Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized IFC SupporttoInfrastructure TRANSACTIONS IN POWER, TRANSPORT & WATER &WATER TRANSACTIONS INPOWER,TRANSPORT Donor partners IFC works closely with many donor partners to increase private-sector participation in infrastructure and improve access to public services. Their support leverages IFC’s own contributions and enhances the impact of its operations. Key infrastructure advisory donor partners include: • Australia • Austria • Brazil • Canada • France • Ireland • Italy • Japan • Kuwait • Netherlands • Norway • Sweden • Switzerland • United Kingdom • United States • Public-Private Infrastructure Advisory Facility • Global Partnership for Output-Based Aid • Private Infrastructure Development Group The International Finance Corporation Copyright ©2009. All rights reserved. Infrastructure Challenges for Developing Countries According to the World Bank’s Sustainable Infrastructure Action Plan FY2009–2011, the gaps in infrastructure service delivery are significant: worldwide 884 million people lack access to safe water, more than 1.0 billion are without access to telephone services, 1.6 billion have no access to electricity, and 2.5 billion lack proper sanitation facilities. ACCESS GAP ManY peopLE in THE deVELoping worLD stiLL LacK access TO Basic infrastrUctUre serVices % 100 South Asia 80 Middle East & North Africa Latin America & Caribbean 60 Eastern Europe & Central Asia 40 East Asia & Pacific 20 Africa 0 Access to electricity Access to water (rural) Access to water (urban) Rural transport index The Millennium Development Goals recognize the catalytic role of infrastructure in poverty reduction by singling out targets for access to water supply and sanitation services to be achieved by 2015. Although not explicitly stated as goals, access to other infrastructure services—electricity, transport, and telecommunications—are indispensable for achieving the poverty, education, gender, health, and environmental objectives spelled out in the United Nations Millennium Declaration. Developing countries’ infrastructure challenges are formidable and include: • investment needs estimated at 7 to 9 percent of gross domestic product per year, • poor quality service delivery. Developing countries need sustained support to address the deficiencies of their core infrastructure sectors. In partnership with public sector governance and planning, private sector capital is critical to expand access to those basic services that improve the quality of life of the neediest people and enable them to participate in local economies. TRANSACTIONS IN POWER, TRANSPORT AND WATER 1 IFC and Infrastructure IFC helps increase access to basic services by financing infrastructure projects and advising client governments on public-private partnerships. It also adds additional value by devising innovative projects and public-private partnerships in difficult markets; mitigating risk; and leveraging specialized financial structuring, policy, environmental, and social capabilities. In doing this work, IFC collaborates closely with other parts of the World Bank Group and the donor community; a significant part of IFC’s advisory work is supported by external donors. The impact of IFC’s infrastructure investment and advisory work can be summarized as follows: • As of the end of calendar year 2007, on a portfolio basis, IFC-supported projects reached more than 660 million beneficiaries, client companies paid US$5.4 billion in taxes, and IFC enabled almost US$10 billion in additional financing from private sources. • In fiscal year 2008, combined infrastructure investment and advisory service commitments and project closings are expected to reach more than 61 million people in developing countries. • For each US$1 million of annual commitments, IFC reaches 21,000 people, mobilizes US$12.2 million from the private sector, and enables US$608,000 in payments of taxes and concession fees to host country governments. • For each annual commitment IFC makes (by number), IFC reaches 653,000 people, mobilizes US$379 million from the private sector, and enables US$18.8 million in payments of taxes and concession fees to host country governments. • In fiscal year 2008, investee companies are expected to pay almost US$16.4 billion in taxes and concession fees to host governments and enable US$4.5 billion in financing from private sources. TRANSACTIONS IN POWER, TRANSPORT AND WATER 3 For all investment approvals before 2005, in spite of the power sector, 77 percent of projects in the water difficult country conditions and risks, portfolio projects and gas sector, as well as 68 percent of projects in the exhibited a solid development impact, with 75 percent transportation sector. This success is attributable in part of projects achieving high ratings compared with 65 to a dramatic ramp-up in IFC’s advisory assistance, which percent for IFC as a whole. Significant development laid the groundwork for mobilizing US$1.4 billion in outcomes were achieved in 79 percent of projects in private investment. IFC’s advisory services primarily IFC’S DEVELOPMENT Impact IN INFRASTRUCTURE1 actiVE inVestment portfoLio (2007) Investment Fiscal impact (US$M) 4,015.2 People with basic services (M) 655.0 Basic services (water, gas, power) 184.5 Transportation (air, rail, roads) 470.6 Investment enabled (US$M) 1,332.0 actiVE adVisorY mandates (2007) Advisory Fiscal impact (US$M) 1,406.4 People with basic services (M) 5.7 Investment enabled (US$M) 8,710.0 Advisory figures exclude telecom, health and education IFC’S ENGAGEMENT IN INFRASTRUCTURE The following figures provide a picture of IFC’s involvement ADVISORY Mandate CLosingS & INVestment in the sector: Commitments (FISCAL YEAR 2008) • Since fiscal year 2000, IFC has arranged more than 250 Advisory Investment Total private infrastructure deals worth a total of US$7.3 bil- Fiscal impact (US$M) 455.5 16,012.0 16,467.5 lion. Customers reached (M) 0.3 61.0 61.3 • Since fiscal year 2004, IFC’s dollar investment commit- Basic services 48.4 48.4 ments grew by 125 percent per annum, reaching US$2.4 (water, gas, power) billion by fiscal year 2008. Transportation 12.6 12.6 • As of June 2008, IFC’s committed investment exposure (air, rail, roads) in the infrastructure sector totaled US$5.4 billion, span- Investment enabled 855.0 3,666.0 4,521.0 ning 155 clients in more than 50 countries. (US$M) • As of June 2008, power represented 52 percent of IFC’s committed exposure in the infrastructure sector, transport represented 32 percent, and utilities and infrastructure funds accounted for 16 percent. 1 Investment projects are considered mature for development impact • In fiscal year 2008, the infrastructure advisory portfolio ratings by IFC three years after disbursement. Projects approved from 1990 to 2005 totaled US$121 million with projects in 40 countries. are therefore considered mature from a development impact perspective. Highly rated projects are those rated “mostly successful,” “successful,” or “highly successful” by IFC’s system for tracking development outcomes. 4 IFC SUPPORT TO INFRASTRUCTURE counsel governments, including municipalities, on ways to engage the private sector in essential public services and restructure state-owned enterprises. IFC’s advisory work helps establish public-private partnerships through which governments can realize improved performance despite budget constraints, while benefiting from the private sector’s expertise, management, and finance. The focus is primarily on expanding access to public services such as power, water and sanitation, transport, and health and education. Since the establishment of its Advisory Services in Infrastructure in 1989, IFC has worked in over 250 transactions in more than 60 countries and is the only multilateral institution to offer governments advisory services on implementing public-private partnership transactions. IFC is aware of the possibility of conflicts of interest arising from its advisory and investment work. Therefore if a potential conflict of interest—or perception thereof—arises in connection with an IFC advisory mandate and a post-privatization investment, IFC will: • disclose the conflict of interest to its clients and, as necessary, to others, such as loan participants, suppliers, and other important companies; WHY IS IFC RECOGNIZED AS THE LEADING • indicate that the two activities are normally se- MULTILateraL ADVISOR IN THE FIELD? quenced, which should mitigate the conflict of interest (during a competitive bidding process, IFC is recognized as a leader because of its: IFC will not engage with any one bidder on an • reputation for objectivity, independence, and trans- exclusive basis, at most indicating an interest to parency; consider investments only after the winner is • succes in garnering public support and enhancing selected); transaction credibility with strategic investors; • ability to balance the objectives of the government, • propose separate teams with no sharing of con- the needs of the consumers, and the bankability of fidential information, noting that IFC’s advice the project while also achieving social and develop- will not be influenced by the investment and that mental objectives; the Investment Department will not have any • extensive experience in designing sound regulatory influence over the advice given by the Advisory frameworks and working with key investors and op- erators across all sectors; Services Department; and • long track record