At a Glance The World Bank October 1995 Note No.55 The World Bank Contribution to Private Participation in Infrastructure Omer The wave of private sector participation in infra- agement contracts. In keeping with the Bank's Karasapan structure (PPI) now sweeping the globe started mandate, its focus in supporting PPI has been in Chile, New Zealand, and the United King- on policy-related work and less developed re- dom in the early 1980s. More than 900 PPI pro- gions-particularly Africa. jects got under way between 1984 and 1994- ranging from telecommunications in Cuba to World Bank instruments and PPI multisectoral initiatives in countries as dispar- ate as Albania and Colombia-and more than The Bank's support to the PPI agenda has uti- 2,200 are under preparation. The World Bank's lized traditional lending instruments-adjust- lending operations have supported this world- ment, technical assistance, and investment loans, wide PPI movement. In 1988-94, the Bank pro- and on-lending to the private sector. Increas- vided funds for more than 500 infrastructure ingly, the Bank is also tiying new and innova- projects-about a third of all Bank operations tive approaches, such as guarantees and in this period. Of these projects, ninety-two con- investment funds designed to catalyze private tained significant PPI components, including sector investment. These new approaches are the privatization of public utilities, on-lending being refined in the light of experience. Table 1 to private sector operators,' and franchising op- summarizes the sectoral spread of the Bank's erations involving leases, concessions, and man- PPI operations in 1988-94-as well as those of the International Finance Corporation (IFC), an- other member of the World Bank Group-and table 2 summarizes World Bank operations by TABLEI WORLDBANKANDIFCPPIPROJECTSBYSECTOR, 19884 instrument and region for the same period. Sector World Bank IFC Adjustment loans tipt to 3a The Bank has developed adjustment loans- Telecommunicaftions 10 23 loans to support major multisectoral policy Trarnspot L 21 11 improvements-in Argentina, Mexico, and Ven- Water and sanitation 6 2 ezuela and is working on similar arrangements in Bolivia and Peru. All these loans depend on Energy 6 and require a long-term commitment by the Solidf wate I 8 government to an infrastructure privatization Solid waste 1 . - O :agenda. They also involve technical assistance Direct povertyalleviatian 16 0 and, for Bolivia and Peru, related investment TOW 92 74 loans. Support to multisectoral PPI agendas has also been provided through stand-alone tech- nical assistance loans to Turkey and Uruguay. Sout Rcers to in*fasnrueture teasine oreraionsp alt in lndia. SoeWrdBank.Private Sector Development Department.PP Grour. These PPT programs have three main compo- nents. They support the design of a stable, Private Sector Development Department . Vice Presidency for Finance and Private Sector Development The World Bank Contribution to Private Participation in Infrastructure comprehensive, and consistent legal and regu- components have been undertaken in forty- latorv basis for PPI, addressing common cross- five other countries, including China (telecoms) sectoral and sector-specific iss aes. They and Jndia (power), promote local capital market development- to foster the growth of long-term funding Franchises-big in Africa sources for PPI projects. And they address the social and political risks associated with the Fifteen investment loans involved franchise reform agenda by supporting social safety net arrangements. Under these loans, the Bank frameworks and public education campaigns helped to design management contracts, leases, to build support for the reforms. or concessions for infrastructure services. Fran- chise arrangements are most common in Af- Pnvestment loans rica, where twelve were supported by Bank infrastructure loans in 1988-94. These included World Bank investment loans for physical management contracts for airlines (Chad), infrastructure can play a catalytic role in the telecoms (Guinea), and power (Guinea, Mali, privatization of infrastructure services. These Sierra Leone); leases in power (Cote d'voire, loans are now the most frequertly used instru- Rw a nd water (Gambia, Guinea); conces- ment for PPI operations, accounting for sev- sions in water (Ctte e'lvoire); and contracting enty-six of the ninety-two PPI operations. Most of rail services (Tanzania) and govern keiit of these loans (forty-seven) support establish- contract services (Tanzania). ment of the legal and regulatory basis for PPI and fund public investments that complement Direct poverty alleviation and facilitate private participation. Transport sector projects in Albania lola ond, for ex- While the operations discussed so far have fo- ample, provided funds for road maintenance cused mainly on improving the delivery of and investments in new transport and mainte- infrastructure services through private sector par- nance equipment, paving the way for the priva- ticipation, the Bank has also used PPI compo- tization of trucking, road maintenance, and nents in projects designed primarily to r1duce repair operations. Similar loans with policy poverty. Oneexample is theAGETIPs (Agences d'Execution des Travaux d'Intert Public) model, by the Energy Sector Deregulation and Privati- first used under the Senegal Public Works and zation Loan (1992), the fund was administered Employment Loan (1989). AGETIPs are inde- by the government-owned National Investment pendent and privately managed agencies for Bank of Jamaica. In Pakistan, the Private Sec- executing public works. The agencies evaluate tor Energy Loan (1988) set up the Energy De- small (US$50,000 to USS100,000), largely velopment Fund (EDF) to cover up to 30 community-initiated civil works and mainte- percent of the cost of subprojects using BOO nance projects, such as schools, roads, and (build-own-operate) arrangements. A similar health centers, and run competitive bids for po- loan finalized in 1994 replenished the EDF. tential contractors. Because the contracts stipu- late labor-intensive methods, only small and World Bank guarantees medium-size private enterprises are likely to bid. The aim is to promote employment and to con- The first Bank guarantee for a PPI project- tribute to private sector development, in part and the only one issued to a private sector op- through technical assistance to private contrac- erator so far-went to the Hub Power Project tors and local consultancy services. To ensure in Pakistan under the Private Sector Energy local "ownership," the projects must include a Loan (1988). The financing required for this contribution from the locality-usually 5 to 10 1,300 megawatt project was US$1.9 billion, of percent of the total cost. Besides the initial which 75 percent was to be funded in debt, project in Senegal, such operations have been including US$680 million in syndicated com- mounted in Burkina Faso, Chad, C6te d'Ivoire, mercial bank loans. The Bank provided a par- Gambia, Madagascar, Mali, Mauritania, Niger, tial risk guarantee on principal repayments of and Togo, and follow-up projects have been US$240 million, and Japan's EXIM Bank guar- initiated in Senegal and Togo. Outside Africa, anteed an additional US$120 million. The Bank similar operations have been undertaken in guarantee covers the obligations of government Bolivia, Guatemala, the Lao People's Democratic agencies (for public utility payments, fuel sup- Republic, and Peru. ply, and provision of foreign exchange) and force majeure events (legislative changes, po- On-lending litical events in Pakistan, and specified natural events). In eleven PPI operations, Bank funds were on- lent to private sector operators of infrastructure The Bank also provides partial credit guaran- services. These operations, most of which in- tees. In China, Jordan, and the Philippines, volved existing private sector operators, in- guarantees have gone to government entities. cluded power projects in India and Turkey, In the Jordan Telecommunications Project water and telephony projects in Argentina and (1994), a US$50 million Bank guarantee facil- the Philippines, and transport sector operations ity will support a bond issue by the Jordan in Ethiopia and Mexico. Telecommunications Corporation (TCC). This foreign currency bond offering will take place Two other on-lending operations, in Jamaica in the Eurobond market as well as in Jordan, and Pakistan, have involved new private op- to allow for broader distribution. The bond of- erators. Both loans have focused on creating fering incorporates an equity feature, giving in- an enabling environment for PPI and mobiliz- vestors an option to convert the bonds into ing finance from different sources through a shares should the TCC be privatized before the private infrastructure fund. In Jamaica, this bonds mature. And it both promotes the fund-the Private Sector Energy Fund-was set commercialization of TCC by exposing it to up for a private sector power project con- debt market discipline and facilitates privati- structed on a BOT (build-operate-transfer) ba- zation by paving the way for the debt-equity sis using limited recourse financing. Established conversion. zLW The World Bank Contribution to Private Participation in Infrastructure PPI and the World Bank Group PI work is also carried out by the other institu- tions of the World Bank Group-the Multilat- fpj1er w aeI=t F eral Investment Guarantee Agency (MIGA) and the International Finance Corporation (IFC). value B k MIGA guarantees 1 , The value of guarantees benefiting infrastruc- 1939. ture projects in MIGA's portfolio was more than con US$150 million by May 1995. These guaran- tees had facilitated more than US$550 milliontrv. in foreign investment in infrastructure through twelve contracts, including the first foreign pri- vate power projects in Honduras and Jamaica and a toll road in Argentina. TIl1 IFC operations mT IFItinh4alprvljjet The IFC initiated assistance to PPT projects at roughly the same time as the Bank (table 3) and has kept pace with the global growth in PPI projects. In 1988-94, the IFC was involved in JFmB EC BYEI , seventy-four PET projects. The IFC has focused 9B4 This series is published on projects in Asia and Latin America and in thec to share ideas and invite -o e n eeo sscos hr h ai o discussion. It covers po ean teeo sscoswhrth baifrRginPocs financial and private PET is better established (tables 1 and 4). it has sector development as also participated in four funds created to take tmiAn4f well as industry and equity positions in infrastructure projects. IFC par-Aia2 energy. The views expressed are those of ticipa'tion in the Scudder Latin America Tmust for upeI thin authors and are not Power was approved in 1993. In 1994, the IFCSbaht Afcw intended to represent also participated in the multisectoral Asia Infra- an official statement of Bunk policy or strategy. structure Fund, the Global Power Investment Fund, and the Central European Telecoms Fund. idlrfAra Comments ate wvelcome. Please call che FPODopt1 Note line to leave a message (202-458-1 1 11) The Note uses the number of operations rather than their value he- - or contact Suzanne cause of the different leverage structures used by the Bank, the tFl, ecaw sbirvnscoteelgen Smith, editor, Room and MIGA and because, with many of the Bank PPI operationis com- Dagan1P ra gadF.Fmnigrvt 68105, The World Bank, ponents of bigger loans, using the total loan figuire would exaggerate -- fafea,rr ibntnDC,19) 1818 H Streeat, NW, the volumne of the Banik's PPI work. The data for the tFC in the Note Washington, D.C. 20433, r-efer to the period t988g through June 1994. or Internet address ssmith7@worldbank.org. 'Funds are recorded as a deposit in the central bank, and the con- tractual borrower (usually the central bank) agrees that the loan @Printed on recycled money will be made available to a third party within the country. paper. Omer Karasapan, Consultant, Private Sector Development Department (email: okarasa,pan @worldbank.org)