amal Talbi; Sally Zgheib. The team has worked closely with Zeina El Khalil (Communications Officer), Anne Njuguna and Nada Abou-Rizk (Senior Program Assistants). This work was carried out under the leadership and highly supportive guidance of Saroj Kumar Jha (WB Regional Director, Mashreq Department), Mouayed Makhlouf (IFC Regional Director, MENA), and Merli Baroudi (MIGA Director, Economics and Sustainability Department).  5 6 Mashreq | Maximizing Finance for Development (MFD) Strategy Foreword Inclusive growth and job creation remain urgent and central objectives for Mashreq countries striving to offer sufficient economic opportunity - particularly to youth and women – and quality social services essential to societal stability. In a difficult regional security context and constrained fiscal space with high debt to GDP ratios in some of the Mashreq countries, financing the investments needed to deliver economic opportunity and social services will be a significant challenge. It is beyond the capacity of public finance alone. The World Bank Group (WBG) – comprising its sister institutions of the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) – shares the development commitment of its partner countries in the Mashreq region. But the WBG also recognizes, notwithstanding the record capital increase recently approved for the IBRD and IFC by shareholders, that it needs to leverage its financing capacity if it is to be able to meet the global needs of its member states. To this end, the WBG – together with other International Financial Institutions – is committed to the Maximizing Finance for Development (MFD) initiative that was launched at the 2017 G-20 Meeting in Hamburg. MFD is an approach designed to crowd in, through innovative financing and policy initiatives, the much-needed private financing and expertise necessary to support equitable growth and sustainable job-centric development. This Mashreq MFD strategy is a first step in bringing a systemic and fully coordinated WBG engagement to the implementation of the MFD approach. It is also the first time that the WBG has sought to implement MFD at a regional level –- leveraging joint IFC, MIGA and IBRD teams working across institutional boundaries and with other international partners and the private sector – to address specific country and sector challenges within a regional framework. This Strategy – while adaptive to change and subject to agile implementation principles to ensure development relevance and efficiency in delivery – also sets out a defined investment pipeline. This pipeline, based on initial and subject to continuing consultations with counterparts, will be both enabled by an MFD approach and serve to expand the potential for MFD financing. The Strategy also sets out clear results objectives for the three-year period of the Strategy. We look forward to working with our partner governments, private sector and civil society organizations to implement this Strategy and leverage urgently needed financing and expertise to meet their priority development needs. Saroj Kumar Jha Mouayed Makhlouf Merli Baroudi Regional Director Mashreq Regional Director MENA Director Department IFC Economics and Sustainability World Bank MIGA  7 8 Mashreq | Maximizing Finance for Development (MFD) Strategy Acronyms ASA Advisory Services and Analytics BRT Bus Rapid Transit CIP Capital Investment Plan CPF Country Partnership Framework CPSD Country Private Sector Diagnostic DFI Development Finance Institution DLI Disbursement Linked Indicator DPF Development Policy Financing ECE Early Childhood Education FCCL Fiscal Commitment and Contingent Liability FCI Finance Competitiveness and Innovation FCV Fragile Conflict and Violence GCR Global Competitiveness Report GDP Gross Domestic Product IBRD International Bank for Development and Reconstruction IFC International Finance Corporation IFRS International Financial Reporting Standards InfraSAP Infrastructure Sector Assessment Program IPF Investment Project Financing JIP Joint Implementation Plan KPI Key Performance Indicator MAF MFD “know-how” Accelerator Facility MAP MFD Accelerator Program MCPP Managed Co-Lending Portfolio Programs MDB Multilateral Development Banks MENA Middle East and North Africa MFD Maximizing Finance for Development MIGA Multilateral Investment Guarantee Agency MPA Multiphase Programmatic Approach MSME Micro Small and Medium Enterprises NBFI Non-Bank Financial Institutions NGMF Natural Gas Market Framework NRW Non-Revenue Water OPE Overall Performance Evaluation PCB Performance Based Contracts PFM Public Financial Management PforR Program for Results PLI Policy Legal and Institutional PPIAF Public – Private Infrastructure Advisory Facility PPD Public Private Dialogue PPP Public-Private Partnerships PRI Political Risk Insurance RF Results Framework  S&P Standard and Poor 9 SOE State Owned Enterprises TTL Task Team Leader TSEZ Tripoli Special Economic Zone VfM Value for Money WBG World Bank Group I. THE PRIORITY OF MFD 1. The Mashreq region – and in particular the 5. This Mashreq strategy approach countries of Jordan, Iraq and Lebanon - are represents the first time the WBG has facing major policy and fiscal challenges sought to develop and implement the MFD to growth and job creation. Accentuating agenda based on a standardized regional the challenge are over-arching regional framework . As such it is also an iterative security vulnerabilities and deep-seated and learning process and will be subject to political economy and social cohesion adaptation and change as implementation uncertainties that threaten national proceeds, based on feedback from clients, stability. A vital part of the solution to WBG teams and management. What has these different challenges and threats and been evident - even in the preparation of the consequences they can give rise to is this strategy and before its implementation an equitable growth trajectory that can commences in FY19 starting with country bring quality jobs and essential services stakeholder consultations - is that more broadly to the populations of these much has been gained already from the countries. process alone. The extensive dialogue and cooperation to date - across the WBG 2. The Maximizing Finance for Development institutions, the different IBRD GPs, IFC (MFD) approach aims to optimize the investment and MIGA underwriter teams relationship between the public and and with WBG management – has allowed private sectors. It will achieve this in two for an increased understanding and major ways: (i) maximizing the volume of ownership of roles, processes, priorities investment and commercial finance that and the results to be targeted. can be crowded in by effective reforms coupled with targeted deployment of scarce domestic and international public funds; (ii) efficiency gains from the more extensive involvement of the private sector to expand and improve public services while minimizing the burden on the national budget and tax resources. 3. The objective of the Mashreq MFD Strategy is to outline the following: (i) rationale for prioritizing MFD in the Mashreq region, given the operational context (macro- economic, political economy and regional security); (ii) approach, instruments and implementation arrangements to be adopted and; (iii) results to be targeted over the period from FY2018-2021 for a World Bank Group (WBG) MFD initiative THE PRIORITY OF MFD to make a measurable contribution to the goals of equitable growth and job creation. 4. This is a joint IBRD-IFC-MIGA Strategy. Only with the combined know-how of the three institutions - encompassing: (i) the extensive and trusted relationships 11 with the private and public sectors and associated convening power; (ii) the expertise that exists to identify challenges and propose solutions and; (iii) the diverse products that can collectively be deployed to implement solutions - will it be possible to effectively implement the MFD approach. II. RATIONALE AND KEY ELEMENTS OF THE MFD APPROACH IN THE MASHREQ 6. The Priority of Growth and Job Creation: this is largely for employee remuneration Growth and employment creation across and not for non-salary working capital. the Mashreq region is at levels that are This implies insufficient funding of insufficient to meet the demands of a operation and maintenance (O&M) and growing labor force seeking improved an accelerated depreciation of existing economic well-being. Reforms to both capital stock. There is, additionally, the the demand and supply sides of factor low efficiency of capital expenditures markets are a key part to any long-term by the public sector in the Mashreq strengthening of the growth potential region generally, relative to regional\ in these countries and an increased international comparator countries. This role for the private sector that is the reflects both inefficient procurement and only long-term source of significant job implementation management. creation in the region. Policy actions that need to be taken encompass national 8. The macro-economic circumstances of and sectoral challenges, addressing a these three Mashreq countries are weak, range of domestic market (e.g. State- although Iraq has greater short-term Owned Enterprises - SOEs, competition potential to address imbalances as a result and investment policies, prices and of improving hydrocarbon revenues. In subsidies), institutional (e.g. budget and the face of the fiscal consolidations that debt management, procurement) and all three countries are pursuing in the governance (in both public and private coming years, there is limited potential sector realms) and wider business, trade for a significant program of public sector and financial sector enabling environment led financing of key capital investments. challenges, to name the principal areas Faced with this constraint and the limited for attention. capacity (given country risk profiles) that IFIs alone can make up the financing gaps 7. On Capital Investment Performance facing the countries, leveraging these and Macro-Fiscal Constraints: A key constrained domestic and international RATIONALE AND KEY ELEMENTS OF THE MFD APPROACH IN THE MASHREQ indicator of sustainable growth is the public sources of funding to crowd levels of saving and consequently capital in commercial financing and private investment that an economy is achieving. investment offers an important route to the To date – in the region – the level of new increased volumes of investment. This is capital investment is low. As highlighted needed to finance the public services – in in the 2008 flagship “Growth Report” infrastructure and social sectors - that are prepared by the Commission on Growth and foundational to a competitive, sustainable Development, examples of countries that and equitable growth path. And a growing achieved sustained high levels of growth economy offers far greater scope to drive all entailed public investment levels of for improved distributional outcomes that 5-7% in infrastructure and in some specific address the marginal groups and regions of cases – such as China, Vietnam and these countries. Another favorable feature Thailand – exceeded even these levels. of PPP financing is the scope it provides A more recent Mckinsey Global Institute1 for government to build in appropriate estimates that at a global level, the world incentives to ensure adequate operation economy needs to invest an average of and maintenance on core assets, contrary 3.8% of GDP annually to maintain the to trends experienced in region under currently expected growth rates. As shown fiscally constrained public financing. in Annex I, none of the Mashreq countries 9. The current MFD Enabling Environment: 13 met this level of investment. The bulk of government expenditures in the Mashreq Existing conditions for MFD in the Mashreq countries (for infrastructure and social countries offers a limited basis for a sectors) is for recurrent costs (85-90%) and significant increase in private financing of sector investments. The summary of some key indicators reveals (refer to 1 McKinsey Global Institute (2016) - Bridging Annex I) overall macro-economic and global infrastructure gaps. risk profiles in these countries - together complementary actions from across with performance to date in attracting Ministries and Agencies and highly private investment including for PPPs - effective outreach and communications that pose significant obstacles to any with citizens on the merits of reform. efforts to attract the desired levels of There is also a significant task to private investment required to achieve address between the public and private the equitable growth and job outcomes sectors. Too often these two parties sought. Improvements in “rule of law” and are trapped in an inertia that comes the efficiency of courts to enforce contracts with a lack of trust that either are acting are also long-term goals, particularly in in the public interest. This, allied to a the case of Lebanon which, according to mutual complicity with elite capture, the Global Competitiveness Report (GCR), reinforces the mistrust that a better ranks in the fourth quintile of countries outcome is politically feasible. What is (Jordan is better placed in the second compromised is the belief that there quintile and Iraq is not included in the GCR is scope for developing more effective 137 countries). This adds to the urgency to partnerships that could better serve pursue the key reforms needed to better the public good. However, with the position their institutions, investment advent of new governments in all three climates and markets to leverage scarce Mashreq countries and an increasing international and domestic private sector political acknowledgement that the finance. It also puts a significant premium status quo is not sustainable, there is of more effective coordination across a window of opportunity to change this Development Finance Institutions (DFIs) negative narrative between the public to avoid duplication of effort and ensure and private sectors. optimal use of the limited resources of these institutions. Two considerations 10. MFD can be an important driver in this of significance: change. There are two distinguishing aspects to this “change-driver” role. The » On Governance and Implementation: first is the incentive MFD can provide for Mashreq | Maximizing Finance for Development (MFD) Strategy Achieving success in MFD will require policy reforms and new financing tools to improved levels of trust and readiness address market failures that impede the to work together across government mobilization of new sources of financing agencies and between these public and capital investment for growth and jobs. agencies and business. Trust comes The second is the impact that MFD can with transparency and accountability. It have towards improved governance and will be essential for an MFD initiative to partnerships for policy implementation. meet the bar in terms of these measures This can be further enhanced by improved for any improvements in resultant collaboration between development economic effectiveness to also achieve partners. This is all the more critical given the political sustainability and social the regional insecurity impacting these legitimacy that will lead to the long- countries, which further complicates the term solutions required for growth and challenges of growth and private sector job creation. job creation. » On Coordination Failure and the Public- Private Divide: For the foundations to be concretely put in place for MFD, a step-change in the effectiveness 14 of policy implementation across the region will also be required. Implementation improvements require correction to coordination failures within government, improved political will, and capacity to deliver complex reform actions - that frequently require 15 MASHREQ MFD STRATEGY - OBJECTIVES, PRINCIPLES AND RESULTS III. MASHREQ MFD STRATEGY - OBJECTIVES, PRINCIPLES AND RESULTS A. Objectives » Enhancing private sector involvement and prioritizing sustainable commercial borrowing and sources of finance; 11. The objectives of this MFD strategy are » Enhancing the catalytic role of MDBs twofold: themselves. a. Support the achievement of the core 13. Fulfilling the Hamburg Principles will have development outcomes as set out on implications for both how the WBG and the Country Partnership Frameworks partner countries work together. First (CPF) agreed between the WBG and and foremost, there is a need to ensure Jordan, Lebanon and Iraq (in process); country ownership and client demand b. Increase the leverage and effectiveness to pursue an MFD agenda. The current of WBG’s engagement through the context in the Mashreq is propitious. In catalyzation2 and mobilization3 of 2017, the Government of Jordan signaled private sector investment, expertise its strong intent to pilot an MFD approach and finance in support of these to the new equitable growth and jobs development outcomes. strategy it is developing. In 2018 at the Iraq Investors Conference in Kuwait, the Government of Iraq drew over 2000 B. The Principles private sector participants to discuss its Reconstruction and Development Framework. This included a call to action to 12. An MFD strategy, in line with the overall WBG both the government itself and the private “cascade” approach entails a “step-wise” sector to embark on reforms and actions process to identify reforms and financial to crowd in much needed additional enhancements that can unlock increased private investment. In April 2018 the private investment and expertise in given Government of Lebanon presented its sectors. In line with the “MFD – Leveraging $18 billion Capital Investment Plan to the Private Sector for Growth and the CEDRE Investor Conference in Paris. MASHREQ MFD STRATEGY - OBJECTIVES, PRINCIPLES AND RESULTS Sustainable Development ” Development To an important degree, the government Committee paper of September 7, 2017, the outlined a macro-economic measures and Mashreq MFD Strategy will be anchored on reform agenda to leverage substantial the G-20 “Hamburg Principles” and seek flows of non-sovereign borrowing from to deploy IBRD, IFC and MIGA financing, commercial finance sources to contribute guarantees and expertise in collaboration to the funding of this Plan. with partner governments, the private 14. The commitment of these governments sector and other international partners to to work with the WBG to pursue an MFD increase the levels of private investment agenda will require also a cogent advocacy in support of development through the of the additional benefits of MFD and for following channels: incentives to be put in place to effectively » Recognizing and supporting country pursue this additionality. This will require ownership; also the design and implementation of an » Strengthen policy frameworks and effective communications plan – not just investment capacity at national, sector for the various and diverse decision makers and sub-national levels; involved – but also to the wider population. This in turn requires effective, purposeful 17 diagnostic work, careful policy dialogue across the spectrum of stakeholders and tangible results achievable within a 2 “Catalyzation” refers to policy actions that can meaningful period. open up new space for private investment. 3 “Mobilisation” refers to financial enhancements that can crowd-in private investment. 15. The Cascade Algorithm: This is a step- policy issues (market structure and wise diagnostic process to determine conduct), governance arrangements, the MFD potential – constraints and generation of revenue and cashflow, opportunities - in a given country and\or existence of credit-worthy entities under a given sector. Where commercial finance transparent management, and; (iii) and private investment is not forthcoming identification of reform initiatives, based where otherwise this would be the case, on (i) and (ii). the first step in the cascade assessment is identifying the policy, legal and institutional (PLI) reforms that are needed The Financing Agenda: to create the enabling environment that 17. The MFD agenda requires an ecosystem is conducive to private financing flows. that facilitates commercial investment and These reforms – to be identified within financing. This ecosystem encompasses each specific country context – will often (i) sound sector economics underpinned need to encompass broad economy wide by sustainable cashflow, and creditworthy factors such as those highlighted in Annex obligors (e.g. infrastructure SOEs/public I. Beyond this there will be sector specific off-takers) with strong governance, PLIs that need to be tackled that can hinder financial management and transparency, private participation at the sector level. (ii) a pipeline of well-structured projects with viable economics and proper The Policy Agenda: allocation of risks between private and public parties, and risk-return acceptable 16. A sectoral MFD-PLI assessment (most to investors, (iii) effective channeling of often in the form of either an InfraSap and\ savings/long-term funds through a well- or in context of a Country Private Sector functioning financial system, together with Diagnostic – CPSD) will ordinarily proceed (iv) public policies that enable a conducive along the following stages: (i) stock-taking business environment, and (v) bespoke - status of the sector and experience to state interventions and instruments when Mashreq | Maximizing Finance for Development (MFD) Strategy date attracting private investment into that needed to address market failures. sector, the overall sector performance and the importance of the sector to the twin 18. Key considerations in determining goals and the MENA Region Strategy; (ii) financing MFD revenue and financing analysis of sector structure including legal options include the following: and regulatory environment, competition Stylized MFD Ecosystem International financiers (agencies, banks, investors) cashflow Sector Obligors Transactions Economics, (projects, (commercial Domestic LT funding Value Chains corporates) finance) financiers (deposits) 18 (banks, investors) Financing Enabling policy reforms + enhancement instruments » Infrastructure financing – and challenge as to how to widen and specifically – PPPs, requires of large deepen financial sector capacity amounts of long-tenor credit and equity to provide the different forms and complex structuring of transactions of financing needed for MFD – that generate socio-economic returns including for MSMEs or agriculture in excess of financial returns. Other and in terms of municipal sectors where MFD can play a role – such finance. This would also be a key as agriculture and social service sectors consideration in the PLI assessment. - have their own specific requirements. This can include also strengthened This assessment needs to be done in regulatory frameworks for lending context of the revenue flows that can including at the municipal level come from the service and/or product as well as more widely in terms delivery. Three sets of assessment are of credit infrastructure (secured required to complement the PLI work: transactions, collateral registries, оо Stable revenue source that is credit reporting, insolvency and expected to cover the costs of debt resolution etc.). constructing (if applicable), » Specialized Financial Instruments for operating and maintaining Transactions: Policy reforms can the asset(s), and servicing the entail a lag before becoming effective financing, over time. This could and producing an impact in a given include revenue generated from sector. Even with policy actions in place user charges, other asset uses, or and where equity and debt financing government transfers—provided is available, commercial viability that there is a credible mechanism objectives may need to be balanced by which those revenues can be with other social equity considerations. allocated to the project to create a Also, implementation can be weak (lack bankable revenue stream (including of experience, expertise etc.) and\ considering whether government or or there can be lingering reservations third-party guarantee mechanisms towards governments with a poor track MASHREQ MFD STRATEGY - OBJECTIVES, PRINCIPLES AND RESULTS may be required). Also, important record in its dealing with the private to address in the context of sector. There are also additional fragility infrastructure utilities are revenue and conflict (FCV) factors that can result collection and recovery rates and the in lost opportunities, particularly over reforms and innovations required to the shorter term. Where these factors sustainably improve performance in are at play, there is a strong public good these areas. case to be made for providing more оо Financial and capital market tailored funding which, if foregone, capacity to finance MFD activities also represents a lost opportunity to (domestically and internationally) reverse track record perceptions, or not over sufficiently long tenors and at deliver that demonstration effect that a cost that could constitute value can signal to the private investor the for money for the government wider potential the sector offers for its and service users. This includes involvement. potential funding sources that could » “First mover” MFD transactions: be accessed through capital and A specific case for deployment of financial markets, together with a specialized instruments can occur with 19 measure of the appetite and project initiatives that have a higher probability finance expertise in commercial of success over the shorter-term and financing through Banks and DFIs. can create demonstration effects. оо Suitability and effectiveness of This can be especially valuable where long-term financing schemes there are significant FCV or socio- (including viability gap and liquidity economic returns at stake - including facilities). This is part of a broader inclusion (of the poor and bottom 40 percent), environmental and gender- to: (i) improvements in a government’s related - and where the investments are public investment management, budget fundamentally commercial in nature but and fiscal commitment and contingent may require additional enhancements liability debt management; (ii) the quality to be brought to financial close. This and transparency of procurement practices can entail a range of potential targeted and the need to improve standards for financial instruments ranging from qualifying contractors to bid on public risk mitigation (guarantees, insurance and PPP procurements and capacity of etc.) to blended finance to targeted governments to develop these tenders; government support (climate funds, (iii) the impact of SOEs on private viability gap facilities, impact bonds). participation – addressing privileged These products can serve wider market and procurement preferences; government policy objectives as well as (iv) the transparency, accountability and offset the more extreme risk premiums absorptive capacity of private companies attached to commercial initiatives that bidding on PPP contracts and the related can arise in FCV settings which more policies and procedures in place to regulate traditional de-risking instruments against conflicts of interest and ensure cannot adequately address. sound company financial practices. These are recurrent key considerations in ensuring 19. Over the long-term additional significant Value for Money is achieved in the public solutions can be achieved through capital interest. Attention also needs to be given market development, including in sub- to improving broader investment climate national bond markets which can be a key and competition policy to enable private factor in mobilizing municipal finance. A sector participation. Underpinning these primary pre-condition for these solutions core governance and policy issues will be to be feasible and sustainable is a more a need to ensure adequate participatory robust macro-economic environment processes and access to information to where budget deficits and government maintain wide societal support for the MFD paper are not crowding out private Mashreq | Maximizing Finance for Development (MFD) Strategy agenda. investment opportunities. 22. The financial sector holds the key to 20. Key Cross-Cutting Issues: There are four the feasibility of MFD over the long cross-cutting issues that will need to term - the World Bank Group will always be addressed across all countries and stand ready to support first mover whatever sectors are being targeted – and transformational investments and that of governance, of financial sector retain a longer-term role in FCV-affected development, the impact that MFD can settings. IFC is a key player in providing have on poverty, vulnerability, equity and mobilizing financing, particularly with and inclusion, and the implications of the its B-loans, parallel loans and Managed fragility and conflicted-affected setting Co-Lending Portfolio Programs (MCPP). facing these Mashreq countries. However, a strong domestic financial sector with diverse financial products to 21. The MFD agenda requires a focus on a meet the different transactions needs - key set of policy and governance issues drawing on commercial banking systems, – from government budget and debt other NBFI and capital market products - management, to procurement to SOE is key to the growth and sustainability of governance, to elite capture. Actions in private sector financing for development. 20 this sphere have significant implications This includes not just the large ticket for countries’ overall sovereign credit- financing needed for most PPPs, but also worthiness and risk profile to private the capacity of the financial sector to investors. Effectively tackling these finance the smaller firms involved in the challenges will be paramount to ensuring outsourcing that comes with these large a transparent, accountable and socially projects. MFD “fully implemented” should acceptable MFD program. Assessment of support the entire value chain associated MFD readiness will pay particular attention with the investments that the approach 24. The fragility and conflict-affected can generate. Realizing the full potential dimension - An additional broad of MFD requires the understanding of consideration are the ways in which the macro and financial sector context, countries that are FCV-affected - such assessment and mobilization of long-term as those in the Mashreq - are confronted funding sources, and policy interventions with risks that may require exceptional that can facilitate commercial investment mitigating interventions, over and and finance, ranging from the improvement above what would be entailed in more of credit infrastructure (credit information conventional reform packages. system, insolvency framework, etc.) to facilitation schemes for risk mitigation 25. SMEs may play a key MFD role in the FCV and credit enhancement. As such the WBG context. In fragile and related scenarios, will maintain a strong focus on supporting SMEs can be mobilized to fill gaps in the policy requirements needed, over the the delivery of essential infrastructure longer term, to bring about the sustainable services to underserved populations, growth and deepening of these different possibly also including not only operation sources of financing. but also reconstruction and rehabilitation of small-scale networks (in particular in the 23. The sustainability of an MFD agenda in water and energy sectors).  In some such a given country will require attention to cases, SMEs may be the primary or the only the distributional impact this agenda available private sector actors as neither has on vested interests and the more government nor large private companies vulnerable members of the society, as well may be on the scene or capable of as its perceived fairness and inclusion. providing such infrastructure services. The Assessment of an MFD agenda will need to identification and the implementation of take into consideration the “winners and such inclusive SME-based MFD initiatives, losers”. In the case of the more vulnerable which could help address factors fueling groups, the implications of pricing and fragility, may utilize guidance prepared subsidy reforms on the poor and specific by the World Bank; “Providing Essential MASHREQ MFD STRATEGY - OBJECTIVES, PRINCIPLES AND RESULTS demographic groups such as women Infrastructure in Fragility, Conflict and and youth will need to be addressed. Violence-Affected States: A Toolkit for Fostering competition, commercialization enabling SME participation”. and privatization in the SOE sectors will also impact specific segments of the labor 26. Engaging with the Private Sector: Critical force and these impacts will need to be to successful MFD activity - implied understood and, as needed, mitigated. throughout this Strategy but meriting clear More generally, an effective assessment statement - is the need, when conducting of the distributional impact of MFD will not any InfraSAP or CPSD or developing a only help identify the potential impact in specific operation, to engage upstream terms of perceived fairness and inclusion, and on a continuous basis with both but also the potential pain points, domestic and international investors and mitigation strategies . Such an assessment financial intermediaries. Establishing will also contribute to the development of effective MFD-focused Public-Private the wider societal communication that Dialogue (PPD) exercises will enable the would be required to highlight the positive WBG teams to more promptly identify welfare effects of private investment in the principal PLI constraints, structure the infrastructure and social sectors and operations accordingly and put in place the most relevant financial instruments 21 of measures to mitigate societal risks. Effectively tackling these distributional to partner with the private sector. factors will be essential to the success of The dialogue with the private sector the new model of social contract that MFD further deepens as specific pipelines of offers. transactions are developed and projects get taken to market. This relationship moves from policy level dialogue to investor conferences and roadshows and 29. In further support of the overall strategy, then to procurement, negotiation and the World Bank (Poverty GP) will assist implementation oversight as projects move develop and/or modify existing tools from identification, feasibility, transaction for the ex-ante analysis and ex-post advisory, structuring, financing through monitoring of project impacts related commencement of operations and beyond. to key results areas (iii) and (iv) above. It is a long-term partnership that requires This can also entail the development of high quality technical and relationship baseline values for chosen indicators management. at the project level. This monitoring and baseline framework would be reflected in the proposed Joint Implementation Plans. Other methodological approaches C. The Results Targeted would also be deployed where feasible. This can involve, for instance, the use of CGE modelling, as has already be done 27. The Results Framework: The Mashreq to estimate job creation outcomes in MFD Strategy for the FY19-21 period will the context of Lebanon’s National Jobs be targeting the following results areas Program. and Key Performance Indicators (KPI): (i) levels of commercial financing and private investment mobilized; (ii) MFD-enabling PLIs implemented; (iii) improvements in access to and quality of services; (iv) Jobs created by MFD-enabling PLI reforms and investments. The results framework (RF) and related indicators and metrics for these indicators are set out in Annex II, to be populated as the MFD pipeline projects are prepared. Mashreq | Maximizing Finance for Development (MFD) Strategy 28. The RF will necessarily be a “living” and evolving exercise. KPI targeted outcomes will be updated as the preparation of pipeline projects proceeds and these KPI outcomes are determined and quantified. It is not expected that all MFD-enabling projects will necessarily target and register outcomes for all four of the KPIs established for the Strategy. However, the Mashreq MFD Program will require all teams to determine and justify – as part of project preparation – the extent to which the proposed MFD- enabling project does target these KPI outcomes. The approved outcomes will be monitored during implementation and aggregated across all IBRD, IFC and MIGA projects to be able to present an integrated 22 WBG set of MFD results achieved against the targets established. These results can then be benchmarked also against similar KPIs from wider regional and WBG portfolio performances. COUNTRY STATUS FOR MFD READINESS AND WBG PRIORITIES 23 IV. COUNTRY STATUS FOR MFD READINESS AND WBG PRIORITIES 30. MFD Activities in the three Mashreq overs and growing societal pressures countries are at different stages across the for growth that brings jobs and WBG programs. A summary by country of: improved services; (i) context; (ii) MFD reforms in place; (iii) » Slowdown is broad-based and the influx current WBG MFD engagement in country, of Syrian refugees has placed acute including current WBG operations in the pressures on services and resources; FY19-21 pipeline that are MFD-enabling ( see Annex III) . Currently the target pipeline » High unemployment (18.5%) only extends through FY20 deliverables. particularly among youth (36%) and This table will be updated as concept women (35%); reviews are concluded and MFD criteria of » Current number of PPP projects – 42 as the projects are assessed; (iv) key areas of recorded in the WBG PPPI database. policy priority and focus by sector (further details in Annex IV). What follows is a summary of these three areas of reference. ii. Key MFD Reforms in Place 31. The MFD reform framework comprises four 33. Jordan has made some important dimensions (see Annex IV), as following: progress in developing an MFD enabling environment. More specifically: » Strategy, policy, and legal gaps: legal, market and pricing policies and fiscal » 2014 enactment of PPP law, 2015 management issues; approval of implementing regulations; establishment of the PPP Unit in the » Governance gaps: institutional, Ministry of Finance and the PPP Council regulatory, processes and practices and development of fiscal commitment and capacity issues; and contingent liability (FCCL) risk » Financing gaps: financial products, management capacity; facilities and wider financial sector » Launch of IPPs in early 2000, including development and sustainability introduction of renewable energy IPPs requirements to support MFD outcomes in 2012/13; across sectors; » Privatization of power distribution in COUNTRY STATUS FOR MFD READINESS AND WBG PRIORITIES » FCV\Political economy: identification 2009; of the equity, vulnerable group and other key political economy issues to be » Reforms to address financial viability addressed for sustainability of the MFD and operational effectiveness of reform action. utilities in electricity and water sectors; » Strengthening of the role of the Jordan Investment Board; A. JORDAN » Establishment of a PIM unit in MOPIC; » Fast expansion of digital payments facilities; i. Context » Credit infrastructure – enhanced credit reporting system and expanding 32. Key features include: guarantee schemes. » Debt to GDP level at 93.5% (2017), budget deficit of 0.4% of GDP and iii. Status of WBG Engagement in Key sovereign credit rating of B+ Standard 25 Sectors and Portfolio Activities and Poor (S&P); » Government efficiency of spending 34. MFD portfolio engagement in Jordan is 3.4/7 (GCR); most advanced across the World Bank, IFC and MIGA within the Mashreq. More » Challenging context with subdued specifically: economic growth aggravated by regional conflict and associated spill a. IBRD: MFD support has focused on » Advisory work in support of PPPs for national and key sector development Amman Ring Road and King Hussein through lending operations and trust Bridge; funds in following areas: » Support to IBRD teams on the PPP » Passage of PPP law, regulations project pipeline identification (e.g. and capacity building to the PPP trade corridor tolling); Unit in the Ministry of Finance » Working with the MOF PPP Unit to strengthen overall enabling to initiate future PPP (e.g. Swaqa environment for PPPs (Development hazardous waste); Policy Financing (DPFs) and Public- Private Infrastructure Advisory » IFC advisory with European Bank for Facility (PPIAF) financing); Reconstruction and Development (EBRD) is in discussion with » Development of a PPP/PIM Ministry of Education (MOE) on the functionality to strengthen construction of 15-20 new schools government investment as a PPP project, as part of the prioritization and value for money Jordan Schools Program. Some (VfM) deployment of government concessional financing could be and private sector funds (MENA envisioned depending on private Transition Fund and PPIAF); sector appetite. » Support to the identification of c. MIGA: Political risk insurance a pipeline of PPP projects, with guarantees for cross-border investment primary focus on potential of tolling and lending in the context of MFD: key trade corridors trunk roads (PPIAF); » Guarantees in thermal and renewable energy. » Under the Education Program for Results - PforR, technical assistance » Guarantees for PPPs in infrastructure is being provided to develop a PPP (wastewater treatment and Queen Mashreq | Maximizing Finance for Development (MFD) Strategy model to deliver infrastructure Alia Airport); and services for Early Childhood » Guarantees for expansion of a Education (ECE); bromine plant. » Strengthening of the financial sustainability and operational iv. Critical Areas for Sector Progress efficiency of energy and water sectors (last programmatic DPF 35. Building on and continuing to support the series) and ongoing work to address MFD agenda in the current energy and water Non-Revenue Water (NRW) issues, sector, the WBG is currently collaborating together with IFC. with government to identify MFD-enabling b. IFC: MFD investments focused on initiatives to improve transport services following investments and advisory - including toll roads, border crossing services: and public transport. This WBG strategic initiative will support the transport sector » Regular large-scale investments reforms, potential capital stock upgrade in the power sector since 2009, and O&M improvements through advisory initially on the distribution side, and IBRD investment and DPF operations followed by numerous investments and potential IFC financing, including 26 on the thermal power side and in the through provision of enhancement renewable energy sector; measures where needed to mobilize the » PPP advisory and financing of Queen private investment. MIGA support would Alia airport; be available for foreign investors seeking » Credit infrastructure and MSME risk mitigation for their equity and loans financing; into such projects through political risk insurance. Table 1: Jordan Sector Priorities Sector Key Areas for Future WBG Attention Cross-cutting (enabling »» Governance and financial management of infrastructure SOEs (e.g. NEPCO) policies, governance, »» Procurement – including modernization of legal and procedural framework, finance) procurement policy and oversight mechanisms, and independent complaint review mechanisms »» Business environment (investment climate, credit infrastructure etc.) »» Developing a robust pipeline of bankable PPP projects, which requires capacity building and optimized facilitation schemes (project preparation facility, viability gap funding etc.) »» Implementation of PIM/FCCL initiatives »» Long-term finance capacity (incl. development finance, capital markets) Power »» Transmission, tariff structure and storage Water »» PPPs and municipal finance and NRW Transport »» Trade corridors, tolling options and urban transport Agriculture »» Enhancing the value chain and competitiveness of exporters Education »» Schools (PPP and private schools) »» Assessment of role private sector can play in respect of: (i) increased ECE access; (ii) improved outcomes, increased system efficiency, greater equity; (iii) vocational and technical training (TechVoc) Services »» Tourism (including health) and ICT 36. Going forward, there is potential to bring a significant MFD engagement into the B. LEBANON education sector which will be a priority COUNTRY STATUS FOR MFD READINESS AND WBG PRIORITIES initiative for the World Bank Group with initial attention on areas of school building, i. Context early childhood education and technical and vocational training. This undertaking 38. Key features include: would be building on the current IBRD » Debt to GDP 157.3% (2017), budget Education Reform Support PforR program deficit of 10.6% of GDP, Sovereign and IFC advisory work on PPP approaches credit rating B- (S&P); to school building and maintenance (often referred to as Private Finance Initiatives – » Efficiency of government spending PFI). Additional joint IBRD/IFC initiatives (1.8/7 – GCR); to address NRW challenges at a municipal » Economic vulnerabilities persist in level are also under consideration. absence of reforms, exacerbated by refugee influx. Growth stagnating 37. A summary of the leading sector issues is around 1-1.5% in 2016-17; included in table 1. » Unemployment at 7% but the problem is acute among youth (21%) and women (25%); 27 » Fiscal position deteriorated with rising expenditures and interest payment obligations and government debt among highest globally; » Current number of PPPs – 9 as recorded in the World Bank Group PPPI database; » Key part of evolving growth strategy » Core support to the High Council is the Capital Investment Plan (CIP) of Privatization and PPPs for which was presented at the CEDRE institutional development and PPP conference in Paris on 6 April to attract pipeline development; investments/FDI. » Advice on the development of financing facilities to leverage ii. Key MFD Reforms in Place private investment in support of the Capital Investment Plan. 39. Lebanon has made limited progress in b. IFC: MFD investments focused on developing an MFD enabling environment. following investments and advisory More specifically: services: » 2017 enactment of PPP law to give » PPP Advisory services for two 400- legal authority for the High Council for 500 MW IPPs (Zahrani and Salata Privatization and Partnership (HCP-P) IPP) as part of a 1500 MW IPP to implement at PPP mandate; program (potential also for PRG/PRI » Tripoli Special Economic Zone (TSEZ) cover); legislation of 2008 that empowers » Upstream work for development the TSEZ Authority to pursue a PPP and potential financing of 3 wind development model; projects in Akkar (200MW); » Business environment legislative » Potential financing of solar PV package submitted for Parliamentary projects; approval (includes reform of equity shares, commercial code, secured » PPP advisory services for key transactions, insolvency and insolvency transport and economic projects practitioners, judiciary mediation). (Beirut BRT, Beirut Rafic Hariri International Airport, and potentially Tripoli Special Economic Zone and iii. Status of WBG Engagement in Key Mashreq | Maximizing Finance for Development (MFD) Strategy Ports); Sectors and Portfolio Activities » Advisory on credit infrastructure, commercial registry and Tripoli 40. MFD engagement in Lebanon by the World Special Economic Zone. Bank, IFC and MIGA entails the following: c. MIGA: Political risk insurance a. IBRD: Currently focused on the guarantees for cross-border investment following advisory and upcoming and lending in the context of MFD: operations: » Guarantees for an electricity » Advisory services in support of the distribution service provider. recently enacted PPP law and capital market development; » Strengthening of the Ministry of iv. Critical Areas for Sector Progress Finance capacity to manage PPP- 41. A comprehensive Power Sector reform related FCCL risks; initiative to bring reliable and sustainable » Introduction of operator and private 24/7 power to households and businesses investment in the BRT through across Lebanon is a major priority. This targeted PPPs financing of the WBG strategic intervention will support 28 project; the reform agenda with IBRD, IFC and MIGA » Establishment of the Tripoli Special financing and enhancement measures (e.g. Economic Zone through a Developer\ guarantees, blended finance) and advisory Operator PPP; and technical assistance as needed for eligible projects to mobilize private investment into the sector. MFD-enhancing initiatives are also underway in terms of Table 2: Lebanon Sector Priorities Sector Key Areas for Future WBG Attention Cross-cutting (enabling »» Improvements in governance and financial management of infrastructure policies, governance, finance) SOEs (e.g. EdL) »» Further PFM/FCCL, procurement reforms; corporate governance (firms) »» Business environment (investment climate, credit infrastructure etc.) »» Developing a robust pipeline of bankable PPP projects, which requires institutional capacity building and early-stage advisory for project origination; and optimized facilitation schemes (project preparation facility, viability gap funding, guarantees, liquidity facility) »» Long-term finance and financial institution capacity Power »» IPPs (thermal and renewable energy) and fuel sourcing infrastructure (FSRU) allied to institutional and pricing reforms to establish commercially sound value chain and quality service to households and businesses Water »» Municipal water and Non-Revenue Water (NRW) Transport »» Airport, SEZ and Port, urban transport, logistics Telecommunications »» Fiber optic development, digital infrastructure, including focus on lagging regions Education »» Higher education, including technical and vocational training Services »» Retail and tourism Municipal »» Strengthening municipal finance for PPPs the expansion of private participation in the water sector, including addressing key C. IRAQ NRW issues. COUNTRY STATUS FOR MFD READINESS AND WBG PRIORITIES 42. Also, in the pipeline is the further i. Context: development of the international airport under a PPP contract, including key reforms 44. Key features include: to the Civil Aviation authority to enhance its » Iraq is the most oil dependent country role in creating the enabling environment in world. Accordingly, oil price slump/ for increased private participation in the production cuts had severe implication aviation sector. on economy; 43. The other leading sector issues are » Debt to GDP 54.7%, budget surplus of summarized in table 2. 0.3% of GDP, sovereign rating B- (S&P) » Slow economic growth projected to contract by 0.4% in 2017. There is a great need to diversify the economy; » Unemployment at 16% but the problem is acute among youth (33%) and women 29 (24%); » Current number of PPPs – 2, as recorded in the WBG PPPI database; » Failure to implement fiscal adjustments » Systems upgrades and potential could spur a depletion of foreign PPP options at the distribution and exchange reserves and an accumulation transmission level under the Basra of short-term domestic debt. Electricity Services reconstruction; » Development of central agency ii. Key MFD Reforms in Place capacity to manage PPP-related FCCL risks; 45. Iraq has made limited progress in » PPP annex introduced to the KRG developing an MFD enabling environment. procurement regulation; More specifically: » Private sector reform agenda » Launch of the Reconstruction and prepared for implementation Development Framework that highlights from the February 2018 Kuwait a new priority to mobilize private Conference; financing to support capital investment needs; » InfraSAP under consideration in targeted sectors (from power, water » Draft PPP Law under consideration at and wastewater, transport/airports, Parliament; housing, agriculture and banking. To » New contractual and regulatory private- be determined). sector-enabling framework for private b. IFC: MFD investments focused on investment in flaring reduction and following investments and advisory gas-to-power (Natural Gas Market services: Framework - NGMF) formally adopted and introduced in January 2018; » Investment in the Suliymaniya IPP and potential investment in » KRG new public procurement regulation Besmayah IPP and Basra Gas in effect including transparency, Company; safeguards and complaint review mechanism and 2017 annex to the » Investments in port development, Mashreq | Maximizing Finance for Development (MFD) Strategy regulation on PPP procurement and thermal and solar PV (scaling solar); capacity building. » Assess PPP options for O&M of Baghdad Water and Wastewater, where IBRD is funding core iii. Status of WBG Engagement in Key infrastructure; Sectors and Portfolio Activities » Advisory feasibility work in support 46. MFD engagement in Iraq by the World of private investments in targeted Bank, IFC and MIGA entails the following: projects under MOU with the Ministry of Planning, in preparation a. IBRD: Currently focused on the for the Kuwait Reconstruction following upcoming operations: Conference; » Reduction Gas Flaring, Gas-to- » Investment climate/doing business. Power and mobilization of private investment electricity; ASA Technical » Financial sector development Assistance for implementation of including: privatization of the private-investment-enabling gas banking sector to be taken in to the sector reform agenda of reforms; Rationalization of competition from public sector 30 » Introduction of PPP under the banks; Corporate governance and Baghdad Water and Wastewater adoption of international accounting project; This will include PPP standards (IFRS) arrangement for the Wastewater treatment plant in Baghdad. c. MIGA: Political risk insurance guarantees for cross-border investment and lending in the context of MFD: Table 3: Iraq Sector Priorities Sector Key Areas for Future WBG Attention Cross-cutting (enabling policies, PPP and Procurement policy and legislation reform; sector reform roadmaps governance, finance) including SOE reforms (corporatization and regulation). FCCL risk management. Power IPPs, thermal and renewal energy, distribution Water Waste Water Treatment Transport Port and Logistics (IS) – Airports: PPP Advisory Telecommunications Fiber Optics Agriculture Development of the agriculture value chain, SOE reform and opening input markets for private sector. Manufacturing and Services Refineries/Petrochemicals Financial Sector Banking sector reforms, credit infrastructure, and firm/sector level capacity building, specialized development finance (e.g. housing finance, agriculture finance) while exploring potential for commercial finance. » Guarantees for port logistics (Umm through the design and mobilization of Qasr). funding for different commercial financing and private investment enabling financing facilities. iv. Critical Areas for Sector Progress 50. The other leading sector issues are 47. The critical challenges in Iraq over summarized in table 3. the foreseeable future for which the mobilization of private financing will be COUNTRY STATUS FOR MFD READINESS AND WBG PRIORITIES at a premium is the delivery of services including in liberated areas and those where there are urgent reconstruction needs to be met. 48. Particular attention will be paid to foster MFD solutions to the development of the oil, gas and electricity sectors, including critical SOE and institutional reforms and to the financial sector that is a cross- cutting requirement for the success of MFD in any specific sector. This will include complementary IBRD operations and IFC investments, including in Basra. Additional support to non-oil sector development – with a specific focus on the agriculture - will also be a priority. 31 49. Based on planned InfraSAP work to be done in close coordination by IBRD and IFC, additional key sector(s) for potential sector-wide reform effort will be identified with a view supporting this through the next generation of WBG operations and V. ORGANISING FOR DELIVERY – JOINT IMPLEMENTATION PLANS, INSTITUTIONAL ARRANGEMENTS AND RISK FACTORS A. JOINT IMPLEMENTATION » Targeted transactional engagement (Type I) where IBRD\IFC\MIGA teams PLANS collaborate on more targeted actions related also to specific transaction development and financing. 51. Joint Country Implementation Plans: Based on preliminary consultations with » Full “Cascade” engagement (Type II) the Governments of Jordan, Lebanon and where well-defined joint IBRD/IFC/ Iraq – drawing on this Strategy - FY19 will MIGA teams will be established with the see the commencement/continuation of full backing of respective managements detailed dialogue with government and to undertake a comprehensive then private sector across the key sectors engagement in a sector encompassing highlighted in the preceding section with a broad upstream policy agenda in line a view to determining what specific issues with priorities set out in Annex IV as are to be addressed in each country to well as downstream project finance and best forward a broad, policy-based MFD PPP opportunities. strategy and through what means the WBG 54. Based on consultations to date, the ORGANISING FOR DELIVERY – JOINT IMPLEMENTATION PLANS, INSTITUTIONAL ARRANGEMENTS AND RISK FACTORS can assist in this effort. following priority Type I and II areas of focus 52. These Joint Implementation Plans (JIP) have been identified for further consultation – will be living documents prepared in with government counterparts. A full list of consultation with governments by joint currently tagged cascade enabling Type I IBRD/IFC/MIGA teams. These JIPs will set and II projects in the pipeline for FY19 and out the policy, governance/institutional 20 are detailed in Annex 3-A. Adjustments and other key determinants to enable may be made based on the outcome of investment priorities to be addressed in these consultations with government a way that leverages private financing. counterparts and other progress in project Based on this cascade assessment, preparation. the WBG team can identify the optimal combination of support that can be provided through lending (DPF, IPF, PforR, PRGs etc) additional technical assistance and ASA support, and with IFC and MIGA financing/guarantees and advisory. 53. Each institution of the WBG brings its comparative advantages to the challenges of implementing an MFD solution to the development challenges to be tackled in these different Mashreq countries. Given the range of areas where key initiatives could be pursued it will be critical, in developing a JIP, to be selective about where the focus of effort should be targeted. This does not imply a narrow, project focus nor overlooking specific opportunities, but it does require clear choices about sectors and issues of focus, 33 and the pursuit of a systematic policy, programming and investment agenda to which all three WBG institutions commit to dedicate staff, resources and financing. To this end, MFD work in each country will prioritize staff and resources for two levels of MFD engagement; Table 4: Initial List of Candidate Mashreq Activities by Type I and II Country Sector Projects Comments TYPE II INITIATIVES Jordan Education PforR and IFC PFI initiative in Would represent a first MFD agile Schools; initiative in a non-infrastructure ECE potential. sector Water IBRD prior DPF engagement. IFC priority. Type II initiative under development with focus on addressing NRW and tariff policy reform. Lebanon Energy Lebanon Energy Reform and Shared IBRD/IFC priority under Development Project an MPA initiative with policy and governance actions allied to MFD investments along the value chain. Transport Civil Aviation Reform and Airport Transaction to be developed, to extension. include policy and governance change to civil aviation sector. Water Water and Sanitation Services Transaction to be developed on NRW as a Type II – key policy action is a move from fee to volumetric tariff. Iraq Energy Major focus of current DPF series; Remains a priority economic driver IFC active in IPP and gas-to-power for the country and key factor in (Basra Gas Co); budget targets under the IMF SBA. Initial Type II IBRD engagement focused on Basra. Banking Currently TA and DPF based Key sector priority foundational for activities, with project preparation all other sectors and for growth and Mashreq | Maximizing Finance for Development (MFD) Strategy for FY20 delivery. job creation. Agriculture Agriculture Transformation project. Key new sector which is high government priority TYPE I INITIATIVES Jordan Transport Amman Ring Road; Considerable collaboration already King Hussein bridge; ongoing across IBRD regional/IFC and InfraSap being undertaken in the the IPG team. roads sub-sector; Competition issues in this sector being addressed in new DPF series. Energy IBRD prior DPF engagement and Substantial progress already follow-up under new DPF series. achieved in this sector. Lebanon Transport Beirut Urban Transit Project (BRT) PPP transaction involving private provision of feeder bus service. Iraq Water Baghdad Water Shared IBRD/IFC priority including Waste Water Treatment through PPP arrangement. Transportation Airports/Ports/Transport Corridors. (early phases) 34 B. INSTITUTIONAL how the project would anticipate contributing to the four Results Areas ARRANGEMENTS set out in the Strategy. 58. Going forward, as part of a coordinated 55. Institutional Arrangements: There are team, IBRD would anchor the policy five essential aspects to an effective and wider programming engagement, institutional arrangement: (i) identification with IFC anchoring key private sector of priorities and required joint engagement; consultations and transactions within the (ii) delivery organization and process; MFD program. MIGA’s involvement – as the (iii) incentives and training; (iv) agile; (v) most specialized of the WBG institutions monitoring and evaluation. Each in turn. – would be calibrated to the specifics of the engagement to optimize private sector 56. Priority Setting and Joint Engagement: participation; for example, advising on the This will be set out at a country level with eligibility of PPP projects. counterparts through the JIP dialogue in line with this Strategy. These JIPs will set 59. Incentives and Training: OPEs will make ORGANISING FOR DELIVERY – JOINT IMPLEMENTATION PLANS, INSTITUTIONAL ARRANGEMENTS AND RISK FACTORS out the specific objectives, areas of priority specific reference to staff performance for reforms, investments and technical in terms of MFD mainstreaming plus assistance requirements, additional additional budget (BB) support to finance diagnostics that may be required. They will specialized expertise and MFD-related also include a workplan and timeline for training will be prioritized in Mashreq delivery and country-specific results to be region. This includes: achieved. » An awards program will be launched to 57. Management and Teams: Three aspects to recognize exceptional efforts by staff this: (i) MFD management committees; (ii) and teams across the WBG delivering team composition; (iii) process for project on the MFD objectives and results set preparation: out in this Strategy; » Management Committee: Existing » Establishment of a MFD Know How IBRD/IFC/MIGA management teams will Accelerator facility (MAF) – managed meet together in special sessions to by FCI – that will consist of a funding review and revise progress against the envelope for specific expertise to MFD Strategy and Workplan on a semi- assist project teams in addressing annual basis; key MFD issues in project design and implementation. This funding will be » Team Composition: For all Type II additional to allocated LEN and SPN BB engagements, it would be mandatory to funds; establish a joint IFC-MIGA-IBRD team. WBG Directors will meet with Type II » Targeted training sessions in areas teams on bimonthly basis to review of specific priority to the Mashreq the progress. for Type 1 operations and region. This will be underpinned by standalone ASAs, WBG reviews will be the MFD Accelerator Program (MAP - in determined on a case-by-case basis; collaboration with Ferrazzi Greenlight) where joint IBRD\IFC\MIGA teams will » Process for Project Preparation: be supported over the coming FY to For IBRD projects initiated in Type 1 address key business and institutional category, cascade analysis will be culture, behavior, incentives and required as part of the preparation of other obstacles to team and client 35 all lending operations. Peer Reviewers engagement effectiveness. This will, unless authorized otherwise by initiative was launched in July with practice management, include an IFC a first round of WBG staff engaged and/or MIGA staff member. All project in priority “Type II” MFD activities concept notes will need to address including Jordan Education and Iraq and Lebanon energy. 60. Agile Dimension: The Mashreq MFD after project approval is to be included in Strategy will be implemented working results assessment – it is recognized that closely with the Agile team who will be the timeframe over which this Strategy is looking to support teams specifically in to be assessed would be FY19-FY28. This the following areas, where details will be would allow for 5-year projects approved in developed and tailored to each MFD team FY20 to assessed three years after project requirements: closure. Further guidance and consultation » Improve processes and documentation: on the design of this evaluation plan will This entails piloting streamlined be undertaken and presented to the first processes and deliverables across semi-annual review by senior management the three organization to avoid work of the Strategy. duplication and save on time; » Supporting MFD for delivery: Ensuring teams get the right support and C. STRATEGY RISKS expertise at the right time to efficiently deliver MFD project (such as technical, legal, procurement, E&S). This is being 64. The successful implementation of the delivered through the establishment of Strategy will require effective management the MAF which will provide additional and/or mitigation of a range of specific resources – both financial and types of risks, including: technical - to ensure teams have the » Regional: The ongoing conflicts right expertise in a timely manner to and political uncertainties in the ensure robust project preparation work region – and specifically the wider is completed in line with the cascade consequences of the Syrian crisis algorithm. The MAF will prioritize Type on neighboring countries – remains II project preparation. a significant impediment to private sector participation in the Mashreq 61. Monitoring and Evaluation: Quarterly countries, as most evidenced in the Mashreq | Maximizing Finance for Development (MFD) Strategy progress reports will be prepared detailing current declining FDI trends in Lebanon progress on the workplan and any results and Jordan. achieved to date. These reports will also be input for the management committee » Political: This includes (i) the political reviews. These reports will be prepared will to implement the key policy (e.g. based on inputs from the relevant TTLs. A pricing/subsidy/tariff) and legislative template for information required will be actions that are a sine qua non for prepared and distributed to TTLs. private sector participation and risk- taking with government and (ii) the 62. An evaluation plan will be developed for challenges faced by policy makers this MFD Strategy. It will cover efficiency, to ensure wider citizen buy-in for the effectiveness and impact outcomes and be reform actions required; designed based on consultations across » Macro-Economic: Addressing the high the World Bank GPs, IFC, MIGA and IEG. debt burden faced by Lebanon and Of importance will be the determination of Jordan and ensuring that an adequate the baseline of WBG projects/investments framework to manage the fiscal on which specifically effectiveness and commitment and contingent liabilities impact-type outcomes will be assessed. that can be associated with PPPs is in 36 Currently the plan would be to include all place; projects/investments approved over the next two fiscal years (FY19 and FY20) with » Governance: This includes risks Annex III providing the current baseline. associated with elite capture, weak procurement, financial management 63. Considering current MFD guidelines processes and poor contract - specifically that private financing management practices that can mobilized within a period up to three years compromise level playing fields and competition that, in turn, can lead to adverse pricing and poor service delivery not in the public interest; » Absorptive Capacity: MFD requires different institutional, technical/ political economy and behavioral capacities for policy making and program implementation that are often not in place in client countries. Attention will need to be paid to capacity building required to address these dimensions of the MFD agenda. 65. As operations are prepared, this range of key risk factors will be systematically addressed, revised and updated as needed and collated and tracked at the Strategic ORGANISING FOR DELIVERY – JOINT IMPLEMENTATION PLANS, INSTITUTIONAL ARRANGEMENTS AND RISK FACTORS level, including in the Quarterly Progress Reports. 37 VI. ANNEX I KEY INDICATORS FOR MFD READINESS (2017 data - unless indicated otherwise)   Jordan Lebanon Iraq Comparator Country Malaysia Thailand Mexico Argentina Turkey Macro-Economic, Institutional and Investment Climate Indicators Debt/GDP4 93.5% 157.3% 54.7% 53.6% 41.6% 53.5% 54.1% 27.8% Budget Deficit5 -0.4% -10.6% 0.3% -2.7% -0.9% -2.5% -5.5% -2.9% Gross fixed Capital Formation, 17% 20% N/A 17% N/A 19% N/A N/A private sector (%GDP)6 Gross fixed capital formation 20% 22% 17% 25% N/A 22% 15% 30% (%GDP)7 Public capital formation (%GDP)8 3% 2% N/A 8% N/A 3% N/A N/A Capital expenditures of total public 10.2% 14.1% -- 32.6% 16.6% 13.7% -- -- expenditures Foreign Direct Investment, net 4.2% N/A N/A 3.0% 2.0% 2.80% 1.9% 1.30% inflows(%GDP) Claims on central government 30.5% 102.3% NA 10.2% 16% 16.3% 23.% 9.2% (%GDP)9(2016) Budget Efficiency (WEF) ` efficiency 3.4 1.8 N/A 4.8 3.6 2.2 2.7 n/a of government spending 1- 7) best) (2017-2018) 4 IMF DataMapper; General government net lending/borrowing; accessed on 7/8/2018 5 IMF DataMapper; General government net lending/borrowing; accessed on 7/8/2018 6 Private investment covers gross outlays by the private sector (including private nonprofit agencies) on additions to its fixed domestic assets. (WDI database) 7 Gross fixed capital formation (formerly gross domestic fixed investment) includes land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; and the construction of roads, railways, and the like, including schools, offices, hospitals, private residential dwellings, and commercial and industrial buildings. According to the 1993 SNA, net acquisitions of valuables are also considered capital formation. 8 Calculated by subtracting private sector fixed capital formation from the gross fixed capital formation. 9 Claims on central government include loans to central government institutions net of deposits. (WDI) ANNEX IKEY INDICATORS FOR MFD READINESS (2017 data - unless indicated otherwise) 39 Mashreq | Maximizing Finance for Development (MFD) Strategy 40   Jordan Lebanon Iraq Comparator Country Malaysia Thailand Mexico Argentina Turkey Quality of Public Institutions (WEF) 3.8 2.7 N/A 4.9 3.7 2.9 2.9 3.4 public sector performance (1-7) best (2017 -2018) Coupon Rate of 5-year Bond 5.397 6.74 6.7 3.6 1.96 7.1 5.625 4.875 Sovereign Rating (S&P) (2018) B+ B- B- A- BBB+ BBB+ B+ BB Investor Protection (DB - DTF) 40.00 41.67 46.67 80 73.33 58.33 63.33 71.67 (2018) Courts (DB - DTF) (2018) 53.71 49.85 48.02 66.61 67.91 67.01 55.66 68.87 Financial Sector and Stock Market Domestic credit to private sector 70.2 (2016) 104.5% 8.5% 125.1% (2016) 111.6% 27.1% 15.5% 66.5% by banks (% of GDP) 10 Domestic credit provided by 108.3 (2016) 209.6 (2016) 145.3(2016) 164.7% 55.2% 39.2% 77.9% financial sector (% of GDP)11 # of listed companies on Stock 194 10 84* (country 894 688 141 96 374 Exchange sources) Market capitalization of listed 59.8% 22.2% N/A 144.9% 120.6% 36.3% 17.1% 26.7% domestic companies (% of GDP) Stocks traded, total value 5.58% 1.2% 43.7% 74.6% 9.9% 1% 44.3% (% of GDP) 10 Domestic credit to private sector by banks refers to financial resources provided to the private sector by other depository corporations (deposit taking corporations except central banks), such as through loans, purchases of nonequity securities, and trade credits and other accounts receivable, that establish a claim for repayment. 11 Domestic credit provided by the financial sector includes all credit to various sectors on a gross basis, with the exception of credit to the central government, which is net   Jordan Lebanon Iraq Comparator Country Malaysia Thailand Mexico Argentina Turkey 12 PPP Status Number of PPP projects 42 9 (2016) 2 108 167 296 217 214 PPP investments (US million) 10,324 383 2,950 51,714 39,456 82.887 55,374 136,020 PPP projects cancelled or under 1 project 3 projects -- 22 projects 3 projects 23 projects 41 projects 2 projects distress 38% of total 200% of total 346% of total 107% of total 318% of total 423% of total 9% of total investments investments investments investments investments investments investments PPP Legislation Law No. 2017 - Public No PPP law – 1991 - law on 2013 - Private DOF 05-11- Law 27,328 on No PPP 31 of 2014 Private 2014- Order privatization Investment 2012: Law on Public-Private law; mix of concerning Partnership 87 on Public includes PPP in State Public Private Partnership concessions, Public-Private law Contracts Undertaking Partnership Contracts built operate Partnership Act lease and Instructions transfer No. 1/2014 on models Government Contract Implementation Quality of preparation of PPP 29 0 4 46 54 75 17 46 projects (0-100) Procurement of PPP (0 – 100) 78 30 48 43 63 87 73 63 PPP contract management (0 -100) 43 17 40 24 57 87 58 49 12 Sources: PPI Database and WBG 2017; Benchmarking Public Private Partnerships Procurement: Assessing Government Capability to Prepare, Procure and Manage PPPs , 2017 41 ANNEX IKEY INDICATORS FOR MFD READINESS (2017 data - unless indicated otherwise) VII. ANNEX II MASHREQ MFD STRATEGY - RESULTS FRAMEWORK MATRIX Baseline (2018) Y5 End Target Unit of Meas. Project Title Y8 (2026) Y2 (2020) Y7 (2025) Y3 (2021) Y1 (2019) Y6 (2024) Y4 (2022) (2023) Result Results Indicators 1. Private capital mobilized13 Results Indicator 1.2: Private investment and commercial finance mobilized 2. MFD-enabling policies Results Indicator 2.2: implemented14 Number of MFD- Enabling Reforms achieved 3. Improve-ments in access and Results Indicator Quality of 3.1: Improvement in services as a access to services result of MFD Result Indicator 3.2: Improvements in Quality of Service – 4. Jobs Created by MFD enabled Results Indicator 4.1: policies and number of direct and ANNEX IIMASHREQ MFD STRATEGY - RESULTS FRAMEWORK MATRIX investments indirect jobs created as a result of project investments 13 According to the Core Sectors and Indicators Definition report by the Results Platforms, World Bank 43 (2014), “Mobilized private capital” is private capital that has been fully committed. For projects where private capital comes from debt, equity, or both, private capital is mobilized when it is fully committed and all conditions precedent to the first drawdown are fulfilled or waived. Therefore, loan funds are available for drawdown. For projects where private capital comes from equity only, private capital is mobilized when the contract under which private equity will be provided is signed and becomes effective. 14 MFD-enabling reforms will require that private investment is catalyzed within three years after closure of project that supported the reform initiative VIII. ANNEX III MFD PIPELINE FY18-20 A. IBRD pipeline P# Name Instrument Will operation If yes, how will the operation enable the “MFD”? enable the “cascade”? (Yes or No, Type I and II) IRAQ P162094 Baghdad Water IPF Yes – Type I Project supports the corporatization of water utility and municipality of Baghdad and the (TTL: Abdulhamid & Sewerage strengthening of billings and collections so as to enable the involvement of the private sector in Azad (FY18) operation and maintenance. The project also finances pumping station and network infrastructure Nafie Mohammed which will connect to a new wastewater treatment plant with a capacity of 200,000 m3/day that Mofid) is under consideration with IFC PPP Advisory support for private sector involvement (per IFC’s recently signed MOU with the Ministry of Planning). This IBRD project will complement work planned by IFC by financing the feasibility study of the Waste Water Treatment Plant (WWTP), tariff and institutional reform as well as essential infrastructure connectivity. It is estimated that US$140 million BOT of the Al Khansaa waste water treatment plant. P164676 3rd Expenditure DPF Yes – Type II The DPF plays a vital role in setting the policy framework and identifying critical prior actions (TTL: Luca Rationalization, to enable private sector involvement in power distribution as well as production. The ongoing Bandiera, Paul Energy Efficiency reforms of the gas sector for example, wherein the contractual frameworks for private sector Baringanire) and SOE involvement are being restructured, are likely to attract the private sector into the gas sector Governance demonstrably in the short term. The distribution and utility level reforms in the energy sector (FY19) (including tariff reform) will also directly support the enhanced performance of the energy sector as a whole and complements IFC’s ongoing involvement in the production end where several IPP’s are underway (in KRG and Baghdad). Improved governance in the SOE sector will open up space for increased private sector investment. P162454 Electricity IPF Yes – Type II Projects supports the implementation of the recently approved electricity law which allocates (TTL: Paul Services fiscal and technical autonomy to the Basra directorate of electricity. Supports strengthening Baringanire, Reconstruction of distribution and transmission network so as to enable involvement of the private sector Mohammed and involvement in operations in the medium term. This includes feasibility studies for viability of Wafaa Al-Ani) Enhancement prospective shorter term “demonstration effect” PPP solutions (e.g. collections) and subsequent (FY19) implementation under the project. This initiative is part of a wider WBG engagement in the Basra region and rest of the country covering also power generation and gas-to-power (See IFC pipeline below in Annex III-B). ANNEX IIIMFD PIPELINE FY18-20 45 Mashreq | Maximizing Finance for Development (MFD) Strategy 46 P# Name Instrument Will operation If yes, how will the operation enable the “MFD”? enable the “cascade”? (Yes or No, Type I and II) P163871 Gas Sector ASA Yes – Supporting Project designed to Support GoI/MoO to adopt and introduce private-sector-enabling contractual (TTL: Carlos A. Reform/Flaring Type II and regulatory framework for investment in natural gas capture, processing, transport and Lopez) Reduction and commercialization. New Natural Gas Market Framework (NGMF) formally adopted by Council Gas-to-Power of Ministers in January 2018; implementation phase in process with WB technical assistance (Completed) support. P166229  National IPF Yes – Type II Project will focus on market reforms to strengthen private investment in input and downstream (TTL: Bekzod Agricultural agri-business segments of the value chain. Shamsiev) Recovery and Competitiveness (FY19) P131550 AF - Transport IPF/PPP Yes – Type I Project will focus on upgrading, modernizing and commercializing Baghdad International Airport (TTL: Ibrahim Corridors (BIA). A combination of public and private investments is foreseen. Possibly via additional Dajani) (including financing to Transport Corridors Project. Baghdad International Airport) TBC Banking Sector PforR/IPF with Yes – Type II Building on ongoing technical assistance and recent policy actions achieved in over recent DPF (TTL: TBC) Transformation DLIs operations, this PforR/IPF initiative would support the restructuring of the financial sector SOEs Project and implementation of key policy reforms/regulations required to open up the banking and NBFI to increased private sector participation. P# Name Instrument Will operation If yes, how will the operation enable the “MFD”? enable the “cascade”? (Yes or No, Type I and II) JORDAN** P166577  Jordan Urban PforR/IPF Yes – Type I The Program would support Jordan’s urban growth centers in identifying and applying private (TTL: Bjorn Philipp, and Municipal sector participation opportunities in the delivery of public services. This may include investment Lina Abdallah Program for in structured transport solutions in Zarqa, Irbid and Russeifa, building on the experience with the Saeed Abdallah) Balanced and Bus Rapid Transit (BRT) system currently under development in the Greater Amman Municipality. Inclusive Growth The potential for smaller-scale service and operation contracts for private sector provision of (FY19) municipal services. The Program would also support better integration of ‘lagging regions’ into the economy, supporting investments and Public-Private Dialogue along the main transport corridors connecting to Amman in the North and Aqaba in the South will also be investigated. Finally, potential upstream reforms to the sub-national finance system, including a proposed restructuring of the Cities and Villages Development Bank (CVDB), would have the potential to mobilize commercial financing to develop a functioning municipal credit market. P153441 Red Sea-Dead IPF/Guarantees Yes – Type I Provides guarantees, possibly including MIGA and IFC providing investment support to the award- (TTL: Alexander A. Sea Phase 1 PRG winning contractor/consortium. McPhail) (FY20) TBC Water Resources IPF (TBC) Yes – Type II The project intends to support the reduction of NRW in Jordan. Under this project, the World Bank (TTL: Suhail Project is working closely with IFC undertook an assessment of NRW in Miyahouna, and initial results was Jme’An) (TBC) well received. Given the level of water scarcity, the NRW is a priority water resources management issue. Financial losses in the water sector need to be reduced in order to position the sector for potential increased private sector participation ANNEX IIIMFD PIPELINE FY18-20 47 Mashreq | Maximizing Finance for Development (MFD) Strategy 48 P# Name Instrument Will operation If yes, how will the operation enable the “MFD”? enable the “cascade”? (Yes or No, Type I and II)  P166360 Jordan First DPF Yes – Type II DPO Programmatic policy matrix will be addressing key MFD constraints at national level and in (TTL: Christos Growth and Jobs targeted markets. Kostopoulos, Alan DPF Andrew Moody, (FY18) Alvaro S. Gonzalez) P168130 Jordan Second DPF (TTL: Christos Growth and Jobs Kostopoulos, Alan DPF Andrew Moody) (FY19) P162407 AF - Education PforR Yes – Type II Building on the technical assistance work to be undertaken under the current PforR, this potential (TTL: Karine Reform Support Additional Financing would introduce new measures including policy actions - as determined Pezzani, Juan further to the TA work - to implement an MFD approach to the financing and delivery of Early Manuel Moreno) Childhood Education (ECE) services in Jordan. LEBANON P160224 Greater Beirut IPF Yes – Type I Greater Beirut Urban Transport (BRT) will mobilize private sector participation and investments (TTL: Ziad Salim EL Urban Transport in system operations and maintenance, especially through private sector co-financing for the Nakat) (FY18) purchase of the bus fleet and its operation. The project is expected to mobilize between US$50 to $US80 million. P163576 Creating Econ P4R Yes – Type II The project supports the implementation of the new PPP law, including transaction advisory work (TTL: Peter Opportunities needed to bring viable PPPs to market in support of investments sought by the government for Mousley, Haneen in Support the Capital Investment Plan. The project also co-finances PPP investment initiatives specifically Sayed, Thomas of Lebanon in the Tripoli Special Economic Zone (TSEZ) and addresses policy constraints to private sector Farole) National investment, including in downstream data service provision arising from the fiber optic Job Creation investments being undertaken by the government. The project also supports implementation of Program new laws that will increase SME access to finance. (FY18) P# Name Instrument Will operation If yes, how will the operation enable the “MFD”? enable the “cascade”? (Yes or No, Type I and II) P165324 Strengthening IPF\PPF Yes – Type II Support under this PPF project to strengthen MOF debt department capacity to assess and (TTL: Paul Welton, Fiscal monitor potential contingent liability and longer-term fiscal commitments (FCCL) arising from PPPs. Mona El-Chami) Governance (FY20) P166580 Lebanon IPF Yes – Type I Support municipal development, including private provision of public services. (TTL: Sateh Chafic Municipal El-Arnaout) Investment Project (FY20) P166423 Lebanon Energy IPF/MPA Yes – Type II Based on a sector-wide MFD-enabling reform agenda agreed with the GOL that addresses key (TTL: Sameh I. Reform and issues including corporatization, financial viability (tariff and subsidy reform, collections etc.), Mobarek) Development energy efficiency alongside system upgrading (generation, transmission and distribution), WBG Project support can potentially encompass: (i) further development of IPP with IFC PPP Advisory on (FY19) Zahrani and Salaata transactions (refer to IFC Project “1500MW IPP program); (ii) transmission line development to increase the national grid’s capacity to absorb this new generation and increase reliability of electricity service and support to implement some of the projects on a PPP basis (e.g. collections); (iii) installation of floating storage regasification units (FSRUs) and their associated infrastructure to import natural gas supplies for IPPs. WBG support will likely focus on partial risk and potential MIGA guarantees on non-commercial risks, IFC financing in support of the transactions and potential PforR will support the reform program, including IBRD Partial Risk Guarantees (PRGs). P166956 Lebanon IPF/MPP Yes – Type II The project is aimed at a multi-phased support to the development of key economic corridors (TTL: Ziad Nakat) Economic within Lebanon linking also to wider regional and global markets, commencing with northern Corridors Lebanon through investments in critical infrastructure and associated economic activities as (FY19) well as to prepare Lebanon as a hub for increased local economic development and regional connectivity. The project is expected to attract substantial private sector investments in planned economic activities around the corridor, such as in logistical and/or agribusiness zones, the further modernization and expansion of Tripoli port, as well as the development of other associated facilities. ANNEX IIIMFD PIPELINE FY18-20 49 Mashreq | Maximizing Finance for Development (MFD) Strategy 50 P# Name Instrument Will operation If yes, how will the operation enable the “MFD”? enable the “cascade”? (Yes or No, Type I and II) P165711 AF - Greater IPF Yes – Type I For the water supply and sanitation sectors, performance based contracts (PBC) to operate and (TTL: Amal Talbi, Beirut Water manage would have two advantages: (i) to improve the accountability and the performance by Sally Zgheib, Supply Project way of a larger private sector role; and (ii) create jobs for national operators (develop small and Nishtha Mehta) (FY18) medium enterprises in the water supply and sanitation sectors). In the medium term, it would also improve the operations of utilities and, medium to long term their ability to access commercial financing and rely less on the public funds. As a part of the additional financing of the Greater Beirut Water Supply Project PBC will be implemented. Under the parent Project (P103063), the water utility Beirut and Mount Lebanon Water Establishment (BMLWE) has been able to already enhance its operations, through the implementation of flow meters and the SCADA system. These interventions coupled with technical assistance for utility capacity building are allowing the BMLWE to partner with the private sector in its operations to deliver better services to its customers. TBC Water and IPF (TBC) Yes - Type II The project would scale up the NRW water and PBC at national level. During the preparation the (TTL: L Amal Talbi, Sanitation World Bank team will work closely with IFC. The dialogue will include the transition from fee to Sally Zgheib, and Services volumetric tariff where the service shifts from intermittent water supply to continuous water Nishtha Mehta (FY20 TBC) supply. On the sanitation, the project will take stock on the current status of the wastewater treatment plant and assess way to rehabilitate (as needed) and increase the use of the current asset. The project will also support as part of a medium to long-term vision, options for financing and ways to attract private sector participation going beyond contract management to private or commercial financing. P167765 Civil Aviation PforR Yes – Type II The project is following the MFD approach with goal of mobilizing public sector viability gap (TTL: Ziad Nakat) Reforms financing for Beirut airport expansion as well as setting the policy and regulatory framework to and Airport attract private sector investments in the Beirut airport Terminal expansion (up to US$500 million Expansion P4R of private sector investments are targeted) . The project is being prepared in close collaboration (FY20) with IFC who are also in the process of signing an advisory mandate with HCP to prepare for the terminal expansion. P# Name Instrument Will operation If yes, how will the operation enable the “MFD”? enable the “cascade”? (Yes or No, Type I and II) P167643 Lebanon Digital IPF/MPA Yes – Type II This project will promote the introduction of digital solutions and disruptive technologies to (TTL: Paul Welton, Economy maximize finance for better service delivery through the development of digital platforms. This Samia Melham, (FY20) includes initiatives in digital financial services and e-procurement that will foster increased public- Peter McConaghy) private participation and inclusive finance. B. IFC Projects Pipeline Project/Activity Project Will operation If yes, how will the operation enable the “cascade”? Description enable the “cascade”? (Yes or No) Iraq Pre-feasibility studies which Several Solar TBD Construction and operation of solar PV plants up to 100 MW. Projects are expected to be identified are expected to lead to future Photovoltaic plants as part of the signed MoU with the MoP or through direct development with sponsors. transaction advisory mandate (renewable energy) Investment Services Pre-feasibility study which Construction of Al TBD Project is expected to be identified as part of the signed MoU with the MoP. Work will be in is expected to lead to future Khansaa Waste collaboration with the WB under the cascade. Please refer to WB FY 18 Project “Baghdad Water & transaction advisory mandate Water Treatment Sewerage”. Plant (water) Investment Services Thermal power Yes Development of 3000 MW gas fired IPP in Baghdad. Contract already awarded. This is a type I MFD generation in initiative Baghdad Investment Services Zain Telecom Yes Expansion of the mobile network in the north. This is a type I MFD initiative 51 ANNEX IIIMFD PIPELINE FY18-20 Mashreq | Maximizing Finance for Development (MFD) Strategy 52 Project/Activity Project Will operation If yes, how will the operation enable the “cascade”? Description enable the “cascade”? (Yes or No) Investment/Advisory Services Establishment of Yes Converting an existing NGO to a formal company working with one of the existing players. This is a the first commercial type I MFD initiative. Microfinance company Investment Services Establishment Yes This is a specific transaction that will serve to mobilize additional finance through MCPP, B loans of a pre-export and parallel financing. And coordinated with IBRD initiatives in Basra (see above Annex III-A). facility to Basra Gas Company Jordan Transaction advisory Waste Disposal TBD Pioneering system for hazardous medical & industrial waste disposal and treatment, in Treatment in Al collaboration with Ministry of Environment. Site clean-up/remediation (donor funded) to be Swaqa area followed by PPP. Transaction advisory King Hussein Bridge Yes Expansion of key land crossing between Jordan and West Bank. Potential MIGA guarantees and concessional funding. Transaction advisory Amman Ring Road TBD Phased development of 71km of tolled ring-road around Amman, followed by O&M over existing portion of ring-road (41km) as well as the new extension. Close coordination with WB who will also be involved in road safety and maintenance work. Please refer to WB FY18 Project “Amman Development Corridor Ph2”. Transaction advisory New schools Yes Supporting the Jordan Schools Program consist of building 600 schools over the next decade mostly under a PPP scheme. Pilot project consists of 15 – 20 schools in an identified region. Please refer to WB FY19 Project “Education Reform”. Investment Services Miyahauna NRW Yes $600 million project to upgrade the water network in Amman given current losses of 50%. There Water will be a need for concessional financing as well as coordination with other DFIs. Investment Services Read Dead Yes Project/Activity Project Will operation If yes, how will the operation enable the “cascade”? Description enable the “cascade”? (Yes or No) Lebanon Pre-feasibility study Scaling solar Yes Construction and operation of a solar PV project up to 30MW to 40MW. Transaction advisory 1500MW IPP Yes Pilot IPPs in Zahrni and Salaata (450-550MW each), CAPEX estimated to amount to ca. US$400 program million for each project. Close coordination with IBRD will be involved in sector reforms, FSRU and potential PRG/ PRI cover for the IPPs. Please refer to the WB FY18 Project “Power Sector Development (IPP)”. Transaction Advisory Expansion of Beirut Yes Expansion of Beirut airport by optimizing the existing terminal facilities and constructing new Airport terminal(s). Close coordination with WB who will be involved in sector reforms and regulatory framework in addition to potential PRG/ PRI cover for the expansion. Please refer to WB FY18 Project “ Civil Aviation Reforms P4R “. Transaction advisory Beirut BRT Yes Potential PPP for bus provision and O&M in collaboration with WB. Please refer to WB FY18 “Greater Beirut Urban Transport (BRT)”. Investment Services Akkar Wind IPPs Yes Development of 3 wind IPPs with total capacity of 200 MW in Akkar. Projects already awarded. IFC is working with the government on the project documents. There could be a need to enhance the payment risk of GoL. ANNEX IIIMFD PIPELINE FY18-20 53 Mashreq | Maximizing Finance for Development (MFD) Strategy 54 Project/Activity Project Will operation If yes, how will the operation enable the “cascade”? Description enable the “cascade”? (Yes or No) Diagnostic Logistics Sector TBD Identify opportunities in the logistics sector across the value chain Assessment Transaction Advisory Tripoli SEZ Yes Potential PPP for anchoring the operation and management of the TSEZ. C. MIGA Exposures Project/Activity Project Will operation If yes, how will the operation enable “MFD”? Description enable the “cascade”? (Yes or No) Iraq Guarantee - PRI Nafith Logistics Yes The project involves building and managing a truck-control system that regulates the entry and FZ: guarantee of flow of trucks entering and exiting Umm Qasr Port, two smaller ports (Khor Zubair and Abu Floos), an investment and the Safwan border crossing with Kuwait. The PPP structure enables private investment in the in port logistics logistics sector, supporting economic diversification and job creation in Iraq’s non-oil economy. under a PPP with Iraq’s state-owned General Company for Ports Project/Activity Project Will operation If yes, how will the operation enable “MFD”? Description enable the “cascade”? (Yes or No) Jordan Guarantee - PRI Jordan Bromine Yes The project consists of Albemarle Holdings’ equity investment in Jordan Bromine Company Company: (JBC), forming a joint venture with JBC owner Arab Potash Company (APC). As APC is a state- guarantee of an owned enterprise (co-owned by various Arab governments), the investment represents a partial investment in privatization of JBC. The private investment enables expansion and additional job creation. the expansion of existing bromine manufacturing plants Guarantee - PRI Adenium Jordan – Yes The project involves the development, construction, operation, and maintenance of three 10MW 1: guarantee of an photovoltaic power plants in the Ma’an Development Area (MDA) in Southern Jordan. The IPP investment in three structure enables private sector power generation with offtake by Jordan’s National Electric Power solar power plants Company. Guarantee - PRI Jordan Solar One: Yes The project involves the development, construction, operation, and maintenance of a single guarantee of an 20-megawatt photovoltaic power project located in Mafraq, Jordan. The IPP structure enables investment in a private sector power generation with offtake by Jordan’s National Electric Power Company. solar plant Guarantee - PRI Al Zarqa Power Yes The project involves the design, construction, ownership, operation and maintenance of a 485MW Plant for Energy combined cycle dual fuel thermal power generating facility in Zarqa, Jordan. The IPP structure Generation PSC enables private sector power generation with offtake by Jordan’s National Electric Power Company. Guarantee - PRI As Samra: Yes The project involves the expansion of the existing wastewater treatment plant Samra Wastewater guarantee of an Treatment Plant Company, Ltd, on an extended 25-year build-operate-transfer (BOT) basis. The investment in PPP structure enables private sector participation in service delivery in Jordan, one of the world’s a wastewater most water-poor countries. treatment plant 55 ANNEX IIIMFD PIPELINE FY18-20 Mashreq | Maximizing Finance for Development (MFD) Strategy 56 Project/Activity Project Will operation If yes, how will the operation enable “MFD”? Description enable the “cascade”? (Yes or No) Guarantee - PRI Queen Alia Airport: Yes The project consists of the acquisition of an equity stake in AIG, which entered a 25-year guarantee of an concession agreement with the Government of Jordan in 2007 to rehabilitate, expand and operate investment in an Queen Alia International Airport. The PPP structure enables private investment in one of Jordan’s airport concession most important infrastructure assets. Lebanon Guarantee - PRI Butec Lebanon: Yes The project consists of Butec’s electricity distribution service provider (DSP) contract for the guarantee of Northern Lebanon region serving 350,000 households. The DSP contracts were the first PPPs an electricity in Lebanon, and the introduction of private sector participation serves to improve efficiency, distribution reliability, and quality of service delivery. services provider contract with Lebanon’s power utility 57 ANNEX IIIMFD PIPELINE FY18-20 IX. ANNEX IV KEY REFORMS BY SECTOR AND COUNTRY - MASHREQ MFD REFORM MATRICES CROSS-CUTTING AREAS15 Strategy, Policy and Governance Finance FCV/Politics Legal »» Business environment »» Modernization of procurement methods and procedures16. »» Design and »» Development of reforms. »» Development of standardized documents, tools and templates to support operationalization of a the arrangements »» Consolidation of the legal preparation of high quality projects. Viability Gap Financing and procedures framework by adoption Facility; assessing the for independent »» Development of policy and oversight functions, independent from procurement need for other forms of review of complaints of a procurement By- operations, to monitor and guide the development of the procurement system. Law (or Law) covering financing facilitation from bidders about procurement of goods, »» Preparation of Municipal PPP Regulation to facilitate development of municipal- (e.g. guarantees). the conduct of works and services level projects. »» Assess and improve procurement contract (including consultancy long-term finance award processes. »» Development of: service in and apart –– accounting and budget treatment of PPPs to provide comfort on GoJ ability to capacity (including from construction), and deliver long-term financial commitments to PPPs; development finance, supporting documents –– policy on disclosure to the general public of information on PPP projects. capital markets). (including a full range –– Development of a simplified “PIM-PPP Governance Framework” to improve Jordan of standard bidding and the efficiency and efficacy of capital expenditures and ensure rigorous contract documents). project identification and selection systems. »» Development of a Fiscal –– Set up of a “Central PIM Unit” at the Ministry of Planning and International Commitments and Cooperation (MoPIC) to support the allocation of public funds through the Contingent Liabilities centralization of several coordination functions and to assist line ministries. framework and debt –– Set up of the “Inter-Agency PIM-PPP Committee” to be mandated as a management strategy. technical secretariat charged with preparing the selection of PIP and PPP projects. –– Developing a robust PPP pipeline (capacity building of PPP units and contracting agencies, project preparation fund, transaction advisory). –– Improve the efficiency and credit-worthiness of infrastructure SOEs (e.g. NEPCO), by improving governance and financial management (in tandem with sector reforms). 15 All of the action areas will require different technical assistance support and capacity building including a focus on government institutions such line ministries/ contracting agencies, PPP units, Public Procurement Agencies, and private sector and contracters and other stakeholders. 16 Modernization of procurement includes: adding provisions on framework agreements, output based specifications, life-cycle costing and use of rated criteria in evaluation of bids, procurement method for consultancy services (not merely for construction-related consultancy services) and framework agreements. ANNEX IV KEY REFORMS BY SECTOR AND COUNTRY - MASHREQ MFD REFORM MATRICES 59 Mashreq | Maximizing Finance for Development (MFD) Strategy 60 CROSS-CUTTING AREAS15 Strategy, Policy and Governance Finance FCV/Politics Legal »» Business environment »» Develop and deliver communications strategy to demonstrate GoL commitment »» Develop an reforms. and ownership of PPP program. infrastructure »» Enact revised Procurement »» Develop effectiveness and accountability of procurement by SOEs, in line with financing facilitation Law. public procurement principles and procedures, and establish competitive framework (including neutrality when SOEs are bidders. viability gap funding, »» Develop Fiscal guarantees, liquidity Commitments and »» Modernization of procurement methods and procedures including issuance of a facility) supported Contingent Liabilities range of updated standard bidding and contract documents. by the proposed Framework. »» Finalize and issue a consolidated set of regulations and guidelines of a new Lebanon Infrastructure Procurement law, and ensure consistency of procurement aspects with the Facilitation Fund (LIFF). recently passed PPP law and its regulations. »» Conduct a diagnostic of »» Establishment of institutional and operational arrangements for the the financial system’s implementation of the FCCL framework. capacity for MFD (macro constraints including »» Ensure a nationwide approach to municipal level PPP projects through the crowding-out by the preparations of specific Municipal PPP Guidelines. Lebanon public sector, and the »» Institutional capacity-building and support to early-stage advisory for PPP project balance of payment origination at HCP and sector ministries. situation; domestic »» Improve the efficiency and credit-worthiness of EdL and other infrastructure banking sector capacity SOEs, by improving governance and financial management (in tandem with and credit assessment/ sector reforms). risk management capacity; and capital market potential). »» Revisit the development finance framework (potential successor options to the subsidized liquidity windows run by the BdL). CROSS-CUTTING AREAS15 Strategy, Policy and Governance Finance FCV/Politics Legal »» Business environment »» Development of regulatory functions for the procurement system (in the form of »» Pursue banking sector »» Establishment reforms. a central policy and oversight office to monitor and guide the development of the reform (governance, of mechanism »» Enactment of robust public procurement system). operational and for expedited, PPP Law and further »» Improved corporate governance of SOEs, including modernizing and harmonizing financial restructuring independent review development of legal and procurement practices, in line with basic public procurement principles and of state-owned banks of complaints regulatory framework accountability safeguards, and establish competitive neutrality when SOEs are and strengthening of from bidders with for conducting the bidders. private banks) to start meaningful remedies PPP project cycle laying the foundation of available. »» Development of a simplified “PIM-PPP Governance Framework” to improve the sound financial sector process (identification, efficiency and efficacy of capital expenditures. Rigorous project identification development, development to provide and selection systems to serve as a screening mechanism. meaningful support procurement and contract management). »» Establishment of institutional and operational arrangements for the for MFD (see banking Iraq implementation of the FCCL framework. sector matrix). »» Development of a Fiscal Commitments and »» Functional Review and PIM Capacity Needs Assessment for federal Ministry of »» Improve specialized Contingent Liabilities Planning Kurdistan Regional Government (KRG) Ministry of Planning to review the development finance framework. current Federal MoP and KRG MoP arrangements and capacity capability against (e.g. housing finance, the future PIM-PPP Governance Framework. agricultural finance), and »» Development and explore the potential for adoption of a clear and »» Upgrade of Iraqi Development Management System (IDMS) and Kurdistan leveraging commercial consolidated, modern Development Management System (KDMS) to capture all the stages of the PIM- finance. legal framework for public PPP Governance Framework. procurement at the Federal »» Develop sector reform roadmaps (e.g. electricity), including corporatization level. and improving creditworthiness of infrastructure entities; 61 ANNEX IV KEY REFORMS BY SECTOR AND COUNTRY - MASHREQ MFD REFORM MATRICES Mashreq | Maximizing Finance for Development (MFD) Strategy 62 POWER SECTOR Strategy, Policy and Legal Governance Finance FCV/Politics »» Rationalize tariff cross-subsidies and »» Undertake structural reforms at NEPCO by functional »» Deploying credit enhancements »» Mitigating impacts on introduce cost-reflective tariffs for all and accounting separation of business lines such with WBG guarantees for the vulnerable sections with consumer categories. as: (i) Transmission operator, (ii) System and Market development and adoption a direct benefit transfer »» Move to a multi-year tariff Operator, (iii) Fuel purchaser and Supplier, and (iv) of a Liquidation Plan for scheme, through the framework. Single Buyer, in preparation for eventual unbundling outstanding legacy debt, with rationalization of tariff cross- into daughter entities. suitable mechanisms by: subsidies and introduction »» Improve efficient use of energy to –– leveraging foreign and of (closer to) cost-reflective minimize (cross) subsidy impact as »» Institutionalize the process of preparing and implementing a national energy strategy to domestic debt markets; tariffs for all consumer well as cost to the overall economy –– creating tariff space for debt categories. – foster private investment in Energy complement the periodic provision of an electricity master plan. Strengthen least-cost and risk- repayment; »» Increased consultation with Efficiency at residential and public –– hedging fuel cost risk going levels (e.g. public lighting). responsive energy planning capability and apply to public regarding tariff setting all future projects. forward. process. »» Unbundle tariff structure to allow –– Develop a generation and implementation of smart-metering. »» Strengthened consultative process and more transmission plan with predictability between regulator (EMRC - Energy and financial modelling capacity. »» Review and rationalize customs and Jordan Minerals Regulatory Commission), consumers and sales taxes for RE and EE equipment. key stakeholders regarding rationale and process for »» Develop a strategic plan on tariff setting\adjustments. international energy and energy trade, including construction of pipelines to import gas. »» Develop policy, institutional and technical frameworks for installing energy storage technologies to enable greater integration of domestic renewable energy in the national grid. This would encompass battery, hydro and thermal storage (CSP) systems. POWER SECTOR Strategy, Policy and Legal Governance Finance FCV/Politics »» Sequence commercial tariff reform »» Corporatize EdL based on commercial practices with »» Develop, deploy/access »» Address the burden of linked to mitigation of technical a longer-term view of pursuing a staged process to credit enhancement facilities power services to Syrians and non-technical losses and unbundling across generation, transmission and including: (accountable for high increased cost-efficient supply distribution units. –– Risk guarantees and percentage of non-technical (including supporting investments »» Develop accounting framework and procedures to insurances; losses); in fuel supply, transmission network facilitate Ministry of Energy and Water oversight of –– Domestic long-term liquidity »» Design program to ensure improvements). EdL financial sustainability. instruments; early and measurable wins »» Develop framework for private sector –– Capital markets (over longer that reflect country wide »» Standardize procurement and develop model term). participation in generation in line contractual agreements for IPPs. reform dividend in terms, with national PPP law. »» Develop, deploy/access inter alia, of: (i) access and »» Develop the following operational initiatives: technical assistance facilities to quality of service; (ii) jobs Lebanon »» Implement reforms in Hydropower –– technical standards for solar and wind IPPs. sector for IPPs. support policy and transaction created. –– codes for piloting net metering pilots. engagements. »» Establish a regulatory authority in »» Assess and address social accordance with law 462 (2002). implications of reform actions on marginal groups (poor, women, lagging regions etc.,) on the reform “losers”, e.g. public sector/SOE employees impacted by EdL corporation, political interests. ANNEX IV KEY REFORMS BY SECTOR AND COUNTRY - MASHREQ MFD REFORM MATRICES 63 Mashreq | Maximizing Finance for Development (MFD) Strategy 64 POWER SECTOR Strategy, Policy and Legal Governance Finance FCV/Politics »» Approval and implementation of »» Restructure governance and operation of energy »» Deploy additional credit »» Assess and address social a roadmap for electricity sector sector across federal/governorate authorities to support to improve implications of reform which aims at full cost recovery and improve supply delivery in accordance with the Iraq performance of sector (through actions on marginal groups improved service delivery. Integrated National Energy Strategy and the new construction of new generation (poor, women, liberated and »» Design of a tariff rationalization electricity law. plants, and rehabilitation of disadvantaged regions etc) process that leads to cost reflective »» Defined ring-fenced roles of electricity business existing plants). on the reform “losers”, e.g. tariff structures. units (Generation, Transmission and Distribution) for »» Develop a viable financing public sector/SOE employees impacted by reforms. Iraq »» Develop strategy to frame enhanced accountability and eventual unbundling as plan and business plan in deregulation process. autonomous commercial entities. support to the corporatization »» Improve commercial operating foundation of of the sector. This will include distribution segment (to include a commercial mitigation of system technical management system) to achieve: and financial losses to attract –– Financial sustainability; private sector investments via –– Reduce subsidies towards cost recovery tariffs. improvements to transmission and distribution systems. GAS SECTOR Strategy, Policy and Legal Governance Finance FCV/Politics »» Establish policy guidelines »» Governance and capacity building: establish and »» Credit enhancement »» Stress risk, cost and fiscal regarding natural gas incrementally consolidate gas-specific governance capacity and funding: Deploy advantages stemming from shift development and use, (Policy & Planning, Regulatory, Operational), including roles credit enhancement away from state-led, state- including public/private and functions of key institutions and private sector actors: mechanisms through dependent and state-funded, sector participation, resource/ –– Sector Ministry (policy, law and regulations); WBG guarantees on fiscally-dependent sector production ownership, gas –– Regulatory authority (regulation, oversight & FDI); payments for dry gas development towards a private- pricing, gas transport, gas –– SOEs (state investment and representation in operations deliveries by state off- sector-led investment framework. marketing rights, gas flaring, and along value chain); takers. »» Highlight benefits in terms of priority of resource uses. –– IOCs (investment and operations along value chain). »» Leverage IFC loan, investor risk perception and »» Private sector participation »» Clearly stipulate legal instruments and tools (laws, equity and guarantee attractiveness from proposed (PSP) framework: create a value regulations, regulatory resolutions and codes, contracts instruments to de- shift from traditional regulation- proposition and associated and licenses, respectively) by which their functions are to be risk private sector by-contract practices of one-on- regulatory, contractual and discharged. investment in upstream one negotiations of individual commercial frameworks to enable »» Improve investor attractiveness by establishing an (flaring reduction contracts behind closed doors private sector participation along effective, eventually independent regulatory capacity and and processing), with pre-designated investors the gas value chain. consolidating gas-sector-specific planning capacity. midstream (transport) towards the introduction of open, and downstream (large transparent and competitive Iraq »» Reduce investor uncertainty and »» Gas sector SOEs: consolidate and modernize existing risk by providing clear guidance offtake and distribution contract award processes based gas-related state-owned enterprises (SOEs) into a for industrial, on CoM-approved templates. and economic incentives to bankable, internationally competitive, for profit national private investors, including a commercial and gas company to competitively participate in the midstream residential uses). competitive landscape for public/ and downstream of the natural gas value chain, including private project development and processing, transport, storage and distribution of natural rights to access existing or build gas and natural gas liquids. new gas-related infrastructure and market natural gas » » Progressively develop a transparent, competitive and domestically and for export. sustainable legal framework of mutually interrelated and interdependent regulations and contracts which later, »» Introduce internationally whenever the internal political economy considerations benchmarked, transparent and allow, be capped by an encompassing Petroleum Law. stable gas pricing (upstream) and tariff setting (midstream and »» Contractual framework: Introduce internationally downstream) mechanisms for benchmarked contractual framework for private investment investment along the natural gas in natural gas development along the natural gas value value chain. chain. ANNEX IV KEY REFORMS BY SECTOR AND COUNTRY - MASHREQ MFD REFORM MATRICES 65 Mashreq | Maximizing Finance for Development (MFD) Strategy 66 TRANSPORT Strategy, Policy and Legal Governance Finance FCV/Politics »» Prepare a detailed Action Plan to: (i) »» Prepare an analysis/recommendation »» Optimization plan for bus identify all regulations and practices of options for the involvement of the routes, bus stop location, public that need to be modified to mitigate private sector: transport schedule licensing market distortions; (ii) define an incentive –– establish an appropriate list of and interoperability to improve mechanism to reduce, renew or consolidate options for private sector involvement quality of services and regional fleet in order to enhance the efficiency in toll collection; connectivity. of cargo transport for the Aqaba-Amman –– undertake a detailed assessment of »» A key consideration when corridor. the options for private investment reviewing the public transport Jordan »» Identify and address any legislative in toll collection and provision of tariff policy will be to ensure that constraints to implementing a toll road, maintenance services, including any restructuring of the tariff and propose potential solutions. financial and risks assessment. policy (fare structure) addresses »» Review the public transport tariff policy and accessibility issues for different prepare a plan for restructuring the tariff societal groups. policy (fare structure). »» Review civil aviation law and its »» Establishment of civil aviation authority. »» Use public finance to mobilize »» Address marginal group, refugee implementing decrees. »» Review and reinforce governance and leverage private financing and host community impacts/ »» Adopt a comprehensive transport sector structures of SOEs (e.g. railway and (e.g. Beirut BRT). benefits from the reform. strategy and plan encourages private public transport authority, Tripoli and »» Establish Viability Gap Financing »» Aim at lower transport costs sector participation. Beirut Port Authorities). for planned PPPs transactions proving financing accessibility of »» Implementation of the traffic law. (e.g. Beirut Airport). the most vulnerable. Lebanon »» Mobilize as needed guarantees. »» Infrastructure to create local employment, improve regional connectivity, and prepare Lebanon for Syrian reconstruction. »» Review and update in line with »» Regulatory reform in the aviation »» Mobilize as needed including »» Encourage shift from private- international good practices the civil sector, including the establishment of a realigning revenues from the air sector-enabling rhetoric to aviation law and implementing decrees. standalone Civil Aviation Authority. space revenues. concrete private-sector-enabling Iraq »» Update the Civil Aviation Sector in line with action. the 2014 Transport Sector Masterplan. URBAN SECTOR Strategy, Policy and Legal Governance Finance FCV/Politics »» Prioritize identification and structuring »» Restructure CVDB, including to revise composition »» Provide incentives, including »» Enhance social inclusion support for private sector participation in and voting rights at CVDB Board of Directors, to increased use of blended and ensure meaningful municipal service delivery. increase institutional independence and enable finance and investment participation of Jordanian »» Adopt reform package to restructure more commercial risk/ return-based lending co-financing instruments and non-Jordanian residents Cities and Villages Development Bank decisions for municipal finance. in selected municipalities in municipal investment (CVDB) and develop a functioning »» Strengthen cross-sectoral planning and investment to mobilize commercial planning and service municipal credit market. prioritization among line agencies (e.g., water, financing for sub-national delivery. sanitation, transport, public works and energy) investments. »» Establish strong citizen »» Revise fiscal transfer formula to fully apply performance criteria to provide under the chairmanship of local authorities to open »» Provide targeted technical engagement and feedback Jordan incentives for municipal financial opportunities for private sector at the sub-national assistance to identify and mechanisms, including management reform to enhance level. structure project finance grievance redress creditworthiness. »» Increase transparency of municipal finance, opportunities in municipal mechanisms, to foster including revenue and expenditure composition to investment and service greater popular support for »» Strengthen municipal own-source provision. enhanced private sector revenues to reduce over-dependence on build trust between public and private sector. participation and enhanced grants from the central level. »» Introduce commercial principles for operation of cost-recovery targets for »» Introduce hard budget constraint. revenue-generating municipal services. local public services. »» Establish the enabling framework for »» Define the institutional and regulatory roles of »» Use public finance (e.g. »» Catalytic investments to project finance to the municipal sector in public and private stakeholders involved in project viability gap facilities) create local employment Lebanon. finance at municipal level (i.e. BdL, HCP, Ministry of and guarantee facilities in tertiary Municipalities »» Develop the secondary legislation (PPP Interior and Municipal Affairs, Banking sector, etc.). where feasible to mobilize with backward and forward regulatory guidelines and framework) »» Identify and develop a pipeline of municipal PPP commercially sound project linkages to Secondary to complement the PPP Law passed in transactions at the municipal level. finance to the municipal Municipalities. September 2017, including framework sector. »» Strengthening capacity of selected municipalities and guidelines for customized municipal »» Explore the prospects for Lebanon in the areas of financial management and PPP tools, standardized procedures, creditworthiness. introducing securitization contract clause/templates. measures against land »» Instituting a credit rating system for municipalities. assets and/or future fiscal »» Develop the enabling environment to mitigate credit transfer streams to ensure default risks to the government, the banking sector pricing of municipal loan and to municipalities. products is competitive. ANNEX IV KEY REFORMS BY SECTOR AND COUNTRY - MASHREQ MFD REFORM MATRICES 67 Mashreq | Maximizing Finance for Development (MFD) Strategy 68 BANKING SECTOR Strategy, Policy and Legal Governance Finance FCV/Politics State Owned Bank Reform: State Owned Bank Reform: »» Strip off/dispose »» Mitigating »» Restructure and privatization of the two largest »» Financial and operational restructuring of the two largest state- of the bad assets impacts on state-owned banks (Rasheed and Rafidain) to owned banks (Rasheed and Rafidain “R&R”) including corporate of Rasheed and vulnerable unlock their lending potential through additional governance, asset quality reviews leading to accurate valuation Rafidain; recapitalize segments of capitalization and divestment of MOF ownership of assets and liabilities and capital shortfalls, recapitalization, the banks based on society such as to strategic investors. operational restructuring including installation of core banking the appraisal and women, and youth systems, policies and procedures including risk management and valuation of assets through targeted Development of Private Banks: controls. and liabilities. reforms. »» Ensure implementation of the recently issued »» Assess operational and effective capacity of other State-Owned regulation that levels the playing field for Private »» Develop specialized »» Ensure equity Banks including the Trade Bank, Agriculture Bank, Industrial Bank, finance, e.g. housing, in access to Sector Banks allowing state owned enterprises Real Estate Bank to provide needed support to their respective (SOE) to do business with them. agriculture. government sectors. support, e.g. »» Review Licensing criteria and enact measures to »» Develop partial credit consolidate the banking sector (more than 73 Development of Private Banks: guarantee schemes to subsidies licensed banks) through higher paid up capital »» Augment private financial sector development plans, including support the banks. in housing and other prudential requirements. domestic banks’ capacity strengthening re: reconstruction. »» Phase out the dual foreign exchange regime that –– balance sheet structure, concentration, »» Develop the Non- is distorting the revenue streams of private sector –– capital adequacy, credit quality, maturity mismatch, Banking Financial banks and incentivize private sector banks to –– credit assessment and risk. Institutions (Leasing, increase their loan portfolios. Micro Finance etc) IRAQ »» Issue regulations on Service Quality Standards Strengthening of Regulatory and Supervisory Framework: »» Strengthen the independence and oversight capabilities of »» Develop early stage and Consumer Protection to enhance the financing for SMEs. confidence of Iraqi public in the banking sector. CBI including capacity building support for offsite and on-site supervision including risk based supervision and development of »» Explore potential Strengthening of Regulatory and Supervisory human capital. capital market Framework: »» Implement Anti-Money Laundering (AML)/Combating the Financing instruments for SMEs. »» Improve regulatory and supervisory framework to of Terrorism (CFT) regulations including strong Know Your »» Strengthen and align with international standards (Basel/Financial Customer (KYC) controls to ensure continued compliance with FATF promote the Stability Board (FSB)/Financial Action Task Force requirements with international correspondents and payment availability of credit (FATF)/IFRS). systems, including a National Risk Assessment to identify key areas insurance mechanism of deficiencies in AML/CFT. to provide risk Credit Infrastructure: »» Consumer protection measures to provide confidence to consumer in »» Improve credit/financial infrastructure and mitigation to banks. Iraqi Banking System. frameworks by enacting regulations (accounting/ auditing, credit information, secured transactions, Payment System Reform: insolvency frameworks, consumer protection etc); »» Improvement in the payment infrastructure with policies on ePayments/Mobile payments including digitization of Government salary payments. »» Enactment and roll out of a biometric National ID system. AGRICULTURE SECTOR Strategy, Policy and Legal Governance Finance FCV/Politics »» Establish a policy and investment unit »» Review and restructure governance federal/governorate »» Pilot and scale up »» Ensure all interventions/ within the Ministry of Agriculture. The authorities to focus efforts to improve the efficiency and mechanisms that will actions are inclusive objective being to identify and sequence effectiveness of agricultural sector public services. allow increased access to and responsive to regulatory and policy reforms. »» Identify and engage with entry points that will enable finance in the sector. the circumstances of »» Assess and implement SOE governance a transformation of existing public services towards »» Develop a viable financing marginal groups (poor, reforms in partnership with Ministries of sustainable private sector operations in agricultural plan and business plan women, liberated and Agriculture, Planning and Finance. sector. An initial focus on input SOEs and over longer in support to increased disadvantaged regions Iraq run those SOEs responsible for the Public Distribution commercial financing in etc). »» Create market-driven procurement preferences within input supply value System (PDS). the sector. chains. »» Improve commercial operating foundation of high value product chains by investing in: –– Financial sustainability; –– Reducing/redirecting subsidies. WATER SECTOR Strategy, Policy and Legal Governance Finance FCV/Politics »» Increase tariff to reduce financial losses and »» Correct high sector-wide NRW levels, which are around »» Joint work on NRW in »» Mitigating impacts on reflect the value of the scarce water resource. 50 % aggregate at the national level. Lebanon to mobilize vulnerable sections »» Improve efficient use of water (municipal and »» Transition Amman’s water supply system to deliver private debt finance of the population agriculture water). continuous supply with existing water resources – on operators’ possibly with a direct achievable with NRW reductions. balance sheets for benefit transfer »» Implement customer meters to measure water investment in system scheme. efficiency and allow transition from intermittent »» Improve communication on the need to formalize improvements. Jordan water to continuous water supply. connections (reduce the illegal connections and commercial losses) and the increase of tariff due to »» Structure PPP for »» Reduce the overuse of groundwater (improve private sector to invest efficiency in municipal and agriculture water, increase of energy cost and the need to reduce the financial loss of the water sector. Communication should in and manage a NRW non-conventional water sources, introduce reduction initiative for market-based economic policies/incentives). also be clear on the ways government reduces the impact on the most vulnerable. Amman. ANNEX IV KEY REFORMS BY SECTOR AND COUNTRY - MASHREQ MFD REFORM MATRICES 69 Mashreq | Maximizing Finance for Development (MFD) Strategy 70 WATER SECTOR Strategy, Policy and Legal Governance Finance FCV/Politics »» Implementation of Law 221 to achieve »» Initiate PSP in water loss reduction in Beirut through »» Joint work on NRW in »» Mitigating impacts on autonomy of the four Water Establishments and first-time PBC. Lebanon to mobilize vulnerable sections of subsequent transfer of operational functions. »» Improve utility operational and financial performance private debt finance the population. »» Designing a tariff structure for water supply through water loss reduction thereby contributing to on operators’ »» To effectively manage and wastewater services with the objective of improved creditworthiness. balance sheets for consumer suppport covering at least operation and maintenance investment in system for the fee reforms, »» Communication activities to sensitize consumers on improvements. costs in the medium to long-term, while the need to formalize connections and rationale for sequence the considering affordability and other social transition to volumetric tariff in a first phase, and in transition from flat aspects. user fee to volumetric Lebanon a second phase, based impact of higher tariffs on »» Scale up the use customer meters, SCADA economic, health and other benefits of improved service tariff in areas where and establishments of Districts Meterd Areas delivery. consumers have (Projects P103063 and P165711 both support started to benefit these actions in parts of Greater Beirut Mount from continuous Lebanon Area). water supply as is being done by Beirut water utility. »» Assess laws and regulation with regards to »» Strengthen utility financial management, including »» Explore use of »» Assess viability suitability to attract private investment. These revenue management and accounting, to establish a incentives, including of attracting are presently complex and are not conducive to base for attracting private investment in the future. blended finance, international attracting private sector participation. »» Digitization of consumer records and computerization guarantees, and investors in the »» Gradual tariff increases, starting with a 5% of billing and collection systems to strengthen revenue other risk mitigating context of the current across the board tariff increase every 3 years. streams of water utilities. instruments, such as political instability Consideration of higher tariff increases in areas currency hedges in the in Iraq. »» Introduction of performance based operations and case of international receiving better services and where affordable. maintenance contracts for sewerage pumping stations. finance, to mobilize Iraq »» Ministry of Planning to update and improve the current commercial financing regulation (2014) governing government contracts, to for investment in meet international standards. wastewater services. »» Strengthen the Ministry of Planning’s procurement »» Guarantees for private capacity by conducting joint workshops with the investors to cover International Federation of Consulting Engineers (FIDIC), government payment consultants and the private sector. obligations under PPP contracts.