73817 v2 2012 annual report Insuring investments r Ensuring opportunities miga’s mission To promote foreign direct investment into developing countries to support economic growth, reduce poverty, and improve people’s lives. B | MIGA ANNUAL REPORT 2012 contents 2 MIGA Fiscal Year 2012 Highlights 4 World Bank Group Fiscal Year 2012 Highlights 5 Leadership Perspectives 10 MIGA Management Team 11 MIGA Board 12 Development Impact 18 Business Operational Overview Research and Knowledge Regional Activities Technical Assistance Independent Evaluation Group Compliance Advisor/Ombudsman 58 Management’s Discussion and Analysis and Financial Statements 104 Appendices 118 Contact Information acronyms BRICS Brazil, the Russian Federation, India, China, South Africa CAO Compliance Advisor/Ombudsman CAR Capital Adequacy Ratio CUP Cooperative Underwriting Program DIFC Dubai International Financial Centre FDI Foreign Direct Investment FIAS Facility for Investment Climate Advisory Services FMO Dutch Development Bank IBRD International Bank for Reconstruction and Development ICSID International Centre for Settlement of Investment Disputes ICT Information and Communication Technology IDA International Development Association IEG Independent Evaluation Group IFC International Finance Corporation IPP Independent Power Producer MD&A Management’s Discussion and Analysis MENA Middle East and North Africa MOU Memorandum of Understanding NHSFO Non-Honoring of Sovereign Financial Obligations PRG Partial Risk Guarantee PRI Political Risk Insurance SIP Small Investment Program SSA Sub-Saharan Africa MIGA ANNUAL REPORT 2012 | 1 In fiscal year 2012, we issued a total of $2.7 billion in guarantees for projects in MIGA’s developing member countries and an additional $10.6 million was issued under MIGA- administered trust funds. This is another record high for new issuance by the Agency, the second consecutive year of this trend, and was marked by increased regional and sectoral diversification. Fifty-eight percent of projects guaranteed, accounting for 70 percent of the total volume of new coverage, address at least one of MIGA’s four strategic priority areas. Fiscal year 2012 also marks the fifth consecutive year of record levels in the Agency’s gross portfolio. FISCAL YEAR 2012 Highlights Guarantees Issued 2008 2009 2010 2011 2012 FY90-12 Number of Projects Supported 24 26 19 38 501 701 New Projects2 23 20 16 35 38 - Projects Previously Supported3 1 6 3 3 12 - Number of Guarantee Contracts Issued 38 30 28 50 66 1,096 Amount of New Issuance, Total ($B)4 2.1 1.4 1.5 2.1 2.7 27.2 Gross Exposure ($B)4 6.5 7.3 7.7 9.1 10.3 - Net Exposure (less reinsurance) ($B)5 3.6 4.0 4.3 5.2 6.3 - 1. Two additional projects were supported under the MIGA-administered West Bank and Gaza Investment Guarantee Trust Fund 2. Projects receiving MIGA support for the first time in FY12 (including expansions) 3. Projects supported by MIGA in FY12 as well as in previous years 4. Includes amounts leveraged through the Cooperative Underwriting Program (CUP) 5. Gross exposure is the maximum aggregate liability. Net exposure is the gross exposure less reinsurance 2 | MIGA ANNUAL REPORT 2012 Operational Highlights MIGA provided coverage for projects in the following areas in fiscal year 2012: Number of Share of projects Amount of Share of projects projects supported guarantees $ volume supported (%) issued ($M) (%) Priority area1 IDA-eligible countries2 24 48 1,090.5 41 “South-South��? investments 3,4 11 22 589.4 22 Conflict-affected countries 9 18 340.7 13 Complex projects 5 12 24 1,581.7 60 Region Asia and the Pacific 4 8 305.9 12 Europe and Central Asia 20 40 928.0 35 Latin America and the Caribbean 3 6 353.6 13 Middle East and North Africa 6 6 12 432.9 16 Sub-Saharan Africa 17 34 636.4 24 Total6 50 2,656.8 Sector Agribusiness, manufacturing, and 25 50 506.0 19 services6 Financial 11 22 482.3 18 Infrastructure 13 26 1,549.0 58 Oil, gas, and mining 1 2 119.5 5 Total 6 50 2,656.8 1. Some projects address more than one priority area 2. The world’s poorest countries 3. Investments made from one MIGA developing member (category two) country to another 4. These figures represent projects involving one or more South-based investor 5. Complex projects including in infrastructure, extractive industries, and financial structure 6. Two projects totaling $8.7 million were also supported under the MIGA-administered West Bank and Gaza Investment Guarantee Trust Fund This year, MIGA’s operating income was $17.8 million, compared with $9.7 million in fiscal year 2011 (see MD&A for details). Earned Figure Premium, 1: Earned Fees, Premium, and Fees, Investment and Investment Income* Income* ($M) ($M) 12 61.7 11 50.8 Premium and fee income 10 46.0 Investment income 09 43.6 * Excludes other income 08 38.2 MIGA ANNUAL REPORT 2012 | 3 world bank group fiscal year 2012 highlights A T I O N L BA N VELOPME DE A L I N ION AL CE E R N NA K N I V E AT TR ER F T N N A N E R L T T O S O TE TE IN RNA IONA L FO R T P O R AT I T I • IN AS M R • WORLD BANK IC R E N T M U L S O C I AT N AT I O SI SETTL UTES T D REC EN T • • SP OR EM G TE ON PM Y DI A IO U N EN L N C ST T O R N T C R A FINANCE UC EN E I L N V A E OF TIO E N T G INV ESTM N AND D E E A The World Bank Group, one of the world’s largest development institutions, is a major source of financial and technical assistance to developing countries around the world. Its member institutions work together and complement each other’s activities to achieve their shared goals of reducing poverty and improving lives. The Bank Group shares knowledge and supports projects in agriculture, trade, finance, health, poverty reduction, education, infrastructure, governance, climate change, and in other areas to benefit people in developing countries. The World Bank Group committed $53 billion in fiscal The World Bank Group comprises five year 2012. closely associated institutions: The World Bank, comprising IDA and IBRD, committed International Bank for Reconstruction and Development $35.3 billion in loans and grants to its member countries. (IBRD), which lends to governments of middle-income Of this, IDA commitments to the world’s poorest and creditworthy low-income countries countries were $14.7 billion. International Development Association (IDA), which IFC committed $15 billion and mobilized an additional provides interest-free loans, or credits, and grants to gov- $5 billion for private sector development in developing ernments of the poorest countries countries. Nearly half of the total went to IDA countries. International Finance Corporation (IFC), which provides MIGA issued $2.7 billion in guarantees in support loans, equity, and advisory services to stimulate private of investments in developing countries. The Agency sector investment in developing countries welcomed two new members, Niger and South Sudan, during the fiscal year. Multilateral Investment Guarantee Agency (MIGA), which provides political risk insurance or guarantees against losses caused by non-commercial risks to facilitate World Bank Group Cooperation foreign direct investment (FDI) in developing countries Joint projects and programs of the Bank Group’s insti- International Centre for Settlement of Investment tutions focus on promoting sustainable development Disputes (ICSID), which provides international facilities by expanding financial markets, issuing guarantees for conciliation and arbitration of investment disputes. to investors and commercial lenders, and providing advisory services to create better investment conditions in developing countries. Working together, the World Bank, IFC, and MIGA catalyze projects that make resources available to clients through greater innovation and respon- siveness. A number of these are highlighted in this report. 4 | MIGA ANNUAL REPORT 2012 Leadership Perspectives Message from Robert B. Zoellick, World Bank Group President, 2007-2012 The past five years have been a time of testing for the World Bank Group, and our ability to respond to the needs of our clients. Developing and developed countries have been challenged by the triple threat of the food, fuel, and financial crises. They’ve faced hunger, poverty, joblessness, and debt—an diversity, infrastructure investment, disaster prevention, economic, social, and human crisis with political impli- financial innovation, and inclusion. cations. Through these difficult times, the World Bank Group has stepped up to support our clients with flex- The World Bank Group has paid special attention to the ibility, speed, innovation, and a focus on results. Out of central role of the private sector in development. We are challenge, we have looked for opportunity and hope. supporting the enabling environment for investment and private sector activity; extending financing to small and The World Bank Group’s shareholders have supported medium businesses and microfinance; supporting trade our priorities and performance with first-rate financial finance; promoting greater attention to public-private support. In 2007 and 2010, two record-breaking IDA partnerships; and encouraging investment in countries replenishments raised more than $90 billion. In 2010, that need it the most, especially conflict-affected and shareholders backed the IBRD’s first capital increase in fragile states. more than 20 years. Today, we have a well-resourced Bank with a AAA rating. This report highlights MIGA’s active support for these objectives in fiscal year 2012. It demonstrates the We have been modernizing multilateralism for a world Agency’s ability to deliver on its mandate to promote economy with multiple poles of growth, and democ- foreign direct investment into developing countries to ratizing development through greater openness and support economic growth, reduce poverty, and improve accountability, sharing knowledge and information. We people’s lives. As the global investment environment are laying the foundations for expanding social account- becomes increasingly volatile, and MIGA’s clients look ability, fighting corruption, and building better gov- for opportunities in frontier markets, there is greater ernance. We have maintained our focus on the poor in interest in political risk-mitigation mechanisms. MIGA has all regions, especially Africa, emphasizing the need for positioned itself well to respond to these developments— fiscally responsible human safety nets to protect the most especially as a result of its stronger field presence and vulnerable. At the same time, we have customized new internal reforms over the last two years. products for middle-income countries that are increasingly important drivers of growth. Our agenda has included In fiscal year 2012, MIGA issued $2.7 billion in new guar- gender equality, food security, climate change and bio- antees, 27 percent higher than the previous year. The MIGA ANNUAL REPORT 2012 | 5 Agency supported 52 projects, including two under the MIGA’s robust performance this year has contributed to MIGA-administered West Bank and Gaza Investment our efforts to build a stronger and healthier World Bank Guarantee Trust Fund, compared to 38 in fiscal year 2011. Group, well-positioned for new challenges. It reflects Its gross portfolio stands at an all-time high of $10.3 the sound leadership and innovative approach of Izumi billion, 29 percent greater than its fiscal year 2009-2011 Kobayashi and her management team, and the profes- historical average, and 13 percent higher than the fiscal sional commitment of MIGA’s staff. year 2011 level. Fifty-eight percent of projects MIGA supported in fiscal year 2012 addressed at least one of This marks my last message to you as President of the MIGA’s four strategic priority areas: investments in the World Bank Group. I want to thank our Governors, Board poorest countries; investments in countries affected of Directors, and other partners for their guidance and by conflict; complex, transformational projects; and support in advancing the work of this vital institution. South-South investments. Almost half of new projects Most of all, I want to thank the Bank Group’s leadership supported the poorest countries. team and the committed, hard-working, and thoughtful staff. You are the ones who bring the work of development MIGA is committed to promoting projects that promise to life, in all quarters of the globe. It has been my privilege a strong development impact and are economically, envi- to serve with you. ronmentally, and socially sustainable. MIGA’s projects this past year demonstrate this focus in a wide range of sectors, across all regions: an energy project in Ghana; a public-private partnership toll bridge in Côte d’Ivoire; a hydropower project in Albania; two independent power projects in Kenya; date farms in the West Bank; and tele- communications in Afghanistan. In all these projects, MIGA has shown its ability to catalyze private sector investment into high-priority areas and to draw on the complementary strengths of the World Bank Group— leveraging products and services across institutions for the benefit of host countries and private investors. Economies in the Middle East and North Africa region Robert B. Zoellick are still under considerable stress: these countries face June 30, 2012 economic, financial, and in some cases political tran- sition. MIGA’s support to projects in Tunisia, Morocco, Jordan, and the West Bank and Gaza injected much- needed foreign investment in areas that will bring jobs, knowledge, and skills transfer. 6 | MIGA ANNUAL REPORT 2012 Message from Dr. Jim Yong Kim, World Bank Group President I am pleased to transmit the 2012 Annual Report of MIGA. This report highlights the achievements and effectiveness of the Agency despite a challenging global economic environment. It also underscores the importance of collaboration across remains more important than ever—to help developing the World Bank Group and working with external partners countries respond to immediate pressures, as well as look to advance our shared goal of building prosperity and toward future opportunities. It is a privilege to undertake eradicating poverty. this great work. Today, the World Bank Group has a unique opportunity to accelerate inclusive and sustainable growth and social progress. We are continuing to support our clients as they respond to immediate pressures, especially through helping countries develop cost-effective social safety nets. But we are also well-positioned to assist countries as they design and implement longer-term development strategies through our lending, knowledge, experience, and expertise. Jim Yong Kim July 1, 2012 I look forward to working with the Board, our partners and clients, as well as the Bank Group’s dedicated staff in Washington, DC, and around the world. Our mission MIGA ANNUAL REPORT 2012 | 7 Message from Izumi Kobayashi, MIGA Executive Vice President This past year of global economic turbulence has also brought shifting growth patterns. We have seen tensions in Europe’s developed countries erode gains while developing countries continued to drive growth, but at a slower pace. The ongoing headwinds have prompted many busi- This is particularly true in fragile and conflict-affected nesses to reevaluate their investment and risk-mitigation states. Our results in this priority area are testament to strategies as they look for opportunity to achieve higher our efforts as new business volume supporting these returns for the longer term in more challenging markets countries grew by 48 percent to $351.3 million in fiscal year with greater risk and uncertainty. 2012, including two projects guaranteed by the MIGA- administered West Bank and Gaza Investment Guarantee The result has been an increase in the demand for MIGA Trust Fund, compared to $237.5 million in fiscal year 2011. guarantees in 2012 as perceptions of risks increased and By facilitating much-needed FDI the Agency plays a key investors looked for opportunities in developing markets role in the rebuilding effort for many of these countries, where we could support them. The Agency issued $2.7 particularly during the crucial period of transition as they billion in new guarantee coverage this past fiscal year, seek to establish stability after years of conflict. a significant increase on last year given the current environment. I am pleased to note the strengthened MIGA also strengthened its commitment to development diversification of the portfolio, with coverage spanning all in sub-Saharan Africa, one of the fastest-growing regions and all sectors as highlighted in this report. developing regions with huge opportunities. In fiscal year 2012 the Agency’s projects in the region accounted for 24 Underlying our strong business results is the transfor- percent of volume, twice the level of the previous year. We mational nature of many of the projects we support: showcase a number of these projects in this report. they help bring power, transportation, and more efficient technologies into the world’s poorest countries where Another area of focus this past fiscal year was support investment is needed the most. By mobilizing private to the Middle East and North Africa region where the capital into sectors that have wide developmental impact, need for investments that create jobs and opportunity is such as infrastructure, agribusiness, and manufacturing, greater than ever. We reached out in a number of ways, the Agency not only fulfills its mandate to promote pro- including through regional conferences and travel that ductive foreign direct investment (FDI) into developing allowed us to engage face-to-face and hear from people countries, but also frees up the limited resources of host close to the issues in these countries. Our commitment governments for use in providing other essential services. led to strong projects in several countries and a marked improvement in the Agency’s results in the region as we highlight in this report. 8 | MIGA ANNUAL REPORT 2012 This report also notes our emphasis on partnerships, We also welcomed new staff, including under the MIGA particularly with the World Bank and IFC, to strengthen Professionals Program, which has already proved a alignment and relationships across the institution and lay success in bringing new and diverse young talent from the foundation for developing or pursuing joint opportu- underrepresented countries into the Agency. nities. We spotlight independent power projects in Kenya, which brought together World Bank Group products in I want to thank all our staff for their professionalism and a complementary approach and demonstrate the effec- commitment over the last year. They stepped up to deliver tiveness of joint solutions we can offer to mobilize funding during continued challenging times. I am excited about the in countries where investors remain hesitant to enter. prospects for the coming year as we continue to fulfill our In addition to working actively across the Group, MIGA mandate of facilitating investment that improves people’s maintains important partnerships with other institutions lives. including other multilateral and bilateral development institutions, many of the world’s export credit agencies, Finally, I would like to take this opportunity to thank other insurers, and industry organizations such as the the Board of Directors for their ongoing assistance and Berne Union. These partnerships play an important role in support. I would like to express my gratitude to former helping us identify and underwrite good projects, and in World Bank Group President Robert B. Zoellick for his collaboratively managing risk. leadership during the year and welcome his successor, President Jim Yong Kim. I am pleased to note MIGA’s Asia regional presence, our hub, had a productive first full fiscal year of operation. The hub’s particular focus is to develop business with potential South-based investors, such as those from China, India, the Republic of Korea, and Singapore, as well as investors from Australia and Japan. This targeted outreach to investors, along with active participation in key regional business events in Asia, helps strengthen our ability to work with clients and pursue opportunities early in the project development process. Additionally, this fiscal year Izumi Kobayashi MIGA established the Europe, Middle East, and Africa hub June 30, 2012 in Paris to replicate what we did in Asia. The hub has had a promising start and is developing a strong pipeline of potential projects for its target areas. Here in Washington, we welcomed Michel Wormser with the dual role of MIGA’s new Vice President and Chief Operating Officer. Michel’s long experience within the World Bank Group brings added strength to the Agency. MIGA ANNUAL REPORT 2012 | 9 miga management team Izumi Kobayashi Michel Wormser Ana-Mita Betancourt Kevin W. Lu Executive Vice President Vice President and Director and General Regional Director, Chief Operating Officer Counsel, Legal Affairs and Asia-Pacific Claims Edith P. Quintrell Lakshmi Shyam-Sunder Ravi Vish Marcus S. D. Williams Director, Operations Director and Chief Economist and Adviser, Strategy and Chief Financial Officer, Director, Economics and Operations Finance and Risk Policy Management 10 | MIGA ANNUAL REPORT 2012 miga board A Council of Governors and a Board of Directors, representing 177 member countries, guide the programs and activities of MIGA. Each country appoints one governor and one alternate. MIGA’s corporate powers are vested in the Council of Governors, which delegates most of its powers to a Board of 25 directors. Voting power is weighted according to the share of capital rr Committee on Development Effectiveness each director represents. The directors meet regularly at rr Committee on Governance and Administrative the World Bank Group headquarters in Washington, DC, Matters where they review and decide on investment projects and rr Ethics Committee oversee general management policies. rr Personnel Committee Directors also serve on one or more of several standing committees: These committees help the Board discharge its oversight responsibilities through in-depth examinations of policies rr Audit Committee and procedures. rr Budget Committee MIGA’s Board of Executive Directors, as of June 30, 2012 Standing, from left to right: Rogerio Studart, Gino Alzetta, Ingrid G. Hoven, Agapito Mendes Dias, Merza H. Hasan, Piero Cipollone, Jorg Frieden, Vadim Grishin, Marie-Lucie Morin, Shaolin Yang, Marta Garcia, Hekinus Manao, Sid Ahmed Dib, Rudolf Treffers, In-Kang Cho, Hassan Ahmed Taha, Mukesh N. Prasad Seated, from left to right: Ian H. Solomon, Felix Alberto Camarasa, Ambroise Fayolle, Susanna Moorehead, Abdulrahman M. Almofadhi, Anna Brandt, Renosi Mokate, Nobumitsu Hayashi MIGA ANNUAL REPORT 2012 | 11 development impact 12 | MIGA ANNUAL REPORT 2012 After a slowdown in global activity in the second half of 2011 and then a marked improvement in market sentiment at the very beginning of 2012, in May euro-zone uncertainties again roiled financial markets around the world. This is a stark reminder that the after-effects of the global financial crisis have not yet fully played out. Financial market uncertainty and fiscal consolidation associated with the high deficits and debt levels of high-income countries are likely to be recurring sources of volatility. Nevertheless, so far conditions in most developing MIGA’s Role countries are better than they were in the second half of 2011. This means that the real growth momentum These trends are particularly important to MIGA, as remains there, as it was last year: according to the World they dovetail with our mission to promote FDI in Bank, in 2012 developing countries are expected to grow developing countries—and the Agency is actively tracking at 5.3 percent. This significant change to previous patterns and responding accordingly. This year, we successfully of international economic growth is one of the fastest delivered on recent product innovations that allow the competitive transitions the world has ever witnessed. Agency to underwrite different kinds of investments (see MIGA’s Business). As we have seen increased opportu- nities in Africa, we have committed human resources FDI Trends to develop them. Noting the increase of public-private partnerships for infrastructure projects in Africa and Asia, Foreign direct investment (FDI) inflows to developing MIGA has met with government authorities to make its countries rose by an estimated 23 percent to reach $625 value for these transactions known. billion in 2011. Most of the increase took place in the first half of the year. A decline is anticipated for 2012 to $518 MIGA is also measuring investor sentiment. According billion, though the World Bank is forecasting a rebound to a recent MIGA survey, more than half of investors in 2013. are contemplating an increase in their investments in emerging countries. Yet we note that, despite this Developing countries are also recipients of a bigger share enthusiasm, the awareness of noncommercial investment of global FDI flows. Notably, many countries in sub- risk has also seen a resurgence. Saharan Africa are now regarded by investors as frontier emerging markets—Cape Verde, Ghana, Kenya, and This is not surprising. Shifts in opportunities toward Mozambique, to name a few. Over 50 percent of all FDI riskier markets, in a generally more volatile world, come into developing countries in 2011 was directed into Asia, precisely at a time when shareholders and lenders— including destinations such as Bangladesh, Pakistan, and learning from events in the Middle East and North Africa Sri Lanka. and under the pressure of new regulations—have become much more aware of risk. How are these seemingly In addition, South–South (one developing country to irreconcilable tensions on risk profiles playing out? The another) investment is outpacing traditional investment Agency’s World Investment and Political Risk 2011 report as a source of new FDI. As the traditional sources of published in December found that investors were con- investment in Europe and the United States have felt the cerned primarily by the macroeconomic risk and the dif- brunt of the recent economic slowdown, a crop of new ficulty in obtaining financing, while their medium-term investors from countries such as Brazil, China, India, focus remains on political risk. More recently, some the Republic of Korea, Malaysia, Singapore, and South investors are paying closer attention to inequality and Africa has emerged. In 2011 outward FDI from Asia alone social tensions that can underlie apparent stability. Their reached $127 billion. risk analyses focus much more on political economy, jobs, and the availability of opportunities for the young. MIGA ANNUAL REPORT 2012 | 13 In this context many investors are designing much year) for MTN Afghanistan as it delivers essential tele- more systematic risk-mitigation strategies. These involve communications services despite the country’s tenuous local partnerships, better sourcing of information, more security situation. Projects in conflict-affected and fragile attention to fairness of contracts, environmental and countries and territories represented 13 percent of MIGA’s social sustainability, returns to local communities, and volume this year. engagement with organizations like MIGA that can help mitigate some of these risks. More than ever, our political Examples of our work with complex projects, another risk insurance (PRI) can be leveraged to encourage the priority area, include hydropower plants in Albania and return of traditional investors and the entrance of new Pakistan, a gas development project in Uzbekistan, a participants to a region. toll bridge in Côte d’Ivoire (see box 1), transportation in Panama, and three wastewater treatment plants in China. Our volume of business in fiscal year 2012 reached a MIGA’s support to complex projects accounted for 60 historically high level, continuing an upward trend from percent of 2012’s volume. the previous year. From the Agency’s perspective this points to the tendencies we just discussed: more interest Put together, projects in MIGA’s priority areas accounted in frontier markets coupled with greater awareness of risk for 70 percent of new business volume. results in increased business for political risk insurers. MIGA is also committed to projects that are strongly Our World Investment and Political Risk 2011 report under- aligned with the development goals and priorities of scores this trend, noting that the ratio of FDI to PRI grew the World Bank, including sustained support to middle- from a low of 5 to 8 percent in the mid-1990s to a current income countries and to responsible agribusiness as the level of 13 to 15 percent. MIGA plays an important role in food crisis endures (see box 2). In all its activities MIGA this market, entering environments that may be off-cover actively draws on the complementary strengths of the for other insurers. Bank Group, leveraging knowledge, products, and services across the respective institutions for the benefit of host countries and private investors. MIGA’s Strategic Focus The impact on MIGA’s business from this year’s increased Our focus is reflected in our four strategic priorities, regional and sectoral diversification is discussed in more which were shaped by the development needs of MIGA’s detail later in this report. Here, the development results member countries, the demands of a changing FDI envi- are worth noting: in fiscal year 2012 MIGA’s business in ronment and PRI market, and the need for the Agency sub-Saharan Africa doubled to account for 24 percent of to focus on its comparative advantage and complement new business volume, and 14 out of the 17 projects sup- other insurers. ported are in IDA-eligible countries. This year’s portfolio shows a substantial increase in infrastructure projects Our first priority is encouraging FDI into the world’s that can have a transformational nature, helping to bring poorest countries and, in fiscal year 2012, 41 percent of power, transportation, and more efficient technologies our guarantee volume fell into this category. This year, the to countries in need of sustained and sustainable average size of MIGA-supported projects in the poorest investment. By mobilizing private capital that has wide countries increased significantly. Examples that address developmental impact, MIGA not only fulfills its mandate, this priority include power-generation projects in Ghana, but it also frees up the limited resources of host gov- Kenya, and Rwanda. ernments—so that these resources can be used for the provision of other services. Another MIGA priority is fostering South-South investments, which represented 22 percent of this year’s volume. As with the previous strategic priority, the average MIGA Responds to Current Events size of MIGA-supported South-South projects increased significantly. Examples of MIGA-insured South-South Encouraging and maintaining developing-country FDI investments include manufacturing in Turkmenistan and when it might otherwise decline often requires nimble hydropower in Pakistan. responses to events as they unfold. In many instances, MIGA plays a counter-cyclical role to accomplish this—for Our strategic focus on conflict-affected countries example, supporting banks that are tempted to deleverage underlines MIGA’s key role in these countries’ rebuilding in times of stress, entering projects when other insurers efforts, particularly during the crucial period of transition exit, and being among the first actors to engage as a as they seek to establish stability after years of conflict. country emerges from conflict. This focus also points to MIGA’s ability to guarantee projects where other insurers may be off-cover. The devel- This fiscal year we continued our focus on the Middle opment of Medjool date farms in the West Bank demon- East and North Africa (MENA), given events in that strates MIGA’s attention to this priority area, as does our region. Despite the region’s uncertainties—compounded continued support (through new guarantees issued this by the fact that many countries in the MENA region have 14 | MIGA ANNUAL REPORT 2012 traditionally relied on investment from Europe, which is effort, MIGA announced its plan to increase its exposure grappling with its own financial challenges—the need for there by $1 billion over the next two years. As the Agency investments that create jobs and opportunity is greater has already issued $928 million in guarantees in fiscal than ever. MIGA views this as an important moment for year 2012, we have nearly achieved that goal. the Agency to step up and fill in gaps that the private sector cannot address. MIGA and the Environment To demonstrate our commitment to the MENA region, we actively began our mobilization of $1 billion in insurance Sound environmental performance, sustainability with capacity to retain and encourage FDI there, an initiative respect to natural resource management, and social the Agency announced at the end of fiscal year 2011. The responsibility are critical to an investment’s success Agency has targeted existing and inbound FDI in order and its contribution to the host country’s development. to ensure that political risk insurance market capacity is MIGA adheres to performance standards for these issues maintained and to bolster the efforts of national export and the Agency’s environmental and social specialists credit agencies. MIGA made significant progress on this evaluate the potential impacts of MIGA-supported front, as it issued guarantees in Jordan, Morocco, and projects, advising clients as to how to minimize and Tunisia (see box 3) totaling $432.9 million. Our demon- mitigate them. strated ability to guarantee projects that are compliant with Islamic finance also bolsters our ability to support MIGA has also contributed to environmental and social investments in the region. policy initiatives within the World Bank Group, including the Environment Strategy: Toward a Green, Clean and In addition, MIGA’s concerted efforts to promote its West Resilient World for All. This underscores an integrated Bank and Gaza Investment Guarantee Trust Fund yielded approach in this area across all the institutions of the results this year, as the Agency issued guarantees in the World Bank Group, and it sets out a new development agribusiness and manufacturing sectors in the West Bank path that supports growth while focusing on sustainability and Gaza respectively. and inclusiveness. The strategy also brings a greater focus on private sector involvement in environmental We increased our efforts to reach out to investors, management. lenders, and governments around the world to make it clear we are open for business in the MENA region. The Agency also hosted a panel discussion on the role The Agency has shared its global experience of managing of the private sector in sustainable growth as part of the political risks, in particular by sponsoring conferences World Bank Group’s Sustainable Development Network in investment capitals that focus on the region. MIGA Forum 2012. MIGA’s initiative brought this angle to the cosponsored a conference with the Dubai International forum’s more general sustainable growth discussion. Financial Centre and the Islamic Corporation for Insurance of Investments and Export Credits in Dubai that was particularly well-received. MIGA’s Executive Vice MIGA’s Development Effectiveness President also visited countries in the region and met with government officials, private sector representatives, and MIGA uses three different pillars to assess the devel- others to underline the importance of developmentally opment impact of our work: development impact metrics, beneficial FDI. In addition, MIGA surveyed investors project self-evaluation, and original research. doing business in the region for our World Investment and Political Risk 2011 publication; the results are discussed MIGA recently introduced the following development later in this report. impact metrics that can be measured portfolio-wide: new jobs directly created, the value of training budgets, the In fiscal year 2012 MIGA also collaborated with the value of locally procured goods, taxes and fees paid to the Deauville Partnership, an initiative among international government, the value of community investment, and the financial institutions that aims to help create macro- amount of investment leveraged. economic stability, social cohesion, and more equitable growth in the MENA region. Since fiscal year 2011, the Agency has required that guarantee holders report on their project’s performance Another part of the world that received targeted attention across these indicators on the third anniversary of the from MIGA is Europe and Central Asia. While the signing of a MIGA contract of guarantee. We look forward effects of the euro-zone crisis on the largest economies to having these results next fiscal year. of Western Europe have received most of the world’s attention, the crisis has also affected populations in In addition, MIGA continues to emphasize drawing emerging European countries, particularly the poorest developmental lessons from its completed projects and in Central and Southeastern Europe. As a result, MIGA apply them to current and future work by implementing a joined the rest of the World Bank Group in an effort to vigorous program for self-evaluations. This organizational expand support available to the region. As part of this learning tool is allowing the Agency to fully absorb the MIGA ANNUAL REPORT 2012 | 15 lessons of our work, while increasing accountability to Carried out by MIGA’s economists, environmental and shareholders and other stakeholders. social specialists, and underwriters, and independently validated by the Independent Evaluation Group (IEG), In fiscal year 2012, MIGA completed seven evaluations the evaluations aim to increase awareness and learning for guaranteed investments in Brazil, Burkina Faso, the among operational staff. These efforts are in addition to Central African Republic, China, Costa Rica, the Russian evaluations conducted by IEG discussed later in this report Federation, and Senegal. The projects were rated on as well as ongoing monitoring of projects by MIGA staff. the following criteria: business performance, economic sustainability, private sector development impact, devel- The third pillar of assessing MIGA’s development impact, opment outcome, environmental and social outcomes, our research and knowledge agenda, is detailed later in strategic relevance, and MIGA’s effectiveness. this report. Box 1 — Rebuilding Côte d’Ivoire’s Infrastructure This year MIGA supported the construction and operation of the Henri Konan Bedié Toll Bridge and access roads in Côte d’Ivoire. The project, which was originally initiated in 1996 but placed on hold due to the prolonged civil conflict in the country, represents an important milestone in the country’s efforts to rebuild its infrastructure. The project is structured as a public-private part- nership and is being implemented under a 30-year build-operate-transfer concession agreement. It involves the financing, design, construction, operation, and maintenance of the bridge over the Ebrié lagoon and access roads to the north and south between the residential area of Riviera and the industrial area of Marcory. This is the first public- and the Agency is covering all private sector lenders private partnership since the country’s civil war. to the project. MIGA is providing $145 million in guarantees The construction of the bridge is a high priority for the covering equity investments and subordinated loans country’s government, as Abidjan’s existing bridges from Bouygues Travaux Publics of France and the Pan and infrastructure are under severe strain and unable African Infrastructure Development Fund of South to manage the city’s growing traffic. Once completed, Africa, subordinated and senior loans from Africa the new bridge will significantly reduce travel times, Finance Corporation of Nigeria, and senior loans improve overall mobility, and alleviate chronic traffic from BMCE Bank International Plc of the United congestion in Abidjan. The project will also provide Kingdom and FMO of the Netherlands. MIGA’s important demonstration effects for further private coverage of the minimum revenue guarantee was sector initiatives in a country that has been severely essential to securing financing for the investment affected by prolonged civil strife. 16 | MIGA ANNUAL REPORT 2012 Box 2 — Contributing to Food Security in Southern Africa The pressing need for increased food pro- duction in sub-Saharan Africa is under- scored in Zambia, where incomes and living standards have been on the rise, resulting in a growing consumer demand for meat and poultry products. Trucks from the country’s leading beef and poultry producer move up and down Zambian roads. According to a World Bank and UK AID study, Zambia’s beef and dairy industries offer unrealized potential for wealth and job creation, but their success hinges on a variety of factors, including access to affordable, high-quality feedstock. MIGA client Chayton Africa, a producer of maize, wheat, and soya, is helping Zambia realize its potential to be the region’s breadbasket. our challenge was to convince investors that there was a Chayton Africa made its first investment in Zambia in strong and viable market in the region,��? says Crowder. “We 2010, acquiring two existing commercial farms and a sought the MIGA cover to assuage any concerns investors contract farming business in the Mkushi farm block in may have had about political risk.��? In 2010, MIGA signed a the country’s Central Province. To date, it has leased conditional guarantee with Chayton Capital LLP in support six existing commercial farms totaling just over 4,000 of its planned investments in Zambia and Botswana. Under hectares with 1,250 hectares being farmed and 430 this contract, MIGA would provide political risk cover for hectares under irrigation. The company, known as Chobe the fund’s planned investments. MIGA covered Chayton’s Agrivision, operates a fully-irrigated farming model, which first investment in Zambia in June 2011. And this year, MIGA allows double cropping: it achieves two harvests a year by provided an additional $9.5 million in investment guarantees growing wheat during the winter and a rotation of maize covering Chayton’s expansion and capital expenditures. and soya in summer. Neil Crowder, Chayton Africa’s Chief Executive Officer, notes, “Zambia has massive potential. Now in its second year of production, Chobe Agrivision is But right now, only 1.1 percent of the potential fertile hitting its stride and looking toward the future. The company Guinea Savannah agricultural area is cropped. We believe is developing staff and skills so the venture can grow from that with more efficient agricultural practices such as crop a grassroots start-up to expanding production to 10,000 rotation and zero tillage, soil and water management, and hectares under irrigation. It also has big plans for the com- technological improvements, Zambia—and indeed all of munity, including the construction of a new school. Africa—can capitalize on an abundance of sunshine and fertile land to feed its growing population.��? Chayton Africa, which started as a private equity vehicle, approached MIGA in 2009 to help mobilize resources for their investment in what remains a very challenging fundraising environment. “We had a vision for a sus- tainable agricultural business in Southern Africa and MIGA ANNUAL REPORT 2012 | 17 business 18 | MIGA ANNUAL REPORT 2012 Operational Overview MIGA issued $2.7 billion in new guarantee coverage in fiscal year 2012. An additional $10.6 million in guarantees was issued through MIGA-administered trust funds. This year’s Figure 1: Earned Premium, Fees, and Investment Income* ($M) portfolio was highly diversified across regions and sectors and consisted of several innovative transactions. Contract cancellations continued to be lower than the years 12 61.7 50.8 cancellations totaling just $301 preceding the global financial crisis, with 22 contract 11 Premium 10 46.0 million. At the close of the fiscal year, the Agency’s total gross exposure of $10.3 billion Investm 09 43.6 represented yet another historic high for MIGA (see figure 1). * Excludes 08 38.2 MIGA’s Operating Environment our strategic priority areas: investment into IDA-eligible countries, support for complex projects, support for Global uncertainty spurred by the uneven and uncertain South-South investment, and investment into conflict- economic recovery, particularly in the euro-zone affected Portfolio, Guarantees countries.Gross Outstanding Exposure, $ M countries, and events in the Middle East and North Africa (MENA) region have led to increased awareness of political risk. While foreign direct investment (FDI) flows Figure 1 – Guarantees Portfolio, Gross to developing countries rose by an estimated 11 percent and Net Outstanding Exposure ($M) in 2011, they were expected to decrease in 2012. MIGA paid close attention to this increasingly challenging environment by proactively reaching out to new clients and seeking ways to help investors manage risks and 12,000 keep investments on track. While there is ample capacity in the political risk insurance 10,000 (PRI) market, this capacity does not always correlate with actual insurer appetite. MIGA’s comparative advantage in this market remains our status as a member of the 8,000 World Bank Group and our ability to support complex, higher-risk projects requiring long tenors and significant 6,000 syndication. Despite available capacity, many providers of PRI are less willing to provide cover in countries where political risk is perceived to have increased. In these 4,000 environments, MIGA is often the only insurer willing to provide coverage, especially for long tenors. This was the case in Tunisia, where MIGA provided cover for the 2,000 financing of a passenger ferry in the wake of civil unrest (see box 3). MIGA, like other market participants, is also 0 working to develop innovative solutions to meet client 02 03 04 05 06 07 08 09 10 11 12 needs in a time of uncertainty. Gross Exposure Net exposure MIGA’s Portfolio This year’s portfolio reflected MIGA’s stepped-up efforts to support investments in our strategic priority areas Notably, as a result efforts toDistribution, of MIGA’s Portfolio Outstanding support by Investor Country, and address global development challenges. Thirty-one investment into the MENA Percent of region, the Agency signed Gross Exposure* of the 52 projects we supported fell into one or more of contracts supporting eight projects there. This represents Austria 31 MIGA ANNUAL REPORT 2012 | 19 France 9 Germany 7 United States 6 58% Infrastructure 19% Agribusiness, manufacturing, Figure 3: Guarantees Issued in FY12, by Sector (by $ volume) the largest number of projects and the highest volume and services* of guarantees MIGA has ever issued in the region in a Figure 2 – Guarantees 18%Issued in FY12, Financial given fiscal year. Two of these projects were underwritten by Sector Figure (by $ volume) 3: Guarantees Issued 5% in FY12, by Sector Oil, gas, (by $ volume) and mining through the MIGA-administered West Bank and Gaza 58% Infrastructure Investment Guarantee Fund. 19% Agribusiness, manufacturing, Figure 3: Guarantees Issued in FY12, by Sector (by $ volume) MIGA also supported a wide variety of investments in sub- 58% Infrastructure and services* Saharan Africa, including critical infrastructure investments 19% 58% Infrastructure 18% Agribusiness, 19% Agribusiness, in Côte d’Ivoire, Ghana, Kenya, Rwanda, and Senegal. In Financial manufacturing, and services 5% manufacturing, 18% Financial Kenya, we are working closely with the World Bank and IFC Oil, gas, and mining 5% Oil, gas, and mining and services* to support the country’s Least Cost Power Development Plan, which includes the construction of independent 18% Financial power producers (IPPs) using a diversified energy mix. This 5% Oil, gas, and mining year the Agency supported the expansion of a geothermal Figure x Guarantees Issued in FY 12, by region (by $ volume) IPP and the construction of a heavy fuel oil IPP (see box 4). * Excludes two projects supported under the MIGA- 35% Europe and Central Asia administered West Bank and Gaza Investment 24% Sub-Saharan Africa Figure Trust FundIssued in FY 12, by region (by $ volume) x Guarantees Guarantee 16% Middle East and North Africa MIGA issued guarantees for several complex projects this 13% Latin America and the Caribbean year. In addition to supporting a number of infrastructure 12% Asia and the Pacific projects in sub-Saharan Africa, the Agency guaranteed 35% Europe and hydropower projects in Albania and Pakistan and the con- struction of the Panama City metro line. In Uzbekistan, Central Asia MIGA participated in the country’s first project finance Figure 3 – Guarantees 24% Issued in FY12, Sub-Saharan Africa transaction through its guarantees for the LUKOIL Gas by region Figure x Guarantees volume) (by $ Issued in FYMiddle 16% 12, by East and region (by $ volume) Figure x Guarantees Issued in FY 12, by region (by number of projects) Development project. North Africa* 40% Europe and 13% Latin America and Central Asia 34% Sub-Saharan Africa 12% Middle East and Our increased focus on investments in infrastructure Figure x Guarantees Issued 35% 12,Caribbean in FYthe Europe and (by $ volume) by region North Africa * 8% Asia and the Pacific and extractive industries has had a significant impact on 6% Latin America and 12% Asia and Central the Pacific Asia the Caribbean the volume of environmental and social due diligence 24% Sub-Saharan Africa and monitoring work that MIGA carried out this year. 16% Europe 35% and and Middle East MIGA’s early intervention can help ensure that investors Central Asia North Africa* effectively mitigate the environmental and social risks 24% 13% Sub-Saharan Latin America Africa and Figure 5: Outstanding Portfolio Distribution by Host Region, Figure 2: Consumption of MIGA’s Economic Capital by Sector in FY12 associated with projects. In fiscal year 2012, MIGA con- Percent of Gross Exposure 16% Middle 54% Europe and East the Caribbean and ducted environmental and social due diligence on more Central Asia 15% Sub-Saharan Africa 69% Infrastructure 12% North Africa* 15% Financial than 75 projects. Asia and the Pacific 14% Asia and the Pacific 10% Latin America and 9% 7% Oil, gas, and mining Agribusiness, 13% Latin America and the Caribbean manufacturing, 7% Middle East and and services North Africa theCaribbean the * Excludes two projects supported under MIGA- 12%Investment administered West Bank and Gaza Asia and the Pacific MIGA’s Product Innovation Guarantee Trust Fund MIGA has introduced several new products in recent years to respond to the evolving needs of the market. Our ability to offer new solutions was greatly facilitated by amendments to MIGA’s Convention in fiscal year 2011, which gave the Agency greater flexibility. Our ability Figure x Guarantees Figure Issued in FY 4 – Guarantees region 12, by in Issued FY 12, to insure stand-alone debt and existing investments (by number of projects) by region (by number of projects) has been particularly important to supporting sustained investment in a time of economic uncertainty and increased risk aversion. 40% Europe and Supporting investments in infrastructure is a key devel- Central Asia Figure x Guarantees Issued in FY 12, by region opment priority for the Agency and this is an area 34% Sub-Saharan Africa (by number of projects) where we have been able to introduce several innovative 12% Middle East and approaches. Our ability to offer non-honoring of sovereign Figure x Guarantees Issued in FYNorth 12, byAfrica* region financial obligations (NHSFO) cover has resulted in (by number of projects) 8% Asia and the Pacific MIGA’s backing of several projects with significant devel- 6% Latin America 40% Europe and and opment impact. the Caribbean Central Asia 34% Sub-Saharan Africa In Senegal, for example, MIGA supported a US dollar 40% 12% * Excludes two projects supported Europe Middle under and and East the MIGA- cross-currency swap arrangement between Standard Central administered West Bank and Gaza Investment Asia North Africa* Bank Plc and the government. Senegal’s Ministry of Guarantee Trust Fund 34% 8% Sub-Saharan Africa Asia and the Pacific Economy and Finance entered into the swap with 12% Middle East and 6% Latin America and North Africa* the Caribbean 8% Asia and the Pacific 20 | MIGA ANNUAL REPORT 2012 6% Latin America and the Caribbean Standard Bank as a hedge against currency risk exposure Increasing our Global Presence and related to a 10-year, $500 million Senegal Eurobond. Leveraging Partnerships The proceeds of the Eurobond are being used to finance new infrastructure projects, including a 19-kilometer In the past several years, we have increased our outreach extension of the Diamniadio Toll Road to the new Blaise efforts in order to attract projects that align with MIGA’s Diagne International Airport and critical energy sector strategic priorities. Our efforts to expand our client investments. This transaction marked the first time MIGA base include: creating a structured presence outside of issued a guarantee for a hedging arrangement without Washington; closer cooperation with the IFC, other parts covering the related financing. of the World Bank Group, and multilateral development institutions; strategic partnerships; and a Marketing Agent In Ghana, MIGA provided NHSFO cover to Société and Business Finders Program established in 2010. Generale covering its loan to the government of Ghana to finance the completion of the Takoradi 3 power plant. The MIGA’s Asia hub, established in fiscal year 2011, has rep- expansion of the power plant will allow it to feed more resentatives located with World Bank and IFC offices in electricity to Ghana’s national grid, granting broader and Singapore, Beijing, Tokyo, and Hong Kong SAR, China. more reliable access to power. The hub has built a pipeline of guarantee operations with strong development impact, while supporting MIGA’s Further, two award-winning transactions, involving the underwriting and knowledge agendas in the region. passenger ferry in Tunisia and the Istanbul metro (see box 3), involved NHSFO cover. In fiscal year 2012, the hub focused on early engagement with investment destination countries and worked to This year MIGA also focused on helping key banking support the priorities of host-country governments. For clients meet their needs in difficult times. We reached out example, in the Philippines, with the assistance of the to less-constrained lenders in new markets, particularly World Bank and IFC, the hub established an early and in Asia and Africa. Of particular relevance, MIGA was strong presence in the public-private partnership program able to offer several new products to help banks address that is being developed by the government. In Indonesia, risks and reduce the likelihood of deleveraging. These MIGA has established a strong partnership with the newly include portfolio cover for new and existing loans and a developed Indonesian Investment Guarantee Fund (IIGF), capital optimization program that helps manage the risk both through knowledge transfer to IIGF and through weighting of some assets, such as the mandatory reserves discussions on deploying our guarantee capacity to con- held by central banks regulating their subsidiaries. tribute to IIGF’s priority projects. MIGA also focused on partnerships with agencies in investor countries. We continued our support this year to the ProCredit group For example, MIGA worked very closely with Singapore of Germany, a provider of finance to some 750,000 very government entities such as International Enterprise small, small, and medium enterprises in Latin America, Singapore and Monetary Authority of Singapore on Eastern and Central Europe, and Africa. A MIGA master assisting Singapore-based companies and banks to invest contract provides expropriation of funds coverage, which in infrastructure projects in developing countries in the allows ProCredit to obtain capital relief, freeing up equity region and beyond. And MIGA again teamed up with tied up at the parent holding level for regulatory purposes. Korean agencies to promote investment in developing This year we supported ProCredit banks in two new countries by Korean firms. MIGA signed memoranda countries—Bolivia and El Salvador—and issued additional of understanding (MOUs) with the country’s Ministry guarantees for ProCredit subsidiaries in Georgia, Serbia, of Land, Transport, and Maritime Affairs, its Ministry of and Ukraine. Knowledge Economy, and the Korea Development Bank— three institutions instrumental to FDI initiatives. Recently MIGA introduced a product to support private equity investment. This product, which offers private This year, MIGA established the Europe, Middle East, and equity funds a master contract of guarantee that reserves Africa hub co-located in the World Bank and IFC offices capacity and provides up-front pricing to the general in Paris. The main objective of MIGA’s presence there partners of the fund for a specific period, can help allay is to serve and develop a client base in Europe that is political risk concerns of institutional investors. This focused primarily on investments into sub-Saharan Africa year, we used this product to support a portfolio of and MENA. The proximity to clients has facilitated our investments held by Spanish private equity fund Fons ability to respond to the evolving demand for PRI both Mediterrània Capital, F.C.R. de Régimen Simplificado with European project sponsors in search of growth and (FMC) of Spain. The Agency’s support to these existing commercial banks facing capital constraints due to the investments in the MENA region provides assurance to European sovereign debt crisis. FMC’s investors during a time of transition and allows continuity of important job-generating enterprises. Our business development and marketing initiative with the IFC and the World Bank’s guarantees unit has facil- itated MIGA’s ability to provide joint business solutions to clients involved in investments with high development MIGA ANNUAL REPORT 2012 | 21 impact (see box 4). In fiscal year 2012, IFC-MIGA jointly financing from the African Development Bank. This close delivered nine projects amounting to $205.5 million of collaboration allows development institutions to achieve new business compared to $161.3 million in 2011. Half of economies of scale in addressing complex project issues, these transactions were in the world’s poorest countries. particularly on environmental and social sustainability. The presence of MIGA staff in the Asia and Paris hubs has also proved instrumental in expanding collaboration MIGA’s Marketing Agent and Business Finder Program with IFC counterparts in these locations. This year, MIGA established in fiscal year 2010 has also helped MIGA and IFC stepped up their cooperation by signing an MOU extend its global presence and is beginning to make a that will enable eligible commercial lenders participating significant contribution to MIGA’s pipeline. In fiscal year in IFC B-loan syndications to obtain MIGA’s PRI for war 2012, three projects introduced by Marketing Agents and and civil disturbance. Finders were signed, including two in sub-Saharan Africa. We also collaborated with multilateral development banks on a number of levels, including several large Reinsurance Partners project finance transactions. In Pakistan, the Star Hydro Power Ltd. project involved financing from the Asian MIGA uses reinsurance to increase the amount of Development Bank and the Islamic Development Bank. coverage we can provide, to manage the risk profile of In Côte d’Ivoire, the Henri Konan Bédié Bridge received our portfolio, and to cooperate with other insurers as Box 3 MIGA-Supported Investments Take Home Top Industry Honors Four projects supported by MIGA during fiscal years 2011-2012 were recognized by to provide cover. MIGA stepped in following the “Jasmine Revolution��?—bringing the crucial transport deal to a leading industry magazines. close in July 2011. The KivuWatt power project in Rwanda, supported by The construction of the Istanbul metro, supported by MIGA in fiscal years 2011 and 2012, was named African MIGA in fiscal year 2011, was also recognized by Trade Power Deal of the Year 2011 by Project Finance magazine. Finance. The commercial bank financing, backed by The project involves extraction and separation of MIGA’s non-honoring of sovereign financial obligations methane gas from the bottom of Lake Kivu, eventually cover, supports the construction of Istanbul’s first resulting in up to 100 megawatts of power-generation underground metro system on the Asian side of the capacity. In addition to providing 20-year PRI cover for city, which will eventually connect to the network on the the transaction, MIGA led the environmental and social European side. due diligence work for this highly complex project. A telecommunications project in Indonesia also sup- Trade Finance magazine and Global Trade Review both ported by MIGA in fiscal year 2011 was awarded recognized the financing of the Tunisian Passenger Ferry Euromoney’s Deal of the Year for Islamic Finance. MIGA’s project by BNP Paribas and Société Générale. MIGA guarantees of $450 million cover a Murabaha financing provided 13-year non-honoring of sovereign financial facility by Deutsche Bank Luxembourg S.A. and Saudi obligations cover to the lenders for their financing of a British Bank for the expansion of PT Natrindo Telepon passenger-car ferry to be acquired by the Compagnie Seluler in Indonesia. The financing is aimed at increasing Tunisienne de Navigation SA in Tunisia. In light of the the quality on the existing network, increasing the popu- political uprisings in the country, the original export credit lation coverage, and building additional network capacity. agency had pulled out and no other insurer was willing 22 | MIGA ANNUAL REPORT 2012 required under the Agency’s Convention. The primary Dispute Resolution and Pre-Claims benefits of reinsurance accrue to our clients, the investors Assistance who gain access to increased capacity to insure projects in developing countries, and the recipient countries that When problems or disputes have a potentially adverse benefit from higher levels of FDI. impact on MIGA-supported investments or the host country’s ability to attract future investment, we col- Reinsurance arrangements increase our capacity to laborate closely with all parties involved. In fiscal year Figure x large support projects. Guarantees As a result Issued in FY of12,its byrisk-mitigation region 2012, we continued to effectively assist member gov- effect, MIGA’s involvement (by number of projects) encourages other insurers to ernments and investors in resolving long-standing participate in projects in frontier markets. It also enables disputes, whether or not those disputes could have other insurers to underwrite transactions with longer resulted in valid claims. Since inception, MIGA has par- tenors than they would normally consider. These insurers ticipated in discussions on more than 90 disputes of this benefit from our expertise in40%risk analysis Europe and and dispute type. Our work on these matters has helped the parties resolution, as well as claims handling and Central recovery pro- Asia to mitigate concerns that could have led to failure of cedures. As of June 30, 2012, $4.1 billion of MIGA’s total 34% Sub-Saharan Africa the project, withdrawal of the investment and, possibly, gross exposure was reinsured. a claim. Our management of potential claims enables 12% Middle East and MIGA-supported projects to continue operating in host Berne Africa MIGA is an active member of the North Union*(BU), the countries, preserving value for the investor and ensuring 8% Asia and the Pacific leading international association for the export credit and that projects continue to contribute to the local economy. 6% Latin America and investment insurance industry. In fiscal year 2012, MIGA the Caribbean participated in the BU’s annual meetings and provided While we encourage investors to seek a resolution of a outward reinsurance to BU member SID Bank, the dispute when possible, if a claim is made, MIGA’s pro- Slovenian export credit agency, for investments in Bosnia cedures assure that it is evaluated promptly and that the and Herzegovina, Croatia, and Serbia. claimant is given an adequate opportunity to present an argument in full. As a result of this approach, MIGA has During the fiscal year, MIGA continued to work with its never had a dispute with a claimant regarding our deter- treaty reinsurance partners, ACE Bermuda Insurance Co. mination. Ltd., XL Re Ltd, Hannover Re, and ONDD, the Belgian export credit agency. The parties involved in one expropriation claim that was pending at the beginning of the year have been actively involved in settlement discussions with MIGA’s assistance. MIGA maintains appropriate reserves for this Figure 5 – Consumption of MIGA’s matter. Figure 2: Consumption Economic Capital MIGA’s ofin FY12,Economic Capital by Sector in FY12 by Sector (percent) There were no claims payments during fiscal year 2012. 69% Infrastructure 15% Financial Figure 6 – Outstanding Portfolio 9% Oil, gas, and mining 7% Agribusiness, Distribution by Host Region manufacturing, (Percent Figure of Gross 5: Outstanding Exposure) Portfolio Distribution by Host Region, Percent of Gross Exposure and services 54% Europe and Central Asia MIGA’s Capital Position 15% Sub-Saharan Africa 14% Asia and the Pacific 10% Latin America and Our measures of capital adequacy and risk-bearing capac- the Caribbean ity include economic capital consumed by the guarantee 7% Middle East and portfolio. Modeled economic capital is the portion of MIGA’s capital that is placed at risk by the guarantee North Africa portfolio exposure. The guarantee portfolio as a whole consumed 41 percent of MIGA’s available capital as of June 30 (see figure 5 for consumption of economic capital by sector). This underscores our commitment to support- ing high-cost, complex projects while carefully managing the Agency’s capital base. MIGA ANNUAL REPORT 2012 | 23 Box 4 Innovative Application of World Bank Group Instruments Leverages Private Investment in Kenya’s Power Sector Kenya has been facing severe power has generated competition among interested investors and bidders. shortages, putting pressure on the Thika Power Ltd., an 87-megawatt heavy fuel oil plant country’s economic growth and its efforts outside of Nairobi, is supported by MIGA guarantees of $61.5 million, an IDA partial risk guarantee of $35 million, to improve the day-to-day lives of Kenyans. and IFC financing of e28.1 million. The project is being developed by Melec PowerGen at an estimated cost of Only 25 percent of the population has e112.3 million. Thika has entered into a 20-year power purchase agreement with KPLC. MIGA’s guarantees are access to electricity, and rural grid access to commercial lender ABSA Capital of South Africa and cover breach of contract for a term of up to 15 years. is only about 5 percent. During times of drought, when hydropower drops in supply, Kenya has had to turn to costly emergency diesel- To address these shortfalls and an overreliance on fired plants. Heavy fuel oil plants such as Thika offer a hydropower, the government is implementing Kenya’s viable alternative to address the short-term energy deficit Least Cost Power Development Plan, which calls for an in Kenya, given the relatively long development period increase in the number of independent power producers of other sources like geothermal energy and wind. Over (IPPs) and a more diversified energy mix. The World time, as more renewable energy plants come on line, the Bank Group has joined forces to help leverage the nearly heavy fuel plants are expected to transition from base to $1 billion in financing required to add 600 megawatts to peak-load operation. the grid through IPPs. MIGA has been supporting the country’s first geothermal The program is benefiting from a combination of IDA IPP, OrPower 4, since 2000, and provided additional partial risk guarantees (PRGs), IFC financing, and coverage this year for the plant’s expansion to 84 MIGA guarantees. These complementary instruments megawatts. The expansion is also benefiting from an IDA are playing an important role in increasing investor partial risk guarantee of $31 million. Additional IPPs are confidence and mobilizing the long-term financing expected to move forward with the backing of World Bank needed to construct the plants. In particular, the use of Group private sector instruments in the near term. PRG and MIGA guarantees, where IDA will support the short-term liquidity of the IPPs and MIGA will cover ter- mination payment obligations of the Kenya Power and Lighting Company (KPLC), is an innovative application of the World Bank Group’s guarantee instruments that 24 | MIGA ANNUAL REPORT 2012 Guarantees Portfolio, Gross Outstanding Exposure, $ M table 1 – Outstanding Portfolio Distribution by Sector (Percent of Gross Exposure) FY06 FY07 FY08 FY09 FY10 FY11 FY12 Infrastructure 41 41 41 35 30 33 38 Financial 33 29 37 47 52 49 41 Oil, gas, and mining 12,000 14 13 9 7 7 5 6 Agribusiness, manufacturing, and services 13 17 13 11 11 13 15 Total 10,000100 100 100 100 100 100 100 8,000 Table 2 – Ten Largest Outstanding Country Exposures in MIGA Portfolio 6,000 Host Country Gross Exposure ($M) % of Gross Net Exposure ($M) % of Net Ukraine 999.7 9.7 419.7 6.7 4,000 Croatia 917.7 8.9 384.7 6.1 Russian Federation 816.9 7.9 452.0 7.2 2,000 Turkey 735.3 7.1 298.9 4.8 Indonesia 627.0 6.1 320.3 5.1 0 02 03 04 Serbia 05 06 07 08 09 10 477.3 11 12 4.6 341.4 5.5 Kazakhstan 397.0 3.8 157.5 2.5 Gross Exposure Hungary Net exposure 358.5 3.5 303.7 4.9 Panama 320.0 3.1 220.0 3.5 Uruguay 300.0 2.9 108.0 1.7 Outstanding Portfolio Distribution, by Investor Country, Percent of Gross Exposure* Figure 7 – Outstanding Austria 31.5 Portfolio Distribution, France 9.9 by Investor Country Germany 7.4 United States 6.5 (Percent of Gross Exposure) Luxembourg 5.2 Belgium 3.8 Slovenia 3.6 South Africa 3.5 Netherlands 3.5 Switzerland 3.1 Singapore 2.9 United Arab Emirates 2.5 Cayman Islands 2.5 United Kingdom 2.2 Spain 1.6 Korea, Republic of 1.4 Mauritius 1.2 Bermuda 0.9 Others: Nigeria, Poland, Thailand, Norway, Canada 0.9 Ecuador, India, Turkey, Tanzania, Romania, Lebanon, Italy, Tunisia, Mali, St. Kitts and Nevis, Japan 0.8 Denmark, Panama, Ireland, Virgin Islands (UK), Cyprus 0.8 Colombia, Peru Senegal 0.8 * Numbers may not add to 100 percent due to Egypt, Arab Republic of 0.8 guarantee holders domiciled in two different Sweden 0.7 countries Others 2.3 MIGA ANNUAL REPORT 2012 | 25 Table 3 – MIGA’s Outstanding Guarantee Portfolio in IDA-Eligible Countries IDA-eligible Gross % of Net exposure % of countries exposure ($M) Gross ($M) Net Pakistan* 241.2 2.3 146.0 2.3 Kenya 210.7 2.0 150.4 2.4 Djibouti 202.5 2.0 78.2 1.2 Ghana 162.8 1.6 147.5 2.4 Uganda 155.9 1.5 80.2 1.3 Senegal 155.0 1.5 128.8 2.1 Afghanistan 150.8 1.5 102.1 1.6 Côte d'Ivoire 147.3 1.4 103.1 1.6 Mozambique 147.0 1.4 113.4 1.8 Rwanda 119.6 1.2 104.3 1.7 Uzbekistan* 119.5 1.2 80.0 1.3 Bosnia and Herzegovina* 115.6 1.1 115.1 1.8 Nigeria 103.7 1.0 89.6 1.4 Bangladesh 78.3 0.8 70.4 1.1 Lao People's Democratic Republic 75.4 0.7 37.7 0.6 Liberia 67.9 0.7 47.4 0.8 Guinea 49.9 0.5 44.9 0.7 Kosovo 47.8 0.5 47.8 0.8 Central African Republic 30.2 0.3 30.2 0.5 Congo, Democratic Republic of 29.9 0.3 29.9 0.5 Nepal 29.4 0.3 11.7 0.2 Zambia 28.1 0.3 28.1 0.4 Georgia* 22.5 0.2 22.5 0.4 Vietnam 19.6 0.2 5.9 0.1 Nicaragua 18.6 0.2 15.8 0.3 Madagascar 17.8 0.2 17.8 0.3 Sierra Leone 17.8 0.2 17.3 0.3 Ethiopia 16.8 0.2 16.8 0.3 Mali 16.2 0.2 14.6 0.2 Moldova 13.8 0.1 13.8 0.2 Guinea-Bissau 13.1 0.1 11.8 0.2 Angola 12.9 0.1 11.6 0.2 Bolivia 10.8 0.1 10.8 0.2 Benin 8.4 0.1 8.3 0.1 Kyrgyz Republic 7.7 0.1 7.5 0.1 Cameroon 6.5 0.1 6.5 0.1 Honduras 6.0 0.1 6.0 0.1 Mauritania 5.4 0.1 4.9 0.1 Congo, Republic of 4.9 0.0 4.9 0.1 Togo 4.0 0.0 4.0 0.1 Armenia* 3.6 0.0 3.6 0.1 Burkina Faso 1.6 0.0 1.4 0.0 Burundi 0.6 0.0 0.6 0.0 Grand Total 2,697.3 26.1 1,993.1 31.8 * A blend country that is IDA-eligible, but creditworthy enough to borrow from IBRD 26 | MIGA ANNUAL REPORT 2012 Table 4 – Projects Supported in Fiscal Year 2012 Amount $M Priority Host Country Guarantee Holder Investor Country Sector (Gross Area1 exposure) Asia and the Pacific Afghanistan MTN Group Ltd.* South Africa Telecommun- 81.42 CA, IDA, S-S ications China Standard Chartered Bank Singapore Water and 57.0 COM, S-S Wastewater Pakistan Korea Water Resources Korea Power 148.5 IDA (blend), Corporation COM, S-S Thailand Deutsche Bank AG Germany Banking 20.0 Total 305.9 Europe and Central Asia Albania EVN AG Austria Power 159.4 COM Bosnia and SID - Slovenska Izvozna in Slovenia Services 13.9 CA, IDA Herzegovina Razvojna (blend)3 Bosnia and SID - Slovenska Izvozna in Slovenia Services 5.6 CA, IDA Herzegovina Razvojna (blend)3 Bosnia and SID - Slovenska Izvozna in Slovenia Services 43.1 CA, IDA Herzegovina Razvojna (blend)3 Bosnia and SID - Slovenska Izvozna in Slovenia Services 37.7 CA, IDA Herzegovina Razvojna (blend)3 Croatia SID - Slovenska Izvozna in Slovenia Services 29.0 Razvojna Croatia SID - Slovenska Izvozna in Slovenia Services 5.9 Razvojna Croatia SID - Slovenska Izvozna in Slovenia Services 8.1 Razvojna Croatia SID - Slovenska Izvozna in Slovenia Services 8.2 Razvojna Croatia UniCredit Bank Austria AG* Austria Banking 298.8 Georgia ProCredit Holding AG* Germany Banking 13.5 CA Moldova I.C.S. Raiffeisen Leasing S.R.L.* Romania Banking 6.5 IDA, S-S Russian FG Volga Farming Ltd. Cyprus Agribusiness 49.5 Federation MIGA ANNUAL REPORT 2012 | 27 Table 4 – Projects Supported in Fiscal Year 2012 (cont’d) Amount $M Priority Host Country Guarantee Holder Investor Country Sector (Gross Area1 exposure) Europe and Central Asia (cont’d) Serbia ProCredit Holding AG* Germany Banking 80.6 Serbia Mercator – Serbia Slovenia Services 12.8 Serbia Mercator – Serbia Slovenia Services 16.7 Turkmenistan Efes Sinai Yatirim Holding A.S* Turkey Manufacturing 8.7 S-S Ukraine n.v. Whirlpool Europe Belgium Manufacturing 6.6 Coordination Center s.a. Ukraine ProCredit Bank JSC* Germany Banking 4.0 Uzbekistan BNP Paribas SA Switzerland Oil and Gas 119.5 IDA (blend), COM, S-S Total 928.0 Latin America and the Caribbean Bolivia ProCredit Holding AG Germany Banking 10.8 IDA El Salvador ProCredit Holding AG Germany Banking 22.8 Panama Citibank N.A. United States Transportation 320.0 COM Total 353.6 Middle East and North Africa Jordan Albermarle Corporation United States Manufacturing 199.8 Morocco Fons Mediterrania Capital, F.C.R. Spain Agribusiness 2.7 de Regimen Simplificado Morocco Fons Mediterrania Capital, F.C.R. Spain Manufacturing 3.5 de Regimen Simplificado Tunisia BNP Paribas France Transportation 217.7 COM Tunisia Fons Mediterrania Capital, F.C.R. Spain Services 5.1 de Regimen Simplificado Tunisia Fons Mediterrania Capital, F.C.R. Spain Manufacturing 4.1 de Regimen Simplificado West Bank and Palestine Industrial Estate West Bank and Agribusiness 6.6 CA, IDA, S-S Gaza4 Development Company; Al Gaza Mashriq Real Estate Company; The Palestinian Recycling Company; Siraj Palestine Fund West Bank and National Beverage Company West Bank and Manufacturing 2.3 CA, IDA, S-S Gaza4 Gaza Total 441.7 28 | MIGA ANNUAL REPORT 2012 Table 4 – Projects Supported in Fiscal Year 2012 (cont’d) Amount $M Priority Host Country Guarantee Holder Investor Country Sector (Gross Area1 exposure) Sub-Saharan Africa Benin Bureau Veritas SA France Services 7.1 IDA Botswana ADC Financial Services and Mauritius Banking 12.1 Corporate Development Burundi MXS NV Belgium Services 0.7 CA, IDA Cameroon 4G Africa AG Switzerland Telecommun- 6.5 IDA ications Côte d’Ivoire Africa Finance Corporation; Nigeria, South Transportation 145 CA, IDA, Pan African Infrastructure Africa, United COM, S-S Development Fund; BMCE Bank Kingdom, International Plc; FMO; Bouygues Netherlands, Travaux Publics S.A. France Ethiopia Unifruit Limited United Kingdom Agribusiness 2.9 IDA Ghana Société Générale France Power 88.4 IDA, COM Ghana Africa Renewables Limited Belgium, Côte Manufacturing 9.2 IDA d’Ivoire, United Kingdom Kenya Absa Capital, a division of Absa South Africa Power 61.5 IDA, COM, Bank Limited S-S Kenya Ormat Holding Corp.* Cayman Islands Power 99.0 IDA, COM Rwanda S.S.A. Bakhresa, M.S. Bakhresa Tanzania Agribusiness 14.8 IDA, S-S and A.S.S. Bakhresa Rwanda KivuWatt Holdings* Luxembourg Power 66.8 IDA, COM Senegal Standard Bank Plc United Kingdom Infrastructure 99.0 IDA, COM Sierra Leone Kjaer Group A/S Denmark Services 0.9 IDA, CA South Africa Habib Bank AG Zurich* Switzerland Banking 12.5 South Africa ADC IT & Payment Solutions* Mauritius Banking 0.8 Zambia Chayton Atlas Investments* Mauritius Agribusiness 9.5 IDA, S-S Total 636.4 * Additional coverage provided to projects underwritten in previous fiscal years and counted as a “new project��? in previous fiscal years and as a “project supported��? in FY12 1. Projects in priority areas as follows: CA: conflict-affected country; IDA: IDA-eligible country; COM: complex project in infrastructure or extractive industries; S-S: support to a South-South investment between MIGA’s developing-member (category two) countries 2. Excludes $1.9 million underwritten through the MIGA-administered Afghanistan Investment Guarantee Facility 3. Blend countries: IDA-eligible but creditworthy enough to borrow from IBRD 4. Underwritten through the MIGA-Administered West Bank and Gaza Investment Guarantee Trust Fund MIGA ANNUAL REPORT 2012 | 29 Research and Knowledge New report highlights the relationship As part of its research and knowledge agenda, MIGA published its third annual World Investment and Political between political regimes and the risk of Risk report on political risk perceptions and management. The 2011 report focused on expropriation, a political risk expropriation with a long and recurring history. It examined the moti- vations of host-country governments in deciding whether or not to expropriate. A principal finding of the report was that the propensity to expropriate is significantly higher in countries with non-democratic regimes. This finding should be of interest to investors who are more concerned about political stability than about regime type and political institutions. The report highlighted the role of political or economic shocks in triggering expro- priations and found that investor disputes are more likely to be resolved by democratically elected than non-demo- cratic governments. The report also addressed general trends in the global economy and trends in foreign direct investment (FDI), as well as corporate perceptions of political risk and risk-mitigation strategies through a foreign investor survey. The findings of the survey affirmed that political risk remains a salient constraint to investment in developing countries, becoming more prominent over the next three years as current concerns about the global economy subside. Special attention this year was paid to the reaction of multinational enterprises to the political turmoil and events in the Middle East and North Africa. The survey findings showed that while the crisis in that region has had a negative effect on FDI, a significant number of corporate investors surveyed had either not changed their investment plans or had adopted a “wait 30 | MIGA ANNUAL REPORT 2012 and see��? approach. Stability was found to be critical for triggers of political risks, as well as operational aspects persuading investors to resume investments. The report directly related to political risk insurance coverage. The also addressed the latest developments in the political findings of our research agenda will inform the Agency’s risk insurance industry. upcoming World Investment and Political Risk report, which will focus on the issue of sovereign risk. MIGA also continues to explore partnerships within the World Bank Group, as well as with external institutions, to address political economy issues associated with Figure 1.7 Figure 1.8 Figure 8 – Ranking of the most impor- Figure 9 – Political risks of most tant constraints for FDI in developing concern to foreign investors countries (percent of respondents) (percent of respondents) Over the next 12 months Adverse regulatory Access to financing changes Access to qualified staff Breach of contract Infrastructure capacity Transfer and con- vertibility restrictions Macroeconomic instability Civil disturbance Limited market opportunities Non-honoring of Political risk gov’t guarantees Corruption Expropriation nationalization Increased gov’t Terrorism regulation in the aftermath of the global financial crisis War Other 0 10 20 30 40 50 60 0 5 10 15 20 In the next 12 months Over the In the next three years next three years Source: MIGA-EIU Political Risk Survey 2011 Access to financing Note: Percentages add up to more than 100 percent because of multiple selections Access to qualified staff Infrastructure capacity Macroeconomic instability Limited market opportunities Political risk Corruption Increased gov’t regulation in the aftermath of the global financial crisis Other 0 5 10 15 20 Source: MIGA-EIU Political Risk Survey 2011 MIGA ANNUAL REPORT 2012 | 31 GUARANTEES asia and the pacific In a global economy still facing considerable risks and uncertainties about the sustainability of its recovery, the East Asia and Pacific region has fared well. While the growth of GDP is estimated to have slowed to 8.3 percent in 2011, and is forecast to ease further to 7.6 percent in 2012, the East Asia and the Pacific region continues to be the fastest growing in the developing world. For China, the biggest economy in the region accounting for 80 percent of its GDP, growth is expected to slow again to 8.2 percent in 2012 (as compared with 10.4 percent in 2010). The region’s industrial production has largely recovered from the negative effects of the earthquake and tsunami in Japan and more recently from the floods in Thailand. Following a moderate increase in 2011, net FDI inflows into East Asia and the Pacific are forecast to decline in 2012 to $230 billion. South Asia has witnessed a significant slowdown in 2012, with GDP growth declining to an estimated 6.4 percent from 7.1 percent in 2011, the outcome of measures targeting high inflation and large fiscal deficits. The GDP growth of India, which accounts for 80 percent of the region’s GDP, is projected to be 6.9 percent in the country’s current fiscal year. In South Asia, net FDI inflows are projected to reach $45 billion in 2012, a decline from the $52 billion received in 2011. For both regions, improvements in the external environment, especially in major export destination countries, would help strengthen GDP growth. While South Asia’s exposure to euro-zone banks has been limited, in both regions con- tagion from the European debt crisis has had a negative effect on regional stock markets and foreign bank lending. Both regions, however, continue to be attractive destinations for FDI, with investors drawn mostly to the fast-growing economies of China, India, Indonesia, and Malaysia. Responding to the region’s dynamism with respect to FDI, in fiscal year 2012 MIGA built on its momentum in estab- lishing an Asian hub and provided guarantees for four projects. At year-end, MIGA’s gross guarantee exposure stood at $1.4 billion, equivalent to 13 percent of the Agency’s outstanding portfolio. Afghanistan This issuance replaces an earlier guarantee of $76.5 million issued by MIGA that covered investments into Project name: MTN Afghanistan the first phase of the project. The additional coverage is supporting the expansion of operations by MTNA, which Guarantee holder: MTN Group Limited is being financed through a shareholder loan and an equity investment from its holding company MTN Dubai On July 7, 2011, MIGA issued guarantees totaling $80.4 Limited (MTND). The purpose of the new investment million to MTN Group Limited of South Africa for its is to improve MTNA’s mobile communication services, investment in MTN Afghanistan (MTNA), formerly increase geographical coverage, and enhance quality of known as Areeba Afghanistan LLC. The coverage is for signal. An additional amount of $1.9 million of first-loss a period of up to 10 years against the risks of transfer coverage is insured under the Afghanistan Investment restriction and expropriation. Guarantee Facility. 32 | MIGA ANNUAL REPORT 2012 MTNA has contributed to the development of the tele- in these cities by increasing their treatment capacity and communications sector in Afghanistan and continues to upgrading their water quality. do so by providing mobile telecommunication services, including the installation, operation, and maintenance The project is aligned with the World Bank Group’s of GSM network, wireless communication, and internet Country Partnership Strategy for China, which calls for services. Afghanistan’s mobile network has increased the use of MIGA guarantees to support infrastructure sevenfold in the past five years from two million mobile development through foreign direct investment. This subscribers in 2006 to around 13.7 million in 2010, with project is also aligned with MIGA’s strategic priorities of a penetration rate of 47 per 100 inhabitants. MTNA is supporting South-South investments and complex infra- playing an important role in helping expand coverage structure projects. in remote areas of the country, with the number of sub- scribers expected to grow to over 18 million by 2014. This project is aligned with the World Bank Group’s Pakistan Interim Strategy for Afghanistan that includes “sup- porting growth of the private sector��? as one of the Project name: Star Hydro Power Ltd. three strategic pillars. Mobile telecommunications are fundamentally important to the operations of the wider Guarantee holder: Korea Water Resources Corporation private sector in Afghanistan. This project is also aligned (K-water) with MIGA’s objectives of encouraging investments in conflict-affected countries, promoting “South-South��? On June 29, 2012, MIGA issued a guarantee of $148.5 investments, and facilitating investments in infra- million to cover an equity investment by K-water, structure, including telecommunications. MIGA’s partici- acting on behalf of itself and Daewoo Engineering and pation in the project also complements the work of the Construction Company, in Star Hydro Power Limited IFC, which has an equity stake in this project and is also incorporated in Pakistan through KDS Hydro Private providing debt financing. Limited of Singapore. The coverage is for a period of up to 20 years against the risk of breach of contract. Star Hydro Power Limited will build, own, operate, and China transfer a run-of-river hydropower plant situated 120 kilo- meters northeast of Islamabad near the village of Patrind Project name: SCB Wastewater Treatment Project in the city of Muzaffarabad. The capacity of the plant will be 147 megawatts with annual production of 575 GWh. Guarantee holder: Standard Chartered Bank The total project cost is approximately $409 million. Electricity generated by the plant will be sold under a On March 28, 2012, MIGA issued a guarantee of $57 30-year power purchase agreement to the state-owned million covering an investment by Standard Chartered National Transmission and Dispatch Company Limited. Bank (SCB) in Singapore to support investment into three wastewater treatment plants in China. The The project will help alleviate power shortages in Pakistan, coverage is for a period of up to six years against the risk lower the country’s average electricity generation costs, of expropriation. and reduce reliance on imported fuel oil. Further, the project reduces the country’s greenhouse gas emissions The project involves the acquisition, expansion, and and it is also expected to generate new jobs during con- upgrading of three wastewater treatment plants in Hebei struction and operation periods. Province. These plants are held by Maxrise Envirogroup Ltd (Maxrise) in Hong Kong SAR, China, which is owned The project is aligned with the World Bank Group’s by two Singaporean companies. The total investment for Country Partnership Strategy for Pakistan, which the project is estimated at $93 million. acknowledges that power is the country’s most pressing infrastructure need. In particular, the strategy calls for Wastewater treatment is a critical environmental issue the development of renewable power generation, such as in China especially in the second and third level cities hydropower. such as Tangshan and Bazhou in Hebei Province. Limited wastewater treatment capacity and the low grade of This project is also aligned with MIGA’s strategic priorities treated wastewater are major challenges for these cities of supporting investments in complex infrastructure and have significant public health implications. The projects, South-South investments, as well as investments project is part of the local governments’ plan to expand into countries eligible for assistance from the International wastewater treatment capacity and upgrade the quality Development Association. of treated water. By introducing two international, profes- sional, and experienced wastewater treatment companies, the project will be able to significantly improve its plants MIGA ANNUAL REPORT 2012 | 33 investment banking thereby contributing to deepening Thailand and strengthening the local financial and capital markets. Project name: Deutsche Bank AG, Bangkok Branch The global financial crisis had a significant impact on the Thai economy in 2009. Although the economy Guarantee holder: Deutsche Bank AG rebounded strongly in 2010 due to a surge in exports and fiscal stimulus, Thailand’s economy faces several On July 29, 2011, MIGA issued a guarantee of $20 million long-term challenges to achieving higher and sustainable covering an investment by Deutsche Bank AG in its economic growth. Bangkok branch in Thailand. The coverage is for a period of up to four years against the risk of transfer restriction. MIGA’s support for this project is consistent with objectives of the government’s Capital Market This project involves insurance of a revolving shareholder Development Master Plan for 2009-2013, which sets out loan facility from Deutsche Bank AG to its Bangkok a roadmap for finance sector development and reforms branch. Currently outstanding tranches will be repaid and over the medium term. The master plan focuses on key the branch is expected to draw new tranches under the dimensions of capital markets including developing the facility agreement before it expires. The loan serves as a equity, bond, and money markets. The goal is to help the capital injection to support Deutsche Bank’s investment country transform from a middle-income to high-income banking activities in Thailand as part of the bank’s asset- economy through increased contribution of the domestic liability management. MIGA’s coverage is complementing capital market to financing domestic investment and and diversifying risk mitigation provided by other market economic growth. participants. The branch is active in interbank market and 34 | MIGA ANNUAL REPORT 2012 GUARANTEES europe and central asia Owing to a deepening of the euro-zone debt crisis, GDP growth in Europe and Central Asia is projected to decline to 3.3 percent in 2012 (from 5.6 percent in 2011), but with important differences among the countries in the region. Robust domestic demand in some countries (for example, the Russian Federation, Lithuania, and Turkey) has led to strong growth despite the sovereign debt crisis and turmoil in the high-income countries of Europe. Resource-rich economies have also benefited from elevated commodity prices. Other countries in the region (Bulgaria, Macedonia FYR) have been more adversely affected by the euro-zone crisis, especially by the deleveraging of European banks with subsidiaries there. Net FDI inflows in Europe and Central Asia increased by an estimated 21 percent in 2011 to $105 billion, but are projected to decline to $81 billion in 2012. The decline is driven by economic developments and ongoing deleveraging in the high- income economies in the region, which dampened their capacity to invest overseas. In addition, lower growth in the region’s developing economies reduced their attractiveness to FDI. However, FDI performance among the developing countries in the region has been mixed: large declines in Bulgaria and Ukraine in 2011 were in sharp contrast to significant increases in Kazakhstan, Latvia, and Turkey. MIGA’s efforts in Europe and Central Asia sought to bolster investment in the region in a time of stress. During this fiscal year, MIGA provided guarantees for 20 projects in the region. At year-end, MIGA’s gross guarantee exposure stood at $5.5 billion, or 54 percent of the Agency’s total outstanding portfolio. VERBUND AG and the Ministry of Economy of Albania. In Albania 2010, the two project sponsors, EVN AG and VERBUND AG, negotiated a shareholder agreement to jointly develop Project name: Energji Ashta Shpk (Ashta) and operate the project. Guarantee holder: EVN AG The project is the fourth plant on the Drin River but the first to be built in 30 years. It is located in the district of On February 1, 2012, MIGA issued guarantees totaling Shkoder in northwestern Albania. The developers have e21.4 million ($159.4 million) to EVN AG of Austria for also entered into power off-take and cascade agreements its investments in Energji Ashta Shpk (Ashta) in Albania. with the Albanian public wholesale electricity supplier, MIGA’s coverage is for a period of up to 20 years for Korporate Elecktroenergjetike Shqiptare Sh.A (KESH). its equity investment and up to 10 years for its loan guarantee. Coverage insures against the risks of transfer The project is expected to have high developmental restriction, expropriation, war and civil disturbance, and impact by providing clean, renewable energy while helping breach of contract. to alleviate the power shortage in the country in the medium and long term. The project will also reduce the The project involves the construction of a 52.9 megawatt country’s load shedding and electricity imports. (installed capacity) run-of-river hydropower plant on a build, own, operate, and transfer basis under a 35-year The project also aligns well with the current World Bank concession agreement originally entered into between Country Partnership Strategy for Albania. One of the MIGA ANNUAL REPORT 2012 | 35 three strategic objectives of the strategy is to accelerate coverage to the Mercator retail group (Mercator) Albania’s economic recovery through improved and more in Bosnia and Herzegovina. MIGA is reinsuring the financially sustainable infrastructure services such as investment for a period of up to six years against the risks roads, energy, and irrigation. In the energy sector, the of transfer restriction, expropriation, and war and civil strategy focuses on consolidating current reforms and disturbance. completing ongoing investments while promoting new and private financing mechanisms. This project is part of MIGA’s overall support to SID Bank, Inc.; please refer to Mercator – BH Bosnia and Herzegovina above. Bosnia and Herzegovina Project name: Mercator – BH Bosnia and Croatia Herzegovina (three projects) Project name: Mercator – Croatia (four projects) Guarantee holder: SID – Slovenska Izvozna in Razvojna Banka, d.d., Ljubljana (SID Bank, Inc.; Ljubljana) Guarantee holder: SID – Slovenska Izvozna in Razvojna Banka, d.d., Ljubljana (SID Bank, Inc.; Ljubljana) On August 4, 2011, MIGA issued guarantees of $5.6 million, $43.1 million, and $13.9 million for reinsurance On August 4, 2011, MIGA issued guarantees of $5.9 of the SID Bank, Inc.; Ljubljana coverage to the Mercator million, $29 million, $8.1 million, and $8.2 million for retail group (Mercator) in Bosnia and Herzegovina. MIGA reinsurance of the SID Bank, Inc.; Ljubljana coverage to is reinsuring the investment for a period of up to six years the Mercator retail group (Mercator) in Croatia. MIGA is against the risks of transfer restriction, expropriation, and reinsuring the investment for a period of up to six years war and civil disturbance. against the risks of transfer restriction, expropriation, and war and civil disturbance. MIGA’s support to SID Bank, Inc.; Ljubljana is in accordance with the Agency’s mandate to cooperate with This project brief comprises four projects in Croatia for the national entities of its member countries, as stated in guarantee holder and is part of MIGA’s overall support to MIGA’s Convention. By providing facultative reinsurance, SID Bank, Inc.; please refer to Mercator – BH Bosnia and MIGA is allowing SID Bank, Inc.; Ljubljana to reduce its Herzegovina above. net exposure to Mercator and to free up capacity for other investment insurance projects. Mercator is helping to stimulate exports among Balkan Croatia countries by carrying goods from the other countries in each of its retail locations. As a result, Mercator is F Banka d.d. Project name: Zagrebacka expanding the venue for suppliers to sell not only in their respective countries, but also in neighboring countries Guarantee Holder: UniCredit Bank Austria AG where Mercator has an established presence. In addition, Mercator’s further expansion in the Balkans, supported On June 29, 2012, MIGA issued a guarantee of $298.8 by SID Bank, Inc.; Ljubljana and MIGA, will provide million to cover UniCredit Bank Austria AG’s (UBA) e250 employment and retail training opportunities in these F million shareholder loan to its subsidiary, Zagrebacka countries. Banka d.d. (ZABA) in Croatia. The coverage is for a period of up to three years against the risks of transfer MIGA is also helping to establish best practices with restriction, expropriation, and war and civil disturbance. respect to corporate governance as well as environmental and social policies in the host countries. The guarantee represents MIGA’s continued support to UBA in Croatia, as the Agency covered UBA’s two previous shareholder loans to ZABA of e200 million in 2009 and e280 million in 2010. Bosnia and Herzegovina The purpose of this shareholder loan is to support the Project name: Mercator – BL Bosnia and Herzegovina development of ZABA’s loan portfolio. Accordingly, UBA intends to use a part of the loan to improve ZABA’s Guarantee holder: SID – Slovenska Izvozna in Razvojna structural liquidity ratio by lengthening the tenor of Banka, d.d., Ljubljana (SID Bank, Inc.; Ljubljana) ZABA’s existing medium-term funding. The remaining amount is allocated to support new medium-term lending On August 4, 2011, MIGA issued a guarantee of $37.7 in the Croatian economy. million for reinsurance of the SID Bank, Inc.; Ljubljana 36 | MIGA ANNUAL REPORT 2012 Several years after the global financial crisis, the state risk weighting determines the amount of equity required of Croatia’s economy remains delicate as a result of to maintain a specified CAR in accordance with the spillover effects from over-indebted neighboring euro- German Banking Act. zone countries. This loan forms part of UBA’s continuing efforts to support ZABA during a time of economic ProCredit Holding AG & Co. KGaA approached MIGA contraction and uncertainty, strengthen ZABA’s balance to obtain capital relief from the CAR requirements. By sheet, and improve access to credit within the economy. obtaining MIGA’s insurance against the risk of expro- Given ZABA’s size and systemic importance in the priation of funds, the risk weighting for mandatory Croatian banking sector, these measures will play critical reserves held at the central bank can be reduced. A lower roles in increasing market liquidity and lending activity in risk weighting would allow ProCredit Holding AG & Co. the general economy. KGaA to free up equity currently tied up for CAR main- tenance purposes, thereby allowing these funds to be One of the main objectives of the World Bank Group’s injected into its subsidiary banks. This in turn will allow Country Partnership Strategy for Croatia for 2009-2012 ProCredit Holding AG & Co. KGaA’s emerging market is to strengthen private sector-led growth and accelerate subsidiary banks across its network to increase their convergence with the European Union. The project is fully lending activities. consistent with this objective. MIGA’s support will allow ProCredit Holding AG & Co. From a regional perspective, MIGA’s support to this KGaA to direct equity to subsidiaries with the greatest project forms part of the World Bank Group’s current need. The additional services these banks will be able to two-year plan to actively bolster countries in emerging offer will help stimulate growth, generate employment, Europe and Central Asia that are impacted by the euro- and reduce poverty. zone crisis. MIGA’s support for this project is aligned with the World Bank Group’s microfinance strategy that includes improving the supply of microfinance in large, under- Georgia served markets, enhancing deposit capacity by assisting microfinance institutions in savings mobilization, capacity Project name: ProCredit Group Central Bank building, creating and shaping markets, and fostering Mandatory Reserves Coverage innovation. Guarantee holder: ProCredit Holding AG & Co. KGaA On December 22, 2011, MIGA issued a guarantee of $13.5 Moldova million to cover an investment by ProCredit Holding AG & Co. KGaA in its subsidiary in Georgia. The coverage is for Project name: I.C.S. Raiffeisen Leasing S.R.L. a period of up to 10 years against the risk of expropriation of funds for mandatory reserves held by the subsidiary in Guarantee holder: Raiffeisen Bank S.A. the central bank of its jurisdiction. On October 21, 2011, MIGA issued a guarantee of e4.75 MIGA provided coverage of $9 million under the project million ($6.5 million equivalent) to Raiffeisen Bank S.A. in fiscal year 2011. This additional coverage brings MIGA’s of Romania for its shareholder loan to I.C.S. Raiffeisen exposure under the project to $22.9 million. Leasing S.R.L in Moldova (RLMD). The coverage is for a period of up to five years against the risks of war and civil This project is part of a master contract that MIGA disturbance, transfer restriction, and expropriation. has issued. ProCredit Holding AG & Co. KGaA is head- quartered in Germany and is the parent company of Raiffeisen Bank S.A.’s shareholder loan of e5 million 21 banks (ProCredit group). The ProCredit group is a is aimed at enhancing the capacity of I.C.S. Raiffeisen provider of finance to some 750,000 very small, small, Leasing S.R.L. to provide operating leases for motor and medium enterprises in Latin America, Eastern and vehicles, machinery, and equipment in the Moldovan Central Europe, and Africa. Throughout the world, banks market. Over 50 percent of the total number of lessees are required to maintain mandatory reserves with the supported by this investment are expected to be small central banks of their respective jurisdictions. Currently, and medium enterprises (SMEs). MIGA has provided the ProCredit group’s capital adequacy ratio (CAR) is earlier support for RLMD’s start up and expansion. calculated according to Basel II, but in the future it will also be calculated according to the German Banking Act. This project is expected to contribute to further devel- Under this act, at a consolidated level, reserves deposited opment of the financial sector in Moldova by improving at the various central banks can attract a risk weighting of access to finance, particularly to segments of the economy 100 or even 150 percent depending on the country. This that are currently underserved. The World Bank Group’s MIGA ANNUAL REPORT 2012 | 37 Country Partnership Strategy for Moldova emphasizes is also expected to support local processing industries, the need to enhance competitiveness of the country’s fodder industries for livestock and biotechnology, storage, enterprise sector, encourage more investment activity, and logistics, and trade. promote the expansion of the SME sector. The project is in line with the World Bank Group’s Country The project is also aligned with MIGA’s strategy of Partnership Strategy that notes a need to strengthen promoting investments into countries eligible for con- Russia’s global competitiveness in traditional economic cessional lending from the International Development sectors, including agriculture. Association and South-South investments. The project is underwritten through MIGA’s Small Investment Program. Serbia Project name: Mercator – Serbia (two projects) Russian Federation Guarantee holder: SID – Slovenska Izvozna in Razvojna Banka, d.d., Ljubljana (SID Bank, Inc.; Ljubljana) Project name: Volga Farming On July 15, 2011, MIGA issued guarantees of $12.8 million Guarantee holder: FG Volga Farming Ltd. and $16.7 million for reinsurance of the SID Bank, Inc.; Ljubljana coverage to the Mercator retail group (Mercator) On October 13, 2011, MIGA issued guarantees totaling in Serbia. MIGA’s reinsurance for the investment results $49.5 million to FG Volga Farming Ltd. (VF), a Cyprus- in a gross exposure of $277.4 million. MIGA is reinsuring incorporated company, for its agriculture investment in the investment for a period of up to six years against the central and southern Russia. The coverage is for a period risks of transfer restriction, expropriation, and war and of 15 years against the risks of expropriation, inconvert- civil disturbance. ibility, and transfer restriction. This project brief comprises two projects in Serbia for the The project involves an investment by VF in agribusiness guarantee holder and is part of MIGA’s overall support to operations in Russia. VF plans to lease up to 90,000 SID Bank, Inc.; please refer to Mercator–BH Bosnia and hectares of agricultural land in the black-earth region Herzegovina above. in central and southern Russia, and purchase up to 50 hectares of non-agricultural land with buildings and/ or facilities to be used for the farming business. VF also plans to operate, modernize, and expand farms and Serbia related agribusiness operations on this land in order to produce, store, process, and sell grain and other crops Project name: ProCredit Group Central Bank such as barley, sunflower, and peas. Mandatory Reserves Coverage The project is expected to have numerous developmental Guarantee Holder: ProCredit Holding AG & Co. KGaA impacts. VF’s investment will expand the land area under cultivation, since part of the leased land is currently fallow. On July 28, 2011, MIGA issued a guarantee of $80.6 The conversion of derelict agricultural land into modern million to ProCredit Holding (PCH) covering its production will increase soil fertility and result in an investment in its subsidiary in Serbia. The coverage is for expansion of grain production. a period of up to 10 years against the risk of expropriation of funds for mandatory reserves held by the subsidiary in In addition, VF’s investments in management, equipment, the central bank of its jurisdiction. storage, safety, technology, and infrastructure will establish a farming operation in line with international standards. MIGA was previously covering a total of $4.4 million In particular, the project is expected to transfer knowledge under the project. The additional coverage of $80.6 in the areas of agricultural technology, business pro- million complies with ProCredit’s request to convert cesses, project management, organizational development, outstanding capacity to current coverage in order to con- and land administration to employees. Dissemination of solidate all its political risk insurance requirements under such knowledge and experience through local institutions the MIGA framework. of higher and professional education is also envisaged. This project is part of a master contract that MIGA has The project will impact regional development through issued. Please refer to the project description for ProCredit the recruitment of local personnel, as well as the repair Georgia above. and maintenance of local road infrastructure. The project 38 | MIGA ANNUAL REPORT 2012 to 10 years against the risk of expropriation of funds for Turkmenistan mandatory reserves held by the subsidiary in the central bank of its jurisdiction. Project name: Turkmenistan Coca-Cola Bottlers MIGA provided coverage of $5.6 million under the project Guarantee holder: Coca-Cola Icecek A.S. in fiscal year 2011. This additional coverage brings MIGA’s exposure under the project to $9.6 million. On June 25, 2012, MIGA issued a guarantee of $8.7 million to cover an investment by by Coca-Cola Icecek This project is part of a master contract that MIGA has A.S. (CCI) of Turkey in Turkmenistan Coca-Cola Bottlers issued. Please refer to the project description for ProCredit (TCCB) in Turkmenistan. The coverage is for a period Georgia above. of up to seven years against the risks of expropriation, transfer restriction, and war and civil disturbance. The project consists of the continued expansion and Ukraine modernization of a soft drink bottling facility in the city of Ashgabat. TCCB bottles, distributes, and sells soft drink Project name: Whirlpool Ukraine LLC products throughout the country. Guarantee Holder: n.v. Whirlpool Europe Coordination MIGA has supported this project since 1999. Since then, Center s.a. TCCB has continued to grow and meet growing local demand by installing three additional production lines. On June 22, 2012, MIGA issued a guarantee of $6.6 TCCB has widened its reach by increasing its distribution million to cover a non-shareholder loan from n.v. and warehousing network. Whirlpool Europe Coordination Center s.a. of Belgium to Whirlpool Ukraine LLC. The coverage is for a period of TCCB’s expansion and modernization contribute to up to three years against the risks of transfer restriction, the strengthening of local businesses through the pro- expropriation, and war and civil disturbance. curement of raw materials. Eighty percent of plastic pre-forms are sourced from a local supplier and TCCB Whirlpool Ukraine (WU) is the local sales office for procures pallets and propane from the local market. The Whirlpool Corporation, a global leader in the home project’s investment in human capital has continued to appliance industry. It sells air conditioners, washing grow—from 185 jobs in 1999 to approximately 360 jobs in machines, microwaves, dishwashers, built-in stoves, 2011 with wages and benefits 10 percent higher than the hoods, and built-in ovens to distributors, wholesalers, country-wide standards; additional staff is also expected to and retailers in Ukraine. WU’s operations comprise a be added. Workers also benefit from substantial transfer sales office in downtown Kiev and a warehouse in the of technical and managerial expertise. There is anticipated outskirts of the city. WU buys its inventory from other employment growth among local suppliers of goods and Whirlpool entities and from third-party vendors. The services as TCCB’s production increases. company receives the products fully assembled, stores them in its warehouse until they are sold, and delivers The project is aligned with MIGA’s strategic priority of them to its customers. WU plans to serve the Moldova, supporting South-South investments. Georgia, Uzbekistan, Armenia, and Azerbaijan markets in the future. WU has had a positive development impact in Kiev Ukraine since its conversion into a sales operation in 2011. The operation hired six additional employees for a total Project name: ProCredit Group Central Bank of 30 permanent positions and expects to open new Mandatory Reserves Coverage positions as the company grows and expands into more markets. WU also participates in knowledge transfer by Guarantee Holder: ProCredit Holding AG & Co. KGaA encouraging its employees to take courses at Whirlpool University, Whirlpool’s internal training program. Courses On December 22, 2011, MIGA issued a guarantee of are designed to help the company’s personnel develop e3 million (about $4 million equivalent) to cover an leadership, operational, and cross-functional compe- investment by ProCredit Holding AG & Co. KGaA in its tencies. subsidiary in Ukraine. The coverage is for a period of up MIGA ANNUAL REPORT 2012 | 39 The project is aligned with the World Bank Group’s an external validation of the company’s efforts to meet Country Partnership Strategy for Ukraine, which advocates international best practice when it comes to managing the focusing on growth, competitiveness, job creation, governance, environmental, and social impacts of oil and improvements in the business climate, and the promotion gas projects. This is particularly important as Uzbekistan of domestic and foreign direct investments to achieve pro- has begun to attract large-scale foreign investment into its ductivity improvements. upstream gas sector. The project was underwritten through MIGA’s Small Benefits include significant direct and indirect Investment Program. employment. Locally-sourced employees will not be less than 80 percent of staff and locally-sourced contractors will not be less than 60 percent of all contractors. LUKOIL will provide training to all staff, with a specific focus on Uzbekistan the training of managers. Local procurement of materials is also expected to be significant. Project name: LUKOIL Overseas Uzbekistan Ltd. The project is expected to be a major source of foreign Guarantee Holder: BNP Paribas (Suisse) SA exchange and government revenues. In addition, as part as of the company’s commitment to corporate social On May 16, 2012, MIGA issued a guarantee of $119.5 responsibility, LUKOIL supports social development million to BNP Paribas (Suisse) SA of Switzerland—acting projects for the community. Recent examples of these for itself and Crédit Agricole Corporate and Investment include the donation of medical equipment and supplies, Bank and the Korean Development Bank—to cover a non- construction of playgrounds, and support of education shareholder loan to LUKOIL Overseas Uzbekistan Ltd. programs through provision of computers, books, and for the Khauzak-Shady Block and Kandym Field Group sports equipment. project. The coverage is for a period of up to seven years against the risks of transfer restriction, expropriation, At a broader level, MIGA is supporting an important breach of contract, and war and civil disturbance. investment in a developing economy that has been lagging behind its peers in the region in attracting foreign The project involves phase two of an upstream gas devel- direct investment. MIGA’s role in this project com- opment of the Khauzak-Shady Block and the Kandym plements the World Bank’s efforts to foster responsible Field Group in Uzbekistan. The proceeds of the loan will and sustainable private sector-led growth in Uzbekistan. be used to finance further development of gas production The project is also aligned with MIGA’s commitment infrastructure at the Khauzak-Shady Block and the devel- to support more investments in complex deals in infra- opment of the Kandym Field Group, which will include a structure, as well as those in countries eligible for con- gas-processing facility. This project furthers development cessional lending from the International Development begun in 2005 under a production sharing agreement Association. As beneficial ownership of the project accrues (PSA) between LUKOIL, the national holding company to LUKOIL of Russia, it also addresses MIGA’s com- “Uzbekneftegaz,��? and the Republic of Uzbekistan repre- mitment to support South-South investments. sented by the Ministry of Economy. This project represents one of the largest foreign investments in Uzbekistan and one of few foreign companies operating under a PSA together with Uzbekneftegaz. Through this project, MIGA supports an investment by a strong technical company in a remote and relatively poor region of Uzbekistan. MIGA’s involvement provides 40 | MIGA ANNUAL REPORT 2012 guarantees latin america and the caribbean Driven by strong domestic demand and elevated commodity prices, GDP growth in Latin America and the Caribbean increased robustly by an estimated 4.3 percent in 2011, though GDP growth is expected to decline to 3.5 percent in 2012. Elevated oil, metals, and mineral prices have benefited commodity exporters in the region and domestic demand has been an important driver of growth in other countries. In Brazil, the region’s biggest economy, GDP growth is projected to decelerate to 2.9 percent in 2012 (from 7.5 percent in 2010) in response to slower growth in its trading partners (high- income countries and China, its biggest trading partner), earlier measures to address inflationary pressures, and slower growth in domestic demand. Net FDI inflows jumped from $113 billion in 2010 to $155 billion in 2011 in Latin America and the Caribbean, the biggest increase of all developing regions, but are projected to decline to $119 billion in 2012. FDI into Latin America and the Caribbean continues to be driven by robust growth, large consumer markets, and natural resources. During this fiscal year, MIGA provided guarantees for three projects in the region. At year-end, MIGA’s gross guarantee exposure stood at $1.1 billion, equivalent to 10 percent of the Agency’s outstanding portfolio. Bolivia the ProCredit group’s capital adequacy ratio (CAR) is calculated according to Basel II, but in the future it will Project name: ProCredit Group Central Bank also be calculated according to the German Banking Act. Mandatory Reserves Coverage Under this act, at a consolidated level, reserves deposited at the various central banks can attract a risk weighting of Guarantee holder: ProCredit Holding AG & Co. KGaA 100 or even 150 percent depending on the country. This risk weighting determines the amount of equity required On December 22, 2011, MIGA issued a guarantee of $10.8 to maintain a specified CAR in accordance with the million to cover an investment by ProCredit Holding AG & German Banking Act. Co. KGaA in its subsidiary in Bolivia. The coverage is for a period of up to 10 years against the risk of expropriation ProCredit Holding AG & Co. KGaA approached MIGA of funds for mandatory reserves held by the subsidiary in to obtain capital relief from the CAR requirements. By the central bank of its jurisdiction. obtaining MIGA’s insurance against the risk of expro- priation of funds, the risk weighting for mandatory This project is part of a master contract that MIGA reserves held at the central bank can be reduced. A lower has issued. ProCredit Holding AG & Co. KGaA is head- risk weighting would allow ProCredit Holding AG & Co. quartered in Germany and is the parent company of KGaA to free up equity currently tied up for CAR main- 21 banks (ProCredit group). The ProCredit group is a tenance purposes, thereby allowing these funds to be provider of finance to some 750,000 very small, small, injected into its subsidiary banks. This in turn will allow and medium enterprises in Latin America, Eastern and ProCredit Holding AG & Co. KGaA’s emerging market Central Europe, and Africa. Throughout the world, banks subsidiary banks across its network to increase their are required to maintain mandatory reserves with the lending activities. central banks of their respective jurisdictions. Currently, MIGA ANNUAL REPORT 2012 | 41 MIGA’s support will allow ProCredit Holding AG & Co. The project consists of the greenfield construction KGaA to direct equity to subsidiaries with the greatest (including the acquisition of rolling stock and the con- need. The additional services these banks will be able to struction of depot and maintenance facilities) and offer will help stimulate growth, generate employment, operation of a 13.7 km Line One Metro between the and reduce poverty. northern Los Andes and southwest Albrook areas of Panama City. MIGA’s support for this project is aligned with the World Bank Group’s microfinance strategy which includes The total cost of the Line One Metro is estimated at $1.9 improving the supply of microfinance in large, but under- billion, of which $1.5 billion is related to the turnkey EPC served markets; enhancing deposit capacity by assisting contract entered into by the government of Panama with microfinance institutions in savings mobilization; capacity the “Line One Consortium.��? The Line One Consortium building; creating and shaping markets; and fostering comprises Construtora Norberto Odebrecht S.A. of Brazil innovation. (55 percent) and Fomento de Construcciones y Contratas S.A. (FCC) of Spain (45 percent). The main development impacts that will accrue from the El Salvador project are reduced rush hour travel time between the residential and central areas of Panama City, primarily Project name: ProCredit Group Central Bank Mandatory through reduced congestion and increased access to Reserves Coverage public transportation. The project is also expected to improve road safety and reduce vehicle operating costs Guarantee holder: ProCredit Holding AG & Co. KGaA for non-metro users. On December 22, 2011, MIGA issued a guarantee of $22.8 The project is aligned with MIGA’s commitment to million to cover an investment by ProCredit Holding AG supporting more investments in complex deals in infra- & Co. KGaA in its subsidiary in El Salvador. The coverage structure. is for a period of up to 10 years against the risk of expro- priation of funds for mandatory reserves held by the sub- sidiary in the central bank of its jurisdiction. This project is part of a master contract that MIGA has issued. Please refer to the project description for ProCredit- Bolivia above. Panama Project name: Panama Metro Line One Guarantee holders: Citibank, N.A.; Bank of Tokyo Mitsubishi UFJ Ltd; Mizuho Corporate Bank Ltd On June 30, 2012, MIGA issued a guarantee of $320 million to Citibank, N.A. of the United States, Bank of Tokyo Mitsubishi UFJ Ltd of Japan, and Mizuho Corporate Bank Ltd of Japan. The guarantee covers a $250 million loan as well as interest and other financing costs asso- ciated with the construction of the Line One Metro project in Panama City. The coverage is for a period of up to 12 years against the risk of non-honoring of sovereign financial obligations. 42 | MIGA ANNUAL REPORT 2012 guarantees middle east and north africa Political turmoil, transitions, and conflict in the Middle East and North Africa continue to disrupt economic activity in select countries, affecting economic activity, trade, tourism, and FDI. As a result, the Middle East and North Africa’s GDP growth in 2011 was only 1 percent and is projected to decline again to 0.6 percent in 2012. Oil-importing countries, especially those where political uncertainty remains, face significant challenges from the slowdown in economic activity, growing fiscal imbalances, depleting foreign exchange reserves, and spiking unem- ployment rates. A strong dependency on Europe for trade, where growth is also subdued, is contributing to these challenges. Net FDI inflows to the Middle East and North Africa plummeted in 2011 to $9 billion from $23 billion in 2010, but a small rebound to $12 billion is projected for 2012. As the political turmoil subsides, stronger FDI flows are expected to resume, with $23 billion projected in 2014. However, a return to FDI growth for countries directly affected by the political turmoil will depend on returning to stability, rebuilding confidence, and ensuring that the business envi- ronment remains open to investment. During this fiscal year, MIGA stepped up its efforts in the region to prevent flight from established investments and to encourage additional job-creating FDI. The Agency provided guarantees for eight projects, including two underwritten through the MIGA-administered West Bank and Gaza Investment Guarantee Trust Fund. At year-end, MIGA’s gross guarantee exposure stood at $768 million, equivalent to 7 percent of the Agency’s outstanding portfolio, a historically high representation for the region. Jordan plants. The expansion will double the capacity of JBC’s bromine production and increase the capacity of bromine Project name: Jordan Bromine Company Limited derivatives and the size of its bromine ISO tank fleet in order to meet growing global demand for bromine Guarantee holder: Albemarle Corporation and bromine derivatives. These materials are typically used in chemical synthesis, oil and gas well drilling and On June 15, 2012, MIGA issued a guarantee of $199.8 completion fluids, mercury control, paper manufacturing, million covering an equity investment by Albemarle water purification, beef and poultry processing, and Corporation of the United States in Jordan Bromine various other industrial applications. Company Limited (JBC). The coverage is for a period of 15 years against the risks of transfer restriction, expro- The expansion of the facility is expected to generate priation, and war and civil disturbance. an additional 150 jobs and further economic benefits through increased local sourcing. Employees are trained in The project involves the expansion and operation of Albemarle’s proprietary technology and technical know-how existing bromine and bromine derivatives manufacturing in the area of bromine extraction and processing. MIGA ANNUAL REPORT 2012 | 43 JBC has also established the Caring for Jordan In addition, the project is consistent with MIGA’s efforts Foundation, which contributes to the well-being of to mobilize $1 billion in insurance capacity to support Jordanians by helping them to improve their quality of foreign direct investment into the Middle East and North life through support of sustainable community projects. Africa. The project was underwritten through MIGA’s Activities include the provision of computer labs in Small Investment Program. schools and support to a number of local community organizations. The project is aligned with the World Bank Group’s Tunisia Country Partnership Strategy for Jordan, which commits to strengthening the country’s foundation for sustainable Project name: Bitaka S.A. growth with a focus on competitiveness. MIGA’s support is also aligned with the Agency’s efforts to mobilize $1 Guarantee holder: Fons Mediterrània Capital, F.C.R. de billion in insurance capacity to support foreign direct Régimen Simplificado investment into the Middle East and North Africa. On December 7, 2011, MIGA issued guarantees of e3.8 million ($5.1 million equivalent) to Fons Mediterrània Capital, F.C.R. de Régimen Simplificado of Spain (FMC) Morocco covering its equity investment in, and shareholder loan to, Bitaka S.A. (Bitaka) in Tunisia. The coverage is for a period Project name: Soroa Pépinières, S.A.R.L. of up to five years against the risks of transfer restriction, expropriation, and war and civil disturbance. Guarantee holder: Fons Mediterrània Capital, F.C.R. de Régimen Simplificado Bitaka is an existing portfolio company of FMC, a Spanish private equity fund. It provides E-vouchers (mobile On March 28, 2012, MIGA issued guarantees of e1.9 electronic recharge), scratch cards, and SIM cards for million ($2.7 million equivalent) covering an investment telecom operators in Tunisia. The equity investment and by Fons Mediterrània Capital, F.C.R. de Régimen shareholder loan being provided by FMC will help Bitaka Simplificado of Spain (FMC) in Soroa Pépinières, S.A.R.L. develop its operations and expand its distribution network (Soroa) in Morocco. The coverage is for a period of up to to cope with the growth of Tunisia’s mobile sector (the five years against the risks of transfer restriction, expro- main client of Bitaka’s solutions). priation, and war and civil disturbance. Bitaka provides low-cost, innovative solutions to mobile The project involves coverage of Soroa, an existing operators in Tunisia. The mobile sector is mainly pre-paid portfolio company of FMC, a Spanish private equity (above 90 percent of overall connections) and relies on fund. Soroa is dedicated to the production of potted payment solutions to connect the majority of the popu- flowers and ornamental potted plants for distribution in lation. Indirectly the project contributes to the continued the Moroccan market. It focuses on spring and summer growth of the mobile sector in Tunisia, which has an seasonal flowers such as geraniums; aromatic plants such impact on GDP growth (a 10 percentage point increase as lavender, thyme, and rosemary; and bushes such as in mobile penetration generates a 0.81 percentage-point abelias, convolvulus, and junipers. The plants are grown increase in economic growth for low and middle-income in a greenhouse and exterior fields and sold to private economies). individuals, businesses, and landscape professionals. MIGA’s support to this project is consistent with the first Soroa has had a positive impact on the local economy pillar of the World Bank Group’s Country Partnership of Larache since 2008. The main impacts of FMC’s Strategy for Tunisia, which focuses on employment, involvement in the project are greater employment gen- growth, and competitiveness. The telecommunications eration and knowledge transfer. Women make up 81 sector has been identified as a key driver of the country’s percent of FMC’s staff. FMC has introduced new social growth. responsibility, corporate governance, and management best practices into the company, which should have a In addition, the project is consistent with MIGA’s efforts positive demonstration effect on other enterprises in to mobilize $1 billion in insurance capacity to support Larache. Moreover, Soroa has supported the development foreign direct investment into the Middle East and North of its workforce by sponsoring external educational Africa. The project was underwritten through MIGA’s courses for its best employees. Small Investment Program. MIGA’s support to FMC and this project is consistent with the first pillar of the World Bank Group’s Country Partnership Strategy for Morocco, which emphasizes employment, growth, and competitiveness. 44 | MIGA ANNUAL REPORT 2012 obligations cover on a guarantee provided by the Tunisian Tunisia Ministry of Finance. Project name: HHW, S.A. The project will help secure Tunisia’s main transportation link with Europe, key to the country’s continued economic Guarantee holder: Fons Mediterrània Capital, F.C.R. de development. Régimen Simplificado MIGA’s support is particularly important in the current On December 7, 2011, MIGA issued a guarantee of e3.07 Tunisian context following the events that occurred in million ($4.1 million equivalent) to Fons Mediterrània January 2011. No other political insurance cover was Capital, F.C.R. de Régimen Simplificado of Spain (FMC) available for the project. for its investment in HHW, S.A. (HHW) in Tunisia. The coverage is for a period of up to five years against the MIGA’s efforts complement the World Bank Group’s com- risks of transfer restriction, expropriation, and war and mitment to the country at this time of transition. civil disturbance. HHW is an existing portfolio company of FMC, a Spanish private equity fund. HHW specializes in the assembly West Bank and Gaza and marketing of Haier brand household appliances in Tunisia. HHW’s main products are refrigerators, freezers, Project name: Nakheel Palestine for Agricultural air conditioners, and washing machines. Its operations Investment are based in an industrial zone in the town of Ben Arous seven kilometers from Tunis. Guarantee holders: Al Mashriq Real Estate Company, Palestine Industrial Estate Development Company, This existing investment has also created 148 permanent the Palestinian Recycling Company (Tadweer), Siraj employment positions and contributed to the economic Palestine Fund growth of the community of Ben Arous. On September 29, 2011 and June 14, 2012, the MIGA- MIGA’s support to this project is consistent with the first administered West Bank and Gaza Investment Guarantee pillar of the World Bank Group’s Country Partnership Trust Fund issued guarantees supporting Nakheel Strategy for Tunisia, which focuses on employment, Palestine for Agriculture Development. The guarantee growth, and competitiveness. In addition, the project is holders are Mashriq Real Estate Company, Palestine consistent with MIGA’s efforts to mobilize $1 billion in Industrial Estate Development Company, the Palestinian insurance capacity to support foreign direct investment Recycling Company (Tadweer), and Siraj Palestine Fund. into the Middle East and North Africa. The project was The guarantees, totaling $6.6 million, are covering the underwritten through MIGA’s Small Investment Program. investors’ $5.03 million equity investment in Nakheel for a period of up to 10 years against the risks of expropriation and war and civil disturbance. Tunisia The project involves the development of two Medjool palm farms in Jericho by Nakheel. The two main products Project name: Passenger-Car Ferry TANIT that will be produced by the farms are Medjool dates and seedlings. Nakheel will plant the palm trees and harvest Guarantee holders: BNP Paribas, Société Générale them. The company plans to have its own packing and storage house by 2012. It is envisaged that 20 percent On August 23, 2011, MIGA issued guarantees totaling of the project’s production will be supplied to the local $217.7 million covering an investment through financing market while the remaining 80 percent will be exported by BNP Paribas and Société Générale of France in a mainly to the European market. passenger-car ferry to be acquired by the Compagnie Tunisienne de Navigation SA (CTN) in Tunisia. The The project will help revitalize the agriculture sector in coverage is for a period of up to 13 years against the risks the West Bank and Gaza. It will be the first large-scale of non-honoring of sovereign financial obligations. project for Medjool dates. Currently, most Palestinians who are cultivating Medjool dates and palms are small- The project involves the financing of a ferry with a capacity holder farmers. It will also contribute to the West Bank of 3,200 passengers and 1,060 cars to be built by Daewoo and Gaza’s foreign exchange earnings as it is expected to Shipbuilding & Marine Engineering (Daewoo) of Korea for export a large portion of the production internationally. CTN of Tunisia. CTN will be the borrower of a loan to be The project will be employing 33 permanent workers and provided by BNP Paribas and Société Générale that will 130 temporary workers. be used to finance the purchase of the vessel. MIGA has been asked to provide non-honoring of sovereign financial MIGA ANNUAL REPORT 2012 | 45 This project is also aligned with MIGA’s objective of equipment, and purchasing new trucks. The Gaza Branch, facilitating investments in conflict-affected environments located in the Gaza Industrial Estate, was established in as well as entities eligible for assistance from the 1999 as a distribution center. The products are manu- International Development Association. factured in West Bank, then delivered and stored in a warehouse in the Gaza Strip for distribution to retailers. The guarantee is in line with the World Bank’s interim West Bank and Gaza strategy for the West Bank and Gaza to support economic and private sector development, and to contribute to Project name: National Beverage Company - Gaza economic diversification. MIGA’s support will help sustain Branch NBC’s ongoing operations in Gaza, employing approxi- mately 40 full-time staff at a time when job opportunities Guarantee holder: National Beverage Company are extremely limited due to the ongoing blockade of the Gaza Strip. The guarantee is also in line with MIGA’s On December 13, 2011, MIGA issued a guarantee of $2.3 strategy of supporting investments in conflict-affected million to National Beverage Company of West Bank and environments. Gaza for its equity investment in its distribution branch in the Gaza Strip. The coverage is for a period of up to 10 years against the risks of expropriation and war and civil disturbance. The guarantee was underwritten through the MIGA-administered West Bank and Gaza Investment Guarantee Trust Fund. National Beverage Company Limited (NBC) produces and distributes beverages (carbonated soft drinks, juice, and water) in the West Bank and Gaza. The investment involves the expansion of a NBC branch in the Gaza Strip (Gaza Branch) and enhancement of its distribution by renovating a warehouse, installing new distribution 46 | MIGA ANNUAL REPORT 2012 guarantees sub-saharan africa In sub-Saharan Africa, GDP growth estimates indicate an expansion of 5 percent in 2012, following another expansion of 4.7 percent in 2011. The region is projected to sustain this rate of expansion over the next couple of years. Excluding South Africa, the largest economy in sub-Saharan Africa, the projected growth rates exceed 6 percent. Nigeria, the second largest economy in the region, is projected to grow at 7 percent in 2012, driven by both oil and non-oil sectors. Elevated oil and mineral prices, coupled with recovery in Côte d’Ivoire, have been important drivers of growth so far, but the region is also facing headwinds from a slowdown in the global economy, especially with its trading partners in Europe and China. Net FDI inflows into sub-Saharan Africa decreased marginally in 2012 to $31 billion, but are projected to rise further over the next two years. Elevated commodity prices have contributed to the growth of FDI in the extractive industries. Investment in non-extractive industries has also been rising thanks to improvements in regulatory frameworks, gov- ernance, and the overall ease of doing business in the region—as well as a growing middle class that is attractive to investors seeking new markets. Given sub-Saharan Africa’s increased opportunities for investors, during this fiscal year MIGA provided guarantees for 17 projects in the region. At year-end, MIGA’s gross guarantee exposure stood at $1.6 billion, equivalent to 15 percent of the Agency’s outstanding portfolio. Benin virtual port single window (PSW). The PSW will manage all processes and procedures related to the passage of Project name: Société d’Exploitation du Guichet ships and cargo for import, export, and in transit at the Unique du Bénin, SA Port of Cotonou under a 10-year concession from the government of Benin. The PSW will serve as an online Guarantee holder: Bureau Veritas Inspection Valuation one-stop-shop for ship itinerary reports and docking Assessment and Control B.I.V.A.C. B.V. requests, customs declarations, and billing and col- lections. It will also function as a database to store, On July 22, 2011, MIGA issued a guarantee of $7.1 million process, and disseminate related information for sta- to Bureau Veritas Inspection Valuation Assessment and tistical and quality-control purposes. Control B.I.V.A.C. B.V. of the Netherlands covering its equity investment in Société d’Exploitation du Guichet The main development impact of the project is the antic- Unique du Bénin, SA in Benin. The coverage is for a ipated improvement in competitiveness of the Port of period of up to 10 years against the risks of transfer Cotonou. This will be achieved mainly through increased restriction, expropriation, and war and civil disturbance. interconnectivity and ease of processes and procedures related to the passage of ships and cargo through The project entails the purchase and maintenance of the port; increased efficiency in the exchange of infor- licenses, development of software, computer and network mation among participants in the passage process; and hardware, and office equipment for the creation of a decreased costs and time at port for ships and cargo. MIGA ANNUAL REPORT 2012 | 47 This will likely result in a higher volume of cargo pro- ABCH is committed to offering above average wages and cessed, which would increase import duty revenue. The benefits to staff, as well as ongoing training to ensure a PSW will also improve the transparency and reliability modern workforce. of information involved in port procedures, which can facilitate the collection of import duties and monitoring The project is in line with the World Bank’s Country the quality of services provided at the port. Additionally, Partnership Strategy for Botswana, which underlines a the project will transfer knowledge and technology to need for the country to diversify its economy and iden- the direct users of the PSW. This will extend to other tifies international financial services as a key sector in members of the port community as well as the trade new value chains. industry through a national awareness and educational campaign that will be implemented in conjunction with the PSW’s development. Burundi This project is aligned with the World Bank’s Country Assistance Strategy to strengthen Benin’s competi- Project name: Open-IT SPRL tiveness and accelerate private sector-led growth. It is also aligned with MIGA’s objective of supporting Guarantee holder: MXS SA investments in countries eligible for concessional lending from the International Development Association. On December 13, 2011, MIGA issued a guarantee of The project was underwritten through MIGA’s Small e509,200 ($672,782 equivalent) to Medical Exchange Investment Program. Solution SA (MXS) of Belgium covering its shareholder loan to Open-IT SPRL in Burundi. MIGA’s coverage is for a period of up to 10 years against the risks of transfer restriction, expropriation, and war and civil disturbance. Botswana The project involves the establishment of a greenfield Project name: ABC Holdings company, Open-IT SPRL (Open-IT). Open-IT will develop and implement health information management systems Guarantee holder: ADC Financial Services and for health facilities and health-management organizations Corporate Development and deliver technical support and training services. Open-IT will act as a medical information, communi- On April 1, 2012, MIGA issued a guarantee of $12.1 cation, and technology (ICT) solutions and consultancy million to ADC Financial Services and Corporate service provider for the Burundian health care sector. Development of Mauritius for its investment in ABC Holdings (ABCH) in Botswana. The coverage is for a The ICT solution will provide knowledge transfer and job period of up to 10 years against the risks of transfer opportunities to Burundians and improve the efficiency restriction, expropriation, and war and civil disturbance. and cost-effectiveness of hospital operations. It will also support the effective use of scarce medical knowledge in The project involves ADC’s acquisition of approximately the region, through medical information exchange. Data 20 percent of the shares in ABCH. ABCH is the holding hosted by Open-IT can be used for research, remote company of a number of banks in sub-Saharan Africa, diagnosis for medical institutes, remote education for with independent banking licenses operating under universities, statistics, and epidemiological input for the BancABC brand. The banks offer a diverse range local governments, non-governmental organizations, and of financial services including personal, business, and others. corporate banking—as well as investment/merchant banking, asset management, stock-broking, and treasury The project is aligned with the World Bank Group’s services. Country Assistance Strategy for Burundi, which calls for an improved business environment and stepped-up ADC’s investment will strengthen and diversify ABCH’s private sector investment. The project is also aligned funding base and bring about a transfer of technical with MIGA’s commitment to support investments in the know-how and best practices to the banking group. This world’s poorest countries as well as countries affected by will enable the group to develop a solid platform from conflict. The project was underwritten through MIGA’s which to expand banking services to segments of the Small Investment Program. market that are generally underserved by foreign banks in Southern and Eastern Africa. Of particular development interest, it is expected that the investment will result more loans to small and medium enterprises. 48 | MIGA ANNUAL REPORT 2012 of 15 years against the risks of transfer restriction, expro- Cameroon priation, war and civil disturbance, and breach of contract. Project name: HTT Telecom S.A. The investments are supporting the design, construction, and operation of the Henri Konan Bédié Toll Bridge (HKB Guarantee holder: 4G Africa AG Bridge), over the Ebrié lagoon in Abidjan, with access roads to the north and south between the residential On June 29, 2012, MIGA issued guarantees of $6.5 area of Riviera and the industrial area of Marcory. The million covering investments by 4G Africa AG of total length of the full road connection will be around Switzerland in HTT Telecom S.A. in Cameroon. The 6.6 kilometers, with the bridge itself spanning 1.5 kilo- coverage is for a period of up to 10 years against the meters. To the north, construction will consist of a 2x2 risks of transfer restriction, expropriation, and war and lane dual carriageway that will connect with the junction civil disturbance. of the Boulevard Mitterrand and Est-Ouest roads and on which will be the toll plaza. To the south, construction will The project involves an equity investment and a share- consist of a 2x3 lane dual carriageway with lateral access holder loan totaling e5.5 million from 4G Africa AG roads that will connect to Boulevard Giscard d’Estaing, to its subsidiary HTT Telecom S.A. in Cameroon. The the main road that joins Abidjan airport. There will be investment will support the establishment of a wireless an interchange (VGE Interchange) built, not part of this network to deliver Internet broadband services in three project, which will connect the access road to the bridge major cities in Cameroon (Douala, Yaoundé, and Edéa). with Boulevard Giscard d’Estaing. Pont Houphouët- Boigny (HB Bridge), one of the existing two bridges that The main developmental impact would be an cross the lagoon, will close for urgent repairs after the improvement in broadband Internet provision in HKB Bridge opens. Initial work on the project, funded by Cameroon’s main cities. The development of HTT the government of Côte d’Ivoire, started in October 2011. Telecom S.A. will lower Internet tariffs and increase service reliability and availability in Cameroon. The bridge will help address significant congestion and pollution in Abidjan. The existing bridges and infra- Indirectly the project contributes to the continued structure are under severe strain and unable to manage growth of the Internet sector in Cameroon, which the city’s growing traffic. The bridge is also expected to has an impact on GDP growth. It is estimated that a reduce congestion and pollution in Abidjan and will result 10-percentage-point increase in broadband Internet pen- in a reduction of carbon dioxide emissions due to lower etration generates a 1.38 percentage-point increase in fuel consumption. The project will also provide important economic growth for low and middle-income economies. demonstration effects for future initiatives in the transport sector. It is one of the first private-sector led foreign MIGA’s support to this project is consistent with direct investments in the country since the civil strife. the first theme of the World Bank Group’s Country Approximately 840 direct jobs will be created during the Assistance Strategy for Cameroon, which focuses construction phase. on increasing Cameroon’s competitiveness through increased investment in infrastructure, including tele- MIGA’s participation in the project is aligned with the communications. Agency’s commitment to supporting investment into the world’s poorest countries, investment in infrastructure, investment in conflict-affected countries, and South-South investments. Côte d’Ivoire Project name: Henri Konan Bédié Bridge Ethiopia Guarantee holders: Bouygues Travaux Publics S.A., PAIDF, BMCE Bank International Plc, Africa Finance Project name: Fruitful Valley Corporation, FMO Guarantee holder: UniFruit Ltd. On June 28, 2012, MIGA issued $145 million in guar- antees covering equity investments and subordinated On March 29, 2012, MIGA issued a guarantee of $2.9 loans from Bouygues Travaux Publics of France and the million to UniFruit Limited of the United Kingdom Pan African Infrastructure Development Fund of South covering its investment in Fruitful Valley in Ethiopia. The Africa, subordinated and senior loans from the Africa coverage is for a period of up to 10 years against the risks Finance Corporation of Nigeria, and senior loans from of transfer restriction, expropriation, and war and civil BMCE Bank International Plc of the United Kingdom and disturbance. FMO of the Netherlands. MIGA’s coverage is for a period MIGA ANNUAL REPORT 2012 | 49 The project consists of the establishment of the “Fruitful MIGA’s support for the project is also aligned with the Valley��? fruit and vegetable farm by UniFruit Limited World Bank Group’s Country Assistance Strategy for (Ethiopia Branch) in Tigray Province. Fruitful Valley plans Ghana, which urges the strengthening and expansion of to cultivate vegetables and fruits such as garlic, onions, the country’s power generation and distribution systems. pumpkin, strawberries, asparagus, raspberries, boysen- In addition, the project is aligned with MIGA’s strategic berries, and grapes on 1,000 hectares of land leased from objectives of supporting complex infrastructure projects the government. The majority of fruits and vegetables will and investments into countries eligible for conces- be exported to European and Middle Eastern countries sional financing from the International Development and some will be supplied to local markets. Association. The project is expected create about 300 local jobs during phase one and provide public services and amenities to surrounding villages. It will also generate tax revenues Ghana for the government and transfer skills and modern agri- cultural equipment to local farmers. Project name: Takoradi Renewable Energy Ltd. The project is aligned with the World Bank’s Country Guarantee holders: Africa Renewables Group, Africa Assistance Strategy for Ethiopia, which calls for fostering Renewables Limited, Mr. Jean-Francois Guillon, Mr. economic growth. By providing jobs and service in rural David Billon communities, it will help contribute to the reduction of rural-urban migration. It is also aligned with MIGA’s On May 24, 2012, MIGA issued guarantees totaling $9.2 strategic objective of promoting investment into the million to support Takoradi Renewable Energy Ltd. in world’s poorest countries. The project was underwritten Ghana. The guarantees cover an equity investment by through MIGA’s Small Investment Program. Africa Renewables Group of Belgium, non-shareholder loans by Africa Renewables Limited of the United Kingdom, and a personal loan guarantee by Mr. Jean- Francois Guillon of France and Mr. David Billon of Côte Ghana d’Ivoire. The coverage is for a period of up to 10 years against the risks of transfer restriction, expropriation, and Project name: Takoradi 3 Power Plant war and civil disturbance. Guarantee holder: Société Générale (Canada Branch) The project involves the establishment of a greenfield company, Takoradi Renewable Energy Ltd. in Ghana, that On February 3, 2012, MIGA issued a guarantee of $88.4 will produce biomass from rubber trees in plantations in million to Société Générale Canada Branch (SGCB) the country’s western region. The woodchips produced covering its loan to the government of Ghana to finance from the trees will be exported through the Takoradi port the completion of the Takoradi 3 Power Plant. The to European markets for biomass power generation. coverage is for a period of up to 15 years against the risk of non-honoring of sovereign financial obligations. The project will benefit the local community by providing about 70 additional jobs and alleviating primary forest The project, located within the existing Takoradi T1/T2 deforestation. The introduction of biomass to Ghana’s power plant complex in the Ghanaian district of Sharma economy will introduce new business opportunities. The Ahanta East, will expand the existing combined-cycle gas project will also facilitate the replanting and rehabilitation turbine power-generation facility. The proposed expansion of rubber trees, thereby improving the sector’s sustain- will furnish power to the national grid during peak ability. demand and provide base load capacity in times of low water levels when hydroelectric generation is affected. MIGA’s support is aligned with the first pillar of the World Bank’s Country Assistance Strategy for Ghana, which The expansion of the Takoradi 3 Power Plant will allow it calls for raising private sector competitiveness through to feed more electricity to Ghana’s national grid, allowing engagements in private and financial sector development, broader and more reliable access to power. Efforts to modernization of agriculture, sustainable natural resource bolster the energy sector are essential to avoid blackouts, management, and investment in infrastructure. such as the ones Ghana experienced in 2008. The project is also aligned with MIGA’s commitment to The project fits into the government’s power sector plans, support investments in countries eligible for concessional which specifically seek to increase installed capacity from lending from the International Development Association 2,000 megawatts to 5,000 megawatts and enable Ghana and South-South investments. It was underwritten to become a net exporter of electricity to neighboring through MIGA’s Small Investment Program. countries by 2015. 50 | MIGA ANNUAL REPORT 2012 Kenya Kenya Project name: OrPower 4, Inc. Project name: Thika Power Ltd Guarantee holder: Ormat Holding Corporation Guarantee holder: ABSA Capital On September 22, 2011, MIGA issued a guarantee of $99 On May 25, 2012, MIGA issued guarantees of up to $61.5 million to Ormat Holding Corporation of the Cayman million covering ABSA Capital of South Africa’s non- Islands for its equity investment in OrPower 4, Inc. in shareholder loan (including estimated swap exposure) Kenya. The guarantee is for a period of up to 15 years to Thika Power Ltd. in Kenya. The guarantees will have and covers the risks of transfer restriction, expropriation, a term of up to 15 years, providing coverage against the and war and civil disturbance. This guarantee replaces risk of breach of contract. an earlier MIGA guarantee that covered investments into the first and second phases of the project. The new The project consists of the construction (on a build, guarantee also covers an additional equity investment of own, and operate basis) of an 87 megawatt heavy fuel $110 million for phase three of the project. oil plant located at Thika, approximately 35 kilometers from Nairobi. Melec PowerGen Inc. was awarded the The project involves the expansion of a base-load geo- contract following a competitive bidding process for the thermal power plant in the Olkaria geothermal fields development of the Thika plant. The total project cost of the Rift Valley, 90 kilometers northwest of Nairobi. is estimated at e112.3 million ($151 million). Thika has The expansion will provide additional capacity of 36 entered into a 20-year power purchase agreement with megawatts. The new plant is scheduled to come online Kenya Power and Lightning Co. The project is supported in 2013 and will result in a combined generation capacity by a standby letter of credit from a commercial bank and of 84 megawatts. Electricity generated by the plant is further guaranteed by an International Development is sold under a power purchase agreement with the Association partial risk guarantee to cover short-term national power transmission and distribution utility—the liquidity. Kenya Power & Lighting Company Limited. Kenya is facing ongoing energy shortages driven in part The project is helping alleviate the severe power by the economy’s rapid growth. A recent World Bank shortages that have hampered economic growth in study found that unreliable electricity supply lowers Kenya. The World Bank Group’s Country Partnership the annual sale revenues of Kenyan firms by about Strategy notes that investment in electricity is a key 7 percent and reduces Kenyan annual GDP growth element of unlocking Kenya’s growth potential. It also by about 1.5 percent. The additional 87 megawatts commits to strengthening the Bank Group’s support provided by the plant will reduce the energy shortfall for government efforts to diversify electricity generation that threatens economic growth and provide a power away from hydroelectricity to other green sources such supply consistent with the country’s Least Cost Power as geothermal. The government’s recently announced Development Plan. Moreover, the project should reduce National Electricity Supply Master Plan has ambitious the country’s excessive dependence on hydropower that plans to identify new generation and supply sources has exposed Kenya to concentration risk in the past, with the goals of tripling the national electricity supply most recently during the extreme droughts of 2007-09. of dependable energy to 3,000 megawatts by 2018 and Finally, the project is consistent with the World Bank improving access from 29 percent to 40 percent by Group’s priority of unleashing Kenya’s growth potential 2020, with an emphasis on the development of alter- by expanding electricity infrastructure based on the par- native power sources—especially geothermal. ticipation of the private sector. This project is also aligned with MIGA’s strategic The project is also aligned with MIGA’s priorities of priorities of supporting investments in complex encouraging investments in countries eligible for infrastructure projects as well as investments into assistance from International Development Association, countries eligible for assistance from the International promoting South-South investments, and facilitating Development Association. complex infrastructure investments. MIGA ANNUAL REPORT 2012 | 51 Rwanda Rwanda Project name: Bakhresa Grain Milling (Rwanda) Project name: KivuWatt Ltd. Limited Guarantee holder: ContourGlobal Africa Holdings Guarantee holder: Bakhresa Group S.a.r.l. On July 8, 2011, MIGA issued guarantees totaling $14.8 On February 3, 2012, MIGA issued a guarantee of $66.8 million covering an equity investment in, and shareholder million to ContourGlobal Africa Holdings S.a.r.l. of loans to, Bahkresa Grain Milling (Rwanda) Limited. The Mauritius for its equity investment in KivuWatt Ltd. in coverage is for a period of 10 years against the risks of Rwanda. The coverage is for a period of up to 20 years transfer restriction, expropriation, and war and civil dis- against the risks of expropriation, transfer restriction, turbance. war and civil disturbance, and breach of contract. This replaces a contract issued in fiscal year 2011 and reflects The individual investors, Said Salim Awadh Bakhresa, additional coverage of $66.8 million. Mohamed Said Salim Bakhresa, and Abubakar Said Salim Bakhresa, are from Tanzania. The investors are the The investment is for the construction and operation of a shareholders of Said Salim Bakhresa & Co Ltd and other 25 megawatt power-generation facility using methane gas Bakhresa Group companies, based in east and southeast extracted from Lake Kivu (the Phase 1 Pilot Project). The Africa. The Bakhresa Group companies primarily operate entire project (Phase 1 and Phase 2) involves extraction in the agribusiness, food, and beverages sector. and separation of methane gas from the bottom of Lake Kivu and up to 100 megawatts of power-generation Bakhresa Rwanda was incorporated in January 2009 to capacity to be implemented in two phases. The Phase 1 expand the Bakhresa Group’s grain-milling business in Pilot Project will involve gas extraction using a floating Rwanda and its export potential to neighboring countries barge located approximately 13 kilometers offshore from such as Burundi and the Democratic Republic of Congo. the city of Kibuye. The extracted gas will be further pro- In June 2011, Bakhresa Rwanda set up the grain-milling cessed and pumped to the shore for use in a power plant factory in the Kigali Industrial Park located at Bumbogo. via submerged floating pipeline. Power will be produced The mill, with a total milling capacity of 250 tons per day, by methane-powered reciprocating engine generator sets is now operational. with combined capacity of 25 megawatts, net output. Based on successful implementation of Phase 1, Phase 2 Rwanda is currently dependent on two milling companies will comprise three additional gas extraction barges and and imports from neighboring countries for its supply of three more power production blocks with 75 megawatt wheat flour. The current consumption of 120,000 tons per capacity resulting in 100 megawatts of overall power gen- annum is projected to grow annually by about 5 percent eration. because of urbanization and population growth. While the project will initially largely use imported grain for The output will be sold to the Rwandan state-owned milling, building capacity in the food-processing sector utility, Rwanda Electricity Corporation (RECO), formerly can also help spur the domestic production of grain. With known as Electrogaz. Phase 1 output will be connected to an estimated 52 percent of households food insecure or the national grid via a new dedicated 11 kV transmission vulnerable, an increase in grain-milling capacity can con- line installed by RECO. Phase 2 will be connected to the tribute to improved supply—possibly easing pressure on existing 220 kV transmission system via two new trans- food prices, which is a key concern identified in the World formers to be installed by RECO. Bank’s Country Assistance Strategy. The project will also create jobs and contribute to the government’s revenues Over the last decade, Rwanda’s economy has nearly through increased corporate taxes. doubled in size, growing at an average rate of 7 percent per year. Nevertheless, the country’s electricity infra- The project is aligned with MIGA’s strategic priorities of structure (the generation, transmission, and distribution supporting South-South investments and investments network) has failed to develop in pace with the broader into countries eligible for concessional lending from the economy. Rwanda’s total installed power generation International Development Association. The International capacity is 55 megawatts and only 6 percent of the popu- Finance Corporation (IFC) is also supporting the lation is serviced by the national power grid. To keep up investment through IFC A-Loans. with demand, expensive diesel power generators have been rented and brought online, raising the power tariff per kilowatt hour to twenty-one cents, one of the highest in Africa. The project’s primary development impact will be the generation of additional electricity capacity produced at a 52 | MIGA ANNUAL REPORT 2012 significantly lower cost than alternatives currently in the Indirect benefits of the investment relate to the gov- local market. Tapping the considerable methane reserves ernment of Senegal’s commitment to use the net stored in Lake Kivu will offer the small, highly populated, proceeds from the Eurobond to finance the infrastructure and land-locked country with a secure, domestic, cheap, projects noted above. The World Bank’s Country and renewable source of power supply. The project is Assistance Strategy for Senegal emphasizes the need to being developed in conjunction with a $400 million ini- consolidate public resources on infrastructure, road, and tiative (supported by Rwanda and international donors) electricity networks. to simultaneously expand and overhaul Rwanda’s power transmission and distribution network. The project is aligned with MIGA’s priorities of sup- porting investments in infrastructure and investments One of the main objectives of the World Bank’s Country into countries eligible for concessional lending from the Assistance Strategy for Rwanda for 2009-2012 is to International Development Association. improve access to and quality of key infrastructure services. The project is fully consistent with this objective and is also aligned with MIGA’s strategic priority of sup- porting investments into countries eligibles for assistance Sierra Leone from the International Development Association and investments in complex infrastructure projects. Project name: Motorcare Sierra Leone Limited Guarantee holder: Kjaer Group A/S Senegal On April 23, 2012, MIGA issued a guarantee of $0.9 million to Kjaer Group A/S of Denmark for their equity Project name: Senegal Eurobond – Cross Currency investment in Motorcare Sierra Leone Limited (MSL). The Swap Arrangement coverage is for a period of 10 years against the risks of transfer restriction, expropriation, and war and civil dis- Guarantee holder: Standard Bank Plc turbance. On November 16, 2011, MIGA issued a guarantee of Kjaer Group’s investment will support the expansion of $99 million supporting a US dollar cross-currency swap MSL, which began operations in 2001. MSL’s business arrangement between Standard Bank Plc (SB) and the lines include new vehicle sales and after-sales services government of Senegal. Senegal’s Ministry of Economy in Freetown and Makeni. The expansion will focus on and Finance has entered into the swap with SB as a hedge improving sales and after-sales services in the existing against currency risk exposure related to the 10-year tenor, branches as well as the establishment of new sales offices $500 million Senegal Eurobond issued in May 2011. The and workshops in Bo and Lungi. MIGA guarantee to SB provides coverage against non- honoring of sovereign financial obligations for a period Kjaer Group has been operating in Sierra Leone since of 10 years. Specifically, it insures against a failure by the 2001 and has expanded its operations by reinvesting government of Senegal to honor its obligation to make its earnings in the project. Through the provision of requisite payments under the swap contracts. quality automobiles and services MSL has supported the country’s commercial development and ensured the avail- The proceeds of the Eurobond will be used to finance new ability of emergency vehicles supporting relief operations. infrastructure projects as well as to redeem a $200 million When the planned expansion is completed, the project is bond issued in 2009. The Senegalese government expects expected to employ 100 permanent skilled local workers to use these proceeds to finance a 19-kilometer extension by end of 2015. As an authorized Ford dealer, MSL must of the Diamniadio Toll Road to the new Blaise Diagne comply with certification and training requirements set by International Airport project and critical energy sector Ford. investments under the government’s emergency energy sector strategy. The project also contributes significant tax revenues to the government. In 2010, MSL was recognized as the best The projected development impacts of SB’s swap taxpayer of the year by the government of Sierra Leone. arrangement with the government are twofold. The The award underlines the financial transparency and direct benefits relate to the elimination of the currency high social responsibility of the company. KG has been a mismatch risk the government of Senegal is exposed to member of UN Global Compact since 2003. under the Eurobond, which removes a potential source of instability to government finances; and improved terms MIGA’s support for this investment is aligned with the on the swap, which contribute to a reduced cost of ser- World Bank Group’s Country Partnership Strategy for vicing the USD Eurobond. Sierra Leone, particularly with regard to supporting the development of a competitive private sector. MIGA ANNUAL REPORT 2012 | 53 MIGA’s participation is also aligned with key Agency wheat and 2,500 mta of soya under winter and supple- priorities, which include encouraging investment in post- mentary summer irrigation. Alternatively, some 4,500 conflict and countries eligible for assistance from the mta of commercial or seed maize could be grown as International Development Association. The project was part of a seasonal rotation in line with current market underwritten through MIGA’s Small Investment Program. demand in Zambia and the region. The agricultural sector has been identified by both the Zambian government (in its national development plan) Zambia and in the World Bank’s Country Partnership Strategy as a key area where there is potential to contribute to Project name: Chobe Agrivision Company Ltd development and economic growth. In Zambia, CAI estimates that only 1.1 percent of the potential fertile Guarantee holder: Chayton Atlas Investments Guinea Savannah agricultural area is cropped. Moreover, CAI believes that introducing highly efficient agricultural On June 29, 2012, MIGA issued guarantees totaling $9.5 practices such as crop rotation and zero tillage, soil million covering an equity investment by Chayton Atlas and water management, and certain technological Investments (CAI) of Mauritius in Chobe Agrivision improvements will result in increased productivity and Company Ltd. in Zambia. The coverage is for a period sustainable crop yield enhancement. As well as improving of up to 10 years against the risks of transfer restriction, productivity of the land, the introduction of new tech- expropriation, war and civil disturbance, and breach of nologies and methods offers the chance for substantial contract. demonstration effects. The project will also contribute to increased food security within Zambia and the broader The project involves the expansion of “Project Psi��? sup- Southern African Development Community—the target ported by MIGA in fiscal year 2011. The original project market for consumption. involved the acquisition of two farms in the Mkushi farm block in Zambia’s Central Province, with a combined land The project is aligned with MIGA’s strategic priorities area of 2,517 hectares, and a “contract farming��? business. of supporting investments into countries eligible for The farms cultivate maize, wheat, and soya for con- assistance from the International Development Association sumption in Zambia and eventually neighboring countries, and South-South investments. while the contract farming operation provides machinery and equipment services to the two farms as well as third- party farms. CAI has now made a further investment in Chobe to install pivot irrigation systems on the unde- veloped part of Project Psi. CAI has also acquired four adjacent farms in the same farm block as the existing Project Psi, with a combined land area of 1,589 hectares. Additional capital expen- diture is planned for improvements to the four newly- acquired farms including installing irrigation systems and constructing a water storage dam (Project Beta). When fully operational, the Amasenga Farm will grow approximately 4,500 metric tons per annum (mta) of 54 | MIGA ANNUAL REPORT 2012 MIGA ANNUAL REPORT 2012 | 55 Technical Assistance MIGA’s technical assistance mandate is implemented under the umbrella of FIAS, the World Bank Group’s multi-donor Facility for Investment Climate Advisory Services. Through its financial support to this partnership and with a view to support investment flows into economies funding vehicle, MIGA contributed to advisory services that undertake concerted efforts to strengthen their projects that help developing countries level the playing business environment. field for business entry, expansion, and exit and facilitate international trade and investment. In fiscal year 2012, MIGA also participated in investor conferences showcasing improved investment climates In calendar year 2011 FIAS projects contributed to 41 in FIAS-supported countries and offering platforms to significant investment climate reforms in 27 countries. familiarize potential investors with MIGA’s political risk Of these investment climate reforms 49 percent were in insurance services. A joint MIGA-FIAS staff appointment the world’s poorest countries and 29 percent in conflict- in Vienna, Austria, helped further leverage FIAS’ field affected states—MIGA priority areas. The new FIAS presence to support the Agency’s business outreach, strategy for fiscal years 2012-2016 emphasizes sector- donor relations, and client relationship management specific investment climate reform and is designed to objectives in the European and Central Asia region. unlock investment opportunities in MIGA and World Bank Group priority sectors and industries, especially in fragile Finally, a new political risk work stream is being piloted as and conflict-affected countries where MIGA’s guarantee part of the restructured investment policy product under services are of particular relevance to investors. Currently, FIAS that will explicitly address MIGA’s core coverage the Agency and FIAS are exploring how the synergies areas and focus on strengthening investor confidence. between FIAS’ investment climate advisory services and MIGA’s guarantee programs can be further deepened, 56 | MIGA ANNUAL REPORT 2012 Independent Evaluation Group The Independent Evaluation Group (IEG) assesses In fiscal year 2012, IEG received and validated seven MIGA’s strategies, policies, and projects to improve MIGA self-evaluations and additionally completed four MIGA’s development results. IEG reports its findings direct evaluations. This coming year, IEG and MIGA will to MIGA’s Board of Directors and the Committee on be evaluating the regular guarantee projects that were Development Effectiveness and is independent of MIGA approved three years ago, in fiscal year 2010. management. IEG and MIGA established a joint working group com- IEG continues to integrate MIGA’s activities in its evalu- mitted to streamlining and strengthening MIGA’s ations. IEG’s fiscal year 2012 review of the World Bank self-evaluation system. IEG also provided several dis- Group’s results and performance noted that MIGA semination events for staff on topics covering findings has made progress in areas in which IEG has made and lessons from its evaluation work. IEG and MIGA recommendations, such as in institutional learning (in also began work on refining practice standards for MIGA particular through the introduction of self-evaluation), evaluations, using the Good Practice Standards from the business development, and client relationship man- Evaluation Cooperation Group. agement. IEG has also highlighted areas for MIGA to focus on looking ahead including measuring financial In fiscal year 2012 IEG gave MIGA two Good Practice results to inform strategy development and furthering Awards, highlighting excellence in self-evaluation. MIGA efficiencies that address internal processes and won awards for the Termoguayas Generation S.A. and the responding to client demand. Aarti Steel Nigeria Ltd. project evaluations. MIGA continues to conduct selective self-evaluations of IEG’s reports and recommendations are publicly dis- its guarantee projects, which IEG validates using a meth- closed on IEG’s website at ieg.worldbankgroup.org. odology that was jointly developed by IEG and MIGA. Compliance Advisor/Ombudsman The Office of the Compliance Advisor/Ombudsman fields, and forests due to the development of the PT (CAO) is the independent accountability mechanism Weda Bay Nickel mine on Halmahera Island in eastern for MIGA and IFC and reports directly to the President Indonesia. of the World Bank Group. The CAO responds to com- plaints from people affected by MIGA and IFC-supported In June 2011, the CAO Ombudsman concluded its business activities, with the goal of enhancing social and involvement in the case and released its assessment environmental outcomes on the ground and fostering report. However, in accordance with CAO’s operational greater public accountability of both agencies. guidelines, and to provide assurance that there were no outstanding concerns regarding MIGA’s compliance The CAO has three roles. CAO’s dispute resolution arm with applicable social and environmental requirements works to identify the causes of conflict and helps stake- related to the project, the case was transferred to CAO holders resolve concerns using a flexible, problem-solving Compliance for appraisal. The CAO concluded that the approach. CAO’s compliance arm oversees investigations case currently did not merit an audit of MIGA, and the of MIGA’s and IFC’s social and environmental per- case was closed in October 2011. formance to ensure compliance with applicable policies, guidelines, procedures, and systems. In its advisory role, In March and May of 2011, the CAO received two com- the CAO provides independent advice to the World Bank plaints regarding the Bujagali power plant, a project sup- Group President as well as MIGA and IFC management ported by MIGA and IFC in Uganda. The CAO is working on policies, systemic environmental and social issues, and with the parties to each complaint—former employees emerging trends. involved in the project and construction and local com- munity members—to help them resolve the issues raised. In July 2010, a complaint from Indonesian nongovern- mental organizations and concerned citizens was filed Visit www.cao-ombudsman.org for more information with the CAO regarding environmental impacts to water, about these cases and CAO’s activities. MIGA ANNUAL REPORT 2012 | 57 Management’s Discussion and Analysis (FY12) Overview Development Activities Summary of Business Segments Outlook and Challenges Funding Sources Capital Management Investment Management Critical Accounting Policies Results of Operations Corporate Governance management’s discussion and analysis (fy12) financial statements Financial Statements Management’s Report Regarding Effectiveness of Internal Controls Over External Financial Reporting Report of Independent Auditors on Management Assertion Regarding Effectiveness of Internal Controls Over External Financial Reporting Independent Auditors’ Report Balance Sheet Statement of Income Statement of Comprehensive Income Statement of Changes in Shareholders’ Equity Statement of Cash Flows Statement of Subscriptions to Capital Stock and Voting Power Statement of Guarantees Outstanding Notes to Financial Statements 58 | MIGA ANNUAL REPORT 2012 Overview Established in 1988, the Multilateral Investment Guarantee Agency (MIGA or “the Agency��?) is a member of the World Bank Group. The World Bank Group also includes the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the International Centre for Settlement of Investment Disputes (ICSID). MIGA is a legal entity separate and distinct from IBRD, IDA, IFC, and ICSID, with its own charter (the “Convention��?), share capital, financial structure, management, and staff. Membership in the Agency, which currently stands at 177 countries, is open to all members of IBRD. MIGA’s mission is to promote foreign direct investment (FDI) into developing countries to support economic growth, reduce poverty, and improve people’s lives. To this end, the Agency acts as a multilateral risk mitigator, providing investors and lenders in the international investment com- munity with the level of comfort necessary to invest in developing countries. MIGA’s core business is the provision of political risk insurance (PRI). In addition, as part of its mandate, the Agency carries out complementary activities such as providing dispute resolution, technical assistance, and research and knowledge services to support FDI. MIGA is committed to promoting projects that are economically, environmentally, and socially sustainable, and that promise a strong devel- opment impact. By providing PRI for foreign direct investment in developing countries, MIGA is able to play a critical role in supporting the World Bank Group’s broad strategic priorities. Since its inception, MIGA has issued $27.2 billion of guarantees (including amounts issued under the Cooperative Underwriting Program), in support of 701 projects in 105 member countries. The Agency has also supported numerous technical assistance activities, as well as multiple programs at regional and global levels in member countries. MIGA is financially self-sustaining, and its activities are supported by a strong capital base and a comprehensive risk management framework. The Agency prepares its financial statements in accordance with generally accepted accounting principles in the United States of America (US GAAP) as well as International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Development Activities Summary of Business Segments MIGA seeks to fulfill its mission in developing member countries by offering PRI, investment dispute resolution, technical assistance, and research and knowledge services. Political Risk Insurance MIGA provides investment guarantees against certain non-commercial and sovereign risks to eligible foreign investors for qualified investments in developing member countries. MIGA covers against the risks of 1) transfer restriction and inconvertibility, 2) expropriation, 3) breach of contract, 4) war and civil disturbance, and, 5) the non-honoring of a sovereign financial obligation. Investors may choose any combination of these covers 1 (see Box 1). MIGA insures new cross-border investments originating in any MIGA member country, destined for any developing member country. Types of investments that can be covered include equity, shareholder and non-shareholder loans, and loan guarantees (provided the loans have a minimum maturity of more than one year). Other forms of investments—such as technical assistance and management contracts, or franchising and licensing agreements—may also be eligible. Table 1 contains a summary of cumulative guarantees issued in member countries. Box 1 – Risks Covered by MIGA Guarantees MIGA provides PRI to eligible investors and lenders against the following non-commercial risks: rr Transfer restriction and inconvertibility – the risk of inconvertibility of local currency into foreign exchange for transfer outside the host country. Currency depreciation is not covered. rr Expropriation – the risk of partial or total loss of the insured investment as a result of acts by the host government that may reduce or eliminate ownership of, control over, or rights to the insured investment. rr War and civil disturbance – the risk of damage to, or the destruction or disappearance of, tangible covered assets caused by politically motivated acts of war or civil disturbance in the host country, including revolution, insurrection, coups d’état, sabotage and terrorism. rr Breach of contract – the risk of being unable to obtain or enforce an arbitral or judicial decision recognizing the breach of an obligation by the host government. rr Non-honoring of a sovereign financial obligation – the risk that a sovereign may fail to honor an unconditional financial payment obli- gation or guarantee, where the underlying project meets all of MIGA’s normal eligibility requirements. Unlike MIGA’s breach of contract coverage, this coverage does not require a final arbitral award or court decision as a precondition to payment of a claim. 1 Smaller guarantees may be underwritten through the MIGA’s Small Investment Program (SIP), but SIP coverage is limited to the risks of transfer restriction, expropriation, and war and civil disturbance. MIGA ANNUAL REPORT 2012 | 59 Table 1 – Cumulative Guarantees Issued in Member Countries FY12 FY11 FY10 FY09 FY08 Cumulative Guarantees Issued ($B)* 27.2 24.5 22.4 20.9 19.5 Host Countries 105 104 100 99 99 * Includes amounts from Cooperative Underwriting Program. The total gross and net exposures at June 30, 2012 amounted to $10.3 billion and $6.3 billion compared to $9.1 billion and $5.2 billion respec- tively at the end of FY11. During FY12, MIGA supported 50 projects2 of which 29 projects were in one or more priority areas identified in the Agency’s business strategy. This includes guarantees issued for $1,090.5 million in support of 24 projects in IDA-eligible countries, $1,581.7 million in support of 12 complex projects, $340.7 million in support of 9 projects in conflict affected countries and $589.4 million in support of 11 projects with South-South investments. Table 2 details the regional distribution of MIGA’s gross and net guarantee exposures over the past three years. The percentage of net exposure in the Africa and Middle East & North Africa regions increased by 3.2 percent and 3.0 percent, respectively, from the previous fiscal year while the Europe and Central Asia region decreased by 6.1 percent in FY12. The increase in Africa and MENA’s percentage of net exposure can be attributed to several projects supporting financial, infrastructure and manufacturing clients in these regions. Table 2 – Regional Distribution of Gross and Net Exposure ($M) Gross Net % of Total Net Exposure FY12 FY11 FY10 FY12 FY11 FY10 FY12 FY11 FY10 Africa 1,574 1,102 1,103 1,258 886 888 20.1 16.9 20.7 Asia 1,392 1,296 706 861 759 505 13.7 14.5 11.7 Europe and Central Asia 5,543 5,432 4,419 3,018 2,844 2,021 48.2 54.3 47.0 Latin America and the 1,069 1,006 1,130 642 569 638 10.3 10.8 14.9 Caribbean Middle East and North Africa 768 416 494 483 246 310 7.7 4.7 7.2 Adjustment for Dual Country - -130 -130 - -65 -65 - -1.2 -1.5 and Master Agreements* Total 10,346 9,122 7,723 6,262 5,239 4,296 100.0 100.0 100.0 Note: numbers may not add up due to rounding. * Master Agreements are guarantee contracts that cover projects in more than two host countries, up to a single maximum exposure amount. The adjustment compensates for counting the same exposure more than once. Table 3 shows the sector distribution of MIGA’s gross and net guarantee exposures over the past three years. The percentage of net exposure in the Infrastructure and Tourism, Construction and Services sectors increased by 6.6 percent and 4.1 percent respectively from the previous fiscal year while the Financial sector decreased by 8.4 percent in FY12. Table 3 – Sector Distribution of Gross and Net Exposure ($M) Gross Net % of Total Net Exposure FY12 FY11 FY10 FY12 FY11 FY10 FY12 FY11 FY10 Agribusiness 224 246 80 197 187 73 3.1 3.6 1.7 Financial 4,297 4,456 4,022 2,270 2,341 1,855 36.3 44.7 43.2 Infrastructure 3,920 2,961 2,302 2,436 1,694 1,475 38.9 32.3 34.3 Manufacturing 774 790 587 457 472 341 7.3 9.0 7.9 Mining 241 243 105 171 172 40 2.7 3.3 0.9 Oil & Gas 336 234 468 261 195 369 4.2 3.7 8.6 Tourism, Const and Services 554 193 159 469 177 145 7.5 3.4 3.4 Total 10,346 9,122 7,723 6,262 5,239 4,296 100.0 100.0 100.0 Note: numbers may not add up due to rounding. MIGA is able to provide investors with a higher level of investment insurance coverage through the use of reinsurance arrangements with public and private insurers. MIGA cedes exposure to its reinsurance partners, thereby enhancing its capacity and allowing it to better manage its risk profile, project and country exposure levels. Whereas MIGA assumes the credit risk for its reinsurance partners under facultative reinsurance arrangements, this risk is borne by the investor under the Cooperative Underwriting Program (CUP). MIGA may also act as a reinsurer, assuming investment portfolio exposure from both public (e.g. export credit agencies) and private insurers – thereby freeing up their capacity and allowing them to offer additional support to their policyholders. 2 In addition MIGA is supporting two projects executed through the West Bank and Gaza Trust Fund during FY12. 60 | MIGA ANNUAL REPORT 2012 Technical Assistance (TA) MIGA supports the multi-donor Investment Climate Advisory Services of the World Bank Group, which helps governments design and implement reforms to improve their business environment and attract domestic and foreign investment. Investment Climate Advisory Services remains focused on IDA and conflict-affected countries. MIGA’s financial contribution has supported projects that reduce policy impediments and provide support to governments in attracting new investors as well as retaining and expanding existing investments. Research and Knowledge Services MIGA carries out research and disseminates information to promote investment in its developing member countries. This year MIGA’s flagship report World Investment and Political Risk provided an in-depth analysis on the risk of expropriation—perceived risk, actual dimensions, and pre- ferred containment strategies. It found that the probability of disputes between governments and foreign investors is materially increased by an economic shock and/or significant political shift. It also addressed FDI in the Middle East and North Africa in light of the Arab Spring, as well as the reaction of multinational enterprises to those developments. Investment Dispute Resolution Consistent with Article 23 of the MIGA Convention, the Agency seeks both to remove impediments to the flow of investment to developing member countries and to encourage the settlement of disputes between investors and host governments. MIGA actively pursues the resolution of disputes affecting MIGA-supported projects. In many cases, these efforts focus on situations in which either a claim has been or is expected to be filed, but MIGA will also assist in resolving problems that are not related to its cover. During FY12, MIGA engaged with investors or governments in relation to projects located in Argentina, Guinea, Senegal, Rwanda, Sierra Leone, and Uganda. In appropriate circumstances, the Agency will mediate disputes between states and investors not guaranteed by MIGA if such disputes inhibit the flow of additional investment to the country. In such circumstances, MIGA may seek compensation for these services and reimbursement for its costs in conducting the mediation. Outlook and Challenges Market Trends The contraction and low-growth in developed countries, especially in the euro zone, has prompted a shift in global investment patterns, with more investors and lenders seeking opportunities in riskier markets. More generally, the ongoing global volatility has prompted many investors to reevaluate their risk-mitigation strategies. MIGA’s guarantee holders continue to show a certain level of caution and risk aversion by maintaining their political risk coverage for existing projects for longer periods than in years prior. Operational Priorities In FY11, MIGA’s Board of Directors, endorsed an updated Operational Directions paper, FY12-14 Strategy: Achieving Value-Driven Volume. This strategy reaffirmed MIGA’s commitments to the operational priorities that have guided the Agency since FY05: rr Investments in IDA countries, a key area of comparative advantage for MIGA. rr Investments in conflict-affected countries, an area of increased engagement for the Agency over the past few years and where MIGA remains strongly relevant. rr Investments in complex projects, mostly in infrastructure and the extractive industries, often involving government intervention and resulting in a delicate balance of risk-sharing by stakeholders. rr Support for investments between MIGA Category Two countries3 (South-South investments), given the growing proportion of FDI coming from developing countries and the need to provide underserved corporations with PRI MIGA’s delivery of these operational priorities will be guided by the need to: rr Support and complement World Bank Group strategies articulated for specific countries, as well as its strategic themes. rr Be responsive to clients and the market through greater flexibility in service and product delivery across all markets. rr Promote financial sustainability which will require an efficient use of MIGA’s capital and the maintenance of a balanced portfolio. Funding Sources Subscribed Capital MIGA derives its financial strength primarily from the capital it receives from its shareholders and its retained earnings. MIGA’s Convention established MIGA’s authorized capital stock (membership shares) at 100,000 shares—equivalent to $1,082 million—with a provision that the authorized capital stock shall automatically increase upon the admission of a new member to the extent that the total number of authorized shares are sufficient to allow subscription by the new member. As of June 30, 2012 the total authorized shares increased to 186,259, equivalent to $2,015.3 million subscribed by 177 member countries. South Sudan and Niger completed their membership requirement during FY12. As of June 30, 2012, the initial subscribed shares increased to 107,700, equivalent to $1,165.3 million. Of the initial membership shares subscribed, 20 percent or $233.1 million had been paid-in and the remaining 80 percent or $932.2 million was subject to call when needed by MIGA to meet its obligations. At June 30, 2012, $113.8 million is in the form of nonnegotiable, non-interest bearing demand obligations (promissory notes). The notes are denominated in freely convertible currencies and are due on demand to meet MIGA’s obligations. Since inception, MIGA has not encashed any of the promissory notes. 3 MIGA’s categorization for developing countries; see MIGA Member Countries list in the Appendices section of the Annual Report MIGA ANNUAL REPORT 2012 | 61 As of June 30, 2012, cumulative subscriptions to the General Capital Increase (GCI) totaled 69,303 shares, equivalent to $749.8 million, and General Capital Increase (GCI) shares reserved through instruments of contribution totaled 6,959 shares, equivalent to $75.3 million. Of the GCI shares subscribed, $132.3 million has been paid-in and $617.5 million is callable. As of June 30, 2012, MIGA’s total subscribed capital amounted to $1,915.1 million, of which $365.4 million was paid-in and $1,549.7 million was callable. Since its inception, no call has been made on MIGA’s callable capital. Any calls on unpaid subscriptions are uniform on all shares. If the amount received by MIGA on a call is insufficient to meet the obligations which necessitated the call, MIGA may make further calls until the amounts received are sufficient to meet such obligations. The liability of a member on a call or calls is limited to the unpaid balance of its capital subscription. Equity Total shareholders’ equity as reported in MIGA’s balance sheet as of June 30, 2012 was $905.2 million compared with $924.0 million as of June 30, 2011. This amount consists of subscribed capital, less uncalled portions of subscriptions, plus retained earnings and accumulated other compre- hensive income (loss). The decrease of $18.8 million in FY12 reflects increased retained earnings of $5.9 million, an increase in accumulated other comprehensive loss of $25.1 million and an increase in subscribed capital $0.4 million. Capital Management Underwriting Capacity MIGA’s equity base ensures the financial sustainability of the Agency, over both the short-term and long-term. The subscribed capital and retained earnings determine the Agency’s statutory underwriting capacity. The Council of Governors and the Board of Directors have set the maximum amount of contingent liability that may be assumed by MIGA as 350 percent of the sum of its unimpaired subscribed capital and reserves and retained earnings, 90 percent of reinsurance obtained by MIGA with private insurers, and 100 percent of reinsurance obtained with public insurers. In other words, the maximum amount of net guarantee exposure is determined by the amount of available capital, and is expressed on a gross exposure basis by adding the current amount of portfolio reinsurance. As of June 30, 2012, MIGA’s underwriting capacity was $13,093 million, as follows: Table 4 – Current Underwriting Capacity ($M) – June 30, 2012 Subscribed Capital 1,915 Retained Earnings 572 Accumulated Other Comprehensive Income (loss) (32) Insurance Portfolio Reserve (net) 220 Total 2,675 350% of Subscribed Capital, Retained Earnings, Other Comprehensive Income and Reserve 9,361 90% of Reinsurance Ceded with Private Insurers 3,176 100% of Reinsurance Ceded with Public Insurers 555 Statutory Underwriting Capacity - June 30, 2012 13,093 As of June 30, 2012, MIGA’s gross exposure was $10,345.9 million and represented 79 percent of MIGA’s statutory underwriting capacity. Capital Adequacy Following the adoption of its formal Economic Capital-based capital adequacy framework in FY07, MIGA’s measures of capital adequacy and risk-bearing capacity include economic capital consumed by the guarantee portfolio. It provides an analytically rigorous measure for assessing the consumption of risk capital by the core guarantee business, and incorporates the effects from portfolio diversification and concentration. In addition, MIGA estimates the minimum amount of capital that should be held against operational risk in the Agency. Total economic capital defined as capital consumption from both the guarantee portfolio and operational risk represents a broader measure of MIGA’s capital adequacy. As of June 30, 2012, the economic capital consumed by the guarantee portfolio amounted to $459 million and the total economic capital for the Agency amounted to $562 million. This compared to $374 million and $465 million, respectively, as of June 30, 2011. Through an annual exercise of gauging the capital adequacy position, the current amount of economic capital consumed by MIGA’s activities is calculated to measure how much of available operating capital is currently utilized. In addition, as part of the capital adequacy framework, MIGA assesses how much economic capital is projected to be potentially utilized in the future under various scenarios of growth and development of the guarantee portfolio. These are stress-test scenarios, estimating the economic capital consumed under assumptions of continued growth to MIGA’s portfolio over five years, in combination with increased concentration of exposures, country rating downgrades, and regional and global contagion effects. Throughout the year, MIGA’s management monitors the level and utilization of available operating capital. This includes paid-in-capital, retained earnings, and the insurance portfolio reserve, net of the corresponding reinsurance recoverable. MIGA management’s objective is to have suf- ficient operating capital to sustain losses associated with claims and to support the ongoing business without facing a significant risk of having to avail itself of the callable capital. As measures of the current utilization of this capital, by the guarantee portfolio and by the Agency as a whole, Table 5 shows the ratios of guarantee portfolio and total economic capital to operating capital over the past three years. These ratios have increased to 40.8 percent and 50.0 percent, respectively, in FY12 compared with 34.0 percent and 42.3 percent in FY11. Table 5 also shows the ratio of guarantee portfolio economic capital to portfolio net exposure, to gauge year-on-year changes to the relative risk-level of the guarantee portfolio. As of end-FY12, this ratio stood at 7.3 percent compared to 7.1 percent at end-FY11. The ratios indicate a strong and stable capital position for the Agency at the end of FY12. 62 | MIGA ANNUAL REPORT 2012 Table 5 – Capital Adequacy Summary (FY10-12, $M) FY12 FY11 FY10 Guarantee Portfolio Economic Capital 459 374 323 Total Economic Capital 562 465 400 Insurance Portfolio Reserve (net) 220 175 157 Retained Earnings and Accumulated Other Comp. Income 540 559 510 Paid-in Capital 365 365 365 Operating Capital 1,125 1,099 1,033 Net Exposure 6,262 5,239 4,296 Guarantee Portfolio Economic Capital/Operating Capital 40.8% 34.0% 31.3% Total Economic Capital/Operating Capital 50.0% 42.3% 38.8% Guarantee Portfolio Economic Capital/Net Exposure 7.3% 7.1% 7.5% Note: numbers may not add up due to rounding Investment Management MIGA’s investment policy sets the objectives and constraints for managing MIGA’s investment account assets, in consideration of the guarantees it issues. As claims arise, MIGA’s invested assets will be liquidated to pay claims on a pre-recovery basis. The portfolio consists of two tranches. Tranche 1 is managed with target duration between 1 to 2 years to support potential claims, and consists of investments in cash, treasury securities, agency securities, mortgage-backed securities (MBS), asset-backed securities (ABS) and sovereign securities. Tranche 2 supports long-term capital growth, by investing in long-term fixed income assets and passively managed broad-based global equity indexes. Portfolio management activities for MIGA’s fixed income assets, as well as trading, risk analytics and reporting, are provided by IBRD’s Treasury Department. At the end of FY12, the portfolio held cash, treasury securities, agency securities, MBS, ABS, sovereign and government guaranteed securities, global equities, and derivatives. Also, the portfolio held cash and government securities denominated in currencies other than USD. The annual portfolio yield was 3.6 percent in FY12 versus 1.4 percent in FY11. And the market value of MIGA’s asset portfolio was $1,090 million as of June 30, 2012, of which $94 million resided in non-US dollar denominated investments. Figure 1 – Portfolio Composition of MIGA’s Total Holdings as of June 30, 2012 30% Domestic Government 23% Money Market/Cash 21% Mortgage-backed Securities 14% Global Equities 5% Asset-backed Securities 4% Agency 3% Sovereign/Government Guarantee Critical Accounting Policies The footnotes to MIGA’s financial statements contain a detailed summary of MIGA’s accounting policies. Described below are those significant policies where MIGA management is required to form estimates when preparing the Agency’s financial statements and accompanying notes to conform to both US GAAP and IFRS. Accounting estimates generally involve the establishment of parameters by management based on judgments about the probable outcome of future conditions, transactions, or events. Because these are projections, actual results may differ from those estimates in a variety of areas. The area which management deems most critical with respect to the application of estimates and assumptions is the establishment of its loss reserves. Reserve for Claims MIGA’s provisioning methodology builds on portfolio risk quantification models that use both individually assessed loss probabilities for projects at risk and rating-based loss probabilities that are applied to the entire guarantee portfolio. Under this methodology, for the purpose of presen- tation in the financial statements, MIGA’s reserve consists of two primary components, the Specific Reserve and the Insurance Portfolio Reserve.4 Reserves are shown on a gross basis on the liability side of the balance sheet, and reinsurance assets on the asset side. A detailed summary of MIGA’s provisioning policy can be found in the Notes to Financial Statements – Note A. 4 The Insurance Portfolio Reserve is calculated as the 95th percentile loss less the mean loss from the Economic Capital Model MIGA ANNUAL REPORT 2012 | 63 Pension and Other Postretirement Benefits Along with IBRD and IFC, MIGA participates in a number of pension and post-retirement benefit plans that cover almost all of their staff members. All costs, assets, and liabilities associated with these plans are allocated among IBRD, IFC, and MIGA based upon their employees’ respective participation in the plans. The underlying actuarial assumptions, fair value of plan assets, and funded status associated with these plans are based on financial market interest rates, past experience, and management’s best estimate of future benefit changes and economic conditions. For further details, please refer to the Notes to Financial Statements – Note F. Results of Operations Operating Income and Net Income FY12 operating income was $17.8 million, an increase of $8.1 million versus FY11 primarily due to higher net premium income of $10.9 million, offset by higher administrative expenses of $2.8 million. FY12 net income of $5.9 million represented a decrease of $37.2 million compared to net income of $43.1 million in FY11, due to higher provisioning for FY12 issued guarantees. Table 6 below shows the breakdown of MIGA’s operating income and net income over the past three years. Table 6 – Analysis of Operating Income and Net Income ($M) FY12 FY11 FY10 Total Guarantees Issued1 2,657 2,099 1,464 Gross Exposure 10,346 9,122 7,723 Net Exposure 6,262 5,239 4,296 Premium Income 89.2 75.2 71.8 Premium Ceded (33.7) (30.6) (30.6) Fees and Commissions 6.2 6.3 4.8 Net Premium Income 61.7 50.8 46.0 Income from Investments 36.9 13.9 24.1 Administrative and Other Expenses (43.9) (41.1) (36.2) Operating Income2 17.8 9.7 9.8 Translation Gain (Loss) (11.5) 17.8 (19.5) Release of (Provision for) Claims3 (37.3) 1.7 (30.9) Net Income (Loss) 5.9 43.1 (16.5) Operating Capital 1,125 1,099 1,033 Guarantee Portfolio Economic Capital (EC) 459 374 323 ROOC4 (before provisions) 3.8% 3.8% 1.4% ROOC (after provisions) 0.5% 3.9% -1.6% ROCU5 3.9% 2.6% 3.0% Note: numbers may not add up due to rounding 1 Including Cooperative Underwriting Program contracts. 2 Operating Income = Net Premium Income less Administrative and Other Expenses; Prior FY calculations were adjusted to reflect this definition, and now exclude Investment Income 3 Provisions are net of currency translation effect 4 Return on Operating Capital = Net Income/Operating Capital 5 Return on Capital Utilized = (Net Premium Income less Administrative and Other Expenses)/Economic Capital Utilized by the Guarantee Portfolio FY12 versus FY11 MIGA issued $2.657 billion in guarantees during FY12, $558 million higher than in FY11. New issues when combined with lower policy cancel- lations resulted in overall growth of MIGA’s guarantee portfolio and premium income. In FY12, gross exposure and gross premium income increased by $1,224 million and $14 million, respectively. Premium amounts ceded to reinsurers increased by $3.1 million. MIGA’s investment portfolio generated $36.9 million of investment income in FY12, compared with $13.9 million in FY11. The yield was 3.6 percent in FY12, compared with 1.4 percent in FY11. Interest income and dividend income contributed $19.0 million to investment income. This was supplemented by valuation gains of $13.4 million on MIGA’s Long Term Fixed Income holdings and gains on MBS holdings of $4.0 million plus gains on all other asset holdings of $0.5 million. Administrative and other expenses increased to $43.9 million in FY12, compared with $41.1 million in FY11. Corporate Governance General Governance Board Membership MIGA’s Board of Directors consists of 25 members. In accordance with the Convention establishing MIGA, all members of the Board are elected. Directors are neither officers, nor staff of MIGA. The President serves as the presiding officer, is the only management member of the Board of Directors, and ordinarily has no vote except a deciding vote in the case of an equal division. The Board has established five standing committees which are each chaired by a Director: (i) Committee on Development Effectiveness or CODE, (ii) Audit Committee, (iii) Budget Committee, (iv) 64 | MIGA ANNUAL REPORT 2012 Human Resources Committee or HRC, and (v) Committee on Governance and Administrative Matters or COGAM. The Directors maintain an Ethics Committee to consider matters relating to the interpretation or application of the Code of Conduct for Board Officials which took effect in November 1, 2007. The Directors and their committees operate in continuous session at the principal offices of the World Bank Group, and meet in accordance with the Agency’s business needs. Each committee’s terms of reference establishes its respective roles and responsibilities. Their role is primarily to help the full Board of Directors discharge its oversight responsibilities through in-depth examination of policies and practices. Audit Committee Membership The Audit Committee consists of eight members of the Board of Directors. Membership on the Committee is determined by the Board of Directors, based upon nominations by the Chairman of the Board, following informal consultation with the Directors. In addition, the composition of the Committee is expected to reflect the economic and geographic diversity of MIGA’s member countries. Other relevant selection criteria include seniority, continuity, and relevant experience. Some or all of the responsibilities of individual Committee members are performed by their alternates or advisors. Generally, Committee members are appointed for a two-year term; reappointment to a second term, when possible, is desirable for continuity. Audit Committee meetings are generally open to any member of the Board who wishes to attend, and non-Committee members of the Board may participate in the discussion but cannot vote. In addition, the Chairman of the Audit Committee may speak in that capacity at meetings of the Board of Directors, with respect to discussions held at the Audit Committee. Key Responsibilities The Audit Committee has a mandate to assist the Board of Directors in overseeing MIGA’s finances, accounting, risk management, and internal controls. This mandate includes the review and oversight of MIGA’s financial statements and financial reporting related to trust funds. The Audit Committee is also responsible for recommending to the Board of Directors the appointment of the external auditor, as well as monitoring the performance and independence of the external auditor. The Audit Committee oversees the internal audit function, including reviewing the responsibilities, staffing, annual internal audit plan, and effectiveness of internal audit. In the execution of its role, the Committee discusses with management, the external auditors, and internal auditors, financial issues and policies which have an impact on the Agency’s financial position and risk-bearing capacity. The Audit Committee monitors the evolution of developments in corporate governance and encourages continuous improvement of, and adherence to MIGA’s policies, procedures, and practices. Communications The Audit Committee communicates regularly with the full Board of Directors through distribution of the following documents: rr The minutes of its meetings. rr Reports of the Audit Committee prepared by the Chairman, which document discussions held. These reports are distributed to the Direc- tors, Alternates Directors, World Bank Group Senior Management, and MIGA Senior Management. rr “Statement(s) of the Chairman��? and state¬ments issued by other members of the Audit Committee. rr The Annual Report to the Board of Directors, which provides an overview of the main issues addressed by the com¬mittee over the year. The Audit Committee’s communications with the external auditor are described in the Auditor Independence section. Executive Sessions Under the Audit Committee’s Terms of Reference, members of the Audit Committee shall meet periodically in separate executive or, where spe- cifically required, closed sessions with management, the Auditor General, the External Auditor, and the Vice President for Institutional Integrity, to discuss any matters that the Committee or any of the foregoing believes should be discussed privately. Access to Resources and to Management Throughout the year, the Audit Committee receives a large volume of information, with respect to financial position, financial statement pre- sentations, risk assessment, and risk management, as well as matters regarding governance and controls. The Audit Committee meets both formally and informally throughout the year to discuss finance, accounting, risk management, and internal controls matters. The Directors have unrestricted access to management. The Audit Committee reviews and discusses with management the quarterly and annual financial statements. The committee also reviews with the external auditor the financial statements prior to their publication and recommends these for approval to the Board of Directors. The Audit Committee has the capacity, under exceptional circumstances, to obtain advice and assistance from outside legal, accounting, or other advisors as deemed appropriate. Code of Conduct and Business Conduct Framework Staff members’ ethical obligations to the institution are embodied in its Core values and Principles of Staff Employment. As a member organi- zation, MIGA has adopted the updated World Bank Group Code of Conduct, Living our Values, which is a practical guide to assist staff in making the Bank Group’s Core Values a part of what staff does every day. The Code applies to all staff worldwide and is available on IBRD’s website, www. worldbank.org. All MIGA staff has completed the mandatory training course which includes an acknowledgement from staff to abide by the tenets of the Code. In addition to the Code, the business conduct obligations of staff are articulated in the Staff Manual (Principles of Staff Employment, Staff Rules), Administrative Manual, and other guidelines. The Principles and Staff Rules require that all staff avoid or properly manage conflicts of interest. To protect individual staff in MIGA from apparent and real (potential or actual) conflicts of interest, senior managers are required to complete an annual financial disclosure statement with the Office of Ethics and Business Conduct. MIGA ANNUAL REPORT 2012 | 65 Guidance for staff is also provided through programs, training materials, and other resources. Managers are responsible for ensuring that internal systems, policies, and procedures are consistently aligned with MIGA’s business conduct framework. The following World Bank Group units assist in communicating business conduct expectations to staff: rr The Office of Ethics and Business Conduct (EBC) provides leadership, management and oversight for MIGA’s ethics infrastructure including the Ethics HelpLine, a consolidated conflicts of interest disclosure/resolu¬tion system, financial disclosure, ongoing training to both internal and external audi¬ences, and communication resources. This office has the mandate to review and assist in the resolution of allegations of staff misconduct. rr The Integrity Vice Presidency (INT) is charged with investigating allegations of fraud and corruption in projects benefiting from World Bank Group funding or guarantees. It also trains and educates staff and clients in detecting and reporting fraud and corruption. Both EBC and INT report directly to the President and is composed of professionals from a range of disciplines including financial analysts, re- searchers, investigators, lawyers, prosecutors, forensic accountants, and staff with operational experience across the World Bank Group. These units maintain comprehensive websites to provide guidance on how to handle concerns. Auditor Independence The Board of Directors adopted a set of principles applicable to the appointment of the external auditor for the World Bank Group. Key features of those principles include: rr Prohibition of the external auditor from the provision of all non audit-related services rr All audit-related services must be pre-approved on a case-by-case basis by the Board of Directors, upon recom¬mendation by the Audit Com- mittee rr Rebidding of the external audit contract every five years rr Prohibition of any firm serving as external auditors for more than two consecutive five-year terms rr Mandatory rotation of the senior partner after five years rr An evaluation of the performance of the external auditor at the mid-point of the five year term The external auditor is appointed to a five-year term of service. This is subject to annual reappointment based on the recommendation of the Audit Committee and approval of a resolution by the Executive Directors. The Board of Executive Directors approved the appointment of KPMG as the World Bank Group’s auditors for a five-year term commencing FY09. As standard practice, the external auditor is invited as an observer to attend all Audit Committee meetings and is frequently asked to present its perspective on issues. In addition, the Audit Committee meets periodically with the external auditor in private sessions without the presence of management. Communication between the external auditor and the Audit Committee is ongoing, as frequently as is deemed necessary by either party. MIGA’s external auditors follow the communication requirements with audit committees set out under US Generally Accepted Auditing Standards and International Standards on Auditing. In keeping with these standards, significant formal communications include: rr Quarterly and annual financial statement reporting rr Annual appointment of the external auditors rr Presentation of the external audit plan rr Presentation of control recommendations and discussion of the Internal Control over Financial Reporting (ICFR) attestation and report rr Presentation of a statement regarding independence In addition to committee meetings, individual members of the Audit Committee have independent access to the external auditor. 66 | MIGA ANNUAL REPORT 2012 Management’s Report Regarding Effectiveness of Internal Controls Over External Financial Reporting MIGA ANNUAL REPORT 2012 | 67 Management’s Report Regarding Effectiveness of Internal Controls Over External Financial Reporting (cont’d) 68 | MIGA ANNUAL REPORT 2012 Report of Independent Auditors on Management Assertion Regarding Effectiveness of Internal Controls Over External Financial Reporting MIGA ANNUAL REPORT 2012 | 69 Report Of Independent Auditors on Management Assertion Regarding Effectiveness Of Internal Controls Over External Financial Reporting (cont’d) 70 | MIGA ANNUAL REPORT 2012 Independent Auditors’ Report MIGA ANNUAL REPORT 2012 | 71 Balance Sheet June 30, 2012 and June 30, 2011, expressed in thousands of US dollars FY12 FY11 ASSETS CASH $10,485 $11,049 INVESTMENTS - Trading (including securities transferred under repurchase agreements) - 1,091,326 1,105,559 Note B Securities purchased under resale agreements - Note B 13,000 - Derivative Assets - Note B 282,918 115,120 NONNEGOTIABLE, NONINTEREST-BEARING DEMAND OBLIGATIONS - Note C 113,794 115,088 OTHER ASSETS Receivable for investment securities sold - Note B 1,475 12,646 Estimated reinsurance recoverables - Note E 52,900 40,300 Prepaid premiums ceded to reinsurers 34,384 33,327 Net assets under retirement benefits plans - Note F 9,248 27,546 Miscellaneous 12,908 2,017 110,915 115,836 TOTAL ASSETS $1,622,438 $1,462,652 Liabilities and Shareholders’ Equity LIABILITIES Payable for investment securities purchased - Note B $4,641 $57,185 Securities sold under repurchase agreements - Note B 15,190 26,674 Derivative liabilities - Note B 282,050 115,342 Accounts payable and accrued expenses 43,695 43,294 Unearned premiums and commitment fees 93,432 67,811 Reserve for claims - Note E Specific reserve for claims 7,700 17,100 Insurance portfolio reserve 270,500 211,200 Reserve for claims - gross 278,200 228,300 Total liabilities 717,208 538,606 CONTINGENT LIABILITIES – Note D SHAREHOLDERS’ EQUITY Capital stock – Note C Authorized capital (186,259 shares - June 30, 2012; 186,042 shares-June 30, 2011) Subscribed capital (177,003 shares- June 30, 2012; 176,786 shares-June 30, 2011) 1,915,172 1,912,825 Less uncalled portion of subscriptions 1,549,759 1,547,882 365,413 364,943 Payments on account of pending subscriptions - 67 365,413 365,010 Retained earnings 572,271 566,376 Accumulated other comprehensive loss (32,454) (7,340) Total shareholders’ equity 905,230 924,046 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $1,622,438 $1,462,652 See accompanying notes to the financial statements 72 | MIGA ANNUAL REPORT 2012 Statement of Income For the fiscal years ended June 30, 2012 and June 30, 2011, expressed in thousands of US dollars FY12 FY11 INCOME Income from guarantees Premium income - Note D $89,179 $75,195 Premium ceded - Note D (33,681) (30,630) Fees and commissions 6,206 6,260 Total 61,704 50,825 Income from investments - Note B 36,898 13,850 Translation (losses) gains (11,523) 17,843 Total income 87,079 82,518 EXPENSES Provision for (release of) claims - Note E 37,300 (1,700) Administrative expenses 43,884 41,079 Total expenses 81,184 39,379 NET INCOME $5,895 $43,139 Statement of Comprehensive Income For the fiscal years ended June 30, 2012 and June 30, 2011, expressed in thousands of US dollars FY12 FY11 NET INCOME $5,895 $43,139 OTHER COMPREHENSIVE (LOSS) INCOME Change in unrecognized net actuarial (losses) gains on benefit plans (23,758) 5,449 Change in unrecognized prior service (costs) credits on benefit plans (1,356) 118 Total other comprehensive (loss) income (25,114) 5,567 COMPREHENSIVE (LOSS) INCOME $(19,219) $48,706 See accompanying notes to the financial statements MIGA ANNUAL REPORT 2012 | 73 Statement of Changes in Shareholders’ Equity For the fiscal years ended June 30, 2012 and June 30, 2011, expressed in thousands of US dollars FY12 FY11 CAPITAL STOCK Balance at beginning of the fiscal year $365,010 $365,010 Paid-In subscriptions 403 - Ending Balance $365,413 365,010 RETAINED EARNINGS Balance at beginning of the fiscal year 566,376 523,237 Net income 5,895 43,139 Ending Balance 572,271 566,376 TOTAL ACCUMULATED OTHER COMPREHENSIVE LOSS Balance at beginning of the fiscal year (7,340) (12,907) Other comprehensive (loss) income (25,114) 5,567 Ending Balance (32,454) (7,340) TOTAL SHAREHOLDERS’ EQUITY $905,230 $924,046 Statement of Cash Flows For the fiscal years ended June 30, 2012 and June 30, 2011, expressed in thousands of US dollars FY12 FY11 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $5,895 $43,139 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Provision for (release of) claims - Note E 37,300 (1,700) Translation losses/(gains) 11,523 (17,843) Net changes in: Investments - Trading (52,951) (56,197) Other assets, excluding investment receivables (2,424) (13,882) Accounts payable and accrued expenses (29,371) 21,462 Unearned premiums and commitment fees 30,254 26,400 Net cash provided by operating activities 226 1,379 CASH FLOWS FROM FINANCING ACTIVITIES: Capital subscription payments 168 - Net cash provided by financing activities 168 - EFFECT OF EXCHANGE RATE CHANGES ON CASH (958) 748 Net (decrease) increase in cash (564) 2,127 Cash at beginning of the fiscal year 11,049 8,922 CASH AT END OF THE FISCAL YEAR $10,485 $11,049 See accompanying notes to the financial statements 74 | MIGA ANNUAL REPORT 2012 Statement of Subscriptions to Capital Stock and Voting Power As of June 30, 2012, expressed in thousands of US dollars Subscriptions – Note C Voting power Members Shares1 Total Amount Amount Number % Subscribed Paid-in Subject to Call of Votes of Total Afghanistan 118 $1,277 $255 $1,022 354 0.16 Albania 102 1,104 210 894 338 0.15 Algeria 1,144 12,378 2,350 10,028 1,380 0.63 Angola 187 2,023 405 1,618 423 0.19 Antigua and Barbuda 50 541 108 433 286 0.13 Argentina 2,210 23,912 4,539 19,373 2,446 1.12 Armenia 80 866 173 693 316 0.14 Australia 3,019 32,666 6,201 26,465 3,255 1.49 Austria 1,366 14,780 2,806 11,974 1,602 0.73 Azerbaijan 115 1,244 249 995 351 0.16 Bahamas, The 176 1,904 362 1,542 412 0.19 Bahrain 136 1,472 279 1,193 372 0.17 Bangladesh 599 6,481 1,230 5,251 835 0.38 Barbados 120 1,298 246 1,052 356 0.16 Belarus 233 2,521 504 2,017 469 0.21 Belgium 3,577 38,703 7,347 31,356 3,813 1.74 Belize 88 952 181 771 324 0.15 Benin 108 1,169 222 947 344 0.16 Bolivia 220 2,380 452 1,928 456 0.21 Bosnia and Herzegovina 80 866 173 693 316 0.14 Botswana 88 952 181 771 324 0.15 Brazil 2,606 28,197 5,353 22,844 2,842 1.30 Bulgaria 643 6,957 1,321 5,636 879 0.40 Burkina Faso 61 660 132 528 297 0.14 Burundi 74 801 160 641 310 0.14 Cambodia 164 1,774 337 1,437 400 0.18 Cameroon 107 1,158 232 926 343 0.16 Canada 5,225 56,535 10,732 45,803 5,461 2.50 Cape Verde 50 541 108 433 286 0.13 Central African Rep. 60 649 130 519 296 0.14 Chad 60 649 130 519 296 0.14 Chile 855 9,251 1,756 7,495 1,091 0.50 China 5,530 59,835 11,359 48,476 5,766 2.64 Colombia 770 8,331 1,582 6,749 1,006 0.46 Congo, Dem. Rep. of 596 6,449 1,224 5,225 832 0.38 Congo, Republic of 115 1,244 236 1,008 351 0.16 Costa Rica 206 2,229 423 1,806 442 0.20 Côte d'Ivoire 310 3,354 637 2,717 546 0.25 Croatia 330 3,571 678 2,893 566 0.26 Cyprus 183 1,980 376 1,604 419 0.19 Czech Republic 784 8,483 1,610 6,873 1,020 0.47 Denmark 1,265 13,687 2,598 11,089 1,501 0.69 Djibouti 50 541 108 433 286 0.13 Dominica 50 541 108 433 286 0.13 Dominican Republic 147 1,591 318 1,273 383 0.18 Ecuador 321 3,473 659 2,814 557 0.25 Egypt, Arab Republic of 809 8,753 1,662 7,091 1,045 0.48 El Salvador 122 1,320 264 1,056 358 0.16 Equatorial Guinea 50 541 108 433 286 0.13 Eritrea 50 541 108 433 286 0.13 Estonia 115 1,244 236 1,008 351 0.16 Ethiopia 123 1,331 253 1,078 359 0.16 See accompanying notes to the financial statements MIGA ANNUAL REPORT 2012 | 75 Statement of Subscriptions to Capital Stock and Voting Power (cont’d) As of June 30, 2012, expressed in thousands of US dollars Subscriptions – Note C Voting power Members Shares 1 Total Amount Amount Number % Subscribed Paid-in Subject to Call of Votes of Total Fiji 71 768 154 614 307 0.14 Finland 1,057 11,437 2,171 9,266 1,293 0.59 France 8,565 92,673 17,593 75,080 8,801 4.02 Gabon 169 1,829 347 1,482 405 0.19 Gambia, The 50 541 108 433 286 0.13 Georgia 111 1,201 240 961 347 0.16 Germany 8,936 96,688 18,355 78,333 9,172 4.19 Ghana 432 4,674 887 3,787 668 0.31 Greece 493 5,334 1,013 4,321 729 0.33 Grenada 50 541 108 433 286 0.13 Guatemala 140 1,515 303 1,212 376 0.17 Guinea 91 985 197 788 327 0.15 Guinea-Bissau 50 541 108 433 286 0.13 Guyana 84 909 182 727 320 0.15 Haiti 75 812 162 650 311 0.14 Honduras 178 1,926 366 1,560 414 0.19 Hungary 994 10,755 2,042 8,713 1,230 0.56 Iceland 90 974 195 779 326 0.15 India 5,371 58,114 11,032 47,082 5,607 2.56 Indonesia 1,849 20,006 3,798 16,208 2,085 0.95 Iran, Islamic Rep 1,659 17,950 3,590 14,360 1,895 0.87 Iraq 350 3,787 757 3,030 586 0.27 Ireland 650 7,033 1,335 5,698 886 0.40 Israel 835 9,035 1,715 7,320 1,071 0.49 Italy 4,970 53,775 10,208 43,567 5,206 2.38 Jamaica 319 3,452 655 2,797 555 0.25 Japan 8,979 97,153 18,443 78,710 9,215 4.21 Jordan 171 1,850 351 1,499 407 0.19 Kazakhstan 368 3,982 756 3,226 604 0.28 Kenya 303 3,278 622 2,656 539 0.25 Korea, Republic of 791 8,559 1,625 6,934 1,027 0.47 Kosovo 96 1,039 208 831 332 0.15 Kuwait 1,639 17,734 3,367 14,367 1,875 0.86 Kyrgyz Republic 77 833 167 666 313 0.14 Lao People's Dem 60 649 130 519 296 0.14 Latvia 171 1,850 351 1,499 407 0.19 Lebanon 250 2,705 514 2,191 486 0.22 Lesotho 88 952 181 771 324 0.15 Liberia 84 909 182 727 320 0.15 Libya 549 5,940 1,188 4,752 785 0.36 Lithuania 187 2,023 384 1,639 423 0.19 Luxembourg 204 2,207 419 1,788 440 0.20 Macedonia, FYR of 88 952 181 771 324 0.15 Madagascar 176 1,904 362 1,542 412 0.19 Malawi 77 833 167 666 313 0.14 Malaysia 1,020 11,036 2,095 8,941 1,256 0.57 Maldives 50 541 108 433 286 0.13 Mali 143 1,547 294 1,253 379 0.17 Malta 132 1,428 271 1,157 368 0.17 Mauritania 111 1,201 228 973 347 0.16 Mauritius 153 1,655 314 1,341 389 0.18 See accompanying notes to the financial statements 76 | MIGA ANNUAL REPORT 2012 Statement of Subscriptions to Capital Stock and Voting Power (cont’d) As of June 30, 2012, expressed in thousands of US dollars Subscriptions – Note C Voting power Members Shares 1 Total Amount Amount Number % Subscribed Paid-in Subject to Call of Votes of Total Mexico 1,192 12,897 2,579 10,318 1,428 0.65 Micronesia, Fed. States of 50 541 108 433 286 0.13 Moldova 96 1,039 208 831 332 0.15 Mongolia 58 628 126 502 294 0.13 Montenegro 61 660 132 528 297 0.14 Morocco 613 6,633 1,259 5,374 849 0.39 Mozambique 171 1,850 351 1,499 407 0.19 Namibia 107 1,158 232 926 343 0.16 Nepal 122 1,320 251 1,069 358 0.16 Netherlands 3,822 41,354 7,850 33,504 4,058 1.85 New Zealand 513 5,551 1,110 4,441 749 0.34 Nicaragua 180 1,948 370 1,578 416 0.19 Niger 62 671 134 537 298 0.14 Nigeria 1,487 16,089 3,054 13,035 1,723 0.79 Norway 1,232 13,330 2,531 10,799 1,468 0.67 Oman 166 1,796 341 1,455 402 0.18 Pakistan 1,163 12,584 2,389 10,195 1,399 0.64 Palau 50 541 108 433 286 0.13 Panama 231 2,499 474 2,025 467 0.21 Papua New Guinea 96 1,039 208 831 332 0.15 Paraguay 141 1,526 290 1,236 377 0.17 Peru 657 7,109 1,350 5,759 893 0.41 Philippines 853 9,229 1,752 7,477 1,089 0.50 Poland 764 8,266 1,653 6,613 1,000 0.46 Portugal 673 7,282 1,382 5,900 909 0.42 Qatar 241 2,608 495 2,113 477 0.22 Romania 978 10,582 2,009 8,573 1,214 0.55 Russian Federation 5,528 59,813 11,355 48,458 5,764 2.63 Rwanda 132 1,428 271 1,157 368 0.17 St. Kitts & Nevis 50 541 108 433 286 0.13 St. Lucia 88 952 181 771 324 0.15 St. Vincent & the Grenadines 88 952 181 771 324 0.15 Samoa 50 541 108 433 286 0.13 Saudi Arabia 5,528 59,813 11,355 48,458 5,764 2.63 Senegal 256 2,770 526 2,244 492 0.22 Serbia 407 4,404 836 3,568 643 0.29 Seychelles 50 541 108 433 286 0.13 Sierra Leone 132 1,428 271 1,157 368 0.17 Singapore 272 2,943 559 2,384 508 0.23 Slovak Republic 391 4,231 803 3,428 627 0.29 Slovenia 180 1,948 370 1,578 416 0.19 Solomon Islands 50 541 108 433 286 0.13 South Africa 1,662 17,983 3,414 14,569 1,898 0.87 South Sudan 155 1,677 335 1,342 391 0.18 Spain 2,265 24,507 4,652 19,855 2,501 1.14 Sri Lanka 478 5,172 982 4,190 714 0.33 Sudan 206 2,229 446 1,783 442 0.20 Suriname 82 887 177 710 318 0.15 Swaziland 58 628 126 502 294 0.13 Sweden 1,849 20,006 3,798 16,208 2,085 0.95 See accompanying notes to the financial statements MIGA ANNUAL REPORT 2012 | 77 Statement of Subscriptions to Capital Stock and Voting Power (cont’d) As of June 30, 2012, expressed in thousands of US dollars Subscriptions – Note C Voting power Members Shares 1 Total Amount Amount Number % Subscribed Paid-in Subject to Call of Votes of Total Switzerland 2,643 28,597 5,429 23,168 2,879 1.32 Syrian Arab Republic 296 3,203 608 2,595 532 0.24 Tajikistan 130 1,407 267 1,140 366 0.17 Tanzania 248 2,683 509 2,174 484 0.22 Thailand 742 8,028 1,524 6,504 978 0.45 Timor-Leste 50 541 108 433 286 0.13 Togo 77 833 167 666 313 0.14 Trinidad and Tobago 358 3,874 735 3,139 594 0.27 Tunisia 275 2,976 565 2,411 511 0.23 Turkey 814 8,807 1,672 7,135 1,050 0.48 Turkmenistan 66 714 143 571 302 0.14 Uganda 233 2,521 479 2,042 469 0.21 Ukraine 1,346 14,564 2,765 11,799 1,582 0.72 United Arab Emirates 656 7,098 1,347 5,751 892 0.41 United Kingdom 8,565 92,673 17,593 75,080 8,801 4.02 United States 32,564 352,342 67,406 284,936 32,800 14.99 Uruguay 202 2,186 437 1,749 438 0.20 Uzbekistan 175 1,894 379 1,515 411 0.19 Vanuatu 50 541 108 433 286 0.13 Venezuela, R.B. de 1,427 15,440 3,088 12,352 1,663 0.76 Vietnam 388 4,198 797 3,401 624 0.29 Yemen, Republic of 155 1,677 335 1,342 391 0.18 Zambia 318 3,441 688 2,753 554 0.25 Zimbabwe 236 2,554 511 2,043 472 0.22 Total – June 30, 2012 2 177,003 $1,915,172 $365,413 $1,549,759 218,775 100.00 Total – June 30, 2011 176,786 $1,912,825 $364,943 $1,547,882 218,961 100.00 1 Subscribed shares pertaining to the General Capital Increase include only those shares for which the subscription process has been completed, i.e., for which required payment has been received. 2 May differ from the sum of individual figures shown because of rounding. See accompanying notes to the financial statements 78 | MIGA ANNUAL REPORT 2012 Statement of Guarantees Outstanding As of June 30, 2012, expressed in thousands of US dollars Gross Exposure – Note D Host Country US Euro Japanese Swiss British Total Reinsurance – Net Dollars Yen Franc Pound Note D Exposure Afghanistan $150,750 $- $- $- $- $150,750 $48,676 $102,074 Albania 1,565 176,630 - - - 178,195 76,064 102,132 Algeria - 3,247 - - - 3,247 - 3,247 Angola 12,900 - - - - 12,900 1,290 11,610 Argentina 24,119 - - - - 24,119 12,059 12,059 Armenia - 3,585 - - - 3,585 - 3,585 Bangladesh 78,265 - - - - 78,265 7,826 70,438 Benin 1,026 7,417 - - - 8,443 103 8,340 Bolivia 10,777 - - - - 10,777 - 10,777 Bosnia and Herzegovina - 115,638 - - - 115,638 517 115,121 Botswana 12,068 - - - - 12,068 - 12,068 Brazil - 19,598 - - - 19,598 9,799 9,799 Bulgaria - 108,727 - - - 108,727 54,363 54,363 Burkina Faso - 1,571 - - - 1,571 157 1,414 Burundi - 641 - - - 641 - 641 Cameroon - 6,468 - - - 6,468 - 6,468 Central African Republic - 30,198 - - - 30,198 - 30,198 China 81,698 68,399 - - - 150,097 2,821 147,276 Colombia - 2,510 - - - 2,510 - 2,510 Congo, Dem. Republic of 25,150 4,781 - - - 29,931 - 29,931 Congo, Republic of - 4,855 - - - 4,855 - 4,855 Costa Rica 135,931 - - - - 135,931 79,582 56,349 Cote d'Ivoire 80,251 67,075 - - - 147,326 44,225 103,101 Croatia - 917,698 - - - 917,698 533,043 384,655 Djibouti 202,532 - - - - 202,532 124,292 78,240 Dominican Republic 99,635 - - - - 99,635 14,945 84,690 Ecuador 12,084 - - - - 12,084 19 12,065 El Salvador 22,837 - - - - 22,837 - 22,837 Ethiopia 13,960 - - - 2,809 16,769 - 16,769 Georgia 22,496 - - - - 22,496 - 22,496 Ghana 161,224 1,577 - - - 162,801 15,325 147,476 Guinea - 49,932 - - - 49,932 4,993 44,939 Guinea-Bissau - 13,089 - - - 13,089 1,309 11,780 Honduras - 5,976 - - - 5,976 - 5,976 Hungary - 358,544 - - - 358,544 54,854 303,690 Indonesia 627,000 - - - - 627,000 306,667 320,333 Iran, Islamic Republic of 90,810 - - - - 90,810 9,081 81,729 Iraq 3,678 - - - - 3,678 - 3,678 Jamaica 72,191 - - - - 72,191 14,438 57,753 Jordan 203,895 - - - - 203,895 80,210 123,686 Kazakhstan 396,992 - - - - 396,992 239,530 157,462 Kenya 149,194 61,529 - - - 210,723 60,315 150,409 Kosovo - 47,806 - - - 47,806 - 47,806 Kyrgyz Republic 7,653 - - - - 7,653 189 7,464 Lao People's Dem. Republic 75,428 - - - - 75,428 37,714 37,714 Latvia 4,104 149,393 - - - 153,498 410 153,087 Liberia - 67,935 - - - 67,935 20,520 47,415 Macedonia, FYR - 11,951 - - - 11,951 - 11,951 Madagascar - 17,775 - - - 17,775 - 17,775 Mali 16,200 - - - - 16,200 1,620 14,580 See accompanying notes to the financial statements MIGA ANNUAL REPORT 2012 | 79 Statement of Guarantees Outstanding (cont’d) As of June 30, 2012, expressed in thousands of US dollars Gross Exposure – Note D Host Country US Euro Japanese Swiss British Total Reinsurance – Net Dollars Yen Franc Pound Note D Exposure Mauritania 5,400 - - - - 5,400 540 4,860 Moldova - 13,825 - - - 13,825 - 13,825 Morocco - 5,791 - - - 5,791 - 5,791 Mozambique 144,630 2,390 - - - 147,020 33,635 113,385 Nepal 29,394 - - - - 29,394 17,671 11,722 Nicaragua 18,619 - - - - 18,619 2,850 15,770 Nigeria 103,739 - - - - 103,739 14,091 89,647 Pakistan 156,690 766 - 83,730 - 241,186 95,209 145,976 Panama 320,000 - - - - 320,000 100,000 220,000 Peru 24,271 - - - - 24,271 1,254 23,017 Poland - 2,978 - - - 2,978 - 2,978 Romania - 43,708 - - - 43,708 10,022 33,686 Russian Federation 747,750 69,146 - - - 816,896 364,879 452,017 Rwanda 119,643 - - - - 119,643 15,378 104,265 Senegal 99,000 56,017 - - - 155,017 26,243 128,773 Serbia - 477,299 - - - 477,299 135,915 341,384 Sierra Leone 17,770 - - - - 17,770 500 17,270 South Africa 15,825 - - 11,775 - 27,600 - 27,600 Swaziland 20,831 - - - - 20,831 10,416 10,416 Syrian Arab Republic 75,000 - - - - 75,000 7,500 67,500 Thailand 90,428 - - - - 90,428 35,214 55,214 Togo - 4,008 - - - 4,008 - 4,008 Tunisia - 183,263 - - - 183,263 64,155 119,108 Turkey 391,872 343,474 - - - 735,346 436,405 298,941 Turkmenistan 11,477 - - - - 11,477 - 11,477 Uganda 155,470 478 - - - 155,948 75,797 80,151 Ukraine 990,456 9,203 - - - 999,658 579,976 419,682 Uruguay 300,000 - - - - 300,000 192,000 108,000 Uzbekistan 119,500 - - - - 119,500 39,500 80,000 Vietnam 19,604 - - - - 19,604 13,723 5,881 Zambia 28,140 - - - - 28,140 - 28,140 6,801,921 3,536,890 - 95,505 2,809 10,437,124 4,129,831 6,307,294 Adjustment for Dual-Country Contracts: 1 Lao PDR/Thailand (70,428) - - - - (70,428) (35,214) (35,214) Mozambique/Swaziland (20,831) - - - - (20,831) (10,416) (10,416) (91,259) - - - - (91,259) (45,629) (45,629) Total – June 30, 20122 6,710,662 3,536,890 - 95,505 2,809 10,345,866 4,084,201 6,261,664 Total – June 30, 2011 5,990,855 3,034,453 497 95,906 - 9,121,712 3,883,074 5,238,638 1 For contracts where there are two host countries, MIGA is at risk for losses in both countries up to the maximum amount of liability under the contract. As such, the aggregate exposure is reported in both host countries and an adjustment is made to adjust for double-counting. 2 May differ from the sum of individual figures shown because of rounding. See accompanying notes to the financial statements 80 | MIGA ANNUAL REPORT 2012 Notes to Financial Statements Purpose The Multilateral Investment Guarantee Agency (MIGA), established on April 12, 1988 and located in Washington D.C., is a member of the World Bank Group which also includes the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), the International Development Association (IDA), and the International Center for Settlement of Investment Disputes (ICSID). MIGA’s activities are closely coordinated with and complement the overall development objectives of the other World Bank institutions. MIGA is designed to help developing countries attract productive foreign investment by both private investors and commercially operated public sector companies. Its facilities include guarantees or insurance against noncommercial risks and a program of advisory services and technical assistance to support member countries’ efforts to attract and retain foreign direct investment. Note A: Summary of Significant Accounting and Related Policies Basis of Preparation MIGA’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and with accounting principles generally accepted in the United States of America (U.S. GAAP). The policy adopted is that considered most appropriate to the circumstances of MIGA having regard to its legal requirements and to the practices of other international insurance entities. On August 9, 2012, the acting Executive Vice President and the Chief Financial Officer authorized the financial statements for issue. MIGA has evaluated subsequent events through August 9, 2012, the date of issue. Accounting and Reporting Developments The IASB issued IFRS 4, Insurance Contracts in March 2004 to achieve convergence of widely varying insurance industry accounting practices around the world. The IASB has divided the insurance project into two phases. In line with the requirements of Phase 1, MIGA included addi- tional disclosures beginning the quarter ended September 30, 2005 that identify and explain the amounts in the financial statements arising from insurance contracts. In July 2010, the IASB released an exposure draft on Phase 2 of the project addressing issues on insurance accounting. The Financial Accounting Standard Board (FASB) is deliberating the accounting for insurance contracts in a joint effort with the IASB and is expected to issue an exposure draft in 2012. In November 2009, IASB issued IFRS 9, Financial Instruments as a first step as part of a wider project to replace International Accounting Standards (IAS) 39, Financial Instruments: Recognition and Measurement. The November 2009 issuance of IFRS 9 focuses on the classification and measurement of financial assets where it retains but simplifies the mixed measurement model and establishes two primary measurement cat- egories for financial assets: amortized cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial assets. Requirements for financial liabilities were added to IFRS 9 in October 2010, most of which were carried forward unchanged from IAS 39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk. The standard is effective for annual periods beginning on or after January 1, 2015. MIGA is currently assessing the impact of this standard on its financial statements. In June 2011, the IASB issued an amended employee benefits standard IAS 19 Employee Benefits, which has an effective date of annual periods beginning on or after January 1, 2013. The amended standard is expected to impact accounting around the funded defined benefit plans primarily driven by a new approach to calculating and presenting the net interest income or expense on the net defined benefit liability or asset. The standard will require entities to present the net interest income or expense on the net defined benefit liability or asset as a single net interest figure, based on the discount rate that is used to measure the defined benefit obligations. MIGA is currently assessing the impact of this standard on its financial statements. In May 2011, the FASB issued Accounting Standard Update (ASU) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS). The amendments result in common fair value measurement and disclosure requirements in IFRS and U.S. GAAP. While many of the amendments are changes in wording that do not significantly impact current practice, some of the amendments change the existing fair value measurement and disclosure requirements. This ASU is effective for interim and annual periods beginning after December 15, 2011. MIGA has adopted this ASU in the quarter ended March 31, 2012. For the related additional fair value disclosures, see Note B – Investments. Differences between US GAAP and IFRS The Compensation Retirement Benefits Topic of the FASB Accounting Standards Codification (ASC) 715-30 requires employers to recognize on their balance sheets the funded status of their defined benefit post retirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation. Gains or losses and prior service costs or credits that arise during the period are recognized as part of Other Comprehensive Income, to the extent they are not recognized as components of the net periodic benefit cost. Additionally, ASC 715-30 requires unrecognized net actuarial gains or losses and unrecognized prior service costs to be recognized in the ending balance of Accumulated Other Comprehensive Income. These amounts will be adjusted as they are subsequently recognized as components of net periodic benefit cost. MIGA’s accounting policy under IAS 19, Employee Benefits is to recognize all actuarial gains and losses in the period in which they occur—but outside profit or loss—“in a statement of changes in shareholder’s equity.��? This is a permitted alternative available under IAS 19 and MIGA considers that this will allow it to show the over/under funded position on the balance sheet thereby making its financial statements more relevant and complete. ASC 715-30 and IAS 19 differ in the treatment of amortization of unrecognized actuarial gains or losses. ASC 715-30 requires that the unrecognized actuarial gains or losses to be amortized through the Statement of Income, and IAS 19 requires the unrecognized actuarial gains or losses to be recognized in Other Comprehensive Income and immediately recognized in Retained earnings. MIGA does not believe the differences are material. MIGA ANNUAL REPORT 2012 | 81 Use of Estimates The preparation of financial statements in conformity with IFRS and U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from these estimates. Significant judgments have been made in areas which management views as most critical with respect to the establishment of its loss reserves, the determination of net periodic cost/income from pension and other post retirement benefits plans, and the present value of benefit obligations. Investments MIGA manages its investment portfolio both for the purpose of providing liquidity for potential claims and for capital growth. MIGA invests in equity securities, time deposits, asset backed securities (ABS) and government and agency obligations based on its investment policy approved by the Board. Government and agency obligations include highly rated fixed rate bonds, notes, bills and other obligations issued or unconditionally guaranteed by governments of countries or other official entities including government agencies or by multilateral organizations. MIGA makes use of derivatives contracts such as exchange traded futures, options and covered forward contracts to manage its investment portfolio. The purposes of these transactions are to enhance the return and manage the overall duration of the portfolio. With respect to futures and options, MIGA generally closes out most open positions prior to expiration. Futures are settled on a daily basis. MIGA has classified all investment securities as trading. Investments classified as trading securities are reported at fair value using trade-date accounting. Securities purchased or sold may have a settlement date that is different from the trade-date. Securities purchased that could not be settled before the reporting dates are recorded as liability. Similarly, securities sold that could not be settled before the reporting dates are recorded under Other Assets. For trading securities, unrealized net gains and losses are recognized in earnings. Income from investments includes net gains and losses, dividend income and interest income. Nonnegotiable, Noninterest-bearing Demand Obligations on Account of Subscribed Capital Payments on these instruments are due to MIGA upon demand and are held in bank accounts which bear MIGA’s name. Accordingly, these instruments are carried and reported at face value as assets on the Balance Sheet. Impairment of Reinsurance Assets MIGA assesses at each balance sheet date whether there is objective evidence that the reinsurance asset is impaired, and makes a provision for such impairment. Objective evidence may be in the form of observable data that comes to MIGA’s attention periodically. If an impairment is determined, the carrying amount of the reinsurance asset is reduced through the use of an allowance account and the amount of the loss is recognized in the Statement of Income. Reserve for Claims MIGA’s reserve consists of two primary components, the Specific Reserve and the Insurance Portfolio Reserve. These components are compre- hensive and mutually exclusive with respect to risk of losses that may develop from each guarantee contract, and from the contingent liability for the portfolio as a whole. The Specific Reserve is calculated based on contract-specific parameters that are reviewed every quarter by MIGA’s management for contracts that have known difficulties. The Insurance Portfolio Reserve is calculated based on the long-term historical experiences of the political risk insurance industry. Assumptions and parameters used in the calculations are intended to serve as the basis for an objective reserve for probable claims. Key assumptions, including frequency of claim, severity, and expected recovery have been quantitatively derived from the political risk insurance industry’s historical claims data. The principal sources of data used as inputs for the assumptions include the Berne Union and the Overseas Private Investment Corporation. The historical analysis of the data from those sources is further augmented by an internal econometric scoring analysis in order to derive risk-differentiated parameters with term structure effects over time. The historical and econometric analyses cover periods that are over 30 years, and the derived parameters are considered stable in the short term; however the parameters are reviewed periodically. Short-term risk changes are captured by changes in internal risk ratings for countries and contracts on a quarterly basis. For the purpose of claims provisioning, MIGA factors in the time value of money of potential cash flows, using representative risk-free interest rates as the discount rates. For the purpose of the presentation of the financial statements, insurance liabilities (or reserves) are presented on a gross basis and not net of reinsurance. Therefore, MIGA’s reserves are shown on a gross basis on the liability side of the balance sheet, while establishing reinsurance recoverable assets on the asset side. Reinsurance does not relieve MIGA of its primary liability to the insured. Currency Translation Assets and liabilities denominated in foreign currencies are translated at market exchange rates in effect at the end of the period. Income and expenses are translated at either the market exchange rates in effect on the dates on which they are recognized or at an average of the market exchange rates in effect during each month. Translation adjustments are reflected in the Statement of Income. MIGA’s Investment Policy approved by the Board of Directors includes the establishment of a system for active management of MIGA’s exposures to foreign currencies, whereby the amounts of non dollar assets would be matched to non dollar reserve components. The objective is to align the currency compositions of MIGA’s assets and liabilities, and to thereby minimize the sensitivity of MIGA’s net income to movements in foreign currency exchange rates. Valuation of Capital Stock Under the MIGA Convention, all payments from members subscribing to the capital stock of MIGA shall be settled on the basis of the average value of the Special Drawing Rights (SDR) introduced by the International Monetary Fund, as valued in terms of United States dollars for the period January 1, 1981 to June 30, 1985, such value being equal to $1.082 for one SDR. 82 | MIGA ANNUAL REPORT 2012 Revenue Recognition Premium amounts received on direct insurance contracts and reinsurance contracts assumed can be annual, semi-annual or quarterly and are recorded as unearned premium. Premiums are recognized as earned on a pro rata basis over the contract period. A receivable for premium is recorded when the contract has been renewed and coverage amounts have been identified. MIGA cedes to reinsurers in the normal course of business by obtaining treaty and facultative reinsurance to augment its underwriting capacity and to mitigate its risk by protecting portions of its insurance portfolio. Premiums ceded follow the same approach as for direct insurance con- tracts and are recognized as expenses on a pro rata basis over the contract period. Fee and commissions income for MIGA primarily consists of administrative fees, arrangement fees, facility fees, renewal fees, commitment (offer) fees, and ceding commissions. Fees and commissions received upon renewal are recognized as income on a pro rata basis over the contract period. Note B: Investments A summary of MIGA’s investment portfolio at June 30, 2012 and June 30, 2011 are as follows: Fair Value In thousands of US dollars June 30, 2012 June 30, 2011 Equity securities $145,605 $93,287 Comingled funds 9,062 6,600 Government obligations 399,730 352,483 Time deposits 306,418 418,038 Asset backed securities 230,511 235,151 Total Investments - Trading $1,091,326 $1,105,559 MIGA manages its investments on a net portfolio basis. The following table summarizes MIGA’s net portfolio position as of June 30, 2012 and June 30, 2011: Fair Value In thousands of US dollars June 30, 2012 June 30, 2011 Investments – trading $1,091,326 $1,105,559 Cash held in investment portfolioa 2,868 1,406 Securities purchased under resale agreements 13,000 - Receivable for investment securities sold 1,475 12,646 Derivative assets Currency forward contracts 282,732 115,086 Othersb 186 34 Derivative liabilities Currency forward contracts (282,031) (115,093) Othersb (19) (249) Payable for investment securities purchased (4,641) (57,185) Securities sold under repurchase agreements (15,190) (26,674) Net investment portfolio $1,089,706 $1,035,530 a. This amount is included under Cash in the Balance Sheet b. These relate to To-Be-Announced (TBA) securities Investments are denominated primarily in United States dollars with instruments in non-dollar currencies representing 8.6 percent (8.3 percent – June 30, 2011) of the portfolio. MIGA classifies all investment securities as trading. Investments classified as trading securities are reported at fair value with unrealized gains or losses included in earnings. The unrealized net gains/(losses) included in the Income from investments for the fiscal years ended June 30, 2012 and June 30, 2011 amounted to $7,420,000 and ($838,000) respectively. MIGA ANNUAL REPORT 2012 | 83 The following table summarizes MIGA’s Income from investments in the Statement of Income. Year ended In thousands of US dollars June 30, 2012 June 30, 2011 Interest income $15,074 $15,551 Dividend income 4,050 480 Gains - realized/unrealized 28,233 13,924 Losses - realized/unrealized (10,459) (16,105) $36,898 $13,850 Income/(losses) from derivatives instruments related to interest income, realized and unrealized gains and losses and included in the table above, for the fiscal years ended June 30, 2012 and June 30, 2011 amounted to $409,000 and ($776,000), respectively. Income/(losses) from derivative instruments mainly relates to interest rate futures, options and covered forwards. Securities sold under repurchase agreements MIGA may engage in securities lending and repurchases, against adequate collateral, as well as securities borrowing and reverse repurchases (resales). Transfers of securities by MIGA to counterparties are not accounted for as sales as the accounting criteria for the treatment as sale have not been met. Counterparties are permitted to repledge these securities until the repurchase date. The following is a summary of the carrying amount of the securities transferred under repurchase agreements, and the related liabilities: Year ended In thousands of US dollars June 30, 2012 June 30, 2011 Securities transferred under repurchase agreements $15,190 $26,674 Liabilities relating to securities transferred under repurchase agreements $15,190 $26,674 In the case of resale agreements, MIGA receives collateral in the form of liquid securities and is permitted to repledge these securities. While these transactions are legally considered to be true purchases and sales, the securities received are not recorded as Investments on MIGA’s Balance Sheet as the accounting criteria for treatment as a sale have not been met. As of June 30, 2012, MIGA had received securities with a fair value of $13,000,000 (Nil - June 30, 2011). Fair Value Measurements The Fair Value Measurements and Disclosure Topic of the FASB ASC 820-10 and IFRS 7 Financial Instruments: Disclosures, define fair value, establish a consistent framework for measuring fair value, establish a fair value hierarchy based on the quality of inputs used to measure fair value and expand disclosure requirements about fair value measurements. MIGA has an established process for determining fair values. Fair value is based upon quoted market prices, where available. Financial instruments for which quoted market prices are not readily available are valued based on discounted cash flow models. These models primarily use market- based or independently sourced market parameters such as yield curves, interest rates, volatilities, foreign exchange rates and credit curves. To ensure that the valuations are appropriate where internally-developed models are used, MIGA has various controls in place, which include both internal and periodic external verification and review. Fair Value Hierarchy ASC 820-10 and IFRS 7 establish a three-level fair value hierarchy under which financial instruments are categorized based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1), the next highest priority to observable market-based inputs or inputs that are corroborated by market data (Level 2) and the lowest priority to unobservable inputs that are not corroborated by market data (Level 3). When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable and unobservable. Additionally, ASC 820-10 requires that the valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities at fair value are categorized based on the inputs to the valuation techniques as follows: Level 1: Financial assets whose values are based on unadjusted quoted prices for identical assets or liabilities in active markets. Level 2: Financial assets and liabilities whose values are based on quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in non-active markets; or pricing models for which all significant inputs are observable, either directly or indirectly for substantially the full term of the asset or liability. Level 3: Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. 84 | MIGA ANNUAL REPORT 2012 The following tables present MIGA’s summary of the trading portfolio measured at fair value on a recurring basis as of June 30, 2012 and June 30, 2011: Fair Value Measurements on a Recurring Basis, as of June 30, 2012 In thousands of US dollars Level 1 Level 2 Level 3 Total Assets: Equity securities $145,605 $- $- $145,605 Commingled funds - 9,062 - 9,062 Government obligations 323,741 75,989 - 399,730 Time deposits 122,300 184,118 - 306,418 Asset backed securities - 228,397 2,114 230,511 Total investments - trading 591,646 497,566 2,114 1,091,326 Securities purchased under resale 13,000 - - 13,000 agreements Derivative assets Currency forward contracts - 282,732 $- 282,732 Othersa - 186 - 186 Total Derivative assets - 282,918 - 282,918 Total $604,646 $780,484 $2,114 $1,387,244 Liabilities: Securities sold under repurchase $3,544 $11,646 $- $15,190 agreements Derivative liabilities Currency forward contracts - 282,031 - 282,031 Othersa - 19 - 19 Total Derivative liabilities - 282,050 - 282,050 Total $3,544 $293,696 $- $297,240 a. These relate to To-Be-Announced (TBA) securities Fair Value Measurements on a Recurring Basis, as of June 30, 2011 In thousands of US dollars Level 1 Level 2 Level 3 Total Assets: Equity securities $93,287 $- $- $93,287 Commingled funds - 6,600 - 6,600 Government obligations 230,381 122,102 - 352,483 Time deposits 206,052 211,986 - 418,038 Asset backed securities - 231,146 4,005 235,151 Total investments - trading 529,720 571,834 4,005 1,105,559 Derivative assets Currency forward contracts - 115,086 - 115,086 Othersa - 34 - 34 Total Derivative assets - 115,120 - 115,120 Total $529,720 $686,954 $4,005 $1,220,679 Liabilities: Securities sold under repurchase $- $26,674 $- $26,674 agreements Derivative liabilities Currency forward contracts - 115,093 - 115,093 Othersa - 249 - 249 Total Derivative liabilities - 115,342 - 115,342 Total $- $142,016 $- $142,016 a. These relate to To-Be- Announced (TBA) securities MIGA ANNUAL REPORT 2012 | 85 MIGA’s policy is to recognize transfers in and transfers out of levels as of the end of the reporting period in which they occur. The table below provides the details of inter-level transfers for the fiscal year ended June 30, 2012 and June 30, 2011. Year ended June 30, 2012 In thousands of US dollars Level 1 Level 2 Level 3 Asset backed securities Transfers (out of) into $- $(1,036) $1,036 Transfers into (out of) - 2,463 (2,463) $- $1,427 $(1,427) Year ended June 30, 2011 In thousands of US dollars Level 1 Level 2 Level 3 Asset-backed Securities Transfers (out of) into $- $(47) $47 The following table provides a summary of changes in the fair value of MIGA’s Level 3 financial assets during the fiscal years ended June 30, 2012 and June 30, 2011. Year ended June 30, 2012 In thousands of US dollars 2012 2011 Asset-backed Securities Beginning of the period $4,005 $3,552 Total realized/unrealized income in Income from investments (174) 87 Purchases - 1,019 Transfers (out)/in (1,427) 47 Settlements/Maturity (290) (700) End of the period $2,114 $4,005 Unrealized (losses)/gains on Level 3 asset backed securities was ($174,000) for the year ended June 30, 2012 and $87,000 for the year ended June 30, 2011. The fair value of Level 3 instruments (ABS) in the investment portfolio are estimated using valuation models that incorporate observable market inputs and unobservable inputs. The significant unobservable inputs include constant prepayment rate, probability of default, and loss severity. The constant prepayment rate is an annualized expected rate of principal prepayment for a pool of asset-backed securities. The probability of default is an estimate of the expected likelihood of not collecting contractual amounts owed. Loss severity is the present value of lifetime losses (both interest and principal) as a percentage of the principal balance. Significant increases (decreases) in the assumptions used for these inputs in isolation, would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for constant prepayment rates. The following table provides a summary of the valuation technique applied in determining fair values of these Level 3 instruments and quantitative information regarding the significant unobservable inputs used: In thousands of US dollars Portfolio Fair value Valuation Unobservable Range at June 30, 2012 technique input (weighted average) Investments (Asset 2,114 Discounted Constant Prepayment 0.5%– 4% (2.05%) backed securities) Cash Flow Rate Probability of 1.0%– 10% (6.01%) Default Loss Severity 35.0% - 75.0% (57.3%) The maximum credit exposure of investments closely approximates the fair values of the financial instruments. 86 | MIGA ANNUAL REPORT 2012 The following table provides information on the credit exposure and notional amounts of the derivative instruments. Type of contracts Year ended June 30 In thousands of US dollars 2012 2011 Currency Forward Contract Credit Exposure $2,431 $140 Exchange traded Options and Futuresa Notional Long Position 31,025 121,000 Notional Short Position 93,800 464,000 Othersb Notional Long Position 53,000 50,000 Notional Short Position 3,000 2,000 Credit Exposure 186 34 a. Exchange traded instruments are generally subject to daily margin requirements and are deemed to have no material credit risk. Primarily outstanding options and future contracts as of June 30, 2012 and June 30, 2011 are interest rate contracts b. These relate to To-Be- Announced (TBA) securities Asset-backed securities (ABS) are diversified among credit cards, student loans, home equity loans and mortgage-backed securities. Since these holdings are primarily investment grade, neither concentration risk nor credit risk represents a significant risk to MIGA as of June 30, 2012. However, market deterioration could cause this to change in future periods. Note C: Capital Stock The MIGA Convention established MIGA’s authorized capital stock at 100,000 shares with a provision that the authorized capital stock shall automatically increase on the admission of a new member to the extent that the then authorized shares are insufficient to provide the shares to be subscribed by such member. At June 30, 2012, the initial authorized capital stock was 186,259 (186,042 – June 30, 2011) shares. The Convention further states that 10 percent of the members’ initial subscription be paid in cash, in freely convertible currencies, except that developing member countries may pay up to a quarter of the 10 percent in their own currencies. An additional 10 percent of the initial subscription shall be paid in the form of non negotiable, non interest bearing promissory notes. The notes are denominated in freely convertible currencies and are due on demand to meet MIGA’s obligations. The remaining 80 percent is subject to call when required by MIGA to meet its obligations. On March 29, 1999, the Council of Governors approved a General Capital Increase (GCI) resolution increasing the authorized capital stock of MIGA by 78,559 shares to be subscribed by members during the subscription period ending March 28, 2002. Of the additional capital, 17.65 percent is to be paid in cash, in freely usable currency. The remaining 82.35 percent is subject to call when required by MIGA to meet its obli- gations. On May 6, 2002, the Council of Governors adopted a resolution to extend the GCI subscription period to March 28, 2003. On March 17, 2003, the Council of Governors approved an amendment to the GCI resolution allowing eligible countries to subscribe to the GCI shares allocated to them by submitting an Instrument of Contribution before the GCI deadline of March 28, 2003, and requesting such countries to pay for their GCI shares as soon as possible. The reserved shares will be issued and corresponding voting power will accrue when the subscription process has been completed. During the fiscal year ended June 30, 2012, 217 shares (Nil shares - June 30, 2011) were subscribed. At June 30, 2012, MIGA’s authorized capital stock comprised 186,259 (186,042 – June 30, 2011) shares of which 177,003 (176,786 – June 30, 2011) shares had been subscribed. Each share has a par value of SDR10,000, valued at the rate of $1.082 per SDR. Of the subscribed capital, $365,413,000($364,943,000 – June 30, 2011) has been paid in; and the remaining $1,549,759,000 ($1,547,882,000 - June 30, 2011) is subject to call. At June 30, 2012, $113,794,000 ($115,088,000 – June 30, 2011) is in the form of nonnegotiable, non interest bearing demand obligations (promissory notes). A summary of MIGA’s authorized and subscribed capital at June 30, 2012 and June 30, 2011 is as follows: Initial Capital Capital Increase Total Shares (US$000) Shares (US$000) Shares (US$000) At June 30, 2012 Authorized 107,700 $1,165,314 78,559 $850,008 186,259 $2,015,322 Subscribed 107,700 $1,165,314 69,303 $749,858 177,003 $1,915,172 At June 30, 2011 Authorized 107,483 $1,162,966 78,559 $850,008 186,042 $2,012,974 Subscribed 107,483 $1,162,966 69,303 $749,858 176,786 $1,912,825 MIGA ANNUAL REPORT 2012 | 87 Note D: Guarantees Guarantee Program MIGA offers guarantees or insurance against loss caused by non-commercial risks (political risk insurance) to eligible investors on qualified investments in developing member countries. MIGA insures investments for up to 20 years against five different categories of risk: currency inconvertibility and transfer restriction, expropriation, war and civil disturbance, breach of contract, and non-honoring of a sovereign financial obligation. Currency inconvertibility and transfer restriction coverage protects the investor against inconvertibility of local currency into foreign exchange for transfer outside the host country. Currency depreciation is not covered. Expropriation coverage protects the investor against partial or total loss of the insured investment as a result of acts by the host government that may reduce or eliminate ownership of, control over, or rights to the insured investment. War and civil disturbance coverage protects the investor against losses from damage to, or the destruction or disappearance of, tangible covered assets, as well as a total loss due to business interruption extending for a period of at least 180 days, caused by politically motivated acts of war or civil disturbance in the host country including revolution, insurrection, coup d’etat, sabotage and terrorism. Breach of contract coverage protects the investor against the inability to enforce an award arising out of an arbitral or judicial decision recognizing the breach of a covered obligation by the host government. Non-honoring of a sovereign financial obligation coverage protects the investor against the failure of a sovereign to honor an unconditional financial payment obligation or guarantee, where the underlying project meets all of MIGA’s normal eligibility requirements. Unlike MIGA’s breach of contract coverage, this coverage does not require a final arbitral award or court decision as a precondition to payment of a claim. Investors may insure projects by purchasing any combination of the five coverage types. Premium rates applicable are set forth in the contracts. Payments against all claims under a guarantee may not exceed the maximum amount of coverage issued under the guarantee. Under breach of contract coverage, payments against claims may not exceed the lesser of the amount of guarantee and the arbitration award. MIGA also acts as administrator of some investment guarantee trust funds. MIGA, on behalf of the trust funds, issues guarantees against loss caused by non-commercial risks to eligible investors on qualified investments in the countries specified in the trust fund agreements. Under the trust fund agreements, MIGA, as administrator of the trust funds, is not liable on its own account for payment of any claims under contracts of guarantees issued by MIGA on behalf of such trust funds. Contract of guarantees issued by MIGA on behalf of trust funds at June 30, 2012 amounts to $14,731,000 ($2,503,000 – June 30, 2011). Contingent Liability The maximum amount of contingent liability (gross exposure) of MIGA under guarantees issued and outstanding at June 30, 2012 totaled $10,345,866,000 ($9,121,712,000 – June 30, 2011). A contract of guarantee issued by MIGA may permit the guarantee holder, at the start of each contract period, to elect coverage and place amounts both on current and standby. MIGA is currently at risk for amounts placed on current. The maximum amount of contingent liability is MIGA’s maximum exposure to insurance claims, which includes “standby��? coverage for which MIGA is committed but not currently at risk. At June 30, 2012, MIGA’s actual exposure to insurance claims, exclusive of standby coverage is $8,447,510,000 ($7,956,484,000 – June 30, 2011). Reinsurance MIGA obtains treaty and facultative reinsurance (both public and private) to augment its underwriting capacity and to mitigate its risk by pro- tecting portions of its insurance portfolio, and not for speculative reasons. All reinsurance contracts are ceded on a proportionate basis. However, MIGA is exposed to reinsurance non-performance risk in the event that reinsurers fail to pay their proportionate share of the loss in case of a claim. MIGA manages this risk by requiring that private sector reinsurers be rated by at least two of the four major rating agencies (Standard & Poor’s, A.M. Best, Moody’s and Fitch), and that such ratings be above a minimum threshold. In addition, MIGA may also place reinsurance with public insurers of member countries that operate under and benefit from the full faith and credit of their governments and with multilateral agencies that represent an acceptable counterparty risk. MIGA has established limits, at both the project and portfolio levels, which restrict the amount of reinsurance that may be ceded. The project limit states that MIGA may cede no more than 90 percent of any individual project. The portfolio limit states that MIGA may not reinsure more than 50 percent of its aggregate gross exposure. Of the $10,345,866,000 outstanding contingent liability (gross exposure) as at June 30, 2012 ($9,121,712,000 – June 30, 2011), $4,084,201,000 was ceded through contracts of reinsurance ($3,883,074,000 – June 30, 2011). Net exposure amounted to $6,261,664,000 as at June 30, 2012 ($5,238,638,000– June 30, 2011). MIGA can also provide both public (official) and private insurers with facultative reinsurance. As of June 30, 2012, total insurance assumed by MIGA, primarily with official investment insurers, amounted to $496,169,000 ($368,716,000 – June 30, 2011). Premiums relating to direct, assumed, and ceded contracts for the fiscal years ended June 30, 2012 and June 30, 2011 were as follows: In thousands of US dollars June 30, 2012 June 30, 2011 Premiums Written Direct 105,308 $103,009 Assumed 3,315 1,660 Ceded (34,738) (47,473) Premiums Earned Direct 86,340 74,111 Assumed 2,839 1,084 Ceded (33,681) (30,630) 88 | MIGA ANNUAL REPORT 2012 Portfolio Risk Management Controlled acceptance of political risk in developing countries is MIGA’s core business. The underwriting of such risk requires a comprehensive risk management framework to analyze, measure, mitigate and control risk exposures. Claims risk, the largest risk for MIGA, is the risk of incurring a financial loss as a result of a claimable political risk event in developing countries. Political risk assessment forms an integral part of MIGA’s underwriting process and includes the analysis of both country-related and project- related risks. Country risk assessment is a combination of quantitative and qualitative analysis. Ratings are assigned individually to each risk for which MIGA provides insurance coverage in a country. Country ratings are reviewed and updated every quarter. Country risk assessment forms the basis of the underwriting of insurance contracts, setting of premium levels, capital adequacy assessment and provisioning for claims. Project-specific risk assessment is performed by a cross-functional team. Based on the analysis of project-specific risk factors within the country context, the final project risk ratings can be higher or lower than the country ratings of a specific coverage. The decision to issue an insurance contract is subject to approval by MIGA’s Senior Management and concurrence by the Board of Directors. In order to avoid excessive risk con- centration, MIGA sets exposure limits per country and per project. The maximum net exposure which may be assumed by MIGA is $720 million ($600 million – June 30, 2011) in each host country and $220 million ($180 million – June 30, 2011) for each project. As approved by the Board of Directors and the Council of Governors, the maximum aggregate amount of contingent liabilities that may be assumed by MIGA is 350 percent of the sum of MIGA’s unimpaired subscribed capital and its retained earnings, and insurance portfolio reserve plus such portion of the insurance ceded by MIGA through contracts of reinsurance as the Board of Directors may determine. Accordingly, at June 30, 2012, the maximum level of guarantees outstanding (including reinsurance) may not exceed $13,093 million ($12,817 million – June 30, 2011). Portfolio Diversification MIGA aims to diversify its guarantee portfolio so as to limit the concentration of exposure to loss in a host country, region, or sector. The portfolio shares of the top five and top ten largest exposure countries provide an indicator of concentration risk. The gross and net exposures of the top five and top ten countries at June 30, 2012 and June 30, 2011 are as follows: In thousands of US dollars June 30, 2012 June 30, 2011 Exposure in Exposure in Exposure in Exposure in Top Five Countries Top Ten Countries Top Five Countries Top Ten Countries Gross Exposure $4,096,598 $5,949,433 $4,185,685 $5,976,636 % of Total Gross Exposure 39.6 57.5 45.9 65.5 Net Exposure $1,918,072 $3,051,252 $1,894,936 $3,043,052 % of Total Net Exposure 30.6 48.7 36.2 58.1 A regionally diversified portfolio is desirable for MIGA as an insurer, because correlations of claims occurrences are typically higher within a region than between regions. When a correlation is higher, the probability of simultaneous occurrences of claims will be higher. The regional distribution of MIGA’s portfolio at June 30, 2012 and June 30, 2011 is as follows: In thousands of US dollars June 30, 2012 June 30, 2011 Gross Net % of Total Net Gross Net % of Total Net Exposure Exposure Exposure Exposure Exposure Exposure Africa $1,573,908 $1,257,866 20.1 $1,101,887 $885,715 16.9 Asia 1,391,723 861,415 13.8 1,295,724 759,163 14.5 Europe and Central Asia 5,543,471 3,017,803 48.2 5,432,561 2,843,859 54.3 Latin America and Caribbean 1,068,547 641,601 10.2 1,005,684 569,132 10.9 Middle East and North Africa 768,217 482,979 7.7 415,751 245,717 4.7 Adjustment for Master Agreement * (129,895) (64,948) (1.3) $10,345,866 $6,261,664 100.0 $9,121,712 $5,238,638 100.0 * Adjustment for master agreement accounts for MIGA’s maximum exposure to loss with a single investor being less than the sum of the maximum aggregate liabilities under the individual contracts. MIGA ANNUAL REPORT 2012 | 89 The sectoral distribution of MIGA’s portfolio at June 30, 2012 and June 30, 2011 is shown in the following table: In thousands of US dollars June 30, 2012 June 30, 2011 Gross Net % of Total Net Gross Net % of Total Net Exposure Exposure Exposure Exposure Exposure Exposure Infrastructure $3,920,267 $2,435,811 38.9 $2,960,549 $1,694,069 32.3 Financial 4,297,098 2,270,426 36.3 4,455,795 2,340,578 44.7 Tourism, Construction and 553,545 469,062 7.5 192,547 177,239 3.4 Services Manufacturing 774,027 457,205 7.3 790,406 471,818 9.0 Oil and Gas 335,879 260,573 4.2 233,527 195,188 3.7 Mining 241,368 171,221 2.7 243,265 172,359 3.3 Agribusiness 223,682 197,366 3.1 245,623 187,387 3.6 Total $10,345,866 $6,261,664 100.0 $9,121,712 $5,238,638 100.0 Note E: Claims Reserve for Claims MIGA’s gross reserve for claims at June 30, 2012 amounted to $278,200,000 ($228,300,000- June 30, 2011) and estimated reinsurance recov- erables amounted to $52,900,000 ($40,300,000 -June 30, 2011). An analysis of the changes to the gross reserve for claims for the fiscal years ended June 30, 2012 and June 30, 2011 appears in the table below: In thousands of US dollars June 30, 2012 June 30, 2011 Gross reserve balance $228,300 $207,800 Less: Estimated reinsurance recoverables 40,300 18,100 Net reserve balance, beginning of the period 188,000 189,700 Increase (decrease) to net reserves before translation adjustments 48,700 (14,000) Foreign currency translation adjustments (11,400) 12,300 Provision for (release of) claims - net of reinsurance 37,300 (1,700) Net reserve balance 225,300 188,000 Add: Estimated reinsurance recoverables 52,900 40,300 Gross reserve balance, end of the period $278,200 $228,300 The provision for claims of $37,300,000 for the fiscal year ended June 30, 2012 (release of claims of $1,700,000 – June 30, 2011) is the result of an increase in the net insurance portfolio reserve (IPR) of $44,500,000 ($17,900,000 – June 30, 2011) and a decrease in the specific reserve of $7,200,000 ($19,600,000 – June 30, 2011). Estimated reinsurance recoverables increased by $12,600,000 ($22,200,000 – June 30, 2011) during the fiscal year ended June 30, 2012. The foreign currency translation adjustment reflects the impact on MIGA’s reserves arising from the revaluation of guarantee contracts denom- inated in currencies other than US dollar. The translation gain of $11,400,000 for the fiscal year ended June 30, 2012 is mainly the result of the Euro depreciating against the U.S dollar. The translation loss of $12,300,000 for the fiscal year ended June 30, 2011 is mainly the result of the Euro appreciating against the U.S dollar. The foreign currency translation impact on reserve is effectively managed through MIGA’s system for managing exposures to foreign currencies. The amount by which the reserve decreased as a result of translation adjustment is offset by the trans- lation loss on MIGA’s investment portfolio assets, reported on the Statement of Income. Specific Reserve for Claims The specific reserve for claims is composed of reserves for pending claims and reserves for contracts where a claimable event, or events that may give rise to a claimable event, may have occurred, but in relation to which no claim has been filed, but where a loss is probable. The parameters used in calculating the specific reserves, i.e., claims probability, severity and expected recovery, are assessed for each contract placed in the specific reserves on a quarterly basis. At June 30, 2012, the specific reserves amounted to $7,700,000 ($17,100,000 – June 30, 2011) on a gross basis and $5,600,000 ($12,800,000 – June 30, 2011) net of reinsurance. The following table shows how the estimates of the specific reserves for each reporting period have developed over the past ten fiscal years: 90 | MIGA ANNUAL REPORT 2012 In thousands of US dollars Specific Reserve development over past ten fiscal years Reporting Period FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Est. of Cumulative Claims: at end of reporting period 121,800 9,900 37,800 27,610 1,062 - 2,800 13 30,300 5,000 4,200 One year later 68,600 4,600 23,550 40,380 - - 1,491 13 2,900 - Two years later 3,000 4,530 8,343 45,900 - - 2,291 13 - Three years later 5,650 3,279 6,800 45,600 - - 2,500 13 Four years later 5,775 700 1,300 15,100 - - 491 Five years later 5,700 700 1,200 - - - Six years later 5,500 700 - - - Seven years later 7,200 700 - - Eight years later 7,000 700 - Nine years later 6,700 700 Ten years later 3,500 Specific reserves at June 30, 2012 Fiscal Year FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Total Estimate of cumulative claims at June 30, 2012 3,500 700 - - - - 491 13 - - 4,200 8,904 Cumulative payments - (700) - - - - (491) (13) - - - (1,204) Specific reserves at 3,500 - - - - - - - - - 4,200 7,700 June 30, 2012 Pending Claims During the fiscal year ended June 30, 2012, MIGA did not receive any claims. One claim relating to a project in Kenya, which was originally filed in December 2009, was denied. The determination of claim filed in December 2010, for US$5 million in connection to a project in Sierra Leone has been suspended with the consent of the claimant. MIGA received a notice from a guarantee holder that it intends to file a claim for losses suffered in Mali, which it asserts are covered by MIGA’s War and Civil Disturbance provisions. Appropriate reserves are maintained for these matters. Note F: Pension and Other Post Retirement Benefits MIGA, IBRD and IFC participate in a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and a Post-Employment Benefits Plan (PEBP) that cover substantially all of their staff members. The SRP provides regular pension benefits and includes a cash balance plan. The RSBP provides certain health and life insurance benefits to eligible retirees. The PEBP provides certain pension benefits administered outside the SRP. MIGA uses a June 30 measurement date for its pension and other postretirement benefit plans. The amounts presented below reflect MIGA’s respective share of the costs, assets, and liabilities of the plans. All costs, assets and liabilities associated with these pension plans are allocated between MIGA, IBRD, and IFC based upon their employees’ respective participation in the plans. In addition, MIGA and IFC reimburse IBRD for their proportionate share of any contributions made to these plans by IBRD. Contributions to these plans are calculated as a percentage of salary. The following table summarizes the benefit costs associated with the SRP, RSBP, and PEBP for MIGA for the fiscal years ended June 30, 2012 and June 30, 2011: SRP RSBP PEBP In thousands of US dollars 2012 2011 2012 2011 2012 2011 Benefit Cost Service cost $3,456 $3,143 $830 $702 $370 $324 Interest cost 5,540 5,506 902 831 374 316 Expected return on plan assets (8,604) (7,954) (941) (813) - - Amortization of prior service cost 99 99 - 12 7 7 Amortization of net loss 309 1,009 178 202 290 187 Net periodic pension cost $800 $1,803 $969 $934 $1,041 $834 The expenses for the SRP, RSBP and PEBP are included in Administrative Expenses. MIGA ANNUAL REPORT 2012 | 91 The following table summarizes the projected benefit obligations, fair value of plan assets, and funded status associated with the SRP, RSBP and PEBP for MIGA for the fiscal years ended June 30, 2012 and June 30, 2011. The assets for the PEBP are included in IBRD’s investment portfolio. In thousands of US dollars SRP RSBP PEBP Projected Benefit Obligation 2012 2011 2012 2011 2012 2011 Beginning of year $107,784 $97,829 $16,518 $13,968 $7,418 $5,662 Service cost 3,456 3,143 830 702 370 324 Interest cost 5,540 5,506 902 831 374 316 Participant contributions 1,009 964 96 77 20 9 Retiree drug subsidy received n.a. n.a. 30 29 n.a. n.a. Early Retiree Reinsurance n.a. n.a. 2 22 n.a. n.a. Program received Plan amendments n.a . n.a. 1,462 - n.a. n.a. Benefits paid (4,945) (4,407) (377) (344) (231) (197) Actuarial loss (gain) 17,017 4,749 2,277 1,233 1,434 1,304 End of year $129,861 $107,784 $21,740 $16,518 $9,385 $7,418 In thousands of US dollars SRP RSBP PEBP Fair value of plan assets 2012 2011 2012 2011 2012 2011 Beginning of year $135,330 $118,513 $13,700 $11,252 Participant contributions 1,009 964 96 77 Actual return on assets 5,450 18,344 288 1,760 Employer contributions 2,265 1,916 964 955 Benefits paid (4,945) (4,407) (377) (344) End of year $139,109 $135,330 $14,671 $13,700 $- $- Funded status 1 $9,248 $27,546 $(7,069) $(2,818) $(9,385) $(7,418) Accumulated Benefit Obligation $103,986 $84,614 $21,740 $16,518 $8,115 $6,459 1 Net amount recognized is reported as Net assets under retirement benefits plans or Liabilities under accounts payable and accrued expenses under Total Liabilities on the Balance Sheet. Currently MIGA is enrolled in the U.S. Government Retiree Drug Subsidy (RDS) program. Effective January 1, 2013, MIGA will be moving from RDS to an Employer Group Waiver Plan (EGWP), an employer-sponsored prescription drug plan that further enhances coordination with Medicare prescription drug coverage under Medicare Part D. During the fiscal year ended June 30, 2012, amendments were made to the RSBP. These include the integration of the prescription drug coverage with EGWP providing reimbursements for standard and income related premiums paid for medical insurance under Medicare Part B to all eligible plan participants effective on July 1, 2012, and providing reimbursements of Medicare Part D income-related premium amounts once the plan is integrated with EGWP, for all eligible plan participants effective January 1, 2013. The effect of these changes is a $1,462,000 increase to the projected benefit obligation at June 30, 2012. The $9,248,000 relating to SRP at June 30, 2012 ($27,546,000 – June 30, 2011) is included in Net assets under retirement benefits plans on the Balance Sheet. 92 | MIGA ANNUAL REPORT 2012 The following tables present the amounts included in Accumulated Other Comprehensive Income relating to Pension and Other Post Retirement Benefits. In thousands of US dollars SRP RSBP PEBP Total Amounts included in Accumulated Other Comprehensive Loss at June 30, 2012 Net actuarial loss $22,916 $6,212 $5,117 $34,245 Prior service cost 165 1,462 17 1,644 Net amount recognized in Accumulated $23,081 $7,674 $5,134 $35,889 Other Comprehensive Loss Amounts included in Accumulated Other Comprehensive Loss at June 30, 2011 Net actuarial loss $3,054 $3,460 $3,973 $10,487 Prior service cost 264 - 24 288 Net amount recognized in Accumulated $3,318 $3,460 $3,997 $10,775 Other Comprehensive Loss The estimated amounts that will be amortized from Accumulated Other Comprehensive Loss into net periodic benefit cost in the fiscal year ending June 30, 2013 are as follows: In thousands of US dollars SRP RSBP PEBP Total Net actuarial loss $1,761 $361 $445 $2,567 Prior service cost 75 135 7 217 Net amount recognized in Accumulated $1,836 $496 $452 $2,784 Other Comprehensive Loss Assumptions The actuarial assumptions used are based on financial market interest rates, inflation expectations, past experience, and management’s best estimate of future benefit changes and economic conditions. Changes in these assumptions will impact future benefit costs and obligations. The expected long-term rate of return for the SRP assets is a weighted average of the expected long term (10 years or more) returns for the various asset classes, weighted by the portfolio allocation. Asset class returns are developed using a forward-looking building block approach and are not strictly based on historical returns. Equity returns are generally developed as the sum of expected inflation, expected real earnings growth and expected long-term dividend yield. Bond returns are generally developed as the sum of expected inflation, real bond yield, and risk premium/ spread (as appropriate). Other asset class returns are derived from their relationship to equity and bond markets. The expected long-term rate of return for the RSBP is computed using procedures similar to those used for the SRP. The discount rate used in determining the benefit obligation is selected by reference to the year-end yields of AA corporate bonds. Actuarial gains and losses occur when actual results are different from expected results. Amortization of these unrecognized gains and losses will be included in income if, at the beginning of the fiscal year, they exceed 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets. If required, the unrecognized gains and losses are amortized over the expected average remaining service lives of the employee group. MIGA ANNUAL REPORT 2012 | 93 The following tables present the weighted-average assumptions used in determining the projected benefit obligations and the net periodic pension costs for the fiscal years ended June 30, 2012 and June 30, 2011: SRP RSBP PEBP In percent 2012 2011 2012 2011 2012 2011 Weighted average assumptions used to determine projected benefit obligations Discount rate 3.90 5.30 4.10 5.50 3.90 5.20 Rate of compensation increase 5.40 5.90 5.40 5.90 Health care growth rates-at end 6.30 6.90 of fiscal year Ultimate health care growth rate 3.60 4.00 Year in which ultimate rate is 2022 2022 reached Weighted average assumptions used to determine net periodic pension cost Discount rate 5.30 5.75 5.50 6.00 5.20 5.75 Expected return on plan assets 6.40 6.75 6.70 7.75 Rate of compensation increase 5.90 6.20 5.90 6.20 Health care growth rates - at end 6.90 7.00 of fiscal year Ultimate health care growth rate 4.00 4.25 Year in which ultimate rate is 2022 2022 reached The medical cost trend rate can significantly affect the reported postretirement benefit income or costs and benefit obligations for the RSBP. The following table shows the effects of a one-percentage-point change in the assumed healthcare cost trend rate: One percentage One percentage In thousands of US dollars point increase point decrease Effect on total service and interest cost $400 $(300) Effect on postretirement benefit obligation 4,600 (3,600) Investment Strategy The investment policy establishes the framework for investment of the plan assets based on long-term investment objectives and the trade-offs inherent in seeking adequate investment returns within acceptable risk parameters. A key component of the investment policy is to establish a strategic asset allocation (SAA) representing the policy portfolio (i.e., neutral mix of assets) around which the plans are invested. The SAA for the plans are reviewed in detail and reset about every three to five years, with an annual review of key assumptions. The key long-term objective is to target and secure asset performance that is reasonable in relation to the growth rate of the underlying liabilities and the assumed sponsor contribution rates. This is particularly so in the case of the SRP, which has liabilities that can be projected with a reasonable level of confidence based on the actuarial assumptions. Given the relatively long investment horizons of the SRP and RSBP, and the relatively modest liquidity needs over the short-term to pay benefits and meet other cash requirements, the focus of the investment strategy is on generating sustainable long-term investment returns through various assets classes and strategies including equity, quasi-equity, private equity and real estate. The SAA is derived using a mix of quantitative analysis that incorporates expected returns and volatilities by asset class as well as correlations across the asset classes, and qualitative considerations such as the desired liquidity needs of the plans. The strategic asset allocation is comprised of a diversified portfolio drawn from among fixed income, equity, real assets and absolute return strategies. The revised target asset allocations for the SRP and RSBP were approved in December 2010 and April 2011, respectively. The following table presents the actual and target asset allocation at June 30, 2012 and June 30, 2011 by asset category for the SRP and RSRP. The portfolios are still in a period of transition to the new SAA, especially with regard to private equity, hedge funds and real assets, which explains for the most part, the differences between the target allocation and the actual allocation as of June 2012. 94 | MIGA ANNUAL REPORT 2012 In percent SRP RSBP Target % of Target % of allocation 2012 Plan Assets allocation 2012 Plan Assets Asset Class (%) 2012 2011 (%) 2012 2011 Fixed income & cash 31 33 33 24 32 33 Public equity 27 24 24 29 27 27 Private equity 15 20 20 20 24 25 Hedge funds 15 11 11 15 8 8 Real assetsa 12 12 12 12 9 7 Total 100 100 100 100 100 100 a Real assets comprise primarily of Real estate and Real estate investment trusts (REITs) with a small allocation to infrastructure and timber Significant Concentrations of Risk in Plan Assets The assets of the SRP and RSBP are diversified across a variety of asset classes. Investments in these asset classes are further diversified across funds, managers, strategies, geographies and sectors to limit the impact of any individual investment. In spite of such level of diversification, equity market risk remains the primary source of the plans’ overall return volatility. Risk Management Practices Managing investment risk is an integral part of managing the assets of the Plan. Liability-driven investment management and asset diversification are central to the overall investment strategy and risk management approach for the SRP. The surplus volatility risk (defined as the annualized standard deviation of asset returns relative to that of liabilities) is considered the primary indicator of the Plan’s overall investment risk. It is used to define the risk tolerance level and establish the overall level of investment risk. Investment risk is regularly monitored at the absolute level, as well as at the relative levels with respect to the investment policy, manager benchmarks, and liabilities of the Plan. Stress tests are performed periodically using relevant market scenarios to assess the impact of extreme market events. Monitoring of performance (at both manager and asset class levels) against benchmarks and compliance with investment guidelines is carried out on a regular basis as part of the risk monitoring process. Risk management for different asset classes is tailored to their specific characteristics and is an integral part of the external managers’ due diligence and monitoring processes. Credit risk is monitored on a regular basis and assessed for possible market event impacts. The liquidity position of the Plans is analyzed at regular intervals and periodically tested using various stress scenarios to ensure that the Plans have sufficient liquidity to meet all cash flow requirements. In addition, the long-term cash flow needs of the Plans are considered during the SAA exercise and are one of the main drivers in determining maximum allocation to the illiquid investment vehicles. MIGA ANNUAL REPORT 2012 | 95 Fair Value Measurements All plan assets are measured at fair value on recurring basis. The following table presents the fair value hierarchy of major categories of plans assets as of June 30, 2012 and June 30, 2011. Fair Value Measurements on a Recurring Basis as of June 30, 2012 In thousands of SRP RSBP US dollars Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Debt Securities Time deposits $- $468 $- $468 $- $188 $- $188 Securities pur- 859 - - 859 171 - - 171 chased under resale agreements Government and 34,079 5,963 - 40,042 1,940 2,564 - 4,504 agency securities Corporate and con- - 1,566 13 1,579 - 159 - 159 vertible bonds Asset-backed securities - 455 20 475 - 22 8 30 Mortgage-backed - 2,813 18 2,831 - 62 2 64 securities Total Debt Securities 34,938 11,265 51 46,254 2,111 2,995 10 5,116 Equities US common stocks 4,196 - - 4,196 370 - - 370 Non-US common 13,756 - - 13,756 1,644 - - 1,644 stocks Mutual funds 6,118 - - 6,118 449 - - 449 Real estate investment 3,228 - - 3,228 167 - - 167 trusts (REITs) Total Equity Securities 27,298 - - 27,298 2,630 - - 2,630 Commingled funds - 7,994 - 7,994 - 1,178 - 1,178 Real estate (including - 3,705 9,974 13,679 - 105 1,101 1,206 infrastructure and timber) Private equity - - 28,053 28,053 - - 3,421 3,421 Hedge funds - 9,929 3,913 13,842 - 772 339 1,111 Derivative assets/ (7) (77) - (84) 13 (26) - (13) liabilities Other assets/liabilities - - - 2,073 - - - 22 Total Assets $62,229 $32,816 $41,991 $139,109 $4,754 $5,024 $4,871 $14,671 96 | MIGA ANNUAL REPORT 2012 Fair Value Measurements on a Recurring Basis as of June 30, 2011 In thousands of SRP RSBP US dollars Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Debt Securities Time deposits $- $2,465 $- $2,465 $- $203 $- $203 Securities pur- 3,099 - - 3,099 179 - - 179 chased under resale agreements Government and 27,105 10,262 - 37,367 558 2,460 - 3,018 agency securities Corporate and con- - 2,705 25 2,730 - 1,081 - 1,081 vertible bonds Asset backed securities - 1,253 268 1,521 - 57 17 74 Mortgage backed - 4,458 154 4,612 - 72 7 79 securities Total Debt Securities 30,204 21,143 447 51,794 737 3,873 24 4,634 Equities US common stocks 3,575 - - 3,575 327 - - 327 Non-US common 12,640 - - 12,640 1,330 - - 1,330 stocks Mutual Funds 2,723 - - 2,723 332 - - 332 Real estate investment 2,731 - - 2,731 22 - - 22 trusts (REITs) Total Equity Securities 21,669 - - 21,669 2,011 - - 2,011 Commingled funds - 7,941 - 7,941 - 1,593 - 1,593 Real estate (including - 3,384 8,024 11,408 - 92 889 981 infrastructure and timber) Private equity - - 27,394 27,394 - - 3,413 3,413 Hedge funds - 12,578 3,518 16,096 - 807 298 1,105 Derivative assets/ 188 (257) - (69) 3 (57) - (54) liabilities Other assets/liabilities - - - (903) - - - 17 Total Assets $52,061 $44,789 $39,383 $135,330 $2,751 $6,308 $4,624 $13,700 Valuation Methods and Assumptions The following are general descriptions of asset categories, as well as the valuation methodologies and inputs used to determine the fair value of each major category of Plan assets. It is important to note that the investment amounts in the asset categories shown in the table above are different from the asset category allocation shown in the Investment Strategy section of the note. Asset classes in the table above are grouped by the characteristics of the investments held. The asset class break-down in the Investment Strategy section is based on management’s view of the economic exposures after considering the impact of derivatives and certain trading strategies. Debt securities include time deposits, U.S. treasuries and agencies, debt obligations of foreign governments and debt obligations in corporations of domestic and foreign issuers. Fixed income also includes investments in asset-backed securities such as collateralized mortgage obligations and mortgage-backed securities. These securities are valued by independent pricing vendors at quoted market prices for the same or similar securities, where available. If quoted market prices are not available, fair values are based on discounted consistently from period to period. Unless quoted prices are available, money market instruments and securities purchased under resale agreements are reported at face value, which approximates fair value. Equity securities (including REITs) are invested in companies in various industries and countries. Investments in public equity listed on securities exchanges are valued at the last reported sale price on the last business day of the fiscal year. MIGA ANNUAL REPORT 2012 | 97 Commingled funds are typically common or collective trusts reported at NAV as provided by the investment manager or sponsor of the fund based on valuation of underlying investments, and reviewed by management. Private equity includes investments primarily in leveraged buyouts, distressed investments and venture capital funds across North America, Europe and Asia in a variety of sectors. A large number of these funds are in the investment phase of their life cycle. Private equity investments do not have a readily determinable fair market value and are reported at NAV provided by the fund managers, and reviewed by management, taking into consideration the latest audited financial statements of the funds. The underlying investments are valued using inputs such as cost, operating results, discounted future cash flows and trading multiples of comparable public securities. Real estate includes several funds which invest in core real estate as well as non-core types of real estate investments such as debt, value add, and opportunistic equity investments. Real estate investments do not have a readily determinable fair market value and are reported at NAV provided by the fund managers, and reviewed by management, taking into consideration the latest audited financial statements of the funds. The valuations of underlying investments are based on income and/or cost approaches or comparable sales approach, and taking into account discount and capitalization rates, financial conditions, local market conditions among others. Hedge fund investments include those seeking to maximize absolute returns using a broad range of strategies to enhance returns and provide additional diversification. Hedge Funds include investments in equity, event driven, fixed income, multi strategy and macro relative value strategies. These investments do not have a readily determinable fair market value and are reported at NAVs provided by external managers or fund administrators (based on the valuations of underlying investments) on a monthly basis, and reviewed by management, taking into consid- eration the latest audited financial statements of the funds. Investments in hedge funds and commingled funds can typically be redeemed at NAV within the near term while investments in private equity and most real estate are inherently long term and illiquid in nature with a quarter lag in reporting by the fund managers. For the reporting of those asset classes with a reporting lag, management estimates are based on the latest available information taking into account underlying market fundamentals and significant events through the balance sheet date. Investment in derivatives such as equity or bond futures, to-be-announced (TBA) securities, swaps, options and currency forwards are used to achieve a variety of objectives that include hedging interest rates and currency risks, gaining desired market exposure of a security, an index or currency exposure and rebalancing the portfolio. Over-the-counter derivatives are reported using valuations based on discounted cash flow methods incorporating market observable input. The following tables present a reconciliation of Level 3 assets held during the year ended June 30, 2012 and June 30, 2011. Investment in certain real estate funds that were identified as redeemable within 90 days of the period end were transferred out of Level 3 into Level 2. SRP - Fair Value Measurements Using Significant Unobservable Inputs (Level 3), In thousands of US dollars Year Ended June 30, 2012 Corporate Asset- Mortgage- and Private Hedge backed backed Real Estate Total convertible Equity Funds Securities Securities Debt Balance as of July 1, 2011 $25 $268 $154 $27,394 $8,024 $3,518 $39,383 Actual return on plan assets: - Relating to assets still held 1 (7) 51 (2,497) 207 (69) (2,314) at the reporting date Relating to assets sold during 1 2 (46) 2,231 313 (35) 2,466 the period Purchases, issuance and (14) (239) (89) 925 1,430 590 2,603 settlements, net Transfers in - - 9 - - 224 233 Transfers out - (4) (61) - - (315) (380) Balance as of June 30, 2012 $13 $20 $18 $28,053 $9,974 $3,913 $41,991 98 | MIGA ANNUAL REPORT 2012 RSBP - Fair Value Measurements Using Significant Unobservable Inputs (Level 3), In thousands of US dollars Year Ended June 30, 2012 Corporate Asset- Mortgage- and Private Hedge backed backed Real Estate Total convertible Equity Funds Securities Securities Debt Balance as of June 30, 2011 $- $17 $7 $3,413 $889 $298 $4,624 Actual return on plan assets: Relating to assets still held - - 0 (292) 159 (9) (142) at the reporting date Relating to assets sold during - (0) - 297 97 (1) 393 the period Purchases, issuance and - (8) (4) 4 (45) 86 33 settlements, net Transfers in - - - - - 17 17 Transfers out - (0) (2) - - (53) (55) Balance as of June 30, 2012 $- $8 $2 $3,421 $1,101 $339 $4,871 SRP - Fair Value Measurements Using Significant Unobservable Inputs (Level 3), In thousands of US dollars Year Ended June 30, 2011 Corporate Asset- Mortgage- and Private Hedge backed backed Real Estate Total convertible Equity Funds Securities Securities Debt Balance as of July 1, 2010 $42 $545 $248 $23,557 $7,892 $4,499 $36,782 Actual return on plan assets: - Relating to assets still held 3 55 11 619 1,627 491 2,805 at the reporting date Relating to assets sold during - (34) (7) 2,823 181 276 3,239 the period Purchases, issuance and set- 3 26 (20) 395 1,678 (1,815) 267 tlements, net Transfers in (out) (23) (324) (77) - (3,354) 66 (3,710) Balance as of June 30, 2011 $25 $268 $154 $27,394 $8,024 $3,518 $39,383 RSBP - Fair Value Measurements Using Significant Unobservable Inputs (Level 3) In thousands of US dollars Year Ended June 30, 2011 Corporate Asset- Mortgage- and Private Hedge backed backed Real Estate Total convertible Equity Funds Securities Securities Debt Balance as of July 1, 2010 $3 $18 $6 $2,888 $633 $367 $3,914 Actual return on plan assets: Relating to assets still held 0 4 2 172 111 32 321 at the reporting date Relating to assets sold during (0) (3) (1) 351 24 40 412 the period Purchases, issuance and set- (3) 13 1 1 205 (145) 72 tlements, net Transfers in (out) - (15) - - (84) 4 (95) Balance as of June 30, 2011 $- $17 $7 $3,413 $889 $298 $4,624 MIGA ANNUAL REPORT 2012 | 99 Estimated Future Benefits Payments The following table shows the benefit payments expected to be paid in each of the next five years and subsequent five years. The expected benefit payments are based on the same assumptions used to measure the benefit obligation at June 30, 2012. In thousands of US dollars SRP RSBP PEBP Before Medicare Medicare Part D Part D Subsidy Subsidy July 1, 2012 - June 30, 2013 $5,171 $366 $8 $457 July 1, 2013 - June 30, 2014 5,378 406 - 492 July 1, 2014 - June 30, 2015 5,745 448 - 526 July 1, 2015 - June 30, 2016 6,207 492 - 606 July 1, 2016 - June 30, 2021 6,554 544 - 641 July 1, 2017 - June 30, 2022 38,541 3,741 - 3,797 Expected Contributions MIGA’s contribution to the SRP and RSBP varies from year to year, as determined by the Pension Finance Committee, which bases its judgment on the results of annual actuarial valuations of the assets and liabilities of the SRP and RSBP. The best estimate of the amount of contributions expected to be paid to the SRP and RSBP for MIGA during the fiscal year beginning July 1, 2012 is $2,606,000 and $938,000, respectively. Note G: Transactions with Affiliated Organizations MIGA obtains certain administrative and support services from IBRD and IFC. These include human resources, information systems, and admin- istrative services as well as investment management and treasury operations. MIGA also contributes its share of the World Bank Group’s cor- porate costs. Payments for these services are made by MIGA to IBRD and IFC based on negotiated fees, charge backs and allocated charges where charge back is not feasible. Total fees paid by MIGA for the fiscal year ended June 30, 2012 and June 30, 2011 are as follows: In thousands of US dollars June 30, 2012 June 30, 2011 Fees charged by IBRD $11,373 $9,758 Fees charged by IFC 3,544 3,389 At June 30, 2012 and June 30, 2011, MIGA had the following receivables from (payables to) its affiliated organizations with regard to administrative services and pension and other postretirement benefits. In thousands of US dollars June 30, 2012 June 30, 2011 Pension and Pension and Administrative Other Administrative Other Total Total Services Postretirement Services Postretirement Benefits Benefits IBRD $(2,165) $5,374 $3,209 $(3,040) $4,541 $1,501 IFC (1,546) - (1,546) (1,043) - (1,043) $(3,711) $5,374 $1,663 $(4,083) $4,541 $458 Note H: Fair Value Measurement Fair value is defined as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly trans- action between market participants at the measurement date. MIGA uses observable market data, when available, and minimizes the use of unobservable inputs when determining fair value. The fair values of MIGA’s cash and non-negotiable, non interest-bearing demand obligations, 100 | MIGA ANNUAL REPORT 2012 receivables for investment securities sold, payables for investment securities purchased, accounts payable and accrued expenses approximate their carrying values. The fair values of government obligations are based on quoted market prices and the fair values of asset backed securities are based on pricing models for which market observable inputs are used. The degree to which management judgment is involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in mea- suring fair value. Substantially all of MIGA’s financial instruments use either of the foregoing methodologies to determine fair values that are recorded on its financial statements. Note I: Risk Management The responsibility for approving MIGA’s risk management policies lies with the Board of Directors. The Audit Committee of the Board deals with risk management issues. While the Executive Vice President assumes the responsibility for overall risk management with the support of the senior management team, the responsibility for the design and operational implementation of the risk management framework lies with the Finance and Risk Management Group with coordination from the Legal Affairs and Claims Group, the Operations Group and the Economics and Policy Group. Risk Categories MIGA is exposed to a variety of risks and uses risk management programs such as an Economic Capital Framework, and reinsurance arrangements to manage its risk. Below is a description of risk management systems of the important risks for MIGA. r Insurance Risk Political risk assessment forms an integral part of MIGA’s underwriting process, and includes the analysis of both country- related and project-related risks. Insurance risk arises from MIGA’s core business of issuing investment guarantees. MIGA’s earnings depend upon the extent to which claims experience is consistent with assumptions used in setting prices for products and establishing technical pro- visions and liabilities for claims. If actual claims experience of the Agency is less favorable than underlying assumptions, then income would be reduced. MIGA monitors claim activities and provisions for pending claims. In addition, claims reserves for the guarantee portfolio are calculated, using MIGA’s Economic Capital model. Economic Capital and Portfolio Risk Modeling For portfolio risk management purposes, MIGA currently utilizes an Economic Capital Model, based on best practices framework used in risk modeling. The Economic Capital concept is a widely recognized risk management tool in the banking and insurance industries, defining the minimum amount of capital an organization needs to hold in order to sustain larger than expected losses with a high degree of confidence, over a defined time horizon and given the risk exposure and defined risk tolerance. MIGA defines its economic capital as the 99.99th percentile of the aggregate loss distribution over a one year horizon, minus the mean of the loss distribution, which is in line with industry practice. The model helps evaluate concentration risk in the guarantee portfolio and facilitates active, risk-based exposure management by allocating the Economic Capital to particular regions, countries, sectors, covers, or individual contracts, based on their respective risk contribution. In order to prevent excessive risk concentration, MIGA uses the Economic Capital model to set exposure limits per country and per project, and to support decision making in terms of pricing and exposure retention for new projects. MIGA’s reinsurance program, including treaty and facultative rein- surance, is linked to the portfolio risk modeling and helps manage the risk profile of the portfolio. The Economic Capital model also serves as the cornerstone of MIGA’s capital adequacy framework, and provides the analytical basis for risk- based pricing of its products as well as quantification of the need for prudent technical provisions for claims. In addition, the model-based capital adequacy assessment determines the size and duration targets for MIGA’s liquidity holdings. The economic capital, pricing models and underlying parameters are reviewed periodically. r Credit Risk Counter-party credit risk in MIGA’s portfolio is the risk that reinsurers would fail to pay their share of a claim. MIGA requires that private sector reinsurers, with which it conducts business, be rated by at least two of the four major rating agencies (Standard & Poor’s, A.M. Best, Moody’s and Fitch), and that the ratings be above a minimum threshold. Also, MIGA has established limits at both the project and portfolio levels, which restrict the amount of reinsurance. At present MIGA’s investment portfolio does not have significant credit risk exposure. MIGA currently invests in fixed income securities with high credit quality. The Investment authorization stipulates that government or agency sponsored debt securities be AA-rated or above, time deposits be A-rated or above, and corporate debt securities be AAA-rated. r Interest Rate Risk Interest rate changes affect the market values of MIGA’s invested assets. A need to liquidate assets to pay for claims in an unfavorable interest rate environment may generate trading losses and reduce investment income. Changes in interest rates will also affect prepayment speeds of mortgage and asset backed security holdings, which may affect the duration of the asset portfolio. A 100 basis point parallel shift in the yield curve would impact the net income for the year ended June 30, 2012, by approximately $19.9 million ($21.3 million – June 30, 2011). This interest rate sensitivity is illustrative only and is based on simplified scenarios. The impact of a parallel shift in interest rates is determined using market value weighted portfolio duration applied to invested asset balance at year end. r Foreign Exchange Rate Risk The majority of MIGA’s assets and contingent liabilities are denominated in USD, but some guarantee contracts are issued in other currencies such as EUR. To the extent that a claim is made in a non-USD currency and requires payment in excess of MIGA’s holdings of that currency, MIGA may face a foreign exchange related loss in converting to the needed currency to pay for a claim. A 10% change in the USD/Euro year end exchange rate would impact net income for the year ended June 30, 2012, by approximately $9.0 million ($8.1million – June 30, 2011) and net guarantee exposure by approximately $229.7 million ($203.4 million – June 30, 2011). The impact on the net income is mitigated by an offsetting effect due to exchange rate movement on provision for claims. This foreign exchange rate sensitivity is illustrative only and is based on simplified scenarios. MIGA ANNUAL REPORT 2012 | 101 r Liquidity Risk Adequate liquidity resources need to be maintained to sustain the Agency over prolonged periods of cash payouts due to claims. MIGA assesses and monitors the availability of its liquid assets on a periodic basis and analyzes the impact on its finances (capital and liquidity) under stress scenarios where claims situations propagate through contagion across countries and regions. As of June 30, 2012, there were no claims ($10 million – June 30, 2011) filed with the Agency. r Operational Risk Operational risk is intrinsic to financial institutions and is an important component of the Agency-wide risk management framework. The most important types of operational risk involve breakdowns in internal controls, processes, systems and corporate governance. MIGA mitigates operational risks by maintaining a sound internal control system. Since 2000, MIGA has adopted the Committee of Sponsoring Organizations of the Treadway Commission (COSO)’s integrated internal control framework, in line with IBRD/IDA and IFC, to regularly evaluate the effectiveness of internal control system. In addition, MIGA has introduced an integrated risk management process to strengthen monitoring of the operational risks and controls in financial reporting, and the effectiveness of key controls in the financial reporting process are assessed through the internal quality assurance review process. MIGA’s internal controls are regularly evaluated through independent review by the Internal Audit Department (IAD) of the World Bank Group. With regard to information technology, all MIGA information systems and applications are hosted on the IBRD technology infrastructure that is configured and adherent to the information security policy and procedures of the World Bank Group. In addition, increased collaboration with the World Bank Group has allowed MIGA to gain access to a larger pool of specialized skill sets to support its information systems. MIGA’s client relationship management system (MIGA CRM) is fully integrated with the Agency’s core financial system (Guarantee Database). Its content is reviewed and verified against an external Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) database service. MIGA redesigned its core information and financial system for managing and reporting data on activities supporting the guarantee process and imple- mented a new Guarantee Database on a SAP-based platform in March 2010. A new Lead Information Officer has been appointed to assess future information technology requirements at MIGA. For business continuity, MIGA’s corporate web services have now been added to MIGA’s information systems already hosted at the World Bank Group’s Business Continuity Center. In addition, MIGA departments have further documented their business processes required to support the Agency’s effort to re-establish basic operations following a crisis. For data security, more robust reporting functions and security monitoring have been implemented to further enhance MIGA’s information security. r Legal Risk Legal risks arise primarily from changes in the legal parameters of MIGA’s member countries as a result of legislation or court decisions that may affect MIGA’s activities. There are also legal risks associated with MIGA being involved in legal disputes and arbitration pro- ceedings, especially in the context of claim resolution or settlement. MIGA manages these risks by monitoring current and prospective future developments by way of ongoing discussions with member countries’ representatives on the Board of Directors and Council of Governors. MIGA also shares information and analyses with other members of the World Bank Group, the IMF and the United Nations. In addition, MIGA actively participates as a member of the Berne Union in discussions and analyses of the changes in the operating investment environment in its member countries. 102 | MIGA ANNUAL REPORT 2012 MIGA ANNUAL REPORT 2012 | 103 appendices appendices MIGA Member Countries Governors and Alternates Directors and Alternates: Voting Power Signatories to MIGA’s Convention Subscriptions to the General Capital Increase Facultative Reinsurance Obtained by MIGA Facultative Reinsurance Provided by MIGA Guarantee Clients Photo Credits 104 | MIGA ANNUAL REPORT 2012 MIGA Member Countries – 177 Industrialized Countries – 25 Australia • Austria • Belgium • Canada • Czech Republic • Denmark • Finland • France • Germany • Greece • Iceland • Ireland • Italy • Japan • Luxembourg • Netherlands • New Zealand • Norway • Portugal • Slovenia • Spain • Sweden • Switzerland • United Kingdom • United States Developing Countries – 152 ASIA AND THE PACIFIC Afghanistan • Bangladesh • Cambodia • China • Fiji • India • Indonesia • Korea (Republic of) • Lao People’s Democratic Republic • Malaysia • Maldives • Micronesia (Federated States of) • Mongolia • Nepal • Pakistan • Palau • Papua New Guinea • Philippines • Samoa • Singapore • Solomon Islands • Sri Lanka • Thailand • Timor-Leste • Vanuatu • Vietnam EUROPE AND CENTRAL ASIA Albania • Armenia • Azerbaijan • Belarus • Bulgaria • Bosnia and Herzegovina • Croatia • Cyprus • Estonia • Georgia • Hungary • Kazakhstan • Kosovo • Kyrgyz Republic • Latvia • Lithuania • Macedonia (former Yugoslav Republic of) • Malta • Moldova • Montenegro • Poland • Romania • Russian Federation • Serbia • Slovak Republic • Tajikistan • Turkey • Turkmenistan • Ukraine • Uzbekistan LATIN AMERICA AND CARIBBEAN Antigua and Barbuda • Argentina • Bahamas (The) • Barbados • Belize • Bolivia • Brazil • Chile • Colombia • Costa Rica • Dominica • Dominican Republic • Ecuador • El Salvador • Grenada • Guatemala • Guyana • Haiti • Honduras • Jamaica • Mexico • Nicaragua • Panama • Paraguay • Peru • St. Kitts and Nevis • St. Lucia • St. Vincent and the Grenadines • Suriname • Trinidad and Tobago • Uruguay • Venezuela (República Bolivariana de) MIDDLE EAST AND NORTH AFRICA Algeria • Bahrain • Djibouti • Egypt (Arab Republic of) • Iran (Islamic Republic of) • Iraq • Israel • Jordan • Kuwait • Lebanon • Libya • Morocco • Oman • Qatar • Saudi Arabia • Syrian Arab Republic • Tunisia • United Arab Emirates • Yemen (Republic of) SUB-SAHARAN AFRICA Angola • Benin • Botswana • Burkina Faso • Burundi • Cameroon • Cape Verde • Central African Republic • Chad • Congo (Democratic Republic of) • Congo (Republic of) • Côte d’Ivoire • Equatorial Guinea • Eritrea • Ethiopia • Gabon • Gambia (The) • Ghana • Guinea • Guinea-Bissau • Kenya • Lesotho • Liberia • Madagascar • Malawi • Mali • Mauritania • Mauritius • Mozambique • Namibia • Niger • Nigeria • Rwanda • Senegal • Seychelles • Sierra Leone • South Africa • South Sudan ∙ Sudan • Swaziland • Tanzania • Togo • Uganda • Zambia • Zimbabwe Countries in the Process of Fulfilling Membership Requirements – Developing Countries – 3 Comoros • Myanmar • São Tomé and Principe MIGA ANNUAL REPORT 2012 | 105 Governors and Alternates, as of June 30, 2012 Member Governor Alternate Afghanistan Omar Zakhilwal Mohammad M. Mastoor Albania Ardian Fullani Elisabeta Gjoni Algeria Karim Djoudi Abdelhak Bedjaoui Angola Ana Afonso Dias Lourenco Manuel Neto da Costa Antigua and Barbuda Harold E. Lovelle Whitfield Harris, Jr. Argentina Hernan Lorenzino Mercedes Marco del Pont Armenia Tigran Davtyan Vardan Aramyan Australia Wayne Swan Bernie Ripoll Austria Maria Fekter Edith Frauwallner Azerbaijan Elman Siradjogly Rustamov Shahin Mustafayev Bahamas, The Perry G. Christie Ehurd Cunningham Bahrain Ahmed Bin Mohammed Al-Khalifa Yousif Abdulla Humood Bangladesh Abul Maal A. Muhith Arastoo Khan Barbados Christopher P. Sinckler Grantley W. Smith Belarus Sergey Nikolayevich Rumas Andrei M. Kharkovets Belgium Steven Vanackere Franciscus Godts Belize Dean O. Barrow Yvonne Sharman Hyde Benin Marcel A. de Souza Jonas A. Gbian Bolivia Elba Viviana Caro Hinojosa Luis Alberto Arce Catacora Bosnia and Herzegovina Vjekoslav Bevanda Aleksandar Dzombic Botswana Ontefetse Kenneth Matambo Solomon M. Sekwakwa Brazil Guido Mantega Alexandre Antonio Tombini Bulgaria Simeon Djankov Dimitar Kostov Burkina Faso Frank Tapsoba Lene Sebgo Burundi Tabu Abdallah Manirakiza Leon Nimbona Cambodia Chhon Keat Porn Moniroth Aun Cameroon Emmanuel Nganou Djoumessi Dieudonne Evou Mekou Canada James Michael Flaherty Margaret Biggs Cape Verde Cristina Duarte Sandro de Brito Central African Republic Abdou Karim Meckassoua Sylvain Ndoutingai Chad Bedoumra Kordje Bichara Doudoua Chile Felipe Larrain Bascunan Rosanna Costa Costa China Xuren Xie Xiaosong Zheng Colombia Juan Carlos Echeverry Garzon Mauricio Santamaria Congo, Democratic Republic of Patrice Kitebi Kibol Mvul Jean-Claude Masangu Mulongo Congo, Republic of Pierre Moussa Leon Raphael Mokoko Costa Rica Edgar Ayales Esna Rodrigo Bolanos Zamora Cote d'Ivoire Charles Koffi Diby Moussa Dosso Croatia Slavko Linic Boris Lalovac Cyprus Vassos Shiarly Christos Patsalides Czech Republic Miroslav Kalousek Tomas Zidek Denmark Christian Friis Bach Ib Petersen Djibouti Ilyas Moussa Dawaleh Amareh Ali Said 106 | MIGA ANNUAL REPORT 2012 Governors and Alternates, as of June 30, 2012 (cont’d) Member Governor Alternate Dominica Roosevelt Skerrit Rosamund Edwards Dominican Republic Juan Temistocles Montas Daniel Toribio Ecuador Patricio Rivera Yanez Jeannette Sanchez Zurita Egypt, Arab Republic of Fayza Aboulnaga Gouda Abdel Khalek El Salvador Alexander Ernesto Segovia Carlos Enrique Caceres Equatorial Guinea Jose Ela Oyana Montserat Afang Ondo Eritrea Berhane Abrehe Kidane Martha Woldegiorghis Estonia Jurgen Ligi Tanel Ross Ethiopia Sufian Ahmed Abi Woldemeskel Bayou Fiji Josaia Voreqe Bainimarama Filimone Waqabaca Finland Jutta Urpilainen Pentti Pikkarainen France Pierre Moscovici Ramon Fernandez Gabon Luc Oyoubi Roger Owono Mba Gambia, The Abdou Kolley Mod A.K. Secka Georgia Dimitri Gvindadze Vera Kobalia Germany Dirk Niebel Thomas Steffen Ghana Kwabena Duffuor Seth Terkper Greece Ioannis Stournaras Ioannis Drymoussis Grenada V. Nazim Burke Timothy Antoine Guatemala Luis Antonio Velazquez Quiroa Pavel V. Centeno Guinea Kerfalla Yansane Souleymane Cisse Guinea-Bissau (vacant) (vacant) Guyana Ashni Kumar Singh Clyde Roopchand Haiti Marie Carmelle Jean-Marie Charles Castel Honduras Hector Guillermo Guillen Gomez Maria Elena Mondragon Ordonez Hungary Roland Natran Laszlo Orlos Iceland Ossur Skarphedinsson Oddny G. Hardardottir India Pranab Mukherjee R. Gopalan Indonesia Agus D.W. Martowardojo Darmin Nasution Iran, Islamic Republic of Seyyed Shams Al-din Hosseini Behrouz Alishiri Iraq Rafe H. Al-Eissawi Ali Gh. Baban Ireland Michael Noonan (vacant) Israel Stanley Fischer Michal Abadi-Boiangiu Italy Ignazio Visco Carlo Monticelli Jamaica Peter Phillips Wesley George Hughes Japan Jun Azumi Shinichi Nishimiya Jordan Jafar Hassan Saleh Al-Kharabsheh Kazakhstan Yerbol Orynbayev Madina Abylkassymova Kenya Robinson Githae Joseph Kanja Kinyua Korea, Republic of Jaewan Bahk Choongsoo Kim Kosovo Bedri Hamza (vacant) Kuwait Nayef Falah Mubarak Al Hajraf Bader Mohamed Al-Saad Kyrgyz Republic Djoomart Otorbayev Akylbek Japarov MIGA ANNUAL REPORT 2012 | 107 Governors and Alternates, as of June 30, 2012 (cont’d) Member Governor Alternate Lao People's Democratic Republic Phouphet Khamphounvong Bounsong Sommalavong Latvia Andris Vilks Daniels Pavluts Lebanon Nicolas Nahas Mohammad Safadi Lesotho Timothy T. Thahane Mosito Khethisa Liberia Amara M. Konneh (vacant) Libya Hasan Mukhtar Zaklam (vacant) Lithuania Ingrida Simonyte Rolandas Krisciunas Luxembourg Luc Frieden Arsene Joseph Jacoby Macedonia, former Yugoslav Republic of Zoran Stavreski Vladimir Pesevski Madagascar (vacant) (vacant) Malawi Atupele Muluzi Randson Mwadiwa Malaysia Mohd. Najib Abdul Razak Wan Abdul Aziz Wan Abdullah Maldives Abdulla Jihad Ismail Ali Maniku Mali Tiena Coulibaly Marimpa Samoura Malta Tonio Fenech Alfred S. Camilleri Mauritania Sidi Ould Tah Mohamed Lemine Ould Ahmed Mauritius Charles Gaetan Xavier Luc Duval Ali Michael Mansoor Mexico Jose Antonio Meade-Kuribrena Gerardo Rodriguez Regordosa Micronesia, Federated States of (vacant) Rose Nakanaga Moldova Veaceslav Negruta Veaceslav Mamaliga Mongolia Damdin Khayankhyarvaa Purevdorj Lkhanaasuren Montenegro Milorad Katnic Nemanja Pavlicic Morocco Nizar Baraka Mohamed Najib Boulif Mozambique Aiuba Cuereneia Ernesto Gouveia Gove Namibia Saara Kuugongelwa-Amadhila Ipumbu Shiimi Nepal Barshaman Pun Krishnahari Baskota Netherlands Jan Kees De Jager Ben Knapen New Zealand Bill English Gabriel Makhlouf Nicaragua Ivan Acosta Montalvan Francisco J. Mayorga Niger (vacant) (vacant) Nigeria Ngozi Okonjo-Iweala Danladi Kifasi Norway Heikki Holmas Arvinn Gadgil Oman Darwish bin Ismail Al Balushi (vacant) Pakistan Abdul Wajid Rana Rana Asaad Amin Palau Kerai Mariur Dennis Oilouch Panama Frank De Lima Mahesh Khemlani Papua New Guinea Don Polye Simon Tosali Paraguay Dionisio Borda Manuel Vidal Caballero Gimenez Peru Luis Miguel Castilla Rubio Carlos Augusto Oliva Neyra Philippines Cesar V. Purisima Amando M. Tetangco, Jr. Poland Michal Baj Andrzej Ciopinski Portugal Vitor Gaspar Maria Luis Albuquerque Qatar Yousef Hussain Kamal Abdullah Bin Saoud Al-Thani Romania Florin Georgescu Cristian Popa Russian Federation Anton Siluanov Elvira S. Nabiullina 108 | MIGA ANNUAL REPORT 2012 Governors and Alternates, as of June 30, 2012 (cont’d) Member Governor Alternate Rwanda John Rwangombwa Kampeta Sayinzoga Samoa Faumuina Tiatia Liuga Iulai Lavea Saudi Arabia Ibrahim A. Al-Assaf Fahad A. Almubarak Senegal Amadou Kane Abdoulaye Daouda Diallo Serbia Mirko Cvetkovic Verica Kalanovic Seychelles Steve Fanny Sherin Renaud Sierra Leone Samura Mathew Wilson Kamara Sheku S. Sesay Singapore Tharman Shanmugaratnam Peter Ong Boon Kwee Slovak Republic Peter Kazimir Viliam Ostrozlik Slovenia Janez Sustersic Mitja Mavko Solomon Islands Rick Nelson Houenipwela Shadrach Fanega South Africa Pravin J. Gordhan Lungisa Fuzile South Sudan Kosti Manibe Ngai Kornelio Koryom Spain Luis De Guindos Fernando Jimenez Latorre Sri Lanka Mahinda Rajapaksa P. B. Jayasundera St. Kitts and Nevis Denzil Douglas Janet Harris St. Lucia Kenny D. Anthony Isaac Anthony St. Vincent and the Grenadines Ralph E. Gonsalves Len Ishmael Sudan Ali Mahmoud Mohamed Abdelrasoul Elfatih Ali Siddig Suriname Gillmore Hoefdraad Adelien Wijnerman Swaziland Bheki Sibonangaye Bhembe Sicelo M. Dlamini Sweden Anders Borg Gunilla Carlsson Switzerland Beatrice Maser Mallor Olivier Burki Syrian Arab Republic Mohamad Nedal Al-Chaar (vacant) Tajikistan Abdughaffor A. Rahmonov Djamoliddin Nuraliev Tanzania William A. Mgimwa Ramadhan Mussa Khijjah Thailand Kittiratt Na-Ranong Areepong Bhoocha-Oom Timor-Leste Emilia Pires Joao Goncalves Togo Dede Ahoefa Ekoue Aheba Johnson Trinidad and Tobago Larry Howai Bhoendradatt Tewarie Tunisia Riadh Bettaieb Lamia Zribi Turkey Ibrahim H. Canakci Evren Dilekli Turkmenistan Dovletgeldy Sadykov Merdan Annadurdyyev Uganda Maria Kiwanuka Chris M. Kassami Ukraine Sergiy Tigipko Vasyl Tsushko United Arab Emirates (vacant) Obaid Humaid Al Tayer United Kingdom Andrew Mitchell George Osborne United States Timothy F. Geithner Robert D. Hormats Uruguay Fernando Lorenzo Pedro Buonomo Uzbekistan Ravshan Gulyamov Shukhrat Vafaev Vanuatu Moana Kalosil Carcasses George Maniuri Venezuela, Republica Bolivariana de Jorge Giordani (vacant) Vietnam Binh Van Nguyen Minh Hung Le Yemen, Republic of Mohammed Saeed Al-Sadi Mutahar Abdulaziz Al-Abbasi Zambia Alexander B. Chikwanda Fredson K. Yamba Zimbabwe Tendai Biti Gideon Gono MIGA ANNUAL REPORT 2012 | 109 Directors and Alternates: Voting Power, as of June 30, 2012 Director Alternate Casting votes of Total votes % of total Elected by the votes of the six largest shareholders Ian H. Solomon Sara M. Aviel United States 32,800 15.09 Nobumitsu Hayashi Takaya Kishi Japan 9,215 4.24 Ingrid G. Hoven Wilhelm M. Rissmann Germany 9,172 4.22 Ambroise Fayolle Anne Touret-Blondy France 8,801 4.05 Susanna Moorehead Stewart James United Kingdom 8,801 4.05 Shaolin Yang Bin Han China 5,766 2.65 Elected by the votes of other shareholders Rudolf Treffers Stefan Nanu Armenia, Bosnia and Herzegovina, Bulgaria, 11,721 5.39 (Netherlands) (Romania) Croatia, Cyprus, Georgia, Israel, Macedonia (former Yugoslav Republic of), Moldova, Montenegro, Netherlands, Romania, Ukraine Gino Alzetta Konstantin Huber Austria, Belarus, Belgium, Czech Republic, 10,999 5.06 (Belgium) (Austria) Hungary, Kosovo, Luxembourg, Slovak Republic, Slovenia, Turkey Marie-Lucie Morin Kelvin Dalrymple Antigua and Barbuda, The Bahamas, 10,106 4.65 (Canada) (Barbados) Barbados, Belize, Canada, Dominica, Grenada, Guyana, Ireland, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines Merza H. Hasan Ayman Alkaffas Bahrain, Egypt (Arab Republic of), Iraq, 8,536 3.93 (Kuwait) (Arab Republic of Jordan, Kuwait, Lebanon, Libya, Maldives, Egypt) Oman, Qatar, Syrian Arab Republic, United Arab Emirates, Yemen (Republic of) Anna Brandt Jens Haarlov Denmark, Estonia, Finland, Iceland, Latvia, 7,854 3.61 (Sweden) (Denmark) Lithuania, Norway, Sweden Piero Cipollone Nuno Mota Pinto Albania, Greece, Italy, Malta, Portugal, 7,836 3.61 (Italy) (Portugal) Timor-Leste Marta Garcia Juan Jose Bravo Costa Rica, El Salvador, Guatemala, 7,598 3.50 (Spain) (Mexico) Honduras, Mexico, Nicaragua, Spain, Venezuela (República Bolivariana de) Rogerio Studart Vishnu Dhanpaul Brazil, Colombia, Dominican Republic, 7,567 3.48 (Brazil) (Trinidad and Ecuador, Haiti, Panama, Philippines, Tobago) Suriname, Trinidad and Tobago Hassan Ahmed Taha Denny H. Kalyalya Botswana, Burundi, Eritrea, Ethiopia, The 7,548 3.47 (Sudan) (Zambia) Gambia, Kenya, Lesotho, Liberia, Malawi, Mozambique, Namibia, Rwanda, Seychelles, Sierra Leone, Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe John Whitehead In-Kang Cho Australia, Cambodia, Korea (Republic of), 7,487 3.44 (New Zealand) (Republic of Korea) Micronesia (Federated States of), Mongolia, New Zealand, Palau, Papua New Guinea, Samoa, Solomon Islands, Vanuatu 110 | MIGA ANNUAL REPORT 2012 Directors and Alternates: Voting Power, as of June 30, 2012 (cont’d) Director Alternate Casting votes of Total votes % of total Elected by the votes of other shareholders (cont’d) Mukesh N. Prasad Kazi M. Aminul Islam Bangladesh, India, Sri Lanka 7,156 3.29 (India) (Bangladesh) Javed Talat Sid Ahmed Dib Afganistan, Algeria, Ghana, 7,056 3.25 (Pakistan) (Algeria) Iran (Islamic Republic of), Morocco, Pakistan, Tunisia Jorg Frieden Wieslaw Szczuka Azerbaijan, Kazakhstan, Kyrgyz Republic, 6,869 3.16 (Switzerland) (Poland) Poland, Serbia, Switzerland, Tajikistan, Turkmenistan, Uzbekistan Agapito Mendes Dias Mohamed Sikieh Kayad Benin, Burkina Faso, Cameroon, Cape Verde, 6,774 3.12 (São Tomé and Principe) (Djibouti) Central African Republic, Chad, Congo (Democratic Republic of), Congo (Republic of), Cote d’Ivoire, Djibouti, Equatorial Guinea, Gabon, Guinea-Bissau, Mali, Mauritania, Mauritius, Senegal, Togo Hekinus Manao Dyg Sadiah Binti Abg Fiji, Indonesia, Lao People’s Democratic 6,412 2.95 (Indonesia) Bohan Republic, Malaysia, Nepal, Singapore, (Malaysia) Thailand, Vietnam Vadim Grishin Eugene Miagkov Russian Federation 5,764 2.65 (Russian Federation) (Russian Federation) Abdulrahman M. Ibrahim Alturki Saudi Arabia 5,764 2.65 Almofadhi (Saudi Arabia) (Saudi Arabia) Felix Alberto Camarasa Varinia Cecilia Daza Argentina, Bolivia, Chile, Paraguay, Peru, 5,701 2.62 (Argentina) Foronda Uruguay (Bolivia) Renosi Mokate Mansur Muhtar Angola, Nigeria, South Africa 4,044 1.86 (South Africa) (Nigeria) In addition to the directors and alternates shown in the foregoing list, the following also served after June 30, 2011: Director End of period of Alternate director End of period of service service Pulok Chatterji September 26, 2011 Michal Tomasz Krupinski May 1, 2011 (India) (Poland) James Hagan (Australia) July 31, 2011 Tamara Solyanyk July 31, 2011 (Ukraine) Ruediger von Kleist August 4, 2011 (Germany) Ciyong Zou October 14, 2011 (China) Note: Guinea (332 votes) and Madagascar (417 votes) did not participate in the 2010 Regular Election of Directors. South Sudan (391 votes) and Niger (303 votes) became members after that Election. MIGA ANNUAL REPORT 2012 | 111 Signatories to MIGA’s Convention, as of June 30, 2012 Afghanistan Dominican Republic Lesotho St. Vincent and the Grenadines Albania Ecuador Liberia São Tomé and Principe* Algeria Egypt, Arab Republic of Libya Samoa Angola El Salvador Lithuania Saudi Arabia Antigua and Barbuda Equatorial Guinea Luxembourg Senegal Argentina Eritrea Macedonia, FYR of Serbia Armenia Estonia Madagascar Seychelles Australia Ethiopia Malawi Sierra Leone Austria Fiji Malaysia Singapore Azerbaijan Finland Maldives Slovak Republic Bahamas, The France Mali Slovenia Bahrain Gabon Malta Solomon Islands Bangladesh Gambia, The Mauritania South Africa Barbados Georgia Mauritius South Sudan Belarus Germany Mexico Spain Belgium Ghana Micronesia, Fed. States of Sri Lanka Belize Greece Moldova Sudan Benin Grenada Mongolia Suriname Bolivia Guatemala Montenegro Swaziland Bosnia and Herzegovina Guinea Morocco Sweden Botswana Guinea-Bissau Mozambique Switzerland Brazil Guyana Namibia Syrian Arab Republic Bulgaria Haiti Nepal Tajikistan Burkina Faso Honduras Netherlands, The Tanzania Burundi Hungary New Zealand Thailand Cambodia Iceland Nicaragua Timor-Leste Cameroon India Niger Togo Canada Indonesia Nigeria Trinidad and Tobago Cape Verde Iraq Norway Tunisia Central African Republic Iran, Islamic Republic of Oman Turkey Chad Ireland Pakistan Turkmenistan Chile Israel Palau Uganda China Italy Panama Ukraine Colombia Jamaica Papua New Guinea United Arab Emirates Comoros* Japan Paraguay United Kingdom Congo, Democratic Republic of Jordan Peru United States Congo, Republic of Kazakhstan Philippines Uruguay Costa Rica Kenya Poland Uzbekistan Côte d’Ivoire Korea, Republic of Portugal Vanuatu Croatia Kosovo Qatar Venezuela, R. B. de Cyprus Kuwait Romania Vietnam Czech Republic Kyrgyz Republic Russian Federation Yemen, Republic of Denmark Lao People’s Dem Rep. Rwanda Zambia Djibouti Latvia St. Kitts and Nevis Zimbabwe Dominica Lebanon St. Lucia * Non-member country 112 | MIGA ANNUAL REPORT 2012 Subscriptions to the General Capital Increase, as of June 30, 2012 Shares Shares CATEGORY 1 Amount $ CATEGORY 2 Amount $ Subscribed Subscribed Australia 1,306 14,130,920 Albania 44 476,080 Austria 591 6,394,620 Algeria 495 5,355,900 Belgium 1,547 16,738,540 Argentina 956 10,343,920 Canada 2,260 24,453,200 Bahamas, The 76 822,320 Czech Republic 339 3,667,980 Bahrain 59 638,380 Denmark 547 5,918,540 Bangladesh 259 2,802,380 Finland 457 4,944,740 Barbados 52 562,640 France 3,705 40,088,100 Belize 38 411,160 Germany 3,865 41,819,300 Benin 47 508,540 Greece 213 2,304,660 Bolivia 95 1,027,900 Ireland 281 3,040,420 Botswana 38 411,160 Italy 2,150 23,263,000 Brazil 1,127 12,194,140 Japan 3,884 42,024,880 Bulgaria 278 3,007,960 Luxembourg 88 952,160 Cambodia 71 768,220 Netherlands 1,653 17,885,460 Chile 370 4,003,400 Norway 533 5,767,060 China 2,392 25,881,440 Portugal 291 3,148,620 Colombia 333 3,603,060 Slovenia 78 843,960 Congo, Dem. Rep. of 258 2,791,560 Spain 980 10,603,600 Congo, Republic of 50 541,000 Sweden 800 8,656,000 Costa Rica 89 962,980 Switzerland 1,143 12,367,260 Côte d'Ivoire 134 1,449,880 United Kingdom 3,705 40,088,100 Croatia 143 1,547,260 United States 12,045 130,326,900 Cyprus 79 854,780 Ecuador 139 1,503,980 Subtotal 42,461 459,428,020 Egypt, Arab Rep. of 350 3,787,000 Estonia 50 541,000 Ethiopia 53 573,460 Gabon 73 789,860 Ghana 187 2,023,340 Honduras 77 833,140 Hungary 430 4,652,600 India 2,323 25,134,860 Indonesia 800 8,656,000 Israel 361 3,906,020 Jamaica 138 1,493,160 Jordan 74 800,680 Kazakhstan 159 1,720,380 Kenya 131 1,417,420 Korea, Republic of 342 3,700,440 Kuwait 709 7,671,380 Latvia 74 800,680 Lebanon 108 1,168,560 Lesotho 38 411,160 Lithuania 81 876,420 Macedonia, FYR of 38 411,160 Madagascar 76 822,320 Malaysia 441 4,771,620 Mali 62 670,840 Malta 57 616,740 Mauritania 48 519,360 Mauritius 66 714,120 Morocco 265 2,867,300 MIGA ANNUAL REPORT 2012 | 113 Subscriptions to the General Capital Increase, as of June 30, 2012 (cont’d) CATEGORY 2 Shares Shares Amount $ SUMMARY Amount $ (cont’d) Subscribed Subscribed Mozambique 74 800,680 % of Total GCI 88.22% Nepal 53 573,460 Completed-Cat. 1 30,416 329,101,120 Nicaragua 78 843,960 Completed-Cat. 2 26,842 290,430,440 Nigeria 643 6,957,260 Completed 57,258 619,531,560 Oman 72 779,040 Partial-Cat. 1 12,045 130,326,900 Pakistan 503 5,442,460 Partial-Cat. 2 – – Panama 100 1,082,000 Partial 12,045 130,326,900 Paraguay 61 660,020 Peru 284 3,072,880 Total Cat. 1 42,461 459,428,020 Philippines 369 3,992,580 Qatar 104 1,125,280 Total Cat. 2 26,842 290,430,440 Romania 423 4,576,860 Russian Fed. 2,391 25,870,620 TOTAL 69,303 749,858,460 Rwanda 57 616,740 St. Lucia 38 411,160 St. Vincent and the 38 411,160 Grenadines Saudi Arabia 2,391 25,870,620 Senegal 111 1,201,020 Serbia 176 1,904,320 Sierra Leone 57 616,740 Singapore 118 1,276,760 Slovak Republic 169 1,828,580 South Africa 719 7,779,580 Sri Lanka 207 2,239,740 Syrian Arab Rep. 128 1,384,960 Tajikistan 56 605,920 Tanzania 107 1,157,740 Thailand 321 3,473,220 Trinidad and Tobago 155 1,677,100 Tunisia 119 1,287,580 Turkey 352 3,808,640 Uganda 101 1,092,820 Ukraine 582 6,297,240 United Arab Emirates 284 3,072,880 Vietnam 168 1,817,760 Subtotal 26,842 290,430,440 Grand Total 69,303 749,858,460 114 | MIGA ANNUAL REPORT 2012 Facultative Reinsurance Obtained by MIGA Investment Insurer Country ACE European Group Ltd United Kingdom ACE Global Markets, Lloyd’s Syndicate 2488 United Kingdom A.F. Beazley, Esq., and Others, Lloyd’s Syndicates 2623 and 623 United Kingdom African Trade Insurance Agency Kenya Ark Syndicate Management Limited, Lloyd’s Syndicate 4020 United Kingdom AXIS Specialty Ltd. Bermuda Catlin Insurance Company Limited Bermuda Coface North America United States Finnvera Plc Finland Garanti-Institutte for Eksportkreditt (GIEK) Norway Great Northern Insurance Company (Chubb & Son) United States Hannover Rückversicherung AG Germany Hiscox Syndicates Limited, Lloyd’s Syndicate 33 United Kingdom Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) Saudi Arabia M.D. Reith and Others, Lloyd’s Syndicate 1414 United Kingdom Münchener Rückversicherungs-Gesellschaft Germany National Union Fire Insurance Co. of Pittsburgh (AIG) United States Nippon Export Investment Insurance (NEXI) Japan Office Nationale du Ducroire (ONDD) Belgium QBE Insurance Corporation United States S.J. Catlin, Esq., and Others, Lloyd’s Syndicates 1003 and 2003 United Kingdom Sovereign Risk Insurance Ltd. Bermuda Starr Underwriting Agents on behalf of Lloyd’s Syndicate 1919 United Kingdom Steadfast Insurance Company (Zurich) United States Swiss Reinsurance Company Switzerland Servizi Assicurativi del Commercio Estero (SACE) Italy Talbot Underwriting Limited, Lloyd’s Syndicate 1183 United Kingdom Facultative Reinsurance Provided by MIGA Investment Insurer Country Office Nationale du Ducroire (ONDD) Belgium Slovenska izvozna in razvozna banka (SID) Slovenia MIGA ANNUAL REPORT 2012 | 115 Guarantee Clients ABN AMRO Bank NV Grodco Panama PTT Chemical Public Company Ltd ADC Financial Services & Corporate Grupo ACP Inversiones y Desarrollo Raghbir Sineh Chatthe Development Habib Bank AG Zurich Raiffeisen a.s., Prague/Czech Republic AES Bulgaria Holdings BV Hitachi Construction Machinery Africa Rockland Steel Trading Ltd. Africa Juice BV Pty. Ltd Rodeo Power Pte Ltd Agro-Industrial Investment and Hitachi Construction Machinery Southern Sasol Gas Holdings (Pty) Ltd. Development SA Africa Co., Ltd. Sena Development Limited Antoine & Gabriel Boulos Icam SPA SGI Ethiopia Cement Limited Aqualyng Holding AS Industrial Development Corp. of SGS SA Autopistas del Nordeste (Cayman) South Africa SGS Société Générale de Surveillance SA Limited Infilco Degremeont, Inc. Shore Cap International Ltd. Baltic American Enterprise Fund (BaIAEF) ING Bank SID - Slovenska Izvozna in Razvojna Banco Universal S.A. International Home Finance & Development, LLC Sierra Investment Fund Ltd. Bank of Nova Scotia International Water Services (Guayaquil) SN Power Holding Singapore PTE Ltd. Banque Nationale de Paris B.V. Société Malienne de Promotion Hôtelière Barloworld Equipment UK Limited Intertek International Ltd S.A. Bartrac Equipment GBL Investcom Global Ltd. Sojitz Corporation Bergenshalvoens Kommunale Kraftselskap Itochu Corporation Sonatel AS Karo Dis Ticaret ve Sanayi Ltd. Sti. Splash Mobile Money UK Botnia B.V. Kenmare Resources PLC Standard Chartered Bank Byblos Bank SAL Kingdom 5 KR 71 Limited State Bank of India Caja Madrid KivuWatt Holdings Sté de Promotion Financière & Calyon Corporate & Investment Bank Investissement Campestres Holdings Limited Kjaer Group AS Stichting Triodos-Doen Can Pack S. A. Klaus Nikolaus Kohler Strand Minerals (Indonesia) Pte. Ltd CCB Management Services G,bH Komatsu Limited Suez Environment S.A. Cementhai Chemicals Co., Ltd. Kreditanstalt fur Wiederaufbau Tamboho International Ltd Chayton Atlas Investments Linx Telecommunications B.V Tapon France S.A.S Coastal Aruba Investor N.V. ManoCap Soros Fund Teleinvest Limited Cobra Instalaciones y Servicios, S. A. Marubeni Corporation The Mauritius Commercial Bank Ltd. Compagnie Generale des Eaux Millco Limited The Standard Bank of South Africa Limited Cotecna Inspection S.A. MKV Holdings, LLC Touton S.A. Darco Environmental Pte.Ltd Mobile Telephone Networks International Ltd. Triodos Custody. B.V. (Custodian of TFSF) Deutsche Bank Luxembourg S.A. Mr. Giovanni Aletti Troy AB (or other subsidiary of Dole Food Company, Inc Celebi Group) New Age Beverage Limited DP World FZCO Tulbagh Holdings LLC Odinsa Holding Inc. Dragados-Servicios Portuarios y Logisticos Umeme Holdings limited Office National de Telcomms. Dubai Islamic Bank UniCredit Bank AG "TUNISIE TELECOM" East West Gold Corporation UniCredit MedioCredito Centrale S.p.A. ONDD EDF International UNION FENOSA Desarrollo y Accion Orange Participations SA Energy Engineering Investment Ltd Ext.- UFACEX Orascom Telecom Eskom Vattenfall AB Orca Credit Holdings LLC Finrep Ges M.B.H Wesdeutsche Landesbank Girozentrale Organization de Ingenieria First Kazakh Securitisation Company B.V. Internacional S.A. West African Gas Pipeline Company Ltd. Fortis Bank Ormat Holding Corp. World Power Holdings Luxemborg S. a. r. l. Fraport AG POL-AM-Pack S.A. WTE Wassertechnik GmbH GE.POR.TUR. s.a.s. ProCredit Holding AG Geogas Trading S.A. Prodenvases Crown S.A. Golden State Waste Management Promofin Outremer S.A. (Beijing) Corp 116 | MIGA ANNUAL REPORT 2012 Photo Credits Cover Chayton Africa; Lukoil Overseas Uzbekistan Ltd.; Fadi Arouri; Curt Carnemark, World Bank Group; Republic of Panama Metro Secretariat page 2 Arne Hoel, World Bank Group; Rebecca Post, MIGA; Nina Chee, MIGA page 5 World Bank Group Photo Lab page 7 World Bank Group Photo Lab page 8 World Bank Group Photo Lab page 10 Suzanne Pelland, MIGA; Ryan Rayburn, World Bank Group Photo Lab page 11 Frank Vincent, World Bank Group Photo Lab page 12 Kim Eun Yeul, World Bank Group; Izumi Kobayashi, MIGA; Lukoil Overseas Uzbekistan Ltd. page 16 www.lupephotographer.com; Google; Taleb Ould Sid’ahmed, World Bank Group page 17 Chayton Africa; Rebecca Post, MIGA page 18 Cara Santos-Pianesi, MIGA; Republic of Panama Metro Secretariat; Nina Chee, MIGA page 22 Nina Chee, MIGA; Tugbay Akbulut of Astaldi SpA (Turkey Branch) page 24 Curt Carnemark, World Bank Group; Izumi Kobayashi, MIGA; John Hogg, World Bank page 30 World Bank Group Photo Lab; Neil Gear, NWMS Ltd. page 32 Wenhe Zhang, MIGA; Michael Foley, World Bank Group; Suzanne Pelland, MIGA page 35 Cara Santos Pianesi, MIGA; Rebecca Post, MIGA; ProCredit Holding© page 41 Odebrecht S.A.; ProCredit Holding©; Republic of Panama Metro Secretariat page 43 Fadi Arouri; Arne Hoel, World Bank Group; Fons Mediterrània Capital, F.C.R. de Régimen Simplificado page 47 Nina Chee, MIGA; Chayton Africa; Rebecca Post, MIGA page 58 World Bank Group Photo Lab page 104 Fons Mediterrània Capital, F.C.R. de Régimen Simplificado; Chayton Capital LLP ISBN 978-0-8213-9735-0 MIGA ANNUAL REPORT 2012 | 117 Contact Information Senior Management Izumi Kobayashi ikobayashi@worldbank.org Executive Vice President Michel Wormser mwormser@worldbank.org Vice President and Chief Operating Officer Ana-Mita Betancourt abetancourt@worldbank.org Director and General Counsel, Legal Affairs and Claims Kevin W. Lu klu@worldbank.org Regional Director — Asia Pacific Edith P. Quintrell equintrell@worldbank.org Director, Operations Lakshmi Shyam-Sunder Director and Chief Financial Officer, lshyam-sunder@worldbank.org Finance and Risk Management Ravi Vish rvish@worldbank.org Director and Chief Economist, Economics and Policy Marcus S.D. Williams mwilliams5@worldbank.org Adviser, Strategy and Operations Regional Hubs Asia Pacific — Kevin W. Lu klu@worldbank.org Regional Director Europe — Olivier Lambert olambert@worldbank.org Regional Manager Guarantees Nabil Fawaz nfawaz@worldbank.org Agribusiness, Manufacturing, and Services Olga Sclovscaia osclovscaia@worldbank.org Finance and Telecommunications Margaret Walsh mwalsh@worldbank.org Infrastructure Antonio Barbalho abarbalho@worldbank.org Oil, Gas, Mining, Chemicals, and Energy Reinsurance Marc Roex mroex@worldbank.org Business Inquiries Michael Durr migainquiry@worldbank.org Media Inquiries Mallory Saleson msaleson@worldbank.org 118 | MIGA ANNUAL REPORT 2012 w w w. m i g a . o r g Multilateral Investment Guarantee Agency World Bank Group 1818 H Street, NW Washington, DC 20433 USA t. 202.458.2538 f. 202.522.0316 ISBN 978-0-8213-9735-0