64572 ANNUAL REPORT 2011 INSURING INVESTMENTS ENSURING OPPORTUNITIES MIGA’s Mission “ To promote foreign direct investment into developing countries to support economic growth, reduce poverty, and � improve people’s lives. MIGA ANNUAL REPORT 2011 | 1 Abbreviations ADC African Development Corporation 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 EIB European Investment Bank FDI Foreign Direct Investment FEU Finance, Economics and Urban Department GDP Gross Domestic Product IBRD International Bank for Reconstruction and Development IC Investment Climate Advisory Services 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 MD&A Management’s Discussion and Analysis MENA Middle East and North Africa MMI Metropolitan Municipality of Istanbul MOU Memorandum of Understanding ONDD The Belgian Export Credit Agency PCH ProCredit Holding PRI Political Risk Insurance SIP Small Investment Program SADC Southern African Development Community SSA Sub-Saharan Africa 2 | MIGA ANNUAL REPORT 2011 Contents 1 MIGA’s Mission 2 Abbreviations 4 MIGA Fiscal Year 2011 Highlights 6 World Bank Group Fiscal Year 2011 Highlights 8 Message from the World Bank Group President 10 Message from MIGA Executive Vice President 12 MIGA Management Team 14 MIGA Board 16 MIGA Development Impact 24 MIGA Business 24 Operational Overview 36 Guarantees 36 Asia and the Pacific 40 Europe and Central Asia 46 Latin America and the Caribbean 49 Middle East and North Africa 51 Sub-Saharan Africa 60 Research and Knowledge 64 Technical Assistance 66 Independent Evaluation Group 68 Compliance Advisor/Ombudsman 70 Management’s Discussion and Analysis Financial Statements 116 Appendices 131 MIGA Contact Information MIGA ANNUAL REPORT 2011 | 3 MIGA Fiscal Year 2011 Highlights In fiscal year 2011, we issued a total of $2.1 billion in guarantees for projects in MIGA’s developing member countries. This is a record high for the agency and represents a significant increase from last year’s new issuance of $1.5 billion. We also saw much more diversity across regions and sectors in the new projects we supported this year, including four new host countries: Iraq, Kosovo, Liberia, and the Republic of Congo. Guarantees Issued 2007 2008 2009 2010 2011 FY90-11 Number of Projects Supported 29 24 26 19 38 651 New Projects1 26 23 20 16 35 - Projects Previously Supported2 3 1 6 3 3 - Number of Guarantee Contracts Issued 45 38 30 28 50 1,030 Amount of New Issuance, Gross ($B) 1.4 2.1 1.4 1.5 2.1 23.8 3 Amount of New Issuance, Total ($B) 1.4 2.1 1.4 1.5 2.1 24.5 4 Gross Exposure ($B) 5.3 6.5 7.3 7.7 9.1 - 4 Net Exposure (less reinsurance) ($B) 3.2 3.6 4.0 4.3 5.2 - 1. Projects receiving MIGA support for the first time in FY11 (including expansions) 2. Projects supported by MIGA in FY11 as well as in previous years 3. Includes amounts leveraged through the Cooperative Underwriting Program (CUP) 4. Gross exposure is the maximum aggregate liability. Net exposure is the gross exposure less reinsurance 4 | MIGA ANNUAL REPORT 2011 Operational Highlights MIGA provided coverage for projects in the following areas in fiscal year 2011: Number of Share of projects Amount of Share of projects projects supported guarantees $ volume supported (%) issued ($M) (%) Priority area1 IDA-eligible countries2 21 55 421.4 20 “South-South� investments3,4 3 8 468.5 22 Conflict-affected countries 9 24 237.5 11 Complex projects5 6 16 1,115.0 53 Region Asia and the Pacific 3 8 752.1 36 Europe and Central Asia 16 42 1,077.2 51 Latin America and the Caribbean 3 8 21.8 1 Middle East and North Africa 1 3 5.0 0 Sub-Saharan Africa 15 39 242.9 12 Sector Agribusiness, manufacturing, and services 15 39 471.5 23 Financial 17 45 512.5 24 Infrastructure 5 13 907.9 43 Oil, gas, and mining 1 3 207.0 10 Total 38 2,099.0 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. The total volume of contracts issued to South-based investors was $243.5 million 5. Complex project in infrastructure or extractive industries This year, MIGA’s operating income was $23.6 million, compared with $33.9 million in fiscal year 2010 (see MD&A for details). Earned Premium, Fees, and Investment Income* ($M) $M 11 50.8 13.9 Premium and fee income 10 46.0 24.1 Investment income 09 43.6 36.9 08 38.2 45.3 * Excludes other income 07 35.5 42.8 MIGA ANNUAL REPORT 2011 | 5 World Bank Group Fiscal Year 2011 Highlights 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 com- plement 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, education, infrastructure, gov- ernance, climate change, and in other areas to benefit people in developing countries. 6 | MIGA ANNUAL REPORT 2011 The World Bank Group committed $57.3 billion in fiscal DE VELOPME N I T E R A L I N V E N AT ION AL CE NT R N A N N E R S O L T L TE TE T FO year 2011. RNA IONA P O R AT I T I M • IN AS R • E N T R R N AT I O M U L IC S O C I AT SETTL UTES T SI D • • I SP OR G EM TE Y IO DI N U A C N N C EN The World Bank, comprising IDA and IBRD, com- L A I R T T N FINANCE A G E OF EN N T E E A INV ESTM mitted $43 billion in loans and grants to its member countries. Of this, IDA commitments to the world’s poorest countries were $16.3 billion. IFC committed $12.2 billion and mobilized an addi- tional $6.5 billion for private sector development in developing countries. $4.9 billion of the total went to The World Bank Group comprises five IDA countries. closely associated institutions: MIGA issued $2.1 billion in guarantees in support of International Bank for Reconstruction and investments in developing countries. Development (IBRD), which lends to gov- ernments of middle-income and creditworthy low-income countries World Bank Group Cooperation International Development Association (IDA), Joint projects and programs of the Bank Group’s insti- which provides interest-free loans, or credits, tutions focus on promoting sustainable development and grants to governments of the poorest by expanding financial markets, issuing guarantees countries to investors and commercial lenders, and providing advisory services to create better investment conditions International Finance Corporation (IFC), which in developing countries. Working together, the World provides loans, equity, and advisory services Bank, IFC, and MIGA catalyze projects and programs to stimulate private sector investment in that make resources available to clients through greater developing countries innovation and responsiveness. A number of these are highlighted in this report. Multilateral Investment Guarantee Agency (MIGA), which provides political risk insurance or guarantees against losses caused by non- commercial risks to facilitate foreign direct investment (FDI) in developing countries International Centre for Settlement of Investment Disputes (ICSID), which provides international facilities for conciliation and arbitration of investment disputes. MIGA ANNUAL REPORT 2011 | 7 Message from World Bank Group President This past year, the World Bank Group has been helping developing countries meet challenges, manage risks, and seize opportunities: historic changes in the Middle East and North Africa; high and volatile food and fuel prices; the ravages caused by natural disasters; rising inflation in emerging markets with some risks of overheating; the recoveries of fragile states, often coming out of conflict; and the benefits of greater transparency and openness. 8 | MIGA ANNUAL REPORT 2011 A robust and engaged private sector is a key factor these much-underserved markets. The World Bank’s in helping economies adjust to these and other chal- recent World Development Report on Conflict, Security, lenges. MIGA’s Annual Report 2011 demonstrates the and Development underscores the critical impact of FDI important role the agency plays in supporting sustainable in these countries—to support service delivery and job growth and development through providing investment creation, so important for early results as well as longer- guarantees in countries where risk-mitigation tools are term growth—and of MIGA’s efforts. MIGA is in the essential to securing private sector investment. process of establishing a specific political risk facility that can be deployed in countries affected by violence or fragility. The report highlights MIGA’s innovation, flexibility, and ability to deliver on its own modernization agenda. This year, the agency secured significant amendments to To further expand its outreach, MIGA established its Asia its Convention that enhance its value as a multilateral hub this year, signaling a strong emphasis on inbound provider of political risk insurance. These amendments, and outbound Asian investment. We are seeing an approved by the Council of Governors in August, have increasing appetite from investors in Asian countries already enabled MIGA to support projects that would not to venture into challenging markets, and MIGA’s previously have been possible. strengthened presence in the region will help facilitate their plans. In fiscal year 2011, MIGA provided $2.1 billion in new guarantee coverage—a record high for the agency, and a MIGA has also strengthened external and internal part- 43 percent increase over the previous year, which indicates nerships over the past year to further leverage its devel- renewed interest in political risk-mitigation products. opment impact. The agency signed memoranda of under- MIGA has shown renewed diversification and regional standing with a Lebanese financial company to cooperate outreach—from its support for a manufacturing plant in on promoting cross-border investment into developing Iraq, to an agribusiness venture in Liberia, to a mining countries and with the Indonesian Infrastructure feasibility study in Indonesia, and to banking endeavors Guarantee Fund to cooperate on building capacity and supporting small and medium enterprises in 14 countries. to co-insure a pipeline of infrastructure projects. Closer MIGA’s concerted efforts to encourage foreign direct to home, MIGA’s strengthened business and marketing investment (FDI) into the Middle East and North Africa relationship with IFC has already demonstrated results. In region have been especially important this year. addition, this year the agency signed internal agreements with the World Bank’s Finance, Economics and Urban Department and the Banking and Debt Management MIGA is also doing important work in countries affected Department to cross-market products aimed at leveraging by conflict and fragility. The agency supports investments the strengths of MIGA and the World Bank. in several of these countries, and uses its knowledge, research, and convening power to focus attention on I want to thank MIGA’s staff for their commitment, con- tributions, and focus. MIGA’s considerable achievements this year reflect the strong leadership and innovative spirit of Izumi Kobayashi and her management team. I also thank our Council of Governors, Board of Directors, and other partners for their guidance and support. Robert B. Zoellick June 30, 2011 MIGA ANNUAL REPORT 2011 | 9 Message from MIGA Executive Vice President Today the world is still cautiously emerging from a severe recession. On a positive note, the developing world is driving the world’s economic recovery—and there we are seeing growth rates that are impressive. However, high unemployment and debt still concern many industrialized countries, while rising and volatile food prices again pose significant problems for millions in the developing world. At the same time, we are experiencing both uncer- tainty and anticipation prompted by the trans- formative events in the Middle East and North Africa. The global scenario is indeed mixed. 10 | MIGA ANNUAL REPORT 2011 Following a sharp contraction during the financial crisis, Political Risk 2010, which we discuss later in this review, foreign direct investment is beginning to pick up— focused on investment in conflict-affected and fragile although it could take three years to return to pre-crisis economies. In addition, to complement our existing levels. Project sponsors and lenders are still nervous; investment guarantee product, this year we proposed the investors rate political risk as being the most significant establishment of a Conflict-Affected and Fragile Economies medium-term impediment to making new investments in Facility to further promote investment and trade into these developing countries. underserved markets. Here we have a role to play. I am pleased to note that This past year saw other advances at MIGA. We launched MIGA issued $2.1 billion in new guarantee coverage our Asia regional hub last August, placing representatives in 2011, a record high for the agency and a significant in Hong Kong SAR, China and Singapore, and augmenting increase from last year. As we note later in this report, our on-the-ground presence in Beijing and Tokyo. This nearly all of the coverage was issued to new clients. This move was important to allow us to get closer to our indicates that our enhanced business development efforts, regional clients and assist Asia’s emergence as a new including our strengthened partnerships within the World center for outbound investment flows. We also expanded Bank Group, are beginning to show results. Importantly, and strengthened our internal Bank Group and external the portfolio was also significantly more diversified across partnerships, as we note later in this report. sectors and regions. Portfolio runoff continued to be low, as in the past few years, and the agency’s total gross Within MIGA, we welcomed several new staff, including exposure of $9.1 billion represented yet another historic those in the positions of general counsel, chief financial high for MIGA. officer, and chief economist. We also inaugurated the MIGA Professionals Program, hiring two young profes- In this report we also note important amendments sionals to join us for a period of two years. We believe to MIGA’s Convention, approved by the Council of the program has been successful in bringing in new and Governors, which took effect in November 2010. These diverse talent from underrepresented countries, and we historic amendments greatly enhance our ability to support hope to bring three young professionals on board next clients. We are now able to cover stand-alone debt and fiscal year. some existing investments, putting us in a better position to support investors in times of uncertainty. Clients have On a personal note, I happened to be in Tokyo when the responded very positively to our expanded authority, which earthquake and ensuing tsunami hit further to the north has also contributed to this year’s increased business and left immediate and lasting devastation. It was beyond volume. I am particularly grateful for the strong support anything I had experienced growing up in Japan—and I we received from our shareholders to move forward with knew immediately it would have serious repercussions these amendments. for my country. But it also reminded me all the more about the people whom development institutions like the I had the opportunity to travel to the Middle East in World Bank Group assist around the world, underserved February, a most interesting time to be in the region people and communities hit by similar or other disasters, as events unfolded. In Lebanon, Jordan, and Saudi and without adequate support mechanisms. These are Arabia, conversations with government officials and the the people we at MIGA hope to reach and support by private sector focused on ways to encourage continued encouraging private sector investors to bring sustainable investment into the region and to support local investors projects to countries that need it the most. seeking opportunities in other developing countries. We are enhancing our partnerships and representation in the In conclusion, I would like to thank MIGA’s committed and region and stand ready to assist project sponsors and professional staff for their hard work in these continued lenders to bring developmentally beneficial investment into challenging times. I know I can count on their support, these countries. as well as that of our shareholders and partners, as we continue to uphold our mission of facilitating investment One of MIGA’s top strategic priorities continues to be that improves people’s lives. investment into conflict-affected and fragile economies. To help facilitate this kind of investment, MIGA has again drawn on its role as a member of the World Bank Group to be a knowledge resource—and has devoted research Izumi Kobayashi to this particular topic. Our report, World Investment and June 30, 2011 MIGA ANNUAL REPORT 2011 | 11 (From left to right, top to bottom) Izumi Kobayashi Executive Vice President James P. Bond Chief Operating Officer Ana-Mita Betancourt Director and General Counsel, Legal Affairs and Claims Kevin W. Lu MIGA Regional Director, Asia-Pacific Management Team Edith P. Quintrell Director, Operations Lakshmi Shyam-Sunder Director and Chief Financial Officer, Finance and Risk Management Ravi Vish Chief Economist and Director, Economics and Policy Marcus S. D. Williams Adviser, Strategy and Operations 12 | MIGA ANNUAL REPORT 2011 MIGA ANNUAL REPORT 2011 | 13 A Council of Governors and a Board of Directors, representing 175 member countries, guide the programs and activities of MIGA. Each country appoints one governor and one MIGA Board 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 each director represents. 14 | MIGA ANNUAL REPORT 2011 The directors meet regularly at the World Bank Group These committees help the board discharge its oversight headquarters in Washington, DC, where they review and responsibilities through in-depth examinations of policies decide on investment projects and oversee general man- and procedures. agement policies. During fiscal year 2011, MIGA’s Board of Directors Directors also serve on one or more of several standing reviewed and concurred with investment guarantees committees: issued by MIGA. The board also approved MIGA’s FY12-14 Strategy: Achieving Value-Driven Volume, MIGA’s budget r Audit Committee for fiscal year 2012, and increased exposure limits for MIGA’s coverage at the project and country level. These r Budget Committee increased exposure limits will be effective in fiscal year 2012. In addition, MIGA submitted quarterly financial r Committee on Development Effectiveness reports and collaborated in drafting World Bank Group country assistance and partnership strategies that were r Committee on Governance and considered by the board. Administrative Matters During fiscal year 2010, the board discussed and con- r Ethics Committee curred with recommended amendments to MIGA’s Convention. These amendments were subsequently r Personnel Committee approved by the Council of Governors last August and became effective this fiscal year. MIGA’s Board of Executive Directors, as of June 30, 2011 Standing, from left to right: Gino Pierre Alzetta, Susanna Moorehead, Piero Cipollone, Felix A. Camarasa, Abdulrahman Almofadhi, Merza Hasan, Shaolin Yang, Pulok Chatterji, Jorg Frieden, Ian H. Solomon, Jim Hagan, Dyg Sadiah Binti Abg Bohan, Nobumitsu Hayashi, Rudolf Treffers, Ingrid Hoven, Rogerio Studart, Ambroise Fayolle Seated, from left to right: Eugene Miagkov, Anna Brandt, Hassan A. Taha, Agapito Mendes Dias, Marie-Lucie Morin, Javed Talat, Marta Garcia, Renosi Mokate MIGA ANNUAL REPORT 2011 | 15 MIGA Development Impact The world economy is slowly emerging from a severe recession. But the uneven recovery is occurring in large part on the shoulders of the developing world—which is contributing almost half of global growth. According to World Bank economists, developing economies’ gross domestic product (GDP) expanded by 7.3 percent in 2010. This GDP growth is expected to slow to around 6.3 percent each year from 2011-2013, but this still more than doubles projections for high-income countries. 16 | MIGA ANNUAL REPORT 2011 This is a significant change to previous patterns of uprisings in the Middle East and North Africa (MENA) economic growth and even more remarkable because have captured the world’s attention. The social and devel- it mainly reflects an expansion of internal developing- opmental repercussions of these political sea-changes are country markets. This is good news for the global still being analyzed, and their potential effect on oil prices economic system—and particularly good news for has implications for the global economy. Also, the effects development. of Japan’s tragic earthquake and resulting tsunami have contributed to a modest slowing in global industrial pro- While, in general, the global recovery has broadened to duction and trade. encompass more firms, more countries, and more com- ponents of aggregate demand, there are several reasons to restrain unbridled optimism. The recovery in many What Does This Mean for FDI? economies in emerging Europe and Central Asia and in some high-income countries is tentative. Persistent As the global economic outlook still remains mixed, financial sector problems and debt crises in some high- prospects for foreign direct investment (FDI) appear income countries still threaten growth. Unstable money brighter for developing countries. According to World flows chasing higher returns as well as the potential for Bank economists, inflows should continue growing by 20 overheating in developing economies could undermine percent and 13 percent a year in 2011 and 2012, respec- development gains. And the sharp rise and volatility in tively. In particular, FDI flows originating from developing food prices loom large for economies and livelihoods countries have rebounded rapidly and are expected to around the globe, affecting the people most in need of continue this brisk pace. While the uptick in developing- sustained growth and stability. country outbound FDI is led by Brazil, India, China, the Russian Federation, and South Africa (BRICS), others In addition, we note other unforeseeable factors that are gradually moving up the ranks as their multinational influence growth, and this year has had its share. Popular enterprises globalize operations. MIGA ANNUAL REPORT 2011 | 17 The evolving role of FDI varies among regions. For This year, MIGA supported a number of projects in our example, sub-Saharan Africa is attracting new sources of priority areas, including our first contracts supporting FDI. Investment into Asia is spread more evenly across investments into Iraq, Kosovo, Liberia, and the Republic of multiple industries and countries, though outbound Congo. Of all contracts signed this year, 72 percent fell into investment will undoubtedly be affected by the earthquake one or more of the priority areas noted above. in Japan. In Latin America, entrepreneurs are going global. Foreign banks have played a stabilizing role in Europe MIGA focused intensely on conflict-affected and fragile and Central Asia, but their large-scale presence also raises economies this year, choosing to address conflict’s impact potential concerns. While the civil unrest in the MENA on FDI in the World Investment and Political Risk 2010 region worries many investors, some suggest that political report. Our findings on constraints to growth were con- changes sweeping the region may open up investment sistent with the World Bank’s World Development Report opportunities. 2011 on Conflict, Security, and Development. Apart from our guarantees to projects in fragile countries, we are also In June of 2010, MIGA surveyed 194 executives from looking at innovative ways to address the gap between multinational companies worldwide to inform our World the exit of post-conflict official development assistance Investment and Political Risk report. The survey found and the emergence of a resilient private sector. This year, investors to be optimistic about their prospects, par- MIGA has actively engaged member countries to enlist ticularly in the medium term. Those from the extractive their support for a Conflict-Affected and Fragile Economies industries were particularly bullish in their investment Facility that will combine a variety of products to mitigate intentions, as were South-South investors—confirming risk and address market demand. the trend we see in FDI data. Reaffirming our Priorities What Does This Mean for MIGA? MIGA’s priorities of mobilizing investments into the Confirming the market’s renewed optimism during this world’s poorest and conflict-affected countries, facilitating fiscal year, our volume of new business reached a record complex projects, and supporting South-South investment high and we saw a return to a more balanced portfolio contribute to the goal of inclusive and sustainable glo- across regions and sectors. Revolutions in MENA con- balization and are areas where we can make the most tributed to a resurging awareness of political risk in difference as a development agency. While these priority general, which led to increased business inquiries as areas are not intended to be exclusive, they serve as an MIGA entered the last quarter of our fiscal year (see MIGA important operational compass for MIGA. These priorities Business for detailed portfolio results). have guided our work over the last several years and we recommitted our focus to them in MIGA’s FY12-14 Strategy: The historic amendments to MIGA’s Convention approved Achieving Value-Driven Volume. Our priorities also dovetail by our Council of Governors in 2010 helped the agency with the World Bank Group’s strategy laid out in New catch the dual waves of FDI resurgence and investors’ World, New World Bank Group: (I) Post-Crisis Directions: heightened sensitivity to political risk. By broadening our to overcome poverty by targeting the poor and vulnerable, pool of eligible investments to include some types of creating opportunities for growth, providing cooperative existing projects and stand-alone debt, MIGA is better able models, strengthening governance, managing risk, and to deliver on our mission of encouraging developmentally preparing for crises. In addition to these overarching beneficial FDI. goals, MIGA has taken important steps—as has the World Bank Group—to enhance our focus on client service and We continue to leverage our foremost strength in the flexibility, particularly through the amendments to our marketplace—attracting investors and private insurers Convention, implementing adjustments to our operational into difficult operating environments. MIGA’s opera- regulations, and streamlining underwriting processes. We tional strategy—which focuses on IDA-eligible countries, talk more about this later in this report. conflict-affected environments, complex projects in infrastructure and extractive industries, and encouraging investment between developing countries (South-South Bolstering Investments investments)—guides our work. For example, last year, in the Middle East and North Africa under our Small Investment Program, we supported a project in Ethiopia that involves the privatization, rehabili- MIGA has made a concerted effort to preserve and tation, and expansion of an existing farm to cultivate and encourage FDI into the MENA region during these process passion fruit, mango, and papaya for juice exports. challenging times. Here, MIGA’s work is critical, as an This project is already delivering solid results and is con- increase in FDI would not only boost growth in the region tributing to an economic revival in a region that has seen but also help create much-needed jobs—an essential very high levels of poverty (see box 1). element of security and stability. 18 | MIGA ANNUAL REPORT 2011 Tropical Fruit Juice Project box 1 Helping to Spur Economic Revival in Ethiopia In Ethiopia’s Upper Awash Valley, a company called farms, organized as cooperatives, to supplement the supply africaJUICE is helping a community realize its income- of fruit to the processing facility and extend community earning potential from boundless sunshine and an abundant participation. The farmers participating in the program water supply from the Awash River. Despite these resources, stand to earn a much higher income than they are currently the community often suffered from food shortages due to earning producing primarily onions and tomatoes. Passion a lack of experience in using irrigation and limited earning fruit can bring in nearly 135,000 Ethiopian birr (or about potential from growing low-value crops. $8,000) per hectare—a significant income in this poor com- munity. Although passion fruit has never been produced in The community’s transformation began in April 2009, when Ethiopia before, the climate and growing cycle is ideal for this africaJUICE Tibila Share Company, a joint venture between sought-after product. The fruit grows on a trellis, so farmers africaJUICE BV of the Netherlands and the Ethiopian gov- can practice intercropping with their tomatoes and onions, ernment, took operational control of Tibila Farm. Under while benefitting from irrigation systems maintained by afri- our Small Investment Program, MIGA is supporting the caJUICE. investment by providing $10 million in guarantees to afri- caJUICE BV and to the Industrial Development Corporation The company is also tapping into MIGA’s Environmental and of South Africa, a lender to the project. Social Challenges Fund for Africa, financed by the Japanese government, which allows MIGA guarantee holders to receive The farm produces passion fruit, mangoes, papayas, and expert advice from consultants to implement environmental other tropical fruits. While some fruit is sold locally, most of and social enhancements to their investments. The grant the juice is processed in a new state-of-the art facility built by proceeds are providing technical assistance to support the africaJUICE. The processed juice is then transported to the formation of the Outgrower Fair Trade Body. If successful, port in neighboring Djibouti and on to markets in Europe africaJUICE will be the first fair trade tropical juice producer and the Middle East. The plant’s sterilization and packaging in sub-Saharan Africa. process means the product can endure the long journey to consumer markets—overcoming issues often blamed for The surrounding community shows some early indications food shortages and reduced earning potential from agri- that the project is already spurring economic revitalization. culture. The World Bank estimates that nearly half of Africa’s The company has also made significant investments in total farm yield is lost between the harvest, warehousing, improving access to clean drinking water and electricity for post-harvest marketing, and transport to the final consumer. workers housed on the farm. This comprehensive approach to managing a business is in keeping with the company’s africaJUICE directly employs some 2,400 people in roles stated vision to be a benchmark for how FDI is delivered ranging from security guards to production line managers. in developing countries: “We aim to demonstrate that not It also manages an outgrower program that recruits local only can growth be generated with positive effects on the farmers to supply africaJUICE. The program’s goal is to environment and for poverty eradication but that it is ‘good develop and support over 1,000 hectares of these local business’ and should be the model of choice.� MIGA ANNUAL REPORT 2011 | 19 Executive Vice President Izumi Kobayashi visited the region as the revolutions in Tunisia and Egypt were unfolding and her experience helped lay the groundwork for MIGA’s initiative to help encourage and support investment into the region. MIGA’s MENA initiative has two components. The first is “Well-designed environmental knowledge sharing: in May 2011, we hosted a roundtable in Paris that convened investors, policymakers, and and social programs can help investment promotion authorities to discuss concerns and opportunities resulting from current events. Similar manage reputational risks roundtable discussions will be held in the MENA region and in Washington. for project sponsors, protect the The second element of the initiative is increased direct environment, and reduce support to investors. MIGA is mobilizing $1 billion in insurance capacity to retain and encourage FDI in MENA. political risks.� We are reaching out to investors and lenders interested in the region, noting that we are open for business and high- lighting our ability to guarantee projects under Islamic financing structures, our partnership with the Dubai International Financial Centre (DIFC), and our West Bank and Gaza Investment Guarantee Trust Fund. Our repre- sentative in the West Bank and Gaza, placed early this investors can receive expert advice from MIGA and fiscal year, is focusing on business development for the other consultants with an aim to ensure that projects trust fund as well as more broadly in the region. comply with MIGA’s environmental and social policies and investors receive best-practice advice on issues such MIGA is also consulting with the World Bank, IFC, and as resettlement and local community benefits. As noted other regional partners with the aim of leveraging our above, this fund is being used to support the africaJUICE collective resources to support FDI into MENA. These project in Ethiopia. consultations include direct discussions with government agencies and state-owned enterprises in the region to An example of our close collaboration with clients on envi- understand their needs with respect to priority projects. ronmental and social issues is MIGA’s guarantee to an exploration and feasibility study for the Weda Bay nickel mining project in Indonesia. The Weda Bay deposit is one Sustaining Attention of the world’s largest undeveloped identified resources to Environmental and Social Impact of nickel, with 5.1 million tons of nickel contained in measured, indicated, and inferred resources. Project Sound environmental performance, sustainability with sponsor Strand Minerals (Indonesia) Pte. Ltd. asked respect to natural resource management, and social MIGA to provide a guarantee of $207 million to support responsibility are critical to an investment’s success and the detailed exploration and feasibility study stage of this its contribution to the host country’s development. MIGA complex project. Our involvement in the early phase helps adheres to performance standards that help clients take a the sponsors to identify the social and environmental responsible approach to their projects’ environmental and impacts in detail, design mitigation measures, and test social aspects. Well-designed environmental and social their effectiveness—using MIGA’s performance standards, programs can help manage reputational risks for project environmental guidelines, and good industry practices. sponsors, protect the environment, and reduce political risks. Most importantly, attention to these issues ensures that the people and ecosystems that are most affected Enhancing Understanding by a project will be taken into account during design and of Development Impact implementation. This year, MIGA expanded the program for self-evalu- MIGA administers the Environmental and Social ations we began in fiscal year 2010, stepping up our Challenges Fund for Africa to provide technical advice ability to gather developmental lessons from completed to cross-border investors in the region. Financed by the projects and apply them to current and future work. This Japanese government, the fund is open on a case-by-case organizational learning tool will allow the agency to more basis to investors already receiving MIGA guarantees fully absorb lessons, while increasing accountability to or being considered for support. Through the fund, shareholders and other stakeholders. 20 | MIGA ANNUAL REPORT 2011 Since the program’s inception, MIGA has completed Outside of the World Bank Group, we signed a eight evaluations for guaranteed investments, including Memorandum of Understanding (MOU) with Kafalat in Afghanistan and Uruguay (see box 2). The projects are S.A.L., a Lebanese financial company that provides guar- rated on criteria that measure development outcomes on antees for small and medium enterprises to access bank the one hand, and MIGA’s effectiveness on the other. loans. Through this agreement, MIGA and Kafalat will cooperate to promote Lebanese enterprises’ cross-border The evaluations, carried out by MIGA’s economists, envi- investments into developing countries. The partners ronmental and social specialists, and underwriters—and also committed to raising general awareness about risk- independently validated by the Independent Evaluation mitigation instruments such as political risk insurance Group (IEG)—are aimed at increasing awareness and through joint conferences and training—with the first learning among operational staff. Going forward, MIGA training program conducted in Beirut in March by a MIGA intends to gradually expand the program to carry out team. more evaluations each year. Additionally, MIGA signed an MOU with the Indonesian In addition, this fiscal year we introduced a series of Infrastructure Guarantee Fund to collaborate on capacity development metrics that track direct employment, building and to coinsure a pipeline of infrastructure training budgets, the value of locally produced goods, projects. taxes and fees paid, community investment amounts, and investment leveraged for all new MIGA-insured projects. These new agreements are additions to our recent Ongoing attention to this effort will eventually allow the strategic partnerships with organizations such as the agency to report on development indicators across the Japan Bank for International Cooperation, the Central entire portfolio. American Bank for Economic Integration, Korea’s Eximbank, Nippon Export and Investment Insurance, and DIFC. Such partnerships leverage these regional players’ Leveraging Development Impact in-depth knowledge of markets and MIGA’s experience in through Partnerships political risk insurance to encourage sound investment in developing countries worldwide. This year, we continued to fortify existing relationships and also sought out new partners to promote and Also noteworthy is the partnership that was formed in the support developmentally beneficial FDI. Joint business wake of the global financial crisis among the European development efforts and cross-marketing support between Bank for Reconstruction and Development, the European MIGA and IFC were particularly fruitful, resulting in the Investment Bank, and the World Bank Group. In March introduction of new clients to MIGA. These include the 2011, the institutions observed the conclusion of the suc- ProCredit group, a provider of finance to some 750,000 cessful cooperation and pledged to collaborate again in very small, small, and medium enterprises in Latin the future, as needed. From October 2008 to March 2011, America, Eastern and Central Europe, and Africa. MIGA issued $2 billion in guarantees to the financial sector in Central and Eastern Europe as part of the This fiscal year MIGA and the World Bank’s Finance, group’s Joint International Financial Institution Action Economics and Urban (FEU) department signed an Plan. agreement to more effectively cross-market their political risk insurance and other guarantee products. MIGA and FEU are also working on structures that would allow clients to benefit from both MIGA’s political risk insurance and World Bank guarantee products in a single transaction—significantly reducing processing time for critical investments. We also signed a similar business development cooperation agreement with the Banking and Debt Management Department in the World Bank’s Treasury vice presidency. In addition, this year marked enhanced collaboration between MIGA and the World Bank’s Investment Climate Advisory Services (IC) with the placement of a senior MIGA staff member in IC’s Vienna office who focuses on business development in Eastern Europe and Central Asia. MIGA ANNUAL REPORT 2011 | 21 Learning Lessons, box 2 Demonstrating Impact MIGA has significantly expanded its attention to lessons Facility designed to encourage foreign investment into the country. The facility is jointly funded by the government of learned and its ability to demonstrate the developmental Afghanistan, IDA, the government of the United Kingdom, and the Asian Development Bank. impact of its guarantees through self evaluation. Here we The MIGA-supported project entailed the installation, highlight two projects in very different environments that operation, and maintenance of a GSM network, wireless communication services, internet and satellite services, and were among the first to be formally evaluated with rigorous public pay phones. MTN Afghanistan’s network implemen- tation and maintenance was subcontracted to local busi- criteria developed jointly by MIGA and IEG: MTN nesses and network equipment was produced locally. As a result, the project created substantial opportunities for local in Afghanistan and Botnia South America (now UPM) companies. in Uruguay. Following a thorough evaluation, MIGA confirmed that this was a highly developmentally beneficial project. The evaluation also clearly demonstrated that the business model employed by the project works—even in an exceedingly dif- Connecting Afghanistan ficult environment—as financial returns have been healthy, especially given the undeveloped market. When MIGA recently evaluated its support for MTN Group’s telecommunications investment in Afghanistan, the project In fact, MTN Afghanistan exceeded most expectations. The received the highest marks for its development outcome, project introduced the latest GSM technology covering over including strong results for financial and economic sustain- 80 percent of Afghan territory. Profitability margins are higher ability, private sector impact, and MIGA’s effectiveness. than expected. This, despite very real and grave risks: MTN faces daily security threats from insurgent forces, as well as a After decades of armed conflict, Afghanistan’s communi- highly uncertain policy environment. cations network was barely functioning. The country had no internet access. In fact, the state of the country’s com- Supporting Uruguay’s Largest Foreign Investment munications infrastructure was so poor that it hindered the government’s ability to coordinate its own operations. In We also completed a self evaluation on the “green� tech- response, the World Bank Group mobilized to modernize the nology UPM pulp mill project in Uruguay, which MIGA sup- Afghan telecommunications sector. IDA credits and grants ported by issuing a $300 million guarantee to its investors were used to provide key public infrastructure, and the joint in 2007. The mill produces bleached eucalyptus kraft pulp World Bank/IFC Information and Communication Technology that is exported to paper manufacturers in Europe, Asia, and Sector Unit accessed trust funds to deliver technical North America. assistance for reform of regulations needed to attract private investment. The UPM mill is located on the bank of the River Uruguay, upstream of Fray Bentos, a town that had been economically In fiscal year 2007, MIGA issued a guarantee of $74.5 depressed since its primary meat-packing industry closed million to MTN Group of South Africa covering its equity down in 1979. High expectations were set for the project investment in Areeba Afghanistan LLC. MIGA chose to issue from the start—both within the community and more the guarantee despite clear risks for the project itself and for broadly: the project represents the largest foreign investment MIGA’s covered risks, as the project was expected to have a in Uruguay’s history and has been watched closely at the significant development impact. national level. Crucially, an additional $2 million “first loss� provision was MIGA’s evaluation confirms the project’s significant insured under MIGA’s Afghanistan Investment Guarantee economic and developmental success. The mill boasts an 22 | MIGA ANNUAL REPORT 2011 annual capacity of over one million tons of pulp. Employment it posed a major environmental hazard to their communities, creation and wages in excess of the national median are both despite UPM’s assurances to the contrary. These groups higher than originally estimated. Moreover, the financial per- were able to orchestrate the closure of the General San formance of the project is significantly better than had been Martín International Bridge, reducing economic activity. The expected. issue eventually reached the International Court of Justice, which ruled in favor of the project. Since then, Uruguay and As part of its commitment to operate with “green� tech- Argentina agreed in late 2010 to establish a bi-national com- nology, the mill has obtained a number of international mission of scientists to monitor the environmental impact on environmental certificates, which are audited annually by an the Uruguay River. independent third party, the Forest Stewardship Council, as well as ISO Certifications 9001 and 14001. The mill generates The UPM project’s benefits to the community include sub- its own energy and sells its excess to the national grid. stantial linkages to other businesses, investment in local infrastructure, robust training programs, and the support of a MIGA’s guarantees were instrumental in the project’s foundation that disburses $200,000 annually to community creation. The Finnish investor was initially concerned about projects. The mill holds regular community consultation establishing a presence in Uruguay, as the company had events to report environmental monitoring results and has never ventured beyond Europe to build physical plants. The strong community grievance mechanisms. guarantees were also required by the investor’s board con- sidering the large equity exposure needed to fund the project. Apart from the benefits that UPM’s mill brings to the local community, MIGA’s evaluation notes that this project is The project did become controversial during MIGA’s under- likely to positively influence the way other private enterprises writing process and well into implementation since the mill operate in the country, as well as foreign investors’ per- uses the border river between Uruguay and Argentina to ception of the national business climate. transport its pulp for onward shipment to Europe and Asia. Argentine civic associations opposed the project, arguing that MIGA ANNUAL REPORT 2011 | 23 MIGA Business Operational Overview MIGA issued $2.1 billion in new guarantee coverage in fiscal year 2011. This represents the largest amount of new issuance in MIGA’s history. Nearly all of the coverage was issued to new clients—indicating that our enhanced business development efforts, including a marketing agreement with the IFC, are beginning to show results. In addition, a significant volume of our 2011 business resulted from recent amendments to MIGA’s Convention. 24 | MIGA ANNUAL REPORT 2011 The portfolio was also more diversified across sectors and Figure 1 regions than in recent years. We insured investments in Guarantees Portfolio, four new host countries—Iraq, Kosovo, Liberia, and the Gross and Net Outstanding Exposure ($M) Republic of Congo—and supported investments in nearly all of our business sectors. With 36 contract cancellations totaling $417 million, portfolio runoff continued to be rela- 10,000 tively low, as in the past few years. At the close of the fiscal Gross Exposure year, the agency’s total gross exposure of $9.1 billion repre- Net exposure sented yet another historic high for MIGA (see figure 1). 8,000 MIGA’s Operating Environment 6,000 Fiscal year 2011 was characterized by gradual economic recovery led by the developing world. As credit con- straints eased and foreign direct investment (FDI) flows 4,000 to developing countries began to recover, the demand for political risk insurance (PRI) products increased. In addition, as we mentioned earlier, events in the 2,000 Middle East and North Africa contributed to a resurging awareness of political risk. 0 01 02 03 04 05 06 07 08 09 10 11 MIGA ANNUAL REPORT 2011 | 25 Yet, despite this increased interest, PRI seems to remain issues. Our presence is a public indication that the project a discretionary purchase as margins become thinner and sponsor is developing the project in accordance with many established investors feel that their balance sheets MIGA’s Policy on Social and Environmental Sustainability. are strong enough to warrant the risk of not insuring the This can help the client in a variety of ways—from investment. Competition in the industry is strong with managing community relations to attracting financing. adequate capacity to support investor demand. Our comparative advantage in this competitive market lies Convention Amendments in MIGA’s status as a member of the World Bank Group Boost MIGA’s Support to FDI and our ability to support complex, higher-risk projects requiring long tenors and significant syndication. Despite Significant amendments to MIGA’s Convention, approved available capacity, many providers of PRI are less willing to by MIGA’s Council of Governors, took effect in November provide cover in countries where political risk is perceived 2010. Two key modifications are that MIGA is now able to have increased. In these environments, MIGA is often to insure project debt even when we are not insuring a the only insurer willing to provide coverage, especially portion of the equity investment, and we may now insure for long tenors. Indeed, we are taking this comparative some types of existing investments. advantage to the next level by proposing the establishment of a Conflict-Affected and Fragile Economies Facility to The ability to support non-shareholder loans supporting further promote investment and trade in these under- FDI was a critical milestone for MIGA. We frequently had served markets. Supported by donors, the facility would to turn away projects where a lender wanted the benefit of offer investment and export credit insurance to address MIGA’s cover, but the equity investor did not meet MIGA’s the unmet demand for risk-management products, as well eligibility requirements or was not convinced of the need as to fill the gap between the exit of post-conflict official for PRI. This resulted in cases where prospective lenders development assistance and the emergence of a resilient to projects chose not to proceed, reducing the number of private sector in these countries. available financing options for the sponsors—and poten- tially increasing their financing costs. Our ability to insure As a development institution, MIGA has many additional stand-alone debt has also made it easier for us to provide underwriting requirements that many other PRI providers non-honoring of sovereign financial obligations cover. do not, such as the need for economic impact analysis Demand for this product has been substantial, coming pri- and environmental and social requirements. However, this marily from lenders and involving transactions in the public is often a comparative advantage for MIGA, especially in finance area and sub-sovereign entities in frontier markets. projects that are facing difficult environmental or social We can also provide PRI to projects in cases of the simple acquisition of existing investments. Previously, MIGA was unable to provide cover for brownfield acquisitions, despite the potential developmental benefits of having a new private sector operator. MIGA is also able to insure eligible investments in cases where an investor is seeking “Our comparative advantage in coverage for a pool of existing and new projects. Our ability to offer coverage for existing investments puts this competitive market MIGA in a better position to support investors in times of uncertainty and is particularly timely given this year’s lies in MIGA’s status as a member events unfolding in the Middle East and North Africa. Coverage for temporary business interruption, which of the World Bank Group and was authorized under the changes to our Operational Regulations in fiscal year 2009, offers an added layer of our ability to support complex, protection in conflict-affected environments. higher-risk projects requiring MIGA’s Business Development long tenors and significant This year we focused on raising awareness of our new flex- syndication. � ibility and products among existing clients and developing new relationships with the banking industry. We also strengthened collaboration with the IFC to mobilize private investment into emerging markets. Building on the two organizations’ natural synergy, the IFC/MIGA business development unit leveraged IFC’s global 26 | MIGA ANNUAL REPORT 2011 box 3 Convention Amendments Deliver Results Within weeks of the amended Convention’s effective date, MIGA signed contracts for projects that would not have been possible under the previous Convention. Easing Traffic Congestion in Istanbul “Murabaha� financing facility underwritten by Deutsche Bank and Saudi British Bank. The MIGA-backed Islamic finance In Turkey, we are supporting the expansion of Istanbul’s facility is part of a larger $1.2 billion financing package for metro system, which will reduce traffic and congestion, the expansion of Indonesian telecom company PT Natrindo provide better access to jobs, and improve the quality of life Telepon Seluler, known by the brand “Axis�. Axis is a GSM in the metropolis that is home to 18 percent of Turkey’s popu- and 3G cellular service provider offering wireless commu- lation. In December 2010, MIGA issued a guarantee of $19.6 nication services in more than 400 cities across Indonesia. million covering an investment by WestLB of Germany in the The new financing will help the company increase network Otogar-Bacılar-Ikitelli-Olimpic Village Metro Project, insuring ˇ quality, expand coverage, and build more network capacity. In the Municipality of Istanbul’s guarantee of WestLB’s loan to particular, it will allow Axis to reach lower-income segments Istanbul Electricity Tram and Tunnel. In addition to covering of the market as well as remote islands of the archipelago, stand-alone debt, this project also represents the first use of where telecommunications is a particular challenge. our authority to provide non-honoring of sovereign financial obligations coverage. MIGA is also supporting sub-sovereign Supporting Banking Services credit risk as the loan is to the Metropolitan Municipality of in Underserved Markets Istanbul. Our authority to cover a pool of new and existing In April 2011, MIGA provided further support to Istanbul’s investments allowed us to support the ProCredit Group metro expansion through a guarantee of $409.2 million. This Central Bank Mandatory Reserves Coverage project. Here, a larger guarantee was issued to WestLB, the facility agent for MIGA master contract covers 14 fully licensed banks in 14 a consortium of lenders including UniCredit, ING, Crédit countries and a diverse portfolio of new and existing equity Agricole, Société Générale, and BNP Paribas. This financing investments. MIGA’s expropriation of funds coverage allows is supporting the construction of Istanbul’s metro on the ProCredit to obtain capital relief, freeing up equity tied up at Asian side of the city, including 16 metro stations. the parent holding level for regulatory purposes. This equity will be injected into ProCredit group’s banks across emerging Extending the Reach of Telecoms Services markets, allowing those banks to provide loans and financial in Indonesia services to very small, small, and medium enterprises. This is the first time we are providing a guarantee for funds held as Another significant project signed in 2011 representing stand- mandatory reserves with host country central banks and is an alone debt is PT Natrindo Telepon Seluler in Indonesia. In innovation that can be replicated to support other financial this project, MIGA’s guarantees are backing a $450 million institutions. MIGA ANNUAL REPORT 2011 | 27 presence while offering IFC a clear financial incentive to Diversity also returned at the sector level (see figure 3). bring bankable projects to MIGA. The landmark ProCredit Since the onset of the global financial crisis, we focused transaction, which resulted from this relationship, led heavily on supporting the recapitalization of banks in to the completion of 14 projects in 14 countries, of Eastern Europe and Central Asia as part of the World which nine are eligible for concessional lending from the Bank Group’s Financial Sector Initiative. This year we International Development Association (IDA) (see box 3). wound down those activities as demand subsided and investor needs shifted. As a result, 24 percent of the In August 2010, MIGA launched a hub in Asia and started volume of guarantees we issued this year were in the operations in Hong Kong SAR, China and Singapore. We financial sector, compared to 64 percent in fiscal year also augmented our representation in Beijing and Tokyo. 2010. We covered 17 projects in this sector, including 14 The hub is geared toward providing better and more projects with ProCredit Holding, a new client for MIGA efficient access for MIGA’s clients and other stakeholders focusing on small and medium enterprises. Through our in Asia. We felt a particularly acute need for a base in Small Investment Program, we are supporting a health Asia due to the robustness of the region’s inbound and insurance provider in Kenya that is expanding its delivery outbound investment activities as well as practical chal- of medical insurance in East Africa. lenges such as the geographical and time differences. The team has developed a strong pipeline of viable business leads and underwriting is underway on several projects. Figure 2 Guarantees issued in FY11, by Region Our marketing agents and finders program, launched (by number of projects) in September 2009, now has five marketing agents and 41 business finders who have been selected to help us expand our marketing efforts in countries and regions 42% Europe and where MIGA is less well-known. In fiscal year 2011, three Central Asia projects in Africa, equivalent to $14.2 million in guar- 39% Sub-Saharan Africa antees, were generated through the program—and an 8% Asia and the Pacific additional seven projects totaling approximately $500 8% Latin America and million are in the business pipeline. The majority of these the Caribbean projects are in one or more of our strategic priority areas. 3% Middle East and Underpinning all of this has been a concerted effort to North Africa improve efficiency within the agency. We have streamlined a number of internal processes and launched a new system to support coordinated management of client rela- tionships. As noted earlier, demand by financial institutions for MIGA’s cover against the risk of non-honoring of sov- ereign financial obligations resulted in robust support to Product Innovation, New Host Countries the infrastructure sector, including two contracts covering Broaden MIGA’s Portfolio the construction of Istanbul’s metro system. Several additional infrastructure projects involving this cover are From a regional and country perspective, MIGA’s in MIGA’s pipeline for fiscal year 2012. MIGA’s increased guarantee volume showed significant diversification (see value in the infrastructure sector has been recognized figure 2) as Europe and Central Asia accounted for 51 by the market: In polling undertaken by Infrastructure percent of the volume of guarantees issued, compared Investor, MIGA received Honorable Mention in the to 74 percent in fiscal year 2010 and 88 percent in fiscal category of Global Infrastructure Insurance House of the year 2009. We supported 15 new projects in sub-Saharan Year (2010). Africa, spanning a variety of sectors. Seventy-two percent of the projects we supported fell into one or more of We also supported a number of new agribusiness trans- our strategic priority areas: investment into IDA-eligible actions this year. This sector is an area of particular countries, support for complex projects, support for importance considering deepening concerns about South-South investment, and investment into conflict- food price volatility and supply. Our work in this sector affected countries. is bolstering the World Bank Group’s commitment to helping developing countries improve agriculture’s con- This year we issued guarantees in support of investments tribution to food security, raising the incomes of the into Iraq, Kosovo, Liberia, and the Republic of Congo. poor, and facilitating economic transformation. Notably, These are new host countries for MIGA and all represent in Zambia, a MIGA guarantee backs a project that will priority areas for us. Notably, all four countries are rec- cultivate maize, wheat, and soya for consumers in that ognized by the World Bank as “conflict-affected.� country and the broader Southern African Development 28 | MIGA ANNUAL REPORT 2011 Community (SADC). This project comes under the sumption of economic capital by sector). The guarantee master contract we issued last year to Chayton Atlas portfolio as a whole consumed approximately one-third of Investments, an investment holding company within MIGA’s available capital as of June 30. This underscores Chayton Atlas Agricultural Company, a private equity fund our commitment to supporting complex projects while focused on investing in agribusiness in SADC countries. carefully managing the agency’s capital base. Portfolio runoff due to cancelled contracts remained somewhat lower than the years preceding the global Figure 4 financial crisis, but is beginning to return to pre-crisis levels. Consumption of MIGA’s Economic Capital Thirty-six contracts were cancelled this fiscal year compared in FY11, by Sector to 32 in 2010, 11 in 2009, 50 in 2008, and 54 in 2007. The majority of these cancellations were due to the sale of the project enterprise by MIGA’s guarantee holder. A sig- nificant number of cancellations also takes place each year as a result of changes in corporate strategy related to risk 46% Infrastructure management. These generally occur when an investment is 21% Financial considered successful from a financial standpoint or when 20% Oil, gas, and mining perceptions of political risk have improved. 13% Agribusiness, manufacturing, Figure 3 and services Guarantees Issued in FY11, by Sector (by $ volume) Dispute Resolution and Pre-Claims Assistance: Keeping Investments and Benefits on Track 43% Infrastructure 24% Financial When problems or disputes have a potentially adverse 23% Agribusiness, impact on MIGA-supported investments or the host manufacturing, country’s ability to attract future investment, we col- and services laborate closely with all parties involved. In fiscal year 10% Oil, gas, and mining 2011, we continued to effectively assist member gov- ernments and investors in resolving long-standing disputes, whether or not those disputes could have resulted in valid claims. Since inception, MIGA has par- ticipated in discussions on more than 90 disputes of this type. Our work on these matters has helped to avoid New Exposure Limits Reflect MIGA’s Strong dispute escalation, which could have led to failure of the Capital Position and Risk-Management Capacity project, withdrawal of the investment and, possibly, a claim. Our management of potential claims and similar In our fiscal year 2012-2014 strategy, we recommitted matters enables MIGA-supported projects to continue to supporting the four priority areas that have guided operating in host countries, preserving value for the our work over the last several years. In keeping with our investor and ensuring that projects continue to contribute strategy of growth and continued strengthening of devel- to the local economy. opment impact, our Board of Directors has approved increases to our single country and single project While we encourage investors to seek a resolution of a exposure limits (net after reinsurance). Beginning in fiscal dispute when possible, if a claim is made, MIGA’s pro- year 2012, we will be able to take on net exposure of up cedures assure that it is evaluated promptly and that the to $220 million per project and up to $720 million per claimant is given an adequate opportunity to present country. This will allow us to extend our reach while con- an argument in full. As a result of this approach, MIGA tinuing to maintain a strong capital position. has never had a dispute with a claimant regarding our determination. In fiscal year 2011, we received three Our measures of capital adequacy and risk-bearing claims. One claim under our expropriation coverage is capacity include economic capital consumed by the being evaluated. The other claims, both for war and civil guarantee portfolio. Modeled economic capital is the disturbance, were made to MIGA in its capacity as admin- portion of MIGA’s capital that is placed at risk by the istrator of the donor-funded Afghanistan Investment guarantee portfolio exposure (see figure 4 for con- Guarantee Facility. One of these claims was paid, and MIGA ANNUAL REPORT 2011 | 29 MIGA is evaluating the other. In addition, we are con- cations projects in the Middle East and Southeast Asia. tinuing to work on a claim filed in fiscal year 2010 and MIGA also provided outward reinsurance to SID Bank, the have given the investor additional time to support its Slovenian export credit agency, for investments in Serbia. claim. MIGA maintains appropriate reserves for these matters. During the fiscal year, MIGA continued to work with its treaty reinsurance partners, ACE Bermuda Insurance Co. Ltd., XL Re Ltd, and Hannover Re. ONDD, the Belgian Reinsuring the Portfolio export credit agency, joined MIGA’s panel of treaty rein- surers. MIGA uses reinsurance to increase the amount of coverage we can provide, to manage the risk profile of the portfolio, and to cooperate with other insurers as Figure 5 required under the agency’s Convention. The primary Outstanding Portfolio Distribution by Host benefits of reinsurance accrue to our clients, the investors Region, Percent of Gross Exposure* who gain access to increased capacity to insure projects in developing countries, and the recipient countries that benefit from higher levels of FDI. 60% Europe and Central Asia Reinsurance arrangements increase our capacity to 14% Asia and the Pacific support large projects. As a result of its risk-mitigation effect, MIGA’s involvement encourages other insurers to 12% Sub-Saharan Africa participate in projects in frontier markets. It also enables 11% Latin America and other insurers to underwrite transactions with longer the Caribbean tenors than they would normally consider. These insurers 5% Middle East and benefit from our expertise in risk analysis and dispute North Africa resolution, as well as claims handling and recovery pro- cedures. As of June 30, 2011, $3.9 billion of MIGA’s total * Totals exceed 100 percent due to master contracts covering more gross exposure was reinsured. than one region Reinsurance Partners MIGA continues to work with both facultative and treaty reinsurance providers. During fiscal year 2011, we entered into facultative reinsurance agreements with a number of private sector and public sector insurance partners. These agreements supported infrastructure and telecommuni- 30 | MIGA ANNUAL REPORT 2011 Table 1 Outstanding Portfolio Distribution by Sector Percent of Gross Exposure FY05 FY06 FY07 FY08 FY09 FY10 FY11 Infrastructure 39 41 41 41 35 30 33 Financial 39 33 29 37 47 52 49 Oil, gas, and mining 9 14 13 9 7 7 5 Agribusiness, manufacturing, and services 13 13 17 13 11 11 13 Total 100 100 100 100 100 100 100 Table 2 Ten Largest Outstanding Country Exposures in MIGA Portfolio Host Gross % of Net Exposure % of Country Exposure ($M) Gross ($M) Net Ukraine 999.1 11.0 384.1 7.3 Turkey 952.7 10.4 379.1 7.2 Russian Federation 916.8 10.0 455.3 8.7 Croatia 660.1 7.2 309.5 5.9 Indonesia 657.0 7.2 327.0 6.2 Serbia 446.7 4.9 290.4 5.5 Hungary 412.6 4.5 349.4 6.7 Kazakhstan 401.5 4.4 162.0 3.1 Uruguay 300.1 3.3 108.1 2.1 China 230.0 2.5 210.7 4.0 MIGA ANNUAL REPORT 2011 | 31 Figure 6 Outstanding Portfolio Distribution, by Investor Country Percent of Gross Exposure* Austria 35.1 France 9.2 Germany 8.0 Belgium 6.5 Luxembourg 6.2 Netherlands 4.6 Spain 3.4 United Arab Emirates 3.0 Slovenia 2.7 Singapore 2.7 Saudi Arabia 2.5 Switzerland 2.3 South Africa 2.2 Sweden 1.6 United Kingdom 1.6 Mauritius 1.4 Cayman Islands 1.4 Senegal 1.0 Japan 1.0 Bermuda 1.0 Canada 1.0 Egypt, Arab Republic of 0.9 United States 0.6 Poland 0.6 Others 1.8 Others: Cyprus, Thailand, India, Turkey, Ecuador, Lebanon, Norway, Romania, Italy, Tunisia, Mali, St. Kitts and Nevis, Panama, Denmark, Virgin Islands (UK), Ireland, Colombia, Peru, Portugal * Numbers may not add up to 100 percent due to investors for the same guarantee contract domiciled in different countries 32 | MIGA ANNUAL REPORT 2011 Table 3 MIGA’s Outstanding Guarantee Portfolio in IDA-Eligible Countries IDA-eligible Gross exposure % of Net exposure % of countries ($M) Gross ($M) Net Djibouti 224.9 2.5 73.1 1.4 Mozambique 165.8 1.8 127.2 2.4 Uganda 156.0 1.7 80.2 1.5 Liberia 148.8 1.6 96.8 1.9 Nigeria 108.9 1.2 94.6 1.8 Pakistan* 106.1 1.2 55.0 1.1 Nicaragua 99.8 1.1 56.4 1.1 Senegal 83.8 0.9 73.9 1.4 Bangladesh 78.3 0.9 70.4 1.3 Lao People's Democratic Republic 77.9 0.9 38.9 0.7 Afghanistan 76.2 0.8 35.1 0.7 Moldova 72.7 0.8 42.2 0.8 Ghana 65.3 0.7 58.3 1.1 Guinea 59.9 0.7 54.2 1.0 Kosovo 55.0 0.6 55.0 1.1 Kenya 50.2 0.6 43.6 0.8 Bosnia and Herzegovina* 45.0 0.5 41.7 0.8 Vietnam 40.9 0.5 10.3 0.2 Rwanda 39.9 0.4 39.9 0.8 Central African Republic 34.7 0.4 34.7 0.7 Congo, Democratic Republic of 30.7 0.3 30.7 0.6 Nepal 29.4 0.3 11.7 0.2 Madagascar 22.0 0.2 22.0 0.4 Guinea-Bissau 20.1 0.2 18.1 0.4 Zambia 18.6 0.2 18.6 0.4 Sierra Leone 17.2 0.2 16.7 0.3 Mali 16.2 0.2 14.6 0.3 Ethiopia 14.0 0.2 14.0 0.3 Angola 12.9 0.1 11.6 0.2 Georgia* 9.0 0.1 9.0 0.2 Kyrgyz Republic 8.9 0.1 8.6 0.2 Honduras 6.9 0.1 6.9 0.1 Congo, Republic of 5.6 0.1 5.6 0.1 Mauritania 5.4 0.1 4.9 0.1 Togo 4.6 0.1 4.6 0.1 Armenia* 4.1 0.1 4.1 0.1 Benin 2.4 0.0 2.3 0.0 Burkina Faso 1.8 0.0 1.6 0.0 Côte d'Ivoire 1.8 0.0 1.8 0.0 Grand Total 2,021.7 22.2 1,388.8 26.5 * IDA-eligible, but creditworthy enough to borrow from IBRD MIGA ANNUAL REPORT 2011 | 33 Table 4 Projects Supported in Fiscal Year 2011 Amount $M Priority/ Host Country Guarantee Holder Investor Country Sector (Gross Area exposure) of Interest 1 Asia and the Pacific Indonesia Strand Minerals (Indonesia) Pte. Singapore Mining 207.0 COM Ltd. Indonesia Deutsche Bank Luxembourg S.A.; Luxembourg; Telecommun- 450.0 S-S, COM Saudi British Bank Saudi Arabia ications Pakistan Habib Bank AG Zurich* Switzerland Banking 95.1 IDA (blend)2 Europe and Central Asia Albania ProCredit Holding AG Germany Banking 25.0 Armenia ProCredit Holding AG Germany Banking 3.7 IDA (blend) Bosnia and ProCredit Holding AG Germany Banking 12.5 IDA (blend), Herzegovina CA Georgia ProCredit Holding AG Germany Banking 9.0 IDA (blend), CA Hungary UniCredit Bank Austria AG* Austria Banking 259.4 Kosovo ProCredit Holding AG Germany Banking 50.0 IDA, CA Macedonia, ProCredit Holding AG Germany Banking 12.5 FYR Moldova ProCredit Holding AG Germany Banking 4.1 IDA Poland Linx Telecommunications B.V.; Netherlands Services 3.7 SIP ABN Amro Russian Linx Telecommunications B.V.; Netherlands Services 10.1 SIP Federation ABN Amro Serbia ProCredit Holding AG Germany Banking 4.4 Serbia SID Bank, Inc. Ljubljana Slovenia Services 247.9 Turkey Troy AB* Sweden Transportation 0.5 COM Turkey WestLB AG, Istanbul Branch Germany Transportation 19.6 COM Turkey WestLB AG, London Branch Germany Transportation 409.2 COM Ukraine ProCredit Holding AG Germany Banking 5.6 34 | MIGA ANNUAL REPORT 2011 Projects Supported in FY11 (cont’d) Amount $M Priority/ Host Country Guarantee Holder Investor Country Sector (Gross Area exposure) of Interest 1 Latin America and the Caribbean Colombia ProCredit Holding AG Germany Banking 2.6 Honduras ProCredit Holding AG Germany Banking 6.2 IDA Nicaragua ProCredit Holding AG Germany Banking 12.9 IDA Middle East and North Africa Iraq Karo Dis Ticaret ve Sanayi Ltd. Sti. Turkey Manufacturing 5.0 CA, S-S, SIP Sub-Saharan Africa Congo, ProCredit Holding AG Germany Banking 5.0 CA, IDA Democratic Republic of Congo, Cotecna Inspection S.A. Switzerland Services 5.6 CA, IDA Republic of Ethiopia SGI Ethiopia Cement Limited Virgin Islands Manufacturing 4.0 IDA (UK) Kenya ADC Financial Services and Mauritius Financial 2.0 IDA, SIP Corporate Development Services Liberia Vattenfall AB Sweden Agribusiness 142.2 CA, IDA Mozambique ProCredit Holding AG Germany Banking 2.5 IDA Mozambique Sojitz Corporation Japan Manufacturing 9.1 IDA, SIP Rwanda KivuWatt Holdings Mauritius Power 28.6 IDA, COM Sierra Leone Geogas Trading S.A. Switzerland Services 3.6 CA, IDA, SIP South Africa MKV Holdings, LLC Mauritius Agribusiness 10.0 SIP South Africa Tulbagh Holdings LLC United States Agribusiness 5.0 SIP Togo Cotecna Inspection S.A. Switzerland Services 4.6 CA, IDA Uganda Icam SpA, Giovanni Aletti Italy Agribusiness 2.1 IDA, SIP Zambia Chayton Atlas Investments Mauritius Agribusiness 5.2 IDA Zambia Hitachi Construction Machinery South Africa Manufacturing 13.5 IDA, S-S Africa Pty. Ltd.; Hitachi Construction Machinery Southern Africa Co., Ltd. * 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 FY11 1. Projects in priority areas and other areas of interest, 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; SIP: project underwritten through the Small Investment Program 2. Blend countries: IDA-eligible but creditworthy enough to borrow from IBRD MIGA ANNUAL REPORT 2011 | 35 Guarantees Asia and the Pacific MIGA Developing Member Countries 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 36 | MIGA ANNUAL REPORT 2011 The East Asia and Pacific region rebounded quickly Indonesia from the recession prompted by the financial crisis, with overall growth estimated to have reached 9.6 Project name: PT Natrindo Telepon Seluler percent in 2010. Supported by a fiscal stimulus, China was the principal driver, with GDP growth estimated at Guarantee holders: Deutsche Bank Luxembourg 10.3 percent in 2010. Also driven by China, exports of S.A.; Saudi British Bank goods and services rebounded robustly in 2010 having declined in the previous year. Excluding China, the East On June 15, 2011, MIGA issued guarantees totaling Asia and Pacific region grew by 1.5 percent in 2009 and $450 million covering a “Murabaha� financing facility an estimated 6.8 percent in 2010. GDP growth rates for by Deutsche Bank Luxembourg S.A. and Saudi British China and the region as a whole are expected to slow Bank (SABB) for PT Natrindo Telepon Seluler (NTS) in somewhat in 2011 and 2012, but remain elevated. Indonesia. MIGA’s coverage is for a period of up to seven and a half years against the risks of transfer restriction, The effects of the March 2011 earthquake and tsunami expropriation, and war and civil disturbance. in Japan are expected to have a negative impact on that country’s growth rate in the short term, but as recon- This investment is part of a larger $1.2 billion Islamic struction begins growth is expected to accelerate. This financing package for NTS, holder of the registered brand temporary slowdown in Japan is expected to have a “Axis�. The company is a national GSM and 3G cellular modest short-term effect on the region through subdued service provider in Indonesia, offering wireless communi- trade and FDI flows, as well as disruptions in regionally cation services. The financing is aimed at increasing the integrated supply chain production. quality on the existing network, increasing the population coverage, and building additional network capacity. South Asia also recovered quickly from the recession, mostly due to strong domestic demand, stimulus The portion of the financing that MIGA is insuring is a measures, and improved exports. As a result, GDP growth dual currency term “Murabaha� facility with Deutsche for the region is estimated at 9.3 percent in 2010, with Bank Luxembourg S.A. as political risk insurance agent India alone expected to grow at 8.8 percent. Excluding acting on behalf of itself, SABB, and other financial insti- India, South Asia’s rate of growth for 2010 is estimated at tutions to be identified. The initial participants are SABB 5 percent. and Deutsche Bank Luxembourg S.A. The facility will be syndicated following the financial close. The facility may The strong rebound of the Asia-Pacific region, coupled be taken out at a later stage in whole or part by a Sukuk with asset price increases, spiking food and oil prices, and capital markets issue for which the primary obligor will a surge in portfolio inflows, has also raised the specter be NTS. of inflation in a number of countries. This has prompted increases in interest rates to control inflationary pressures, NTS contributes to the development of a competitive new measures aimed at stemming price increases in telecommunications industry in Indonesia by providing overheated sectors, and currency appreciations in some mobile telecommunication services, including the instal- countries. lation, operation, and maintenance of a GSM network; wireless communication services; internet; and satellite Net private and official capital flows increased in 2010 to services. NTS is focusing its growth on lower-income an estimated $378.2 billion in East Asia and the Pacific. segments of the market, so the beneficiaries of these Following a sizable decline in 2009, net FDI inflows services will be lower income households and remote jumped by 63 percent to an estimated $225.2 billion in islands. The spread of mobile telecommunications has 2010, and are projected to increase further to $267.7 been shown to stimulate local entrepreneurship and billion in 2012. In South Asia, net private and official flows provide significant employment opportunities. increased to an estimated $88.3 billion in 2010, but FDI flows declined for the second consecutive year from a This widespread availability of telecommunications peak of $48.7 billion in 2008 to an estimated $24.2 billion. networks also provides a platform for the private sector and the government to deliver important services to During the fiscal year, MIGA provided guarantees for under-served communities throughout Indonesia. three projects in the region. At year-end, MIGA’s gross guarantee exposure stood at $1.3 billion, equivalent to This project will contribute to the objectives of the World 14 percent of the agency’s outstanding portfolio. Bank Group’s Country Partnership Strategy for Indonesia by facilitating important private infrastructure investment in a sector, which promotes the growth of private sector enterprises. The project is also aligned with MIGA’s strategic priority of promoting South-South investment. MIGA ANNUAL REPORT 2011 | 37 Indonesia Pakistan Project name: PT Weda Bay Nickel Project Project name: Habib Metropolitan Bank Limited Exploration and Feasibility Studies Guarantee holder: Habib Bank AG Zurich Guarantee holder: Strand Minerals (Indonesia) Pte. Ltd. On June 24, 2011, MIGA issued a guarantee to Habib Bank AG Zurich (HBZ) of Switzerland covering its On August 11, 2010, MIGA issued a guarantee of $207 investment in its subsidiary, Habib Metropolitan Bank million to Strand Minerals (Indonesia) Pte. Ltd. of (HMB) in Pakistan. The coverage is for 80 million Swiss Singapore for its equity investment in the PT Weda Francs ($95.1 million equivalent) for a period of up to Bay Nickel Project. Strand Minerals is jointly owned by 20 years against the risks of transfer restriction and Eramet S.A. of France and Mitsubishi Corporation of expropriation. This new coverage augments and replaces Japan. The coverage is for a period of up to three years several MIGA guarantees issued to HBZ between fiscal against the risks of transfer restriction, expropriation, years 2001-2008. breach of contract, and war and civil disturbance. HMB is one of the 10 largest banks in Pakistan. The bank During this period it is anticipated that approximately was formed in 2006 as a result of a merger between $230 million will be invested for the engineering and fea- the Pakistani branches of HBZ and Metropolitan Bank sibility studies necessary to conclude a bankable feasibility Limited, a local bank. HBZ currently holds 51 percent of study for the operation of a nickel-cobalt mine with a the shares, with the remaining shares owned by local and hydrometallurgical processing plant on Halmahera Island. foreign investors. MIGA’s additional coverage to HBZ, Once the studies are complete, an investment decision as well as the denomination of MIGA’s contract in Swiss will be taken on whether to continue developing the mine Francs, will help HBZ meet its obligations to the Financial and building a processing plant. It is anticipated that the Markets Supervisory Authority (FINMA), the Swiss final investment decision should be made before the end banking regulator. of 2012. HMB plays a major role in offering financial services The core project will require large capital expenditure to to Pakistan’s population. It operates more than 120 develop the mine and the processing plant. In addition, in branches in 19 cities throughout the country, including order for the mine to be commercially feasible, additional four full-service Islamic banking branches. Moreover, capital expenditure will have to be undertaken on the the bank’s network connectivity has been substantially associated transportation infrastructure including roads, upgraded, including a 17 percent increase in ATM rollout airport, and port. across the country and various internal control process enhancements. Investment in human capital has also The Weda Bay deposit is one of the largest undeveloped continued, bringing the total number of staff to nearly nickel projects with 5.1 million tons of nickel contained 2,700. in measured, indicated, and inferred ore resources. Should this project be developed it will allow Indonesia to HBZ’s expansion and modernization continues to become one of the world’s major nickel producers. It will contribute to the strengthening of the local banking provide significant employment, both during construction sector through the transfer of know-how, expertise, and when in operation, major government revenues, and and technology as HMB’s policies, directives, and will contribute substantially to the local economy, in par- business practices are aligned with those of its parent ticular to the North Maluku Province. It will also provide company, which is subject to the supervisory authority of an important demonstration of how a major natural FINMA. The impact of this is to introduce international resource project can bring benefits to the Indonesian best practices to both HMB and to the local industry. people and be developed in a socially and environmentally Moreover, foreign presence in the banking sector is sustainable way. considered to play a positive role in strengthening the banking sector against systemic risk. MIGA’s support for this investment is aligned with the World Bank Group’s Country Partnership Strategy for MIGA’s support is aligned with the World Bank Group’s Indonesia for 2009-2012, particularly with regard to strategy in Pakistan’s financial sector, which aims at making Indonesia’s private sector a driver in broad-based increasing competition and expanding access to financial growth, and increasing the country’s competitiveness services to different segments of the population. The regionally and globally. sector still suffers from low banking penetration and limited access to finance, especially with respect to the provision of banking services to underserved segments, including small and medium enterprises, consumer and 38 | MIGA ANNUAL REPORT 2011 housing finance, microfinance, and rural finance. The project is also aligned with MIGA’s strategic priority of supporting investments into countries eligible for lending from the International Development Association. MIGA ANNUAL REPORT 2011 | 39 Guarantees Europe and Central Asia MIGA Developing Member Countries Albania Armenia Azerbaijan Belarus Bosnia and Herzegovina Bulgaria 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 40 | MI GA MIGA ANNUAL REPORT 2011 Severely affected by the financial crisis, most of Europe The guarantee issued by MIGA will help PCH obtain and Central Asia rebounded in 2010, with GDP growth capital relief from the CAR requirements. By obtaining estimated to have reached 5.2 percent, following a 6.4 MIGA’s insurance against the risk of expropriation of percent decline in 2009, but still below pre-crisis growth funds, the risk weighting for mandatory reserves held at levels. The recovery was mainly driven by merchandise the central bank can be reduced. A lower risk weighting exports, as well as official aid and fiscal stimulus packages will allow PCH to free up equity currently tied up for CAR in some cases. The recovery of domestic demand and maintenance purposes, thereby allowing these funds to be imports, however, has been weak. This, in conjunction injected into its subsidiary banks. This in turn will allow with structural imbalances (fiscal deficits, high unem- PCH’s emerging market subsidiary banks to increase their ployment, high household indebtedness, and banking lending activities. sector restructuring), has contributed to slower growth and larger output gaps than other regions. MIGA’s support will help PCH optimize its capital man- agement across its 21 banks, allowing PCH to direct Net private and official capital inflows, which had equity to subsidiaries with the greatest need. These banks plummeted in 2009, increased by 47 percent in 2010 to will be able to offer additional financial services to very an estimated $132.1 billion. Net FDI inflows, which had small, small, and medium enterprises at a time of macro- almost halved in 2009, declined again in 2010 to an economic challenges. Supporting productive small busi- estimated $76.4 billion, but are projected to pick up and nesses will help stimulate growth, generate employment, reach $107.1 billion in 2012, aided by renewed interest in and reduce poverty. privatization in a number of countries. MIGA’s support for this project is aligned with the During fiscal year 2011, MIGA provided guarantees for World Bank Group’s microfinance strategy that includes 16 projects in this region. At year-end, MIGA’s gross improving the supply of microfinance in large, but under- guarantee exposure stood at $5.4 billion, or 60 percent of served markets; enhancing deposit capacity by assisting the agency’s total outstanding portfolio. microfinance institutions in savings mobilization; capacity building; creating and shaping markets; and fostering innovation. Albania Project name: ProCredit Group Central Bank Armenia Mandatory Reserves Coverage Project name: ProCredit Group Central Bank Guarantee holder: ProCredit Holding Mandatory Reserves Coverage On December 22, 2010, MIGA issued a guarantee of Guarantee holder: ProCredit Holding $25 million to ProCredit Holding (PCH) covering its investment in its subsidiary in Albania. The coverage is for On December 22, 2010, MIGA issued a guarantee of a period of up to 10 years against the risk of expropriation $3.7 million to ProCredit Holding (PCH) covering its of funds for mandatory reserves held by the subsidiary in investment in its subsidiary in Armenia. The coverage is the central bank of its jurisdiction. for a period of up to 10 years against the risk of expro- priation of funds for mandatory reserves held by the sub- This project is part of a master contract that MIGA sidiary in the central bank of its jurisdiction. has issued. PCH is headquartered in Germany and is the parent company of 21 banks (ProCredit group). This project is part of a master contract that MIGA has The ProCredit group is a provider of finance to some issued. Please refer to project description for “Albania� 750,000 very small, small, and medium enterprises in above. Latin America, Eastern and Central Europe, and Africa. Throughout the world, banks are required to maintain mandatory reserves with the central banks of their respective jurisdictions. The ProCredit group’s capital adequacy ratio (CAR) is calculated according to the German Banking Act. Under this act, at a consolidated level, reserves deposited at the various central banks can attract a risk weighting of 100 or even 150 percent, depending on the country. This risk weighting determines the amount of equity required to maintain a specified CAR in accordance with the German Banking Act. MIGA ANNUAL REPORT 2011 | 41 Bosnia and Herzegovina MIGA’s coverage for this loan falls under the framework of the Financial Sector Initiative, intended to support Project name: ProCredit Group Central Bank financial institutions’ cross-border investments into their Mandatory Reserves Coverage emerging market subsidiaries, at a time when Hungary’s economy is recovering from economic shocks. Hungary, Guarantee holder: ProCredit Holding like many other countries in the Europe and Central Asia region, is currently facing difficult fiscal adjustments along On December 22, 2010, MIGA issued a guarantee of with the need for external financing. This shareholder loan $12.5 million to ProCredit Holding (PCH) covering its from UBA to UCBH will support an institution of systemic investment in its subsidiary in Bosnia and Herzegovina. importance to the financial sector, while contributing to The coverage is for a period of up to 10 years against the the growth of new lending in the economy. risk of expropriation of funds for mandatory reserves held by the subsidiary in the central bank of its jurisdiction. The project will help increase the availability of credit for Hungary’s corporate, retail, and sub-national borrowers This project is part of a master contract that MIGA has and help UCBH strengthen its structural liquidity profile, issued. Please refer to project description for “Albania� enabling UCBH to maintain a higher level of financial above. intermediation than it would have been able to otherwise accomplish. It will also help provide job opportunities in a consolidating sector and a soft labor market. Despite financial sector consolidation and cost-cutting, UCBH has Georgia continued to pursue an approach of strategic expansion, resulting in the opening of 19 new branches and the direct Project name: ProCredit Group Central Bank creation of resultant jobs. Mandatory Reserves Coverage Guarantee holder: ProCredit Holding Kosovo On December 22, 2010, MIGA issued a guarantee of $9 million to ProCredit Holding (PCH) covering its Project name: ProCredit Group Central Bank investment in its subsidiary in Georgia. The coverage is Mandatory Reserves Coverage for a period of up to 10 years against the risk of expro- priation of funds for mandatory reserves held by the sub- Guarantee Holder: ProCredit Holding sidiary in the central bank of its jurisdiction. On December 22, 2010, MIGA issued a guarantee of This project is part of a master contract that MIGA has $50 million to ProCredit Holding (PCH) covering its issued. Please refer to project description for “Albania� investment in its subsidiary in the Republic of Kosovo. The above. coverage is for a period of up to 10 years against the risk of expropriation of funds for mandatory reserves held by the subsidiary in the central bank of its jurisdiction. Hungary This project is part of a master contract that MIGA has issued. Please refer to project description for “Albania� Project name: UniCredit Bank Hungary Zrt. above. Guarantee holder: UniCredit Bank Austria AG On September 30, 2010, MIGA issued a guarantee of Former Yugoslav Republic of $259.4 (e190) million to UniCredit Bank Austria AG’s Macedonia (UBA), covering its e200 million shareholder loan to its Hungarian subsidiary, UniCredit Bank Hungary Zrt. Project name: ProCredit Group Central Bank (UCBH). The guarantee is for a period of 10 years against Mandatory Reserves Coverage the risks of transfer restriction, expropriation, and war and civil disturbance. This long-term shareholder loan is Guarantee holder: ProCredit Holding expected to serve a dual purpose: support the recovery and growth of corporate lending, and improve further On December 22, 2010, MIGA issued a guarantee of UCBH’s long-term liquidity profile. $12.5 million to ProCredit Holding (PCH) covering its investment in its subsidiary in the Former Yugoslav Republic of Macedonia. The coverage is for a period of up 42 | MIGA ANNUAL REPORT 2011 to 10 years against the risk of expropriation of funds for lower cost of entry into the ICT market; increased compe- mandatory reserves held by the subsidiary in the central tition in the ICT market; rapidly expanding data/telecom bank of its jurisdiction. networks; and local employment opportunities. This project is part of a master contract that MIGA has The World Bank Group’s Country Partnership Strategy for issued. Please refer to project description for “Albania� Poland for 2009-2013 notes a need for continued progress above. in developing the country’s knowledge economy. In fact, Poland’s European Union accession has driven the liberal- ization of the ICT sector, of which this project is a part. Moldova The project was underwritten through MIGA’s Small Investment Program. Project name: ProCredit Group Central Bank Mandatory Reserves Coverage Guarantee holder: ProCredit Holding Russian Federation On December 22, 2010, MIGA issued a guarantee of Project name: Linxtelecom Module 5 and Skytrade $4.1 million to ProCredit Holding (PCH) covering its Data Centers investment in its subsidiary in Moldova. The coverage is for a period of up to 10 years against the risk of expro- Guarantee holders: Linx Telecommunications B.V.; priation of funds for mandatory reserves held by the sub- ABN Amro sidiary in the central bank of its jurisdiction. On November 22, 2010, MIGA issued a guarantee of This project is part of a master contract that MIGA has e500,000 ($684,975) to Linx Telecommunications B.V. issued. Please refer to project description for “Albania� (Linx) of the Netherlands covering its shareholder loan above. to its subsidiary, Linx LLC Svyaz VSD of the Russian Federation. MIGA also issued two guarantees for a total of e6.9 million ($9.5 million) covering ABN Amro’s non- shareholder loans to the subsidiary. The coverage is for up Poland to six years against the risks of transfer restriction, expro- priation, and war and civil disturbance. Project name: Linxtelecom Warsaw Data Center This project consists of the construction and operation Guarantee holders: Linx Telecommunications B.V.; of a Tier 3 data center in St. Petersburg and operation of ABN Amro Module 5 of a data center in Moscow that will provide state-of-the art data center and connectivity services pri- On November 22, 2010, MIGA issued a guarantee of marily to international customers. e100,000 ($136,995) to Linx Telecommunications B.V. (Linx) of the Netherlands covering its equity investment The project hopes to leverage shared infrastructure in its subsidiary Warsaw DC Sp Zo.o. of Poland. MIGA and data management in order to reach economies of also issued a guarantee of e2.6 million ($3.5 million) for scale—thereby stimulating growth of technology-intensive ABN Amro’s non-shareholder loan to the project. The and knowledge-based industries in Russia. Specifically, coverage is for up to six years against the risks of transfer the project expects the following development results: restriction, expropriation, and war and civil disturbance. improvement of information and communication tech- nology (ICT) infrastructure and access to information; a This project consists of the establishment and operation lower cost of entry into the ICT market; increased com- of a data center in Warsaw that will provide state-of-the art petition in ICT market; rapidly expanding data/telecom data center and connectivity services primarily to interna- networks; and local employment opportunities. tional customers. The World Bank Group’s current Country Partnership The project hopes to leverage shared infrastructure Strategy for Russia notes a need for increased private and data management in order to reach economies of sector development and diversification of the economy— scale—thereby stimulating growth of technology-intensive to which this project will contribute. and knowledge-based industries in Poland. Specifically, the project expects the following development results: The project was underwritten through MIGA’s Small improvement of information and communication tech- Investment Program. nology (ICT) infrastructure and access to information; a MIGA ANNUAL REPORT 2011 | 43 Serbia Turkey Project name: ProCredit Group Central Bank Project name: Bandirma Port Mandatory Reserves Coverage Guarantee Holder: Troy AB Guarantee holder: ProCredit Holding On October 6, 2010, MIGA issued a guarantee of On December 22, 2010, MIGA issued a guarantee of $522,000 to cover Troy AB of Sweden’s equity investment $4.4 million to ProCredit Holding (PCH) covering its in the privatization of Bandirma Port in Turkey under investment in its subsidiary in Serbia. The coverage is for a 36-year transfer-of-operating-rights scheme. MIGA’s a period of up to 10 years against the risk of expropriation guarantee covers against the risks of currency inconvert- of funds for mandatory reserves held by the subsidiary in ibility and transfer restriction, as well as expropriation of the central bank of its jurisdiction. funds, for a period of 14 years. This project is part of a master contract that MIGA has Following a competitive tender, Celebi Joint Venture issued. Please refer to project description for “Albania� Group was named the preferred bidder in May 2008, above. offering an up-front operating rights fee of $175.5 million. The project represents an ongoing process of privatization started by the government of Turkey in the early 1980s. It Serbia aims to introduce openness and competitiveness into the country, increase efficiency in former state-owned enter- Project name: Mercator – S Serbia prises and promote economic growth. Guarantee holder: Slovenska Izvozna in Razvojna The privatization of Bandirma Port will introduce a new Banka, d.d., Ljubljana (SID Bank, Inc. Ljubljana) and experienced management team and best market practices that will improve the productivity and efficiency On June 29, 2011, MIGA issued a guarantee to reinsure of the port. In turn, this will strengthen the competi- SID Bank, Inc. Ljubljana’s coverage to the Mercator retail tiveness of local exporters by decreasing transportation group (Mercator) in Serbia. MIGA’s reinsurance for the costs. In particular, better port operations will further investment results in a gross exposure of $247.9 million. stimulate the growth of the region’s automotive manufac- MIGA’s reinsurance is for a period of up to two years, turing industry as a hub for Central and Eastern Europe. against the risks of transfer restriction, expropriation, and The local economy will also benefit from improved con- war and civil disturbance. nectivity to international markets, a key infrastructure requirement to attract foreign direct investment. Finally, MIGA’s support to SID Bank, Inc., Ljubljana is in the new operators of the port will introduce higher accordance with MIGA’s mandate to cooperate with standards of operation, including environmental and national entities of its member countries, as stated in safety rules in line with national and European Union MIGA’s Convention. By providing facultative reinsurance, guidelines. MIGA is allowing SID Bank, Inc.; Ljubljana to reduce its net exposure to Mercator and to free up capacity for other The project is also aligned with the World Bank Group’s investment insurance projects. Country Partnership Strategy for Turkey. Improving trans- portation infrastructure is a key component of the World Mercator is helping to stimulate exports among Balkan Bank Group’s focus on helping Turkey improve its com- countries by carrying goods from the other countries petitiveness and employment opportunities. in each of its retail locations. As a result, Mercator is expanding the venue for suppliers to sell not only in their respective countries, but also in neighboring countries where Mercator has an established presence. In addition, Turkey Mercator’s further expansion in the Balkans, supported by SID Bank, Inc. Ljubljana and MIGA, will provide ˘ Project name: Otogar-Bagcılar-Ikitelli-Olimpic employment and retail training opportunities in these Village Metro Project countries. Guarantee Holder: WestLB, Istanbul Branch MIGA is also helping to establish best practices with respect to corporate governance as well as environmental On December 27, 2010, MIGA issued a guarantee of $19.6 and social policies in the host countries. million to cover an investment by WestLB of Germany ˘ in the Otogar-Bagcılar-Ikitelli-Olimpic Village Metro 44 | MIGA ANNUAL REPORT 2011 Project in Turkey. MIGA’s guarantee is for a period of up for itself and as agent for a consortium of lenders, in the to three years against the risk of non-honoring of sov- Kadikoy-Kartal-Kaynarca Metro Project in Istanbul, Turkey. ereign financial obligations. It covers a guarantee by the MIGA’s guarantee covers principal and interest for a Metropolitan Municipality of Istanbul (MMI) on a loan period of up to nine and a half years against the risk of amount of up to $21 million that WestLB AG’s branch non-honoring of sovereign financial obligations. office in Istanbul (WestLB, Istanbul Branch) has extended to Istanbul Electricity, Tram and Tunnel, a general direc- The project will be the first underground metro system on torate of MMI, which is financing the expansion of the the Asian side of Istanbul. It will also eventually connect project. with the European side of city. The first phase of the project involves finishing the construction of 22 kilometers The project consists of two parts. The first section of the of the line from Kadikoy to Kartal, which includes 16 metro project, “Otogar-Kirazlı LRT�, will extend the existing Light stations. The second phase consists of extending the Rail Transit from the Otogar (intercity bus terminal) to metro line by 4.5 kilometers from Kartal to Kaynarca, the densely developed residential areas in Bagcılar and Kirazlı. ˘ construction of a parking and maintenance area, and the The second phase of the project, “Kirazlı-Ikitelli-Basak , construction of pedestrian subways. Konut/Olimpic Village Metro� will create a new metro line that will connect the Ikitelli Organized Industrial Area and By extending coverage of Istanbul’s metro system, the the new residential areas developed at Ikitelli to the rail project will help improve urban mobility, and reduce travel network of Istanbul. times and traffic—thereby contributing to increased pro- ductivity and private sector-led growth. In addition, the Section one, Otogar-Kirazlı LRT, which consists of a expansion of public transportation in the city will reduce double-track system of 5,510 meters to serve five stations, dependence on roads and motorways. This will help is the western extension of the existing LRT track operating reduce pollution and help make Istanbul a more attractive between Aksaray and the International Airport. Section location for residents and business. two, Kirazlı-Ikitelli-Basak Konut/Olimpic Village Metro, , which consists of a double track system of 15,834 meters The project is aligned with the World Bank Group’s to serve 11 stations, will be the western extension of the Country Partnership Strategy for Turkey. Improving trans- metro track planned to operate between Yenikapı and portation infrastructure is a key component of the Bank Kirazlı. Group’s focus on helping Turkey improve its competi- tiveness and employment opportunities. By extending coverage of the metro system to the suburban and light manufacturing areas to the west, the project will help improve urban mobility, and reduce travel times and traffic, thereby contributing to urban productivity Ukraine and private sector-led growth. In addition, the expansion of public transportation in the city will reduce dependence Project name: ProCredit Group Central Bank on roads and motorways, which will help reduce the Mandatory Reserves Coveragee growth of transport-related greenhouse gases and, through the reduction in pollution, help make Istanbul a more Guarantee Holder: ProCredit Holding attractive business location. On December 22, 2010, MIGA issued a guarantee of The project is also aligned with the World Bank Group’s $5.6 million to ProCredit Holding (PCH) covering its Country Partnership Strategy for Turkey. Improving trans- investment in its subsidiary in Ukraine. The coverage is for portation infrastructure is a key component of the Bank a period of up to 10 years against the risk of expropriation Group’s focus on helping Turkey improve its competi- of funds for mandatory reserves held by the subsidiary in tiveness and employment opportunities. the central bank of its jurisdiction. This project is part of a master contract that MIGA has issued. Please refer to project description for “Albania� Turkey above. Project name: Kadikoy-Kartal-Kaynarca Metro Project Guarantee Holder: WestLB AG, London Branch On April 21, 2011, MIGA issued a guarantee of $409.2 million for an investment by WestLB AG, London Branch, MIGA ANNUAL REPORT 2011 | 45 Guarantees Latin America and the Caribbean MIGA Developing Member Countries Antigua and Barbuda Argentina Bahamas (The) Barb ados Belize Bolivia Br azil 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 S t. Vincent and The Grenadines Suriname Trinidad and Tobago Uruguay Venezuela (República Bolivariana de) 46 | MIGA ANNUAL REPORT 2011 With GDP growth rebounding to an estimated 6 percent adequacy ratio (CAR) is calculated according to the in 2010, having contracted by 2.1 percent in 2009, Latin German Banking Act. Under this act, at a consolidated America and the Caribbean have weathered the financial level, reserves deposited at the various central banks crisis well, for the most part reflecting sound macro- can attract a risk weighting of 100 or even 150 percent, economic fundamentals prior to the crisis. In particular, depending on the country. This risk weighting determines most countries took advantage of higher commodity the amount of equity required to maintain a specified CAR prices preceding the crisis to reduce their external vul- in accordance with the German Banking Act. nerabilities through a reduction of external debt and an increase of international reserves. Furthermore, stronger The guarantee issued by MIGA will help PCH obtain fiscal balances left room for countercyclical fiscal easing. capital relief from the CAR requirements. By obtaining During the crisis, countries with close links to the U.S. MIGA’s insurance against the risk of expropriation of economy were more vulnerable, due to either reductions funds, the risk weighting for mandatory reserves held at in remittances or reductions in the trade account. the central bank can be reduced. A lower risk weighting will allow PCH to free up equity currently tied up for CAR Concerns going forward relate to inflationary pressures maintenance purposes, thereby allowing these funds to be and appreciating exchange rates in light of the strong injected into its subsidiary banks. This in turn will allow rebound in both growth and capital flows, as well as rising PCH’s emerging market subsidiary banks to increase their commodity and food prices. GDP growth is expected to lending activities. moderate to 4.5 percent over 2011 and to 4.1 percent in 2012 as monetary policy tightens. MIGA’s support will help PCH optimize its capital man- agement across its 21 banks, allowing PCH to direct Net private and official flows recovered too, increasing by equity to subsidiaries with the greatest need. These banks 44 percent in 2010 to an estimated $240.4 billion. Net will be able to offer additional financial services to very FDI inflows also jumped to $115.9 billion, having declined small, small, and medium enterprises at a time of macro- by 42 percent in 2009. They are projected to increase economic challenges. Supporting productive small busi- in both 2011 and 2012 and to reach $132.3 billion in the nesses will help stimulate growth, generate employment, latter. and reduce poverty. During the fiscal year, MIGA provided guarantees for MIGA’s support for this project is aligned with the three projects in the region. At year-end, MIGA’s gross World Bank Group’s microfinance strategy that includes guarantee exposure stood at $1.0 billion, equivalent to improving the supply of microfinance in large, but under- 11 percent of the agency’s outstanding portfolio. served markets; enhancing deposit capacity by assisting microfinance institutions in savings mobilization; capacity building; creating and shaping markets; and fostering innovation. Colombia Project name: ProCredit Group Central Bank Mandatory Reserves Coverage Honduras Guarantee holder: ProCredit Holding Project name: ProCredit Group Central Bank Mandatory Reserves Coverage On December 22, 2010, MIGA issued a guarantee of $2.6 million to ProCredit Holding (PCH) covering its Guarantee holder: ProCredit Holding investment in its subsidiary in Colombia. The coverage is for a period of up to 10 years against the risk of expro- On December 22, 2010, MIGA issued a guarantee of priation of funds for mandatory reserves held by the sub- $6.2 million to ProCredit Holding (PCH) covering its sidiary in the central bank of its jurisdiction. investment in its subsidiary in Honduras. The coverage is for a period of up to 10 years against the risk of expro- This project is part of a master contract that MIGA priation of funds for mandatory reserves held by the sub- has issued. PCH is headquartered in Germany and is sidiary in the central bank of its jurisdiction. the parent company of 21 banks (ProCredit group). The ProCredit group is a provider of finance to some This project is part of a master contract that MIGA has 750,000 very small, small, and medium enterprises in issued. Please refer to project description for “Colombia� Latin America, Eastern and Central Europe, and Africa. above. Throughout the world, banks are required to maintain mandatory reserves with the central banks of their respective jurisdictions. The ProCredit group’s capital MIGA ANNUAL REPORT 2011 | 47 Nicaragua Project name: ProCredit Group Central Bank Mandatory Reserves Coverage Guarantee holder: ProCredit Holding On December 22, 2010, MIGA issued a guarantee of $12.9 million to ProCredit Holding (PCH) covering its investment in its subsidiary in Nicaragua. The coverage 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 project description for “Colombia� above. 48 | MIGA ANNUAL REPORT 2011 Guarantees Middle East and North Africa MIGA Developing Member Countries Algeria Bahrain Djibouti Egypt (Ar ab Republic of) Ir an (Islamic Republic of) Iraq Israel Jordan Kuwait Lebanon Libya Morocco Oman Qatar Saudi Arabia Syrian Arab Republic Tunisia United Arab Emirates Yemen (Republic of) MIGA ANNUAL REPORT 2011 | 49 The Middle East and North Africa grew by an estimated important signal to other potential investors into Iraq and 3.1 percent in 2010, marginally higher than the 2.8 percent into Baghdad specifically. The project will demonstrate the GDP growth registered in 2009. The financial crisis had a available returns from supplying the large and growing much smaller impact on economic growth owing to the domestic market in Iraq, and help aid the continued region’s limited global financial integration. Increased oil progress towards stability and economic growth. The prices contributed to growth in oil-exporting countries. factory will provide employment for 46 staff, almost all of The recent political turmoil in the region, however, is whom will be recruited locally. expected to lead to a slippage in projected growth in 2011 to 1.9 percent, but a rebound to 3.5 percent is expected in The project is aligned with the World Bank Group’s 2012. Interim Strategy Note for Iraq, which includes supporting policies and institutions that promote broad-based, Compared with 2009, net private and official capital flows private-sector-led growth with the goal of revitalizing into the Middle East and North Africa remained steady the private sector and facilitating job creation. It is in 2010 at $28 billion. Net FDI inflows are estimated to also aligned with MIGA’s commitment to supporting have declined in 2010 by 18 percent to $20.1 billion, and South-South investments as well as investments in are projected to decline further in light of recent political conflict-affected countries. The project was underwritten turmoil to $10.7 billion in 2011, but rebound to $17.4 through MIGA’s Small Investment Program. billion in 2012. MIGA provided guarantees for one project in the region. At year-end, MIGA’s gross guarantee exposure stood at $415.8 billion, equivalent to 5 percent of the agency’s out- standing portfolio. Iraq Project name: Sebeel Al Safa Manufacturing Petrochemicals and Water Filling Company Guarantee holder: Karo Dis Ticaret ve Sanayi Ltd. Sti. On September 23, 2010, MIGA issued a guarantee of $5 million to Karo Dis Ticaret ve Sanayi Ltd. Sti. of Turkey covering their shareholder loan to the Sebeel Al Safa Manufacturing Petrochemicals and Water Filling Company in Iraq. The coverage is for a period of five years against the risks of transfer restriction, expropriation, and war and civil disturbance. The project involves the establishment of a manufac- turing plant in the Baghdad area to produce polyethylene terephthalate (PET) preforms. PET preforms are the raw material used to manufacture bottles for the beverage industry. The first machine will produce preforms for half-liter water bottles. The general demand in Iraq for preforms is estimated to be more than six billion annually for different bottle sizes. Currently, nearly all of PET preforms are imported from neighboring countries. This project will have a positive and significant devel- opment impact for Iraq. The economy is currently heavily dependent on the oil and gas extractive sectors and the government is making efforts to diversify, including through attracting foreign direct investment into other sectors. This South-South investment can provide an 50 | MIGA ANNUAL REPORT 2011 Guarantees Sub-Saharan Africa MIGA Developing Member Countries Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Congo (Democr atic Republic of) Congo (Republic of) Côte d’Ivoire Equator ial Guinea Er itrea Ethiopia Gabon Gambia (The) Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritania Mauritius Mozambique Namibia Nigeria Rwanda Senegal Seychelles Sierra Leone South Africa Sudan Swaziland Tanzania Togo Uganda Zambia Zimbabwe MIGA ANNUAL REPORT 2011 | 51 Having declined to 2 percent in 2009, the GDP growth funds, the risk weighting for mandatory reserves held at rate of sub-Saharan Africa rebounded in 2010 to an the central bank can be reduced. A lower risk weighting estimated 4.8 percent and is projected to accelerate to 5.1 will allow PCH to free up equity currently tied up for CAR percent in 2011 and 5.7 percent in 2012. The main drivers maintenance purposes, thereby allowing these funds have been the recovery of the global economy, supported to be injected into its subsidiary banks. This in turn by growth in domestic demand, oil price increases for will allow PCH’s emerging market subsidiary banks to the oil-exporting countries, and public expenditures to increase their lending activities. improve infrastructure in selected countries. MIGA’s support will help PCH optimize its capital man- Net private and official flows rebounded in 2010 by 13 agement across its 21 banks, allowing PCH to direct percent to an estimated $51.1 billion. Net FDI inflows equity to subsidiaries with the greatest need. These banks declined in 2010 by 21 percent to an estimated $23.8 will be able to offer additional financial services to very billion, but they are projected to increase during 2011 and small, small, and medium enterprises at a time of macro- 2012 and reach $35.2 billion in the latter. economic challenges. Supporting productive small busi- nesses will help stimulate growth, generate employment, MIGA provided guarantees for 15 projects in the region. and reduce poverty. At year-end, MIGA’s gross guarantee exposure stood at $1.1 billion, equivalent to 12 percent of the agency’s out- MIGA’s support for this project is aligned with the standing portfolio. World Bank Group’s microfinance strategy that includes improving the supply of microfinance in large, but under- served markets; enhancing deposit capacity by assisting microfinance institutions in savings mobilization; Democratic Republic of Congo capacity building; creating and shaping markets; and fos- tering innovation. Project name: ProCredit group Central Bank Mandatory Reserves Coverage Guarantee holder: ProCredit Holding Republic of Congo On December 22, 2010, MIGA issued a guarantee of Project name: Cotecna Inspection Congo S.A.R.L. $5 million to ProCredit Holding (PCH) covering its investment in its subsidiary in the Democratic Republic Guarantee holder: Cotecna Inspection S.A. of Congo. The coverage is for a period of up to 10 years against the risk of expropriation of funds for mandatory On June 30, 2011, MIGA issued a guarantee of $5.6 reserves held by the subsidiary in the central bank of its million covering an investment by Cotecna Inspection jurisdiction. S.A. of Switzerland, as sole shareholder, in Cotecna Inspection Congo S.A.R.L located in the Republic of This project is part of a master contract that MIGA Congo. The coverage is for a period of three years against has issued. PCH is headquartered in Germany and is the risks of transfer restriction, expropriation, war and the parent company of 21 banks (ProCredit group). civil disturbance, and breach of contract. The ProCredit group is a provider of finance to some 750,000 very small, small, and medium enterprises The project involves the provision of import verification in Latin America, Eastern and Central Europe, and services to importers on behalf of the government of Africa. Throughout the world, banks are required to Congo under a build, operate, and transfer concession maintain mandatory reserves with the central banks between Cotecna Inspection S.A. and the government. of their respective jurisdictions. The ProCredit group’s The service contract involves the supply, installation, capital adequacy ratio (CAR) is calculated according and operation of an X-ray scanner and Cotecna’s to the German Banking Act. Under this act, at a con- Computerized Risk Management System, as well as the solidated level, reserves deposited at the various central overall management of the import verification system for banks can attract a risk weighting of 100 or even 150 goods entering Congo through the port of Pointe Noire. percent, depending on the country. This risk weighting determines the amount of equity required to maintain a The project will contribute to trade facilitation, as well specified CAR in accordance with the German as the development of the private sector, by speeding Banking Act. up the customs clearance of goods needed by the industrial and service sectors in Congo. In addition, it The guarantee issued by MIGA will help PCH obtain will help the government secure revenues through the capital relief from the CAR requirements. By obtaining elimination of opportunities for fraud and fiscal evasion MIGA’s insurance against the risk of expropriation of due to the transparent audit trail provided by scanning 52 | MIGA ANNUAL REPORT 2011 data. Security at the port will also be strengthened by Kenya ensuring that containerized goods are not illegal. Project name: Resolution Health East Africa This project is aligned with MIGA’s strategic priorities Limited of supporting investments into countries eligible for assistance from the International Development Guarantee holder: ADC Financial Services and Association as well as countries affected by conflict. It Corporate Development is also the first MIGA-supported project in Republic of Congo. On June 8, 2011, MIGA issued a guarantee covering an equity investment by ADC Financial Services and Corporate Development (ADC) of Mauritius in Resolution Health East Africa Limited (RHEAL) in Ethiopia Kenya. MIGA’s coverage of $2.0 million is for a period of up to 10 years against the risks of transfer restriction, Project name: National Cement Share Company expropriation, and war and civil disturbance. Guarantee holder: SGI Ethiopia Cement Limited ADC is planning to take a 39.4 percent equity stake in RHEAL, an existing Kenyan Health Insurance Provider. On June 30, 2011, MIGA issued a guarantee covering an ADC’s investment is aimed at improving the per- equity investment by Schulze Global Investments (SGI) formance of the company through the introduction of into the National Cement Share Company of Ethiopia. new sales techniques and products; international best The project is being implemented by SGI Ethiopia practice in processing and management; improved Cement Limited, an intermediary company incorporated procurement and supplier management; and improved in the British Virgin Islands. MIGA’s guarantee of $4 financial controls and corporate governance. The million provides coverage for a period of up to 15 years medical insurance sector in Kenya and other East against the risks of transfer restriction, expropriation, and African economies offers attractive growth opportu- war and civil disturbance. nities. ADC’s investment will help RHEAL achieve its growth objectives in the region. SGI has invested into National Cement Share Company (NCSC) for a minority equity stake in the company. NCSC ADC’s investment in RHEAL will allow the company to currently operates a 500 ton-per-day (tpd) clinker plant in expand its delivery of medical insurance both in Kenya Dire Dawa. NCSC recently began construction of a new and Tanzania, as well as other East African countries 3,000 tpd clinker plant. The new plant is also located in in the future. RHEAL structures medical insurance Dire Dawa, near the existing plant. In order to accelerate packages that offer insurance for pre-existing conditions the construction of the new plant, NCSC engaged SGI for such as HIV/AIDS. Additionally, RHEAL offers access to a round of equity financing. quality healthcare through offering affordable medical insurance. The expansion of the plant is expected to result in addi- tional significant tax revenue to the government and This project is aligned with the World Bank Group’s the creation of up to 600 new local jobs directly, and Country Partnership Strategy for Kenya. The Bank Group potentially an additional 2,500 indirect jobs. It will also has committed to working together to increase access to provide an increased supply of domestic cement to meet financial services, further regulatory reform, and develop the growing demand in Ethiopia—reducing the country’s capital and local securities markets, with a goal of sup- reliance on expensive imports and reducing the drain on porting key economic and social development needs, foreign exchange reserves. including infrastructure and housing development, and investments for pension and insurance funds. The MIGA’s support for this investment is consistent with the project is also aligned with MIGA’s objective of sup- first pillar of the World Bank Group’s Country Assistance porting investments into countries eligible for conces- Strategy for Ethiopia for 2008-2011, which focuses on fos- sional lending from the International Development tering economic growth in order to sustain the emerging Association. The project was underwritten through economic “take-off�. The project is also aligned with MIGA’s Small Investment Program. MIGA’s commitment to supporting more investments in IDA-eligible (the world’s poorest) countries. MIGA ANNUAL REPORT 2011 | 53 Liberia Mozambique Project name: Buchanan Renewables Fuel Inc. Project name: ProCredit group Central Bank Mandatory Reserves Coverage Guarantee holder: Vattenfall AB Guarantee holder: ProCredit Holding On December 28, 2010, MIGA issued guarantees totaling $142.2 million to Vattenfall AB of Sweden covering its On December 22, 2010, MIGA issued a guarantee of investment in Buchanan Renewables Fuel Inc. in Liberia. $2.5 million to ProCredit Holding (PCH) covering its The guarantees are for a period of 15 years and provide investment in its subsidiary in Mozambique. The coverage coverage against the risks of expropriation and war and is for a period of up to 10 years against the risk of expro- civil disturbance. priation of funds for mandatory reserves held by the sub- sidiary in the central bank of its jurisdiction. Buchanan Renewables Fuel Inc. (BRF) is a Liberian biomass cultivator that collects and processes non- This project is part of a master contract that MIGA has productive rubber trees for export to Vattenfall’s power issued. Please refer to project description for “Democratic plants in Europe. Vattenfall’s investment will result in an Republic of Congo� above. expansion of the current operation from 500,000 tons of biomass per annum to 2 million tons. Vattenfall’s investment will bring experience and tech- Mozambique nology to Liberia’s most important industry. The rubber industry employs over 40,000 Liberians directly, plus Project name: Sojitz Maputo Cellulose Limitada an additional 5,000 in related industries. Rubber sales currently constitute 90 percent of the country’s export Guarantee holder: Sojitz Corporation revenues. As a labor-intensive industry in which Liberia has proven its global competitiveness, rubber is Liberia’s On April 14, 2011, MIGA issued a guarantee covering best available option for generating wide-scale sustainable an investment by Sojitz Corporation of Japan in Sojitz employment and poverty alleviation. Maputo Cellulose Limitada in Mozambique (SOMACEL). Two additional guarantees were issued on June 15, 2011. Vattenfall’s investment will help develop a sustainable The total coverage is for $9.1 million for a period of up biomass source from unproductive trees (an agricultural to 10 years against the risks of transfer restriction, expro- waste product), as well as help Liberia rehabilitate its priation, and war and civil disturbance. rubber industry. Even though rubber plantations con- tinued to operate during the war, there was limited The project consists of the development of a greenfield replanting and the inventory is old. An estimated 60-75 wood-chipping operation. The facility will be located on percent of rubber trees have been slaughter-tapped and/ the territory of the Maputo port and the raw material will or left to ruin during 15 years of civil conflict. This backlog be sourced from eucalyptus plantations in the northeast amounts to nearly 60 million tons of biomass that can region of South Africa and from the Northern region of be harvested and exported. This project will help farmers Swaziland. SOMACEL is expected to process and export by removing unproductive trees that provide no income wood chips. The output will be sold to a paper manu- and accelerate the farm-rejuvenation cycle. It also turns facturer in Japan. a liability into an asset for the farmers because they are compensated for the biomass. The project is expected to generate local jobs and annual tax revenues for the government of Mozambique. This MIGA’s guarantee is aligned with the World Bank Group’s project is aligned with the third pillar of Mozambique’s strategy of improving Liberia’s agriculture and natural development strategy, which includes job creation and resources management in ways that generate pro-poor integrating the country into the international economy. growth. It is also aligned with MIGA’s commitment to supporting investments in the world’s poorest countries, The project is also aligned with MIGA’s operational as well as countries affected by conflict. priority to support investments into countries eligible for concessional lending from the International Development Association. The project was underwritten through MIGA’s Small Investment Program. 54 | MIGA ANNUAL REPORT 2011 Rwanda stored in Lake Kivu will offer the small, highly populated, and land-locked country with a secure, domestic, cheap, Project name: KivuWatt Ltd. and renewable source of power supply. The project is being developed in conjunction with a $400 million ini- Guarantee holder: KivuWatt Holdings tiative (supported by Rwanda and international donors) to simultaneously expand and overhaul Rwanda’s power On May 4, 2011, MIGA issued a guarantee of $28.6 transmission and distribution network. million to KivuWatt Holdings of Mauritius for its equity investment in KivuWatt Ltd. in Rwanda. The coverage is One of the main objectives of the World Bank’s Country for a period of up to 20 years against the risks of expro- Assistance Strategy for Rwanda for 2009-2012 is to priation, transfer restriction, war and civil disturbance, and improve access to and quality of key infrastructure breach of contract. services. The project is fully consistent with this objective and is also aligned with MIGA’s strategic priority of sup- The investment is for the construction and operation of porting investments into IDA-eligible (the world’s poorest) a 25 megawatt power-generation facility using methane countries and investments in complex infrastructure gas extracted from Lake Kivu. The entire project (Phase projects. 1 and Phase 2) involves extraction and separation of methane gas from the bottom of Lake Kivu and up to 100 megawatts of power-generation capacity to be implemented in two phases. The Phase 1 Pilot Project Sierra Leone will involve gas extraction using a floating barge located approximately 13 kilometers offshore from the city of Project name: Afrigas (SL) Limited Kibuye. The extracted gas will be further processed and pumped to the shore for use in a power plant via sub- Guarantee holder: Geogas Trading S.A. merged floating pipeline. Power will be produced by methane powered reciprocating engine generator sets On September 17, 2010, MIGA issued guarantees with combined capacity of 25 megawatts, net output. totaling $3.6 million to Geogas Trading S.A. of Based on successful implementation of Phase 1, Phase 2 Switzerland covering its investment in a liquefied will comprise three additional gas extraction barges and petroleum gas (LPG) storage and distribution project three more power production blocks with 75 megawatt in Sierra Leone. The coverage is for a period five years capacity resulting in 100 megawatts of overall power gen- against the risks of transfer restriction, expropriation, eration. and war and civil disturbance. The output will be sold to the Rwandan state-owned The aim of the project is to introduce permanent LPG utility, Rwanda Electricity Corporation (RECO), formerly bulk storage facilities to supply the local market with known as Electrogaz. Phase 1 output will be connected to LPG. The LPG would be used primarily for cooking, the national grid via a new dedicated 11 kV transmission but could also be used for industrial practices such as line installed by RECO. Phase 2 will be connected to the welding and cooling. In addition to constructing the existing 220 kV transmission system via two new trans- storage facilities, the project will establish four filling formers to be installed by RECO. stations for five-kilogram LPG gas bottles. Over the last decade, Rwanda’s economy has nearly The project will establish the first permanent LPG doubled in size, growing at an average rate of 7 percent storage facility in Sierra Leone and is expected to result per year. Nevertheless, the country’s electricity infra- in a price reduction of 60 percent for LPG. LPG offers structure (the generation, transmission, and distribution several advantages over traditional biomass fuels, such network) has failed to develop in pace with the broader as wood and charcoal, including the reduction of defor- economy. Rwanda’s total installed power generation estation and fewer respiratory illnesses resulting from capacity is 55 megawatts and only 6 percent of the popu- indoor pollution. It can also improve productivity, partic- lation is serviced by the national power grid. To keep up ularly for women, by reducing the amount of time spent with demand, expensive diesel power generators have gathering firewood. LPG can also be used in microen- been rented and brought online, raising the power tariff terprises such as food preparation and processing and per kilowatt hour to twenty-one cents, one of the highest metal works. in Africa. MIGA’s support for this investment is aligned with the The project’s primary development impact will be the World Bank Group’s Country Partnership Strategy for generation of additional electricity capacity produced at a Sierra Leone, particularly with regard to supporting the significantly lower cost than alternatives currently in the development of a competitive private sector. local market. Tapping the considerable methane reserves MIGA ANNUAL REPORT 2011 | 55 MIGA’s participation in the project is also aligned South Africa with key agency priorities, which include encouraging investment in post-conflict and IDA-eligible countries. Project name: Austin Scott Farms The guarantees were underwritten through MIGA’s Small Investment Program. Guarantee holder: Tulbagh Holdings LLC On December 16, 2010, MIGA issued guarantees totaling $5 million to Tulbagh Holdings LLC of the United States South Africa for their investment in Austin Scott Farms winery in South Africa. The coverage is for a period of seven years against Project name: Bon View Trading 92 (Proprietary) the risks of transfer restriction, expropriation, and war and Limited civil disturbance. Guarantee holder: MKV Holdings, LLC The project consists of the acquisition of Austin Scott Farms situated on the southwestern flank of Tulbagh On May 27, 2011, MIGA issued guarantees totaling $10 Mountain. The acquisition includes land (184 hectares), million covering an equity investment and shareholder buildings, equipment, existing crops and stock, bottling loan from MKV Holdings, LLC of Mauritius to Bon View plants, intellectual property, water rights, and all Trading 92 (Proprietary) Limited in South Africa. Bon View other assets or rights required for continued business intends to engage in the manufacturing and export of operation. The investor intends to improve the quality wine and related products through the acquisition of the of wines through investment and incorporating industry assets of an existing winery. The coverage is for a period best practices into the vineyards, winemaking process, of up to 10 years against the risks of transfer restriction, and structures. Wine production is expected to increase expropriation, and war and civil disturbance. from 4,700 cases of premium wines for the 2011 vintage to approximately 13,500 cases in 2015, and 18,700 cases The project involves an investment in MKV’s wholly in 2017. owned subsidiary, Bon View, for the purposes of acquiring the assets of the Mulderbosch winery, which consists Tulbagh town’s main economic sectors consist of of inventory, winemaking equipment, brand, and the agriculture (vineyards and soft fruit), tourism, and Kanu winery building and farms located in Stellenbosch, services. It has experienced significant diversification of Western Cape. The sponsors intend to invest in wine- its economy with the emergence of a number of new making equipment to upgrade the existing winery and small, medium, and micro businesses—particularly in employ more rigorous viticulture. the personal services, financial, and business sectors. Notwithstanding this economic growth there remains a The Stellenbosch region’s main economic sectors great deal of unemployment, especially within the lower- comprise agriculture (vineyards and soft fruit), tourism, income groups in the greater region. The project will have and the services industry. Despite continuing economic a significant socioeconomic benefit to Tulbagh and the growth, there remains a great deal of unemployment, surrounding communities by creating jobs (temporary in especially within the lower income groups in the the construction phase and permanent in the operational Stellenbosch/Somerset West region. The project will have phase) in various sectors, investing in staff training, and a significant socioeconomic benefit to the area through generating taxes for the Tulbagh Municipality. Workers will the creation of temporary jobs during the construction also be trained with the industry’s current standards and phase and permanent jobs in the operational phase. Staff best practices to promote and build upon their skills. The will receive specialized training to build on their existing investors intend to adhere to the principles underlying the skills. The project will generate rates and taxes for the Broad-Based Black Economic Empowerment Act of 2004. Stellenbosch Municipality, and will contribute to increased tourism in the area. MIGA’s support for the project is aligned with the World Bank Group’s Country Partnership Strategy for South MIGA’s support for the project is aligned with the World Africa, which calls for the use of MIGA instruments Bank Group’s Country Partnership Strategy for South to support small and medium-scale enterprises and Africa, which calls for the use of MIGA instruments to increase developmentally sound foreign direct investment. support small and medium-scale enterprises and increase The project was underwritten through MIGA’s Small foreign direct investment. The project was underwritten Investment Program. through MIGA’s Small Investment Program. 56 | MIGA ANNUAL REPORT 2011 Togo cocoa-producing regions. These facilities will source organically grown green cocoa beans directly from local Project name: Cotecna Inspection S.A., Bureau de farmers. Icam Uganda will use a bean-drying and fermen- Liaison du Togo tation process what will dry the beans faster and more thoroughly to meet the stringent standards of Icam Italy. Guarantee holder: Cotecna Inspection S.A. This process reduces the risk of mold and fungi, and pre- serves the cocoa’s desirable taste and aroma. The project On June 30, 2011, MIGA issued a guarantee of $4.6 intends to source a combined 3,900 tons of dry cocoa million covering an investment by Cotecna Inspection from the three facilities by the fifth year of operation. S.A. of Switzerland in Cotecna Inspection S.A., Bureau de Liaison du Togo (COINS-Togo). The coverage is for a Technical assistance will be provided by agronomists to period of five years against the risks of transfer restriction, support local farmers in improving farming practices, expropriation, war and civil disturbance, and breach of which could increase productivity by up to 100 percent. contract. Furthermore, by sourcing the cocoa beans before they have been dried and fermented by the farmers, the project COINS-Togo is providing import verification services on will substantially reduce harvest failure due to bad weather behalf of the government of Togo under a build, operate, (heavy rains) during the drying and fermenting process. and transfer concession between Cotecna Inspection S.A. and the government of Togo. The service contract involves The project is expected to help boost and diversify the supply, installation, and operation of an x-ray scanner Uganda’s agricultural exports. Although the cacao plant and GPS-based container tracking equipment, as well as was introduced to the country in the early 1900s, it has the management of the import verification system for never become a major export crop like coffee. Uganda is goods entering Togo through the Port of Lomé. specifically encouraging cocoa-growing as part of a plan to diversify its exports. The project will improve Togo’s position as a trading partner by introducing greater transparency and effi- Growing cocoa beans also offers small-scale farmers in ciency into the Port of Lomé’s operations. This will help Uganda and other tropical countries a livelihood from Togo realize the benefits of a deepwater port that can a product that has strong foreign demand and local serve neighboring land-locked countries. The transparent environmental benefits, according to researchers at audit trail provided by scanning data will also help the the International Food Policy Research Institute. Cacao government secure revenues through the elimination of bushes can grow alongside food crops on small parcels opportunities for fraud and fiscal evasion. Security at the of land and on poor soils, which makes production more port will also be enhanced by ensuring that containerized feasible for small farms and women growers. goods are not illegal. This project is consistent with the World Bank Group’s This project is aligned with MIGA’s strategic priorities Country Assistance Strategy for Uganda, which includes of supporting investments into countries eligible increased productivity and commercialization of agri- for assistance from the International Development culture as an outcome. The project was underwritten Association as well as countries affected by conflict. through MIGA’s Small Investment Program. Uganda Zambia Project name: Icam Chocolate Uganda Limited Project name: Chobe Agrivision Company Limited Guarantee holders: Icam SpA; Giovanni Aletti Guarantee holder: Chayton Atlas Investments On January 14, 2011, MIGA issued guarantees supporting On June 30, 2011, MIGA issued a guarantee of $5.2 investments by Icam SpA and Giovanni Aletti of Italy in million to Chayton Atlas Investments of Mauritius for its Icam Chocolate Uganda Limited. The guarantees total equity in Chobe Agrivision Company Limited in Zambia. $2.1 million and provide coverage for a period of up to The coverage is for a period of up to 10 years against the six years against the risks of transfer restriction, expro- risks of transfer restriction, expropriation, war and civil priation, and war and civil disturbance. disturbance, and breach of contract. The project consists of the establishment of a new The project involves the acquisition of two adjacent company, Icam Chocolate Uganda Limited, that will set farms in the Mkushi farm block in the Central Province of up collection, storage, and processing facilities in three Zambia. These are commercial farms currently cultivating MIGA ANNUAL REPORT 2011 | 57 maize, wheat, and soya. The investor plans to increase The project involves the construction and operation of a the amount of land under irrigation from 210 to 580 remanufacturing plant in Lusaka, Zambia. The facility will hectares through increased capital expenditure. The farms recondition used parts and components from heavy-duty are located in an area that has abundant renewable water earth-moving machinery, primarily in the mining sector, resources for irrigation development and a climate that to provide a more cost-effective maintenance solution supports two crops per year with irrigation. A “contract to serve clients within Zambia as well as in adjacent farming� business was acquired in addition to the two countries. farms. The contract farming operation provides machinery and equipment services to the two farms as well as third The project’s expected developmental impacts include job party farms. creation, state-of-the-art technology transfer, and technical skills transfer through structured training programs. In The agricultural sector has been identified by the Zambian addition, the project’s focus on the reconditioning of old government and by the World Bank (in its Country parts will reduce the demand for scarce resources that Partnership Strategy) as a key area where there is potential are used to manufacture new complex machinery and to contribute to development and economic growth. equipment. Chayton estimates that only 1.1 percent of the country’s potential fertile Guinea Savannah agricultural area is MIGA’s support for the project is aligned with the World cropped. Moreover, the introduction of highly efficient Bank Group’s Country Partnership Strategy, which calls agricultural practices (for instance, crop rotation and zero for improving competitiveness in order to accelerate tillage), soil and water management, and certain techno- economic growth. The project addresses this goal through logical improvements will result in increased productivity its expected technology and skills transfer. MIGA’s partici- and sustainable crop-yield enhancement. The introduction pation in the project is also aligned with key agency pri- of new technologies and methods also offers the chance orities, which include supporting South-South investment for substantial demonstration effects for local farmers. and investment into IDA-eligible countries. The proposed project will also contribute to increased food security within Zambia and the broader Southern African Development Community—the target market for consumption. The project is aligned with MIGA’s strategic priorities of supporting investments into countries eligible for assistance from the International Development Association. Zambia Project name: Hitachi Construction Machinery Zambia Co. Ltd. Guarantee holders: Hitachi Construction Machinery Africa Pty. Ltd; Hitachi Construction Machinery Southern Africa Co., Ltd. On March 31, 2011, MIGA issued guarantees totaling $13.5 million to Hitachi Construction Machinery Africa Pty. Ltd. and Hitachi Construction Machinery Southern Africa Co., Ltd. of South Africa. The coverage is for a period of up to 20 years against the risks of transfer restriction, expro- priation, and war and civil disturbance. 58 | MIGA ANNUAL REPORT 2011 MIGA ANNUAL REPORT 2011 | 59 Research and Knowledge Knowledge generation and dissemination are key to MIGA’s mandate to support foreign direct investment (FDI) into emerging markets. They underscore our position as a thought leader and source of pertinent information for the political risk insurance (PRI) community. 60 | MIGA ANNUAL REPORT 2011 World Investment and Political Risk 2010 fragility. This analysis permitted a more detailed under- Highlights how Political Risk Perception Affects standing of the differences and similarities of investment Investment into Conflict-affected Economies decisions in both environments. This year MIGA’s flagship report World Investment and The report found that corporate investors are most con- Political Risk again looked at general trends in the global cerned about political risk when asked to choose among a economy and FDI, corporate perceptions of political variety of constraints to foreign investments in emerging risk and risk-mitigation strategies, as well as the latest markets over the next three years (see figure 1). developments in the PRI industry’s public and private investment insurance providers. This year’s report also Investors also remain preoccupied by the global focused on political risk perceptions and management in downturn and pace of recovery for the immediate future. conflict-affected and fragile economies. The report sought Government intervention (including breaching contractual to juxtapose investment trends, risk perceptions, and risk- obligations to private firms) continues to be the political mitigation tools in these countries with the same trends risk of greatest concern (see figure 2). and perceptions in countries not experiencing conflict or World Investment and Political Risk 2010 also found that foreign investors in developing countries use a wide range of techniques to mitigate and manage political perils, Figure 1 mostly informal or non-contractual in nature. PRI remains Ranking of the most important constraints a niche product used by a minority of foreign investors. for FDI in developing countries Percent of respondents With respect to conflict-affected and fragile economies, political risk perceptions are pervasive, but World Investment and Political Risk 2010 noted that, even in these destinations, foreign investors are more concerned about risks arising from government interventions than those from political violence. Adverse changes in Other regulations rank as the top political risk facing foreign investors in conflict-affected and fragile economies as Lack of information on the shown in figure 2, and this is also the risk most frequently country's business environment responsible for losses. A statistical analysis of investment Lack of financing for trends over time revealed that investors from different investments in these countries industries can have different levels of risk tolerance in Lack of investment relation to the presence of conflict in a host country. opportunities Only a handful of conflict-affected and fragile economies Limited size of the market account for the majority of outstanding PRI cover by the members of the Berne Union. These are mostly countries Poor infrastructure with large extractive industries. The report underlined that, while some public insurers are restricted from doing Lack of qualified staff business there by these economies’ risk ratings, a number of private insurers have been active in selected desti- Macroeconomic instability nations, mainly in energy and the extractive sectors. At the same time, because of their ownership structures and Weak government mandates, multilateral PRI providers such as MIGA are institutions well-placed to provide coverage to investors in conflict- Political risk affected and fragile economies. The findings of the report were widely shared through 0 5 10 15 20 25 panel discussion events, first in London and followed by regional events in Johannesburg, Vienna, Washington, Next 12 months and Singapore, that brought together a broad range of views and provided for rich and topical debate. The report Next 3 years was also disseminated through other presentations, media coverage, and feature stories on MIGA’s website, www.miga.org. Source: MIGA-EIU Political Risk Survey 2010 MIGA ANNUAL REPORT 2011 | 61 New Research Agenda Tackles Topics to PRI coverage, as well as political economy issues that of Interest for MIGA’s Business are associated with political risk triggers. In this fiscal year, MIGA embarked on a number of ini- MIGA Refocuses Web Presence tiatives to support the agency’s research and knowledge on Political Risk Issues agenda. Specifically, topics addressed include a new framework for analyzing the causes of expropriation; the This fiscal year, MIGA decided to warehouse FDI.net—its relationship between sovereign defaults and restrictions investor-focused web portal for disseminating and pro- on transfer and convertibility; and political risk as it relates moting investment opportunities and information about to state-owned enterprises. These research topics will be business conditions in developing countries—and to used as inputs in MIGA’s World Investment and Political redeploy its resources to research on political risk issues. Risk 2011 report, in addition to being disseminated We will continue to maintain and update PRI Center through MIGA’s websites and other channels. (www.pri-center.com), our online information service dis- seminating knowledge on the political risk environment, MIGA has formed partnerships with outside academic risk-management issues, as well as PRI industry news and institutions, such as the Paris School of Economics and events. PRI Center will also serve as a forum for discussion Washington University in St. Louis, to analyze probable of emerging original research produced by MIGA. We causes of expropriation as well as the impact of political will also continue to extend our reach through MIGA’s bi- institutions on governmental decision-making with monthly newsletter, the PRI Briefing. regards to private investors. This allows MIGA’s research agenda to cover both operational aspects directly related We also focused heavily on using social media to engage audiences interested in FDI and political risk. MIGA’s blog “Political Risk and Emerging Markets� has generated a very high readership and offers a platform for MIGA Figure 2 staff to share views on topical issues such as the political Political risks of most concern to foreign dynamic in the Middle East and North Africa, growth in investors sub-Saharan Africa, and carbon credits. MIGA also dis- seminates information through Twitter and YouTube. These platforms are helping us reach new audiences and raise Regulatory changes our profile in the investor and academic communities. We also began revamping our website, www.miga.org, Civil disturbance this fiscal year. This will allow clients to conduct business with us in a more user-friendly manner. In addition, all Non-honoring of MIGA stakeholders will have improved access to project sovereign guarantees information, news, features, publications, policies and pro- Transfer and cedures, as well as MIGA’s social media platforms. convertibility restrictions Expropriation Breach of contract War Terrorism 0 10 20 30 40 50 60 70 Investors in CAF countries Investors in developing countries Source: MIGA-EIU Political Risk Survey 2010 and MIGA-EIU CAF Investors Survey Note: Percentages add up to more than 100 because of multiple selections 62 | MIGA ANNUAL REPORT 2011 box 3 MIGA’s Online Presence www.miga.org www.pri-center.com MIGA’s corporate website is home to the latest news and PRI-Center provides political risk-management infor- information about our business, from press releases and mation and offers various services. At www.pri-center.com project information to our policies and publications. At you will find: www.miga.org you will find: r In-depth analysis on the political risk environment r Information on how to apply for a MIGA guarantee and management issues affecting 160 countries, and an online application form including risk ratings and country analyses r Projects being considered for MIGA’s support r E-mail alerts on political risk information customized (Summary of Proposed Guarantees) and related envi- by country, sector, and topic of interest ronmental and social impact assessments r A monthly e-newsletter providing an overview of the r A database of all projects supported by MIGA; users latest developments in risk mitigation strategies, may search by region, host country, investor country, trends in the PRI industry, news, events, and part- sector, and project status nerships r News, feature stories, annual reports, sector briefs, case studies, and more r MIGA policies and procedures on environmental and social safeguards, disclosure, and anti-corruption r MIGA’s social media channels, including blogs and videos on YouTube r Current job vacancies r Google search technology and sign-up for automatic RSS feeds MIGA ANNUAL REPORT 2011 | 63 Technical Assistance MIGA contributes financial support to the multi- donor Investment Climate Advisory Services (IC) of the World Bank Group, which fosters competitive markets, growth, and job creation by helping governments design and implement reforms to their business environment. 64 | MIGA ANNUAL REPORT 2011 In the first half of fiscal year 2011, IC supported econ- IC is also drawing on a range of experience in national omy-wide results1 in client countries across the globe. reforms to address binding constraints and market Sixty-seven percent of IC’s fiscal year 2011 advisory failures in a bid to encourage sustainable investments portfolio supported reforms in IDA countries and 30 in key strategic industries such as agribusiness. For percent were in fragile and conflict-affected countries. IC example, Ukraine’s agricultural export potential and helped level the playing field by advising governments on ability to play a global role in food security prompted reducing barriers to business entry, expansion, and exit. IC to join forces with IFC’s Ukraine Advisory Services to It also facilitated international trade and investment by address regulatory and policy constraints to the sector’s identifying constraints and supporting improvements in development. As a result, the government abolished policies, laws, and regulations that influence domestic mandatory state certification of food products, with and foreign firms’ business decisions. the exception of tobacco, alcohol, and baby food. The mandatory certification represented the single most Building the government’s investment promotion capacity burdensome requirement for food processors, which through the Bangladesh Investment Climate Fund, IC were already subject to regular food safety controls. Its facilitated $203 million of foreign direct investment (FDI) abolition has enabled the government to open up new and 17,000 new jobs to export-processing zones in the export opportunities for Ukrainian agricultural producers country. This has increased labor compliance in zone through greater harmonization of national food safety companies to more than 90 percent. In the Dhaka export- legislation with European Union standards and regu- processing zone where the number of grievances dropped lations. from 2,400 in 2006 to 400 in 2009, the program is also facilitating a water treatment plant that is expected to IC also helps countries foster “green� development by increase the amount of properly treated industrial water setting standards and attracting much-needed private from zero to 15,000 cubic meters by August 2011. investment into low carbon, more resource-efficient economic activities. IC is assisting Indonesia’s Jakarta In Yemen, for example, IC assistance facilitated the Province as it develops a green building code in line passage of a new income tax law that reduced the with national standards, and in consultation with private general tax rate from 35 to 20 percent and created a sim- sector stakeholders. The implementation of a “green� plified filing process for micro, small and medium-sized building code in Indonesia has very significant carbon corporate taxpayers. These moves encouraged partici- reduction potential. pation in the formal economy and increased tax revenues by expanding reporting compliance. The project suc- In fiscal year 2011, IC responded to increased demand cessfully streamlined six procedures to reduce corruption and devoted considerable resources to IDA countries in and will result in an estimated $3.1 million in direct cost sub-Saharan Africa. An independent external evaluation savings over the next three years. found that programs in Burkina Faso, Liberia, Sierra Leone, and Rwanda helped ease regulatory burdens that Brazil is attracting investment into its frontier states enabled the registration of 23,000 new firms and led through a fully client-funded IC project that has linked up to the creation of additional private sector investment the country’s national and state investment promotion ranging between $75 to $90 million and 51,500 jobs. agencies. Investors have announced plans for eight With IC support, 16 West African countries are moving to projects in the states of Pernambuco and Para following increase access to credit and reduce hurdles to business IC assistance. The team also assisted Apex-Brasil, the startup. In fact, for the first time since it was created national agency, in developing investor-friendly strategies, in 1993, the Organization for the Harmonization of resulting in seven announced investments since IC Business Law in Africa has amended its laws on secured support began in May 2009. To date, it has recorded lending and commerce, creating a simplified legal regime about $100 million of new actual investment and 1,200 for small entrepreneurs. This will facilitate access to actual jobs, mostly in Pernambuco, but Para is also credit in its member states and encourage thousands of showing good potential. informal entrepreneurs to join the formal economy. 1 An IC result is defined as “a change implemented by a client with support from an IC-supported project that significantly improves the investment climate in a given country, region, or sector. These changes are tangible achievements brought about with IC assistance and for which there is wide technical and expert consensus regarding their relevance in including private sector-led development.� MIGA ANNUAL REPORT 2011 | 65 Independent Evaluation Group The Independent Evaluation Group (IEG) evaluates MIGA’s strategies, policies, and guarantee projects to improve MIGA’s development results. IEG is independent of MIGA management and reports its findings to MIGA’s Board of Directors. 66 | MIGA ANNUAL REPORT 2011 IEG’s mandate is to generate lessons learned from tional effectiveness. IEG also commented on MIGA’s MIGA’s operations and to ensure corporate account- overall performance in a Bank Group report—Results ability for results. In a rapidly changing business context, and Performance of the World Bank Group: IEG Annual IEG aims to strengthen MIGA’s operational performance Report 2010. Among other things, this report evaluated and inform its strategy and future directions. It provides the World Bank Group’s response to the global financial MIGA’s Board of Directors, management, and other crisis and explored select issues on institutional effec- stakeholders with relevant and timely evaluations tiveness. MIGA operations have also been highlighted assessing the adequacy and quality of MIGA’s strategy, in several other evaluations, including The World programs, policies, and projects, and makes recommen- Bank Group’s Response to the Global Economic Crisis; dations for their continuous improvement. Climate Change and the World Bank Group Phase II: The Challenge of Low-Carbon Development; Safeguards and IEG evaluations contribute to MIGA’s overall devel- Sustainability Policies in a Changing World; and Peru: opment and institutional effectiveness. For example, in its Country Program Evaluation for the World Bank Group, report on the World Bank Group guarantee instruments, 2003–09. IEG recommended that MIGA propose to its share- holders amendments to its Convention, expanding Development effectiveness is a core part of MIGA’s its mandate to include coverage for stand-alone debt, mission to promote foreign direct investment into existing assets, and brownfield investments. developing countries to support economic growth, reduce poverty, and improve people’s lives. MIGA’s IEG has supported MIGA’s self-evaluation of its guar- strength lies in attracting investors and private insurers anteed projects to strengthen institutional learning and into difficult operating environments, including conflict- the focus on development results. IEG’s role is to inde- affected environments. IEG seeks to help MIGA achieve pendently validate the results of MIGA’s self-evaluations its goal to support investments that are developmentally according to methods and guidelines jointly agreed to sound, meet high social and environmental standards, by IEG and MIGA. In fiscal year 2010, IEG received three and are integrated with the sector and thematic strategies pilot self-evaluations from MIGA for validation followed and programs of the entire World Bank Group. by five additional self evaluations in fiscal year 2011. Consistent with corporate transparency, IEG’s reports and IEG’s report, Achieving Value-Driven Volume—MIGA’s recommendations are publicly disclosed on IEG’s website Development Results and Institutional Effectiveness 2010, at ieg.worldbankgroup.org. provided an updated assessment of MIGA’s institu- MIGA ANNUAL REPORT 2011 | 67 Compliance Advisor/ Ombudsman The Compliance Advisor/Ombudsman (CAO) is the independent accountability mechanism for MIGA and IFC and reports directly to the President of the World Bank Group. The CAO responds to complaints from people affected by MIGA and IFC-supported business activities, with the goal of enhancing social and environ- mental outcomes on the ground and fostering greater public accountability of both agencies. 68 | MIGA ANNUAL REPORT 2011 The CAO has three roles. CAO’s dispute resolution a water privatization project in Ecuador that MIGA guar- arm works to identify the causes of conflict and helps anteed in 2001 was closed following a final meeting of stakeholders resolve concerns using a flexible, problem- the stakeholders in December 2010. After the complaint solving approach. CAO’s compliance arm oversees was filed by residents in the city of Guayaquil in 2008, investigations of MIGA’s/IFC’s social and environmental the CAO worked with MIGA’s client, water users’ asso- performance to ensure compliance with applicable ciations, and affected parties to create agreements for policies, guidelines, procedures, and systems. In its debt reduction to help the poorest customers get the advisory role, the CAO provides independent advice to water they need. The company used lessons learned the World Bank Group President and management of from a collaborative review of water users’ concerns to MIGA and IFC in relation to policies, systemic environ- strengthen its grievance processes to enable individuals mental and social issues, and emerging trends. to resolve water service issues on a sustained basis. In July 2010, the CAO accepted a complaint related to a Visit www.cao-ombudsman.org for more information MIGA-supported nickel mining project in Indonesia (see about the CAO’s activities. project brief on page 38). Another complaint concerning MIGA ANNUAL REPORT 2011 | 69 Management’s Discussion and Analysis (FY11) Financial Statements Management’s Discussion and Analysis (FY11) Overview Development Activities Summary of Business Segments Outlook and Challenges Funding Sources Capital Management Investment Management Critical Accounting Policies Results of Operations Corporate Governance 70 | MIGA ANNUAL REPORT 2011 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 Operations 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 MIGA ANNUAL REPORT 2011 | 71 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 175 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. This year, MIGA’s Council of Governors approved amendments to MIGA’s Convention. These amendments have expanded MIGA’s eligibility criteria, allowing the Agency to support a broader range of developmentally beneficial investments. In August 2010, MIGA launched a hub in Asia and started operations in Hong Kong SAR, China and Singapore. The hub is geared toward providing better and more efficient access for MIGA’s clients and other stakeholders in Asia. The regionally based team has developed a strong pipeline of viable business leads and underwriting has commenced on several projects. Since its inception, MIGA has issued $24.5 billion of guarantees (including amounts issued under the Cooperative Underwriting Program), in support of 651 projects in 104 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. Table 1 Cumulative Guarantees Issued in Member Countries FY11 FY10 FY09 FY08 FY07 Cumulative Guarantees Issued ($B)* 24.5 22.4 20.9 19.5 17.4 Host Countries 104 100 99 99 96 * Includes amounts from Cooperative Underwriting Program. 1 Smaller guarantees may be underwritten through MIGA’s Small Investment Program (SIP), but SIP coverage is limited to the risks of transfer restriction, expropriation, and war and civil disturbance. 72 | MIGA ANNUAL REPORT 2011 The total gross and net exposures at June 30, 2011 amounted to $9.1 billion and $5.2 billion compared to $7.7 billion and $4.3 billion respectively at the end of FY10. During FY11, MIGA supported 27 projects in the priority areas identified in the Agency’s business strategy. This includes guarantees issued for $421 million in support of 21 projects in IDA-eligible countries. In terms of exposure, IDA-eligible countries accounted for 27 percent of the total net portfolio as of June 30, 2011. Table 2 details the regional distribution of MIGA’s gross and net guarantee exposures over the past three years. The percentage of net exposure in the Europe and Central Asia region increased by 7.3 percent in FY11, as a result of supporting financial, infrastructure, and services sector clients in the region. Table 2 Regional Distribution of Gross and Net Exposure ($M) Gross Net % of Total Net Exposure FY11 FY10 FY09 FY11 FY10 FY09 FY11 FY10 FY09 Africa 1,102 1,103 939 886 888 752 16.9 20.7 19.0 Asia 1,296 706 754 759 505 541 14.5 11.7 13.6 Europe and Central Asia 5,432 4,419 3,802 2,844 2,021 1,658 54.3 47.0 41.8 Latin America and the Caribbean 1,006 1,130 1,256 569 638 711 10.8 14.9 17.9 Middle East and North Africa 416 494 677 246 310 369 4.7 7.2 9.3 Adjustment for Dual Country -130 -130 -130 -65 -65 -65 -1.2 -1.5 -1.6 and Master Agreements1 Total 9,122 7,723 7,297 5,239 4,296 3,966 100.0 100.0 100.0 Note: numbers may not add up due to rounding. 1 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. 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. Risks Covered by MIGA Guarantees box 1 MIGA provides PRI to eligible investors and r War and civil disturbance – the risk of damage to, or the lenders against the following non-commercial destruction or disappearance of, tangible covered assets caused risks: by politically motivated acts of war or civil disturbance in the host country, including revolution, insurrection, coups d’état, sabotage, and terrorism. r Transfer restriction and inconvertibility – the risk of inconvert- r Breach of contract – the risk of being unable to obtain or en- ibility of local currency into foreign exchange for transfer outside force an arbitral or judicial decision recognizing the breach the host country. Currency depreciation is not covered. of an obligation by the host government. r Expropriation – the risk of partial or total loss of the insured r Non-honoring of a sovereign financial obligation – the risk investment as a result of acts by the host government that may that a sovereign may fail to honor an unconditional financial reduce or eliminate ownership of, control over, or rights to the payment obligation or guarantee, where the underlying insured investment. 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. MIGA ANNUAL REPORT 2011 | 73 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 looked at general trends in the global economy and FDI, corporate perceptions of political risk and risk- mitigation strategies, as well as the latest developments in the PRI industry’s public and private investment insurance providers. This year’s report also focused on political risk perceptions and management in conflict-affected and fragile economies. Effective June 30, 2011, MIGA warehoused its online service “FDI.net� and redeployed its resources to research on political risk issues. In addition to producing World Investment and Political Risk, MIGA will continue to maintain and update the PRI Center (www.pri-center.com). 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 FY11, MIGA engaged with investors or governments in relation to projects located in Argentina, Guinea, Guinea-Bissau, Senegal, and Sierra Leone. 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 FY11 was characterized by gradual economic recovery led by the developing world. As credit constraints eased and FDI flows to developing countries began to recover, the demand for PRI products increased. In addition, events in the Middle East and North Africa contributed to a resurging awareness of political risk. MIGA’s guarantee holders continue to show a certain level of caution and risk aversion by maintaining their political risk coverage for existing projects at longer periods than in the years prior to the global financial crisis. Operational Priorities This year 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: r Investments in IDA countries, a key area of comparative advantage for MIGA. r Investments in conflict-affected countries, an area of increased engagement for the Agency over the past few years and where MIGA remains strongly relevant. r 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. r Support for investments between MIGA Category Two countries1 (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: r Support and complement World Bank Group strategies articulated for specific countries, as well as its strategic themes. r Be responsive to clients and the market through greater flexibility in service and product delivery across all markets. r 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, 2011, the initial authorized shares are 107,483, equivalent to $1,163.0 million, and authorized capital increase shares are 78,559, equivalent to $850 million. The total authorized shares are 186,042, 1 MIGA’s categorization for developing countries; see MIGA Member Countries list in the Appendices section of the Annual Report 74 | MIGA ANNUAL REPORT 2011 equivalent to $2,013 million subscribed by 175 member countries. Of the initial membership shares subscribed, 20 percent or $232.6 million had been paid-in and the remaining 80 percent or $930.4 million was subject to call when needed by MIGA to meet its obligations. At June 30, 2011, $115.1 million is in the form of non-negotiable, 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. As of June 30, 2011, cumulative subscriptions to the General Capital Increase (GCI) totaled 69,303 shares, equivalent to $749.8 million, and 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, 2011, MIGA’s total subscribed capital amounted to $1,912.8 million, of which $364.9 million was paid-in and $1,547.9 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, 2011 was $924 million compared with $875 million as of June 30, 2010. This amount consists of subscribed capital, less uncalled portions of subscriptions, plus retained earnings and accumulated other comprehensive income (loss). The increase of $49 million in FY11 primarily reflects increased retained earnings of $43 million and the decrease in accumulated other comprehensive loss of $6 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, 2011, MIGA’s underwriting capacity was $12,817 million, as follows: Table 3 Current Underwriting Capacity ($M) – June 30, 2011 Subscribed Capital 1,913 Retained Earnings 566 Accumulated Other Comprehensive Income (7) Insurance Portfolio Reserve (net) 175 Total 2,647 350% of Subscribed Capital, Retained Earnings, 9,265 Other Comprehensive Income and Reserve 90% of Reinsurance Ceded with Private Insurers 2,977 100% of Reinsurance Ceded with Public Insurers 575 Statutory Underwriting Capacity - June 30, 2011 12,817 As of June 30, 2011, MIGA’s gross exposure was $9,121.7 million and represented 71.2 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. Modeled economic capital (EC) is the portion of MIGA’s capital that is placed at risk by the guarantee portfolio exposure. It provides an analytically rigorous measure for assessing the Agency’s consumption of risk capital, and incorporates the effects from portfolio diversification and concentration. As of June 30, 2011, the economic capital consumed by the guarantee portfolio amounted to $374 million, compared to $323 million as of June 30, 2010. Through an annual exercise of gauging the capital adequacy position, the current amount of EC 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 EC 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 EC 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. MIGA ANNUAL REPORT 2011 | 75 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 a measure of the current utilization of this capital by the guarantee portfolio, Table 4 shows the ratio of EC to operating capital over the past three years. This ratio has increased to 34.0 percent in FY11 compared with 31.3 percent in FY10. Table 4 also shows the ratio of EC to portfolio net exposure, to gauge year-on-year changes to the relative risk-level of the portfolio. As of end-FY11, this ratio stood at 7.1, percent compared to 7.5 percent at end-FY10. Together, the two ratios indicate a strong and stable capital position at the end of FY11. Table 4 Capital Adequacy Summary (FY09-11, $M) FY11 FY10 FY09 Guarantee Portfolio Economic Capital (EC) 374 323 310 Insurance Portfolio Reserve (net) 175 157 145 Retained Earnings and Accumulated Other Comprehensive Income 559 510 536 Paid-in Capital 365 365 362 Operating Capital 1,099 1,033 1,044 Net Exposure 5,239 4,296 3,966 EC / Operating Capital 34.0% 31.3% 29.7% EC / Net Exposure 7.1% 7.5% 7.8% 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 a target duration between 2 to 3 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 FY11, 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 portfolio yield was 1.4 percent in FY11 versus 2.5 percent in FY10. The market value of MIGA’s asset portfolio was $1,036 million as of June 30, 2011, of which $950 million resided in US dollar-denominated investments. Figure 1 Portfolio Composition of MIGA’s Total Holdings as of June 30, 2011 35% Money Market/Cash 22% Domestic Government 16% Mortgage-backed Securities 9% Global Equities 7% Agency 6% Asset-backed Securities 5% Sovereign/Government Guarantee 76 | MIGA ANNUAL REPORT 2011 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 Reserve1 . These components are defined based on the degree of probability and the basis of estimation. 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. 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 FY11 operating income was $23.6 million, a decrease of $10.3 million versus FY10 primarily due to lower investment income and higher adminis- trative expenses offset by an increase in net premium income. FY11 net income of $43.1 million, an increase of $59.6 million compared to the loss of $16.5 million in FY10, is mainly on account of the release of provisions for claims. Table 5 below shows the breakdown of MIGA’s operating income and net income. Table 5 Analysis of Operating Income and Net Income ($M) FY11 FY10 FY09 1 2,099 1,464 1,377 Total Guarantees Issued Gross Exposure 9,122 7,723 7,297 Net Exposure 5,239 4,296 3,966 Premium Income 75.2 71.8 64.1 Premium Ceded (30.6) (30.6) (27.0) Fees and Commissions 6.3 4.8 6.5 Net Premium Income 50.8 46.0 43.6 Income from Investments 13.9 24.1 36.9 Administrative and Other Expenses (41.1) (36.2) (29.8) Operating Income 23.6 33.9 50.6 Translation Gain (Loss) 17.8 (19.5) (17.6) Release of (Provision for) Claims 1.7 (30.9) (1.9) Net Income (Loss) 43.1 (16.5) 31.2 Operating Capital 1,099 1,033 1,044 Economic Capital (EC) 374 323 310 ROOC2 (before provisions) 3.8% 1.4% 3.2% ROOC (after provisions) 3.9% (1.6)% 3.0% ROCU3 2.6% 3.0% 4.5% Note: numbers may not add up due to rounding 1 Including Cooperative Underwriting Program contracts 2 Return on Operating Capital = Net Income/Operating Capital 3 Return on Capital Utilized = (Net Premium Income-Administrative and Other Expenses)/Economic Capital Utilized MIGA ANNUAL REPORT 2011 | 77 1 The Insurance Portfolio Reserve is calculated as the 95th percentile loss less the mean loss from the Economic Capital Model FY11 versus FY10 MIGA issued $2,099 billion in guarantees during FY11, $635 million higher than in FY10. New issues when combined with lower policy cancel- lations resulted in overall growth of MIGA’s guarantee portfolio and premium income. In FY11, gross exposure and gross premium income increased by $1,399 million and $3.4 million, respectively. Premium amounts ceded to reinsurers remained stable at $30.6 million. MIGA’s investment portfolio generated $13.9 million of investment income in FY11, compared with $24.1 million in FY10. The yield was 1.4 percent in FY11, compared with 2.5 percent in FY10. Investment income was lower this fiscal year due to a lower overall interest rate environment. Administrative and other expenses increased to $41.1 million in FY11, compared with $36.2 million in FY10. 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) 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 oversight of the integrity of MIGA 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 that 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 at all levels. Communications The Audit Committee communicates regularly with the full Board of Directors through distribution of the following documents: r The minutes of its meetings r Reports of the Audit Committee prepared by the Chairman, which document discussions held. These reports are distributed to the Direc- tors, Alternates, World Bank Group Senior Management, and the Senior Management of MIGA r “Statement(s) of the Chairman� and statements issued by other members of the Audit Committee r The Annual Report to the Board of Directors, which provides an overview of the main issues addressed by the committee 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. 78 | MIGA ANNUAL REPORT 2011 Access to Resources and to Management Throughout the year, the Audit Committee receives a large volume of information, with respect to financial condition, financial statement presen- tations, risk assessment, and risk management, as well as governance and controls. The Audit Committee meets both formally and informally throughout the year to discuss finance, accounting, risk management, and internal controls matters. Directors have complete access to man- agement. 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 do every day. The Code applies to all staff worldwide and is available on IBRD’s website, www. worldbank.org. All MIGA staff have 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 (actual or potential) conflicts of interest, senior managers are required to file an annual confidential financial disclosure statement with the Office of Ethics and Business Conduct. 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: r 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/resolution system, financial disclosure, ongoing training to both internal and external audiences, and communication resources. This office has the mandate to review and assist in the resolution of allegations of staff misconduct. r 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 are composed of professionals from a range of disciplines including financial analysts, researchers, 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: r Prohibition of the external auditor from the provision of all non audit-related services r All audit-related services must be pre-approved on a case-by-case basis by the Board of Directors, upon recommendation by the Audit Com- mittee r Mandatory rebidding of the external audit contract every five years r Prohibition of any firm serving as external auditors for more than two consecutive five-year terms r Mandatory rotation of the senior partner after five years r An evaluation of the performance of the external auditor at the mid-point of the five year term External auditors are 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. Following a mandatory re-bidding of the external audit contract during FY08, IBRD’s 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 present as an observer at virtually 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: r Quarterly and annual financial statement reporting r Annual appointment of the external auditors r Presentation of the external audit plan r Presentation of control recommendations and discussion of the Internal Control over Financial Reporting (ICFR) attestation and report r Presentation of a statement regarding independence In addition to committee meetings, individual members of the Audit Committee have independent access to the external auditor. MIGA ANNUAL REPORT 2011 | 79 Management’s Report Regarding Effectiveness of Internal Controls Over External Financial Reporting 80 | MIGA ANNUAL REPORT 2011 Management’s Report Regarding Effectiveness of Internal Controls Over External Financial Reporting (cont’d) MIGA ANNUAL REPORT 2011 | 81 Report of Independent Auditors on Management Assertion Regarding Effectiveness of Internal Controls Over External Financial Reporting 82 | MIGA ANNUAL REPORT 2011 Report Of Independent Auditors on Management Assertion Regarding Effectiveness Of Internal Controls Over External Financial Reporting (cont’d) MIGA ANNUAL REPORT 2011 | 83 Independent Auditors’ Report 84 | MIGA ANNUAL REPORT 2011 Balance Sheet June 30, 2011 and June 30, 2010, expressed in thousands of US dollars FY11 FY10 ASSETS CASH $11,049 $8,922 INVESTMENTS – Trading (including securities transferred under repurchase agreements) - 1,105,559 958,012 Note B Derivative Assets - Note B 115,120 585 NONNEGOTIABLE, NONINTEREST-BEARING DEMAND OBLIGATIONS - Note C 115,088 112,203 OTHER ASSETS Receivable for investment securities sold - Note B 12,646 18,280 Estimated reinsurance recoverables - Note E 40,300 18,100 Prepaid premiums ceded to reinsurers 33,327 16,484 Net assets under retirement benefits plans - Note F 27,546 20,684 Miscellaneous 2,017 12,743 115,836 86,291 TOTAL ASSETS $1,462,652 $1,166,013 Liabilities and Shareholders’ Equity LIABILITIES Payable for investment securities purchased - Note B $57,185 $15,250 Securities sold under repurchase agreements - Note B 26,674 - Derivative liabilities - Note B 115,342 23 Accounts payable and accrued expenses 43,294 27,131 Unearned premiums and commitment fees 67,811 40,469 Reserve for claims - Note E Specific reserve for claims 17,100 39,100 Insurance portfolio reserve 211,200 168,700 Reserve for claims - gross 228,300 207,800 Total liabilities 538,606 290,673 CONTINGENT LIABILITIES – Note D SHAREHOLDERS’ EQUITY Capital stock – Note C Authorized capital (186,042 shares- June 30, 2011; 186,042 shares-June 30, 2010) Subscribed capital (176,786 shares- June 30, 2011; 176,786 shares-June 30, 2010) 1,912,825 1,912,825 Less uncalled portion of subscriptions 1,547,882 1,547,882 364,943 364,943 Payments on account of pending subscriptions 67 67 365,010 365,010 Retained earnings 566,376 523,237 Accumulated other comprehensive loss (7,340) (12,907) Total shareholders’ equity 924,046 875,340 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $1,462,652 $1,166,013 See accompanying notes to the financial statements MIGA ANNUAL REPORT 2011 | 85 Statement of Operations For the fiscal years ended June 30, 2011 and June 30, 2010, expressed in thousands of US dollars FY11 FY10 INCOME Income from guarantees Premium income - Note D $75,195 $71,814 Premium ceded - Note D (30,630) (30,574) Fees and commissions 6,260 4,749 Total 50,825 45,989 Income from investments - Note B 13,850 24,058 Translation gains (losses) 17,843 (19,464) TOTAL INCOME 82,518 50,583 EXPENSES Provision for (release of) claims - Note E (1,700) 30,900 Administrative expenses 41,079 36,163 TOTAL EXPENSES 39,379 67,063 NET INCOME (LOSS) $43,139 $(16,480) Statement of Comprehensive Income For the fiscal years ended June 30, 2011 and June 30, 2010, expressed in thousands of US dollars FY11 FY10 NET INCOME (LOSS) $43,139 $(16,480) OTHER COMPREHENSIVE INCOME (LOSS) Change in unrecognized net actuarial gains (losses) on benefit plans 5,449 (9,331) Change in unrecognized prior service credits on benefit plans 118 192 Total other comprehensive income (loss) 5,567 (9,139) COMPREHENSIVE INCOME (LOSS) $48,706 $(25,619) See accompanying notes to the financial statements 86 | MIGA ANNUAL REPORT 2011 Statement of Changes in Shareholders’ Equity For the fiscal years ended June 30, 2011 and June 30, 2010, expressed in thousands of US dollars FY11 FY10 CAPITAL STOCK Balance at beginning of the fiscal year $365,010 $363,721 New subscriptions 1,289 Ending Balance 365,010 365,010 RETAINED EARNINGS Balance at beginning of the fiscal year 523,237 539,717 Net income (loss) 43,139 (16,480) Ending Balance 566,376 523,237 TOTAL ACCUMULATED OTHER COMPREHENSIVE LOSS Balance at beginning of the fiscal year (12,907) (3,768) Other comprehensive income (loss) 5,567 (9,139) Ending Balance (7,340) (12,907) TOTAL SHAREHOLDERS’ EQUITY $924,046 $875,340 Statement of Cash Flows For the fiscal years ended June 30, 2011 and June 30, 2010, expressed in thousands of US dollars FY11 FY10 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $43,139 $(16,480) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Provision for (release of) claims - Note E (1,700) 30,900 Translation (gains)/losses (17,843) 19,464 Net changes in: Investments - Trading (56,197) (41,062) Other assets, excluding investment receivables (13,882) 2,630 Accounts payable and accrued expenses 21,462 (5,094) Unearned premiums and commitment fees 26,400 1,333 Net cash provided by (used in) operating activities 1,379 (8,309) EFFECT OF EXCHANGE RATE CHANGES ON CASH 748 266 Net increase (decrease) in cash 2,127 (8,043) Cash at beginning of the fiscal year 8,922 16,965 CASH AT END OF THE FISCAL YEAR $11,049 $8,922 See accompanying notes to the financial statements MIGA ANNUAL REPORT 2011 | 87 Statement of Subscriptions to Capital Stock and Voting Power As of June 30, 2011, 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 Afghanistan 118 $1,277 $255 $1,022 359 0.16 Albania 102 1,104 210 894 343 0.16 Algeria 1,144 12,378 2,350 10,028 1,385 0.63 Angola 187 2,023 405 1,618 428 0.20 Antigua and Barbuda 50 541 108 433 291 0.13 Argentina 2,210 23,912 4,539 19,373 2,451 1.12 Armenia 80 866 173 693 321 0.15 Australia 3,019 32,666 6,201 26,465 3,260 1.50 Austria 1,366 14,780 2,806 11,974 1,607 0.74 Azerbaijan 115 1,244 249 995 356 0.16 Bahamas, The 176 1,904 362 1,542 417 0.19 Bahrain 136 1,472 279 1,193 377 0.17 Bangladesh 599 6,481 1,230 5,251 840 0.38 Barbados 120 1,298 246 1,052 361 0.16 Belarus 233 2,521 504 2,017 474 0.22 Belgium 3,577 38,703 7,347 31,356 3,818 1.75 Belize 88 952 181 771 329 0.15 Benin 108 1,169 222 947 349 0.16 Bolivia 220 2,380 452 1,928 461 0.21 Bosnia and Herzegovina 80 866 173 693 321 0.15 Botswana 88 952 181 771 329 0.15 Brazil 2,606 28,197 5,353 22,844 2,847 1.30 Bulgaria 643 6,957 1,321 5,636 884 0.40 Burkina Faso 61 660 132 528 302 0.14 Burundi 74 801 160 641 315 0.14 Cambodia 164 1,774 337 1,437 405 0.18 Cameroon 107 1,158 232 926 348 0.16 Canada 5,225 56,535 10,732 45,803 5,466 2.51 Cape Verde 50 541 108 433 291 0.13 Central African Rep. 60 649 130 519 301 0.14 Chad 60 649 130 519 301 0.14 Chile 855 9,251 1,756 7,495 1,096 0.50 China 5,530 59,835 11,359 48,476 5,771 2.64 Colombia 770 8,331 1,582 6,749 1,011 0.46 Congo, Dem. Rep. of 596 6,449 1,224 5,225 837 0.38 Congo, Republic of 115 1,244 236 1,008 356 0.16 Costa Rica 206 2,229 423 1,806 447 0.20 Cote d'Ivoire 310 3,354 637 2,717 551 0.25 Croatia 330 3,571 678 2,893 571 0.26 Cyprus 183 1,980 376 1,604 424 0.19 Czech Republic 784 8,483 1,610 6,873 1,025 0.48 Denmark 1,265 13,687 2,598 11,089 1,506 0.69 Djibouti 50 541 108 433 291 0.13 Dominica 50 541 108 433 291 0.13 Dominican Republic 147 1,591 318 1,273 388 0.18 Ecuador 321 3,473 659 2,814 562 0.26 Egypt, Arab Republic of 809 8,753 1,662 7,091 1,050 0.48 El Salvador 122 1,320 264 1,056 363 0.17 Equatorial Guinea 50 541 108 433 291 0.13 Eritrea 50 541 108 433 291 0.13 Estonia 115 1,244 236 1,008 356 0.16 Ethiopia 123 1,331 253 1,078 364 0.17 See accompanying notes to the financial statements 88 | MIGA ANNUAL REPORT 2011 Statement of Subscriptions to Capital Stock and Voting Power (cont’d) As of June 30, 2011, 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 71 768 154 614 312 0.14 Finland 1,057 11,437 2,171 9,266 1,298 0.59 France 8,565 92,673 17,593 75,080 8,806 4.02 Gabon 169 1,829 347 1,482 410 0.19 Gambia, The 50 541 108 433 291 0.13 Georgia 111 1,201 240 961 352 0.16 Germany 8,936 96,688 18,355 78,333 9,177 4.19 Ghana 432 4,674 887 3,787 673 0.31 Greece 493 5,334 1,013 4,321 734 0.34 Grenada 50 541 108 433 291 0.13 Guatemala 140 1,515 303 1,212 381 0.17 Guinea 91 985 197 788 332 0.15 Guinea-Bissau 50 541 108 433 291 0.13 Guyana 84 909 182 727 325 0.15 Haiti 75 812 162 650 316 0.14 Honduras 178 1,926 366 1,560 419 0.19 Hungary 994 10,755 2,042 8,713 1,235 0.56 Iceland 90 974 195 779 331 0.15 India 5,371 58,114 11,032 47,082 5,612 2.56 Indonesia 1,849 20,006 3,798 16,208 2,090 0.95 Iran, Islamic Republic of 1,659 17,950 3,590 14,360 1,900 0.87 Iraq 350 3,787 757 3,030 591 0.27 Ireland 650 7,033 1,335 5,698 891 0.41 Israel 835 9,035 1,715 7,320 1,076 0.49 Italy 4,970 53,775 10,208 43,567 5,211 2.38 Jamaica 319 3,452 655 2,797 560 0.26 Japan 8,979 97,153 18,443 78,710 9,220 4.21 Jordan 171 1,850 351 1,499 412 0.19 Kazakhstan 368 3,982 756 3,226 609 0.28 Kenya 303 3,278 622 2,656 544 0.25 Korea, Republic of 791 8,559 1,625 6,934 1,032 0.47 Kosovo 96 1,039 208 831 337 0.15 Kuwait 1,639 17,734 3,367 14,367 1,880 0.86 Kyrgyz Republic 77 833 167 666 318 0.15 Lao People's Dem. Rep. 60 649 130 519 301 0.14 Latvia 171 1,850 351 1,499 412 0.19 Lebanon 250 2,705 514 2,191 491 0.22 Lesotho 88 952 181 771 329 0.15 Liberia 84 909 182 727 325 0.15 Libya 549 5,940 1,188 4,752 790 0.36 Lithuania 187 2,023 384 1,639 428 0.20 Luxembourg 204 2,207 419 1,788 445 0.20 Macedonia, FYR of 88 952 181 771 329 0.15 Madagascar 176 1,904 362 1,542 417 0.19 Malawi 77 833 167 666 318 0.15 Malaysia 1,020 11,036 2,095 8,941 1,261 0.58 Maldives 50 541 108 433 291 0.13 Mali 143 1,547 294 1,253 384 0.18 Malta 132 1,428 271 1,157 373 0.17 Mauritania 111 1,201 228 973 352 0.16 Mauritius 153 1,655 314 1,341 394 0.18 See accompanying notes to the financial statements MIGA ANNUAL REPORT 2011 | 89 Statement of Subscriptions to Capital Stock and Voting Power (cont’d) As of June 30, 2011, 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 Mexico 1,192 12,897 2,579 10,318 1,433 0.65 Micronesia, Fed. States of 50 541 108 433 291 0.13 Moldova 96 1,039 208 831 337 0.15 Mongolia 58 628 126 502 299 0.14 Montenegro 61 660 132 528 302 0.14 Morocco 613 6,633 1,259 5,374 854 0.39 Mozambique 171 1,850 351 1,499 412 0.19 Namibia 107 1,158 232 926 348 0.16 Nepal 122 1,320 251 1,069 363 0.17 Netherlands 3,822 41,354 7,850 33,504 4,063 1.86 New Zealand 513 5,551 1,110 4,441 754 0.34 Nicaragua 180 1,948 370 1,578 421 0.19 Nigeria 1,487 16,089 3,054 13,035 1,728 0.79 Norway 1,232 13,330 2,531 10,799 1,473 0.67 Oman 166 1,796 341 1,455 407 0.19 Pakistan 1,163 12,584 2,389 10,195 1,404 0.64 Palau 50 541 108 433 291 0.13 Panama 231 2,499 474 2,025 472 0.22 Papua New Guinea 96 1,039 208 831 337 0.15 Paraguay 141 1,526 290 1,236 382 0.17 Peru 657 7,109 1,350 5,759 898 0.41 Philippines 853 9,229 1,752 7,477 1,094 0.50 Poland 764 8,266 1,653 6,613 1,005 0.46 Portugal 673 7,282 1,382 5,900 914 0.42 Qatar 241 2,608 495 2,113 482 0.22 Romania 978 10,582 2,009 8,573 1,219 0.56 Russian Federation 5,528 59,813 11,355 48,458 5,769 2.63 Rwanda 132 1,428 271 1,157 373 0.17 St. Kitts & Nevis 50 541 108 433 291 0.13 St. Lucia 88 952 181 771 329 0.15 St. Vincent and the Grenadines 88 952 181 771 329 0.15 Samoa 50 541 108 433 291 0.13 Saudi Arabia 5,528 59,813 11,355 48,458 5,769 2.63 Senegal 256 2,770 526 2,244 497 0.23 Serbia 407 4,404 836 3,568 648 0.30 Seychelles 50 541 108 433 291 0.13 Sierra Leone 132 1,428 271 1,157 373 0.17 Singapore 272 2,943 559 2,384 513 0.23 Slovak Republic 391 4,231 803 3,428 632 0.29 Slovenia 180 1,948 370 1,578 421 0.19 Solomon Islands 50 541 108 433 291 0.13 South Africa 1,662 17,983 3,414 14,569 1,903 0.87 Spain 2,265 24,507 4,652 19,855 2,506 1.14 Sri Lanka 478 5,172 982 4,190 719 0.33 Sudan 206 2,229 446 1,783 447 0.20 Suriname 82 887 177 710 323 0.15 Swaziland 58 628 126 502 299 0.14 Sweden 1,849 20,006 3,798 16,208 2,090 0.95 Switzerland 2,643 28,597 5,429 23,168 2,884 1.32 Syrian Arab Republic 296 3,203 608 2,595 537 0.25 See accompanying notes to the financial statements 90 | MIGA ANNUAL REPORT 2011 Statement of Subscriptions to Capital Stock and Voting Power (cont’d) As of June 30, 2011, 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 Tajikistan 130 1,407 267 1,140 371 0.17 Tanzania 248 2,683 509 2,174 489 0.22 Thailand 742 8,028 1,524 6,504 983 0.45 Timor-Leste 50 541 108 433 291 0.13 Togo 77 833 167 666 318 0.15 Trinidad and Tobago 358 3,874 735 3,139 599 0.27 Tunisia 275 2,976 565 2,411 516 0.24 Turkey 814 8,807 1,672 7,135 1,055 0.48 Turkmenistan 66 714 143 571 307 0.14 Uganda 233 2,521 479 2,042 474 0.22 Ukraine 1,346 14,564 2,765 11,799 1,587 0.72 United Arab Emirates 656 7,098 1,347 5,751 897 0.41 United Kingdom 8,565 92,673 17,593 75,080 8,806 4.02 United States 32,564 352,342 67,406 284,936 32,805 14.98 Uruguay 202 2,186 437 1,749 443 0.20 Uzbekistan 175 1,894 379 1,515 416 0.19 Vanuatu 50 541 108 433 291 0.13 Venezuela, R. B. de 1,427 15,440 3,088 12,352 1,668 0.76 Vietnam 388 4,198 797 3,401 629 0.29 Yemen, Republic of 155 1,677 335 1,342 396 0.18 Zambia 318 3,441 688 2,753 559 0.26 Zimbabwe 236 2,554 511 2,043 477 0.22 Total – June 30, 20112 176,786 $1,912,825 $364,943 $1,547,882 218,961 100.00 Total – June 30, 2010 176,786 $1,912,825 $364,943 $1,547,882 218,961 100.00 Note: An amount of $67,000 was received from Niger, which is in the process of completing its membership requirements. 1 Subscribed shares pertaining to the General Capital Increase include only those shares for which the subscription process has been com- pleted, 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 MIGA ANNUAL REPORT 2011 | 91 Statement of Guarantees Outstanding As of June 30, 2011, expressed in thousands of US dollars Gross Exposure – Note D Host Country US Euro Japanese Swiss Total Reinsurance – Net Dollars Yen Franc Note D Exposure Afghanistan 76,203 - - - 76,203 41,125 35,078 Albania 1,565 27,503 - - 29,068 - 29,068 Algeria - 3,736 - - 3,736 - 3,736 Angola 12,900 - - - 12,900 1,290 11,610 Argentina 24,119 - - - 24,119 12,059 12,059 Armenia - 4,126 - - 4,126 - 4,126 Bangladesh 78,265 - - - 78,265 7,826 70,438 Benin 1,026 1,368 - - 2,394 103 2,292 Bosnia and Herzegovina - 45,044 - - 45,044 3,324 41,720 Brazil 50,000 35,705 - - 85,705 17,852 67,852 Bulgaria - 143,100 - - 143,100 71,550 71,550 Burkina Faso - 1,808 - - 1,808 181 1,627 Central African Republic - 34,747 - - 34,747 - 34,747 China 134,698 95,346 - - 230,044 19,321 210,723 Colombia - 2,888 - - 2,888 - 2,888 Congo, Democratic Republic of 25,150 5,501 - - 30,651 - 30,651 Congo, Republic of - 5,586 - - 5,586 - 5,586 Costa Rica 149,525 - - - 149,525 87,540 61,985 Côte d'Ivoire - 1,765 - - 1,765 - 1,765 Croatia - 660,083 - - 660,083 350,622 309,461 Djibouti 224,876 - - - 224,876 151,806 73,070 Dominican Republic 99,635 - - - 99,635 14,945 84,690 Ecuador 31,937 - - - 31,937 1,135 30,802 Ethiopia 13,960 - - - 13,960 - 13,960 Georgia 9,025 - - - 9,025 - 9,025 Ghana 65,250 - - - 65,250 6,975 58,275 Guatemala 96,570 - - - 96,570 48,285 48,285 Guinea 2,462 57,453 - - 59,915 5,745 54,170 Guinea-Bissau - 20,094 - - 20,094 2,009 18,084 Honduras - 6,876 - - 6,876 - 6,876 Hungary - 412,552 - - 412,552 63,117 349,435 Indonesia 657,000 - - - 657,000 330,000 327,000 Iran, Islamic Republic of 99,769 - - - 99,769 9,977 89,792 Iraq 4,842 - - - 4,842 - 4,842 Jamaica 72,191 - - - 72,191 14,438 57,753 Jordan 4,095 - - - 4,095 410 3,686 Kazakhstan 401,520 - - - 401,520 239,530 161,990 Kenya 50,194 - - - 50,194 6,588 43,606 Kosovo - 55,007 - - 55,007 - 55,007 Kyrgyz Republic 8,913 - - - 8,913 315 8,598 Lao People's Dem. Rep. 77,878 - - - 77,878 38,939 38,939 Latvia 4,104 171,897 - - 176,001 410 175,591 Liberia 70,600 78,168 - - 148,768 51,972 96,796 Macedonia, FYR - 13,752 - - 13,752 - 13,752 Madagascar - 22,018 - - 22,018 - 22,018 Mali 16,200 - - - 16,200 1,620 14,580 Mauritania 5,400 - - - 5,400 540 4,860 Moldova 61,092 11,652 - - 72,744 30,546 42,198 Mozambique 163,076 2,750 - - 165,826 38,639 127,187 Nepal 29,394 - - - 29,394 17,671 11,722 Nicaragua 99,799 - - - 99,799 43, 440 56,360 See accompanying notes to the financial statements 92 | MIGA ANNUAL REPORT 2011 Statement of Guarantees Outstanding (cont’d) As of June 30, 2010, expressed in thousands of US dollars Gross Exposure – Note D Host Country US Euro Japanese Swiss Total Reinsurance – Net Dollars Yen Franc Note D Exposure Nigeria 107,364 1,527 - - 108,892 14,323 94,569 Pakistan 8,768 881 497 95,906 106,053 51,056 54,997 Peru 24,464 - - - 24,464 1,293 23,171 Poland - 3,895 - - 3,895 - 3,895 Romania - 79,564 - - 79,564 22,798 56,765 Russian Federation 836,000 80,810 - - 916,810 461,529 455,281 Rwanda 39,920 - - - 39,920 - 39,920 Senegal - 83,834 - - 83,834 9,889 73,945 Serbia - 446,741 - - 446,741 156,388 290,353 Sierra Leone 17,172 - - - 17,172 500 16,672 South Africa 15,320 - - - 15,320 - 15,320 Swaziland 22,956 - - - 22,956 11,478 11,478 Syrian Arab Republic 78,434 - - - 78,434 7,843 70,591 Thailand 72,878 - - - 72,878 36,439 36,439 Togo - 4,612 - - 4,612 - 4,612 Turkey 547,363 405,326 - - 952,690 573,595 379,094 Turkmenistan 2,826 - - - 2,826 - 2,826 Uganda 155,470 550 - - 156,020 75,797 80,223 Ukraine 992,914 6,188 - - 999,102 614,976 384,126 Uruguay 300,095 - - - 300,095 192,000 108,095 Venezuela, R. B. de 11,880 - - - 11,880 3,564 8,316 Vietnam 40,890 - - - 40,890 30,623 10,267 Zambia 18,640 - - - 18,640 - 18,640 6,216,584 3,034,453 497 95,906 9,347,441 3,995,939 5,351,502 Adjustment for Dual-Country Contracts:1 Lao PDR/Thailand (72,878) - - - (72,878) (36,439) (36,439) Mozambique/Swaziland (22,956) - - - (22,956) (11,478) (11,478) (95,834) - - - (95,834) (47,917) (47,917) Adjustment for Master Agreement:2 Guatemala, Moldova, (129,895) - - - (129,895) (64,948) (64,948) Nicaragua 3 Total – June 30, 2011 5,990,855 3,034,453 497 95,906 9,121,712 3,883,074 5,238,638 Total – June 30, 2010 5,822,513 1,899,816 451 - 7,722,780 3,426,406 4,296,374 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 correct for double-counting. 2 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. 3 May differ from the sum of individual figures shown because of rounding. See accompanying notes to the financial statements MIGA ANNUAL REPORT 2011 | 93 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 4, 2011, the Executive Vice President and the Chief Financial Officer authorized the financial statements for issue. MIGA has evaluated subsequent events through August 4, 2011, 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 and is expecting to issue a standard in 2011. 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 and a standard in 2012. In November 2009, IASB issued IFRS 9, Financial Instruments as a first step as part of a wider project to replace 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 categories 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 asset. 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, but may be applied earlier. MIGA is currently assessing the impact of this standard on its financial statements. In May 2011, the FASB issued 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 mea- surement and disclosure requirements in U.S. GAAP and IFRS. While many of the amendments are changes in wording that are not expected to 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 is currently evaluating the impact 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 will be assessing the impact of this standard on its financial statements. Differences between US GAAP and IFRS The Compensation Retirement Benefits Topic of the FASB ASC 715-30 requires employers to recognize on their balance sheets the funded status of their defined benefit postretirement 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 94 | MIGA ANNUAL REPORT 2011 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 International Accounting Standards (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 to the Statement of Operations, 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. 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 postretirement benefits plans, and the present value of benefit obligations. The significant accounting policies employed by MIGA are summarized below. 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, mortgage/asset-backed securities 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 limited 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 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 Operations. 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 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 (OPIC). 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 time value of money of potential cash flows, using representative risk-free interest rates as the discount rates. MIGA ANNUAL REPORT 2011 | 95 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 reserve is shown on a gross basis on the liability side of the balance sheet, while establishing reinsurance recov- erable 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 Operations. Changes to MIGA’s Investment Policy approved by the Board of Directors in June 2010 included the establishment of a system for active man- agement of MIGA’s exposures to foreign currencies, whereby the amounts of non-dollar assets would be matched to non-dollar reserve com- ponents. 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. 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 reinsurance 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 contracts 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 trading portfolio at June 30, 2011 and June 30, 2010 is as follows: Fair Value In thousands of US dollars June 30, 2011 June 30, 2010 Equity Securities $93,287 $- Comingled Funds 6,600 - Government Obligations 352,483 322,544 Time Deposits 418,038 446,516 Asset-backed Securities 235,151 188,952 Total Investments - Trading $1,105,559 $958,012 96 | MIGA ANNUAL REPORT 2011 MIGA manages its investments on a net portfolio basis. The following table summarizes MIGA’s net portfolio position as of June 30, 2011 and June 30, 2010: Fair Value In thousands of US dollars June 30, 2011 June 30, 2010 Investments – trading $1,105,559 $958,012 a 1,406 2,514 Cash held in investment portfolio Receivable from investment securities sold 12,646 18,280 Derivative assets Currency forward contracts 115,086 - Othersb 34 585 Derivative liabilities Currency forward contracts (115,093) - Othersb (249) (23) Payable for investment securities purchased (57,185) (15,250) Securities sold under repurchase agreements (26,674) - Net Investment Portfolio $1,035,530 $964,118 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 8.3 percent (14.9 percent – June 30, 2010) 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 losses/gains included in the Income from investments for the fiscal years ended June 30, 2011 and June 30, 2010 amounted to ($838,000) and $3,230,000 respectively. The following table summarizes MIGA’s Income from investments in the Statement of Operations. Year ended In thousands of US dollars June 30, 2011 June 30, 2010 Interest Income $15,551 $14,151 Dividend Income 480 - Gains - Realized / Unrealized 13,924 14,360 Losses - Realized / Unrealized (16,105) (4,453) $13,850 $24,058 Losses/Income 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, 2011 and June 30, 2010 amounted to ($776,000) and $1,285,000, respectively. Losses/Income 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, 2011 June 30, 2010 Securities transferred under repurchase agreements $26,674 - Liabilities relating to securities transferred under repurchase agreements $26,674 - MIGA ANNUAL REPORT 2011 | 97 Fair Value Measurements The Fair Value Measurements and Disclosure Topic of the FASB Accounting Standards Codification (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. The following tables present MIGA’s summary of the trading portfolio measured at fair value on a recurring basis as of June 30, 2011 and June 30, 2010: 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 a - 34 - 34 Others 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 98 | MIGA ANNUAL REPORT 2011 Fair Value Measurements on a Recurring Basis, as of June 30, 2010 In thousands of US dollars Level 1 Level 2 Level 3 Total Assets: Government Obligations $46,986 $275,558 $- $322,544 Time Deposits 138,493 308,023 - 446,516 Asset-backed Securities - 185,400 3,552 188,952 $185,479 $768,981 $3,552 $958,012 Derivative assets Othersa - 585 - 585 Total Derivative assets - 585 - 585 Total $185,479 $769,566 $3,552 $958,597 Liabilities: Derivative liabilities Othersa - 23 - 23 Total Derivative liabilities - 23 - 23 Total $- $23 $- $23 a. These relate to To-Be- Announced (TBA) securities 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, 2011 and June 30, 2010. 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 Year ended June 30, 2010 In thousands of US dollars Level 1 Level 2 Level 3 Government Obligations Transfers (out of) into $13,018 $(13,018) - Asset-backed Securities Transfers (out of) into - (2,201) 2,201 The following table provides a summary of changes in the fair value of MIGA’s Level 3 financial assets and liabilities during the years ended June 30, 2011 and June 30, 2010. Year ended June 30, 2011 In thousands of US dollars 2011 2010 Asset-backed Securities Beginning of the period $3,552 $1,121 Total realized/unrealized income in Income from investments 87 230 Purchases 1,019 - Transfers in 47 2,201 Settlements/Maturity (700) - End of the period $4,005 $3,552 MIGA ANNUAL REPORT 2011 | 99 The entire amount of $87,000 for the year ended June 30, 2011 ($230,000 for the year ended June 30, 2010) included in the above table is attrib- utable to unrealized gains on Level 3 asset-backed securities. The maximum credit exposure of investments closely approximates the fair values of the financial instruments. The following table provides information on the credit exposure and notional amounts of the derivative instruments. Type of contracts Year ended June 30, 2011 In thousands of US dollars 2011 2010 Currency Forward Contract Credit Exposure $140 $- a Exchange traded Options and Futures Notional Long Position 121,000 190,000 Notional Short Position 464,000 624,000 Othersb Notional Long Position 50,000 58,000 Notional Short Position 2,000 - Credit Exposure 34 585 a. Exchange traded instruments are generally subject to daily margin requirements and are deemed to have no material credit risk. All outstanding options and future contracts as of June 30, 2011 and June 30, 2010 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, 2011. 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, 2011, the initial authorized capital stock was 186,042 (186,042 – June 30, 2010) 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, 2011, no shares (June 30, 2010, 1,192 shares) were subscribed. At June 30, 2011, MIGA’s authorized capital stock comprised 186,042 (186,042 – June 30, 2010) shares of which 176,786 (176,786 – June 30, 2010) 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, $364,943,000 ($364,943,000 – June 30, 2010) has been paid in and the remaining $1,547,882,000 ($1,547,882,000 - June 30, 2010) is subject to call. At June 30, 2011, $115,088,000 ($112,203,000 – June 30, 2010) is in the form of non-negotiable, non-interest bearing demand obligations (promissory notes). A summary of MIGA’s capital stock at June 30, 2011 and June 30, 2010 is as follows: 100 | MIGA ANNUAL REPORT 2011 Initial Capital Capital Increase Total Shares (US$000) Shares (US$000) Shares (US$000) As of 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 At June 30, 2010 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 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, which at June 30, 2011 amounts to $2,503,000 ($2,503,000 – June 30, 2010). Contingent Liability The maximum amount of contingent liability of MIGA under guarantees issued and outstanding at June 30, 2011 totaled $9,121,712,000 ($7,722,780,000 – June 30, 2010). 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, 2011, MIGA’s actual exposure to insurance claims, exclusive of standby coverage is $7,956,484,000 ($6,469,101,000 – June 30, 2010). Reinsurance MIGA obtains treaty and facultative reinsurance (both public and private) to augment its underwriting capacity and to mitigate its risk by protect- ing 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 $9,121,712,000 outstanding contingent liability (gross exposure) as at June 30, 2011 ($7,722,780,000 – June 30, 2010), $3,883,074,000 was ceded through contracts of reinsurance ($3,426,406,000 – June 30, 2010). Net exposure amounted to $5,238,638,000 as at June 30, 2011 ($4,296,374,000 – June 30, 2010). MIGA ANNUAL REPORT 2011 | 101 MIGA can also provide both public (official) and private insurers with facultative reinsurance. As of June 30, 2011, total insurance assumed by MIGA, primarily with official investment insurers, amounted to $368,716,000 ($120,000,000 – June 30, 2010). Premiums relating to direct, assumed and ceded contracts for the fiscal years ended June 30, 2011 and June 30, 2010 were as follows: In thousands of US dollars June 30, 2011 June 30, 2010 Premiums Written Direct $103,009 $69,604 Assumed 1,660 1,080 Ceded (47,473) (29,615) Premiums Earned Direct 74,111 70,734 Assumed 1,084 1,080 Ceded (30,630) ( 30,574) 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 concen- tration, MIGA sets exposure limits per country and per project. The maximum net exposure which may be assumed by MIGA is $600 million in each host country and $180 million 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, 2011, the maximum level of guarantees outstanding (including reinsurance) may not exceed $12,817,000,000. 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, 2011 and June 30, 2010 are as follows: In thousands of US dollars June 30, 2011 June 30, 2010 Exposure in Exposure in Top Ten Exposure in Exposure in Top Ten Top Five Countries Countries Top Five Countries Countries Gross Exposure $4,185,685 $5,976,636 $3,606,053 $4,874,683 % of Total Gross Exposure 45.9 65.5 46.7 63.1 Net Exposure $1,894,936 $3,043,052 $1,480,551 $2,254,203 % of Total Net Exposure 36.2 58.1 34.5 52.5 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. 102 | MIGA ANNUAL REPORT 2011 The regional distribution of MIGA’s portfolio at June 30, 2011 and June 30, 2010 is as follows: In thousands of US dollars June 30, 2011 June 30, 2010 Gross Net % of Total Net Gross Net % of Total Net Exposure Exposure Exposure Exposure Exposure Exposure Africa $1,101,887 $885,715 16.9 $1,102,841 $887,695 20.7 Asia 1,295,724 759,163 14.5 706,421 504,618 11.7 Europe and Central Asia 5,432,561 2,843,859 54.3 4,419,058 2,021,127 47.0 Latin America and Caribbean 1,005,684 569,132 10.9 1,129,865 638,214 14.9 Middle East and North Africa 415,751 245,717 4.7 494,490 309,668 7.2 1 (129,895) (64,948) (1.3) (129,895) (64,948) (1.5) Adjustment for Master Agreement $9,121,712 $5,238,638 100.0 $7,722,780 $4,296,374 100.0 1 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. The sectoral distribution of MIGA’s portfolio at June 30, 2011 and June 30, 2010 is shown in the following table: In thousands of US dollars June 30, 2011 June 30, 2010 Gross Net % of Total Net Gross Net % of Total Net Exposure Exposure Exposure Exposure Exposure Exposure Infrastructure $2,960,549 $1,694,069 32.3 $2,302,120 $1,475,131 34.3 Financial 4,455,795 2,340,578 44.7 4,021,610 1,854,609 43.2 Tourism, Construction and 192,547 177,239 3.4 159,000 144,893 3.4 Services Manufacturing 790,406 471,818 9.0 587,472 340,628 7.9 Oil and Gas 233,527 195,188 3.7 468,071 368,719 8.6 Mining 243,265 172,359 3.3 105,017 39,798 0.9 Agribusiness 245,623 187,387 3.6 79,490 72,596 1.7 $9,121,712 $5,238,638 100.0 $7,722,780 $4,296,374 100.0 Note E: Claims Reserve for Claims MIGA’s gross reserve for claims at June 30, 2011 amounted to $228,300,000 ($207,800,000 - June 30, 2010) and estimated reinsurance recov- erables amounted to $40,300,000 ($18,100,000 - June 30, 2010). An analysis of the changes to the gross reserve for claims for the fiscal year ended June 30, 2011 and for the fiscal year ended June 30, 2010 appears in the tables below. In thousands of US dollars June 30, 2011 June 30, 2010 Gross reserve balance $207,800 $171,400 Less: Estimated reinsurance recoverables 18,100 12,600 Net reserve balance, beginning of the period 189,700 158,800 Increase (decrease) to net reserves before translation adjustments (14,000) 41,100 Foreign currency translation adjustments 12,300 (10,200) (Release of) Provision for claims - net of reinsurance (1,700) 30,900 Net reserve balance 188,000 189,700 Add: Estimated reinsurance recoverables 40,300 18,100 Gross reserve balance, end of the period $228,300 $207,800 MIGA ANNUAL REPORT 2011 | 103 The release of provision for claims of $1,700,000 for the fiscal year ended June 30, 2011 (provision for claims of $30,900,000 – fiscal year ended June 30, 2010) is the result of an increase in the insurance portfolio reserve (IPR) of $17,900,000 and a decrease in the specific reserve of $19,600,000. Estimated reinsurance recoverables increased by $22,200,000 during the fiscal year ended June 30, 2011 primarily due to refinements in the methodology to estimate the gross insurance portfolio reserve. 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 loss of $12,300,000 for the fiscal year ended June 30, 2011 is mainly the result of the Euro appreciating against the US 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 increased as a result of translation adjustment is offset by the translation gains on MIGA’s investment portfolio assets, reported on the Statement of Operations. 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, 2011, the specific reserves amounted to $17,100,000 ($39,100,000 – June 30, 2010) on a gross basis and $12,800,000 ($32,400,000 – June 30, 2010) net of reinsurance. The following table shows how the estimates of the specific reserves for each reporting period have developed over the past nine fiscal years: In thousands of Specific Reserve development over past nine fiscal years US dollars Reporting Period FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Estimate of Cumulative Claims: At end of reporting $121,800 $9,900 $37,800 $27,610 $1,062 $- $2,800 $13 $30,300 $5,000 period 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 - Three years later 5,650 3,279 6,800 45,600 - - 2,500 Four years later 5,775 700 1,300 15,100 - - 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 - Nine years later 6,700 Specific Reserve at June 30, 2011 Fiscal Year FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Total Estimate of cumu- lative claims at June 6,700 700 - - - - 2,991 13 2,900 5,000 18,304 30, 2011 Cumulative - (700) - - - - (491) (13) - - (1,204) payments Specific reserves at 6,700 - - - - - 2,500 - 2,900 5,000 17,100 June 30, 2011 Pending Claims In December, 2010, MIGA received a claim for $5 million under its expropriation cover in connection with a contract supporting a project in Sierra Leone. The claim is for the maximum aggregate liability under this contract. This claim arises from the failure of the government to make payments for services provided and other breaches of the contract. The claimant asserts that the government’s defaults constitute expropriation. MIGA is evaluating the claim. In December 2009, MIGA received an initial claim for $1.8 million under contracts supporting loans to a project in Kenya. Subsequently, in August 2010 a second claim was made for an additional amount of $3.2 million. The maximum aggregate liability under the contracts is $13.1 million. 104 | MIGA ANNUAL REPORT 2011 This claim asserts that debt service payments were missed due to war and civil disturbance, which occurred in 2007 and 2008. MIGA’s liability for the claim has not yet been determined. 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 among 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, 2011 and June 30, 2010: SRP RSBP PEBP In thousands of US dollars 2011 2010 2011 2010 2011 2010 Benefit Cost Service cost $3,143 $2,166 $702 $457 $324 $230 Interest cost 5,506 5,431 831 758 316 343 Expected return on plan assets (7,954) (8,172) (813) (757) - - Amortization of prior service cost 99 99 12 85 7 8 Amortization of net loss 1,009 562 202 114 187 180 Net periodic pension cost $1,803 $86 $934 $657 $834 $761 The expenses for the SRP, RSBP and PEBP are included in Administrative Expenses. 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, 2011 and June 30, 2010. The assets for the PEBP are included in IBRD’s investment portfolio. SRP RSBP PEBP In thousands of US dollars 2011 2010 2011 2010 2011 2010 Projected Benefit Obligation Beginning of year $97,829 $79,501 $13,968 $10,941 $5,662 $5,070 Service cost 3,143 2,166 702 457 324 230 Interest cost 5,506 5,431 831 758 316 343 Participant contributions 964 915 77 105 9 14 Retiree drug subsidy received n/a n/a 29 24 n/a n/a Early Retiree Reinsurance n/a n/a 22 - n/a n/a Program received Benefits paid (4,407) (3,957) (344) (305) (197) (155) Actuarial loss (gain) 4,749 13,773 1,233 1,988 1,304 160 End of year $107,784 $97,829 $16,518 $13,968 $7,418 $5,662 MIGA ANNUAL REPORT 2011 | 105 SRP RSBP PEBP In thousands of US dollars 2011 2010 2011 2010 2011 2010 Fair value of plan assets Beginning of year $118,513 $106,185 $11,252 $9,567 Participant contributions 964 915 77 105 Actual return on assets 18,344 13,494 1,760 1,169 Employer contributions 1,916 1,876 955 716 Benefits paid (4,407) (3,957) (344) (305) End of year $135,330 $118,513 $13,700 $11,252 $- $- Funded status 1 $27,546 $20,684 $(2,818) $(2,716) $(7,418) $(5,662) Accumulated Benefit Obligation $84,614 $77,883 $16,518 $13,968 $6,459 $5,169 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. The $27,546,000 relating to SRP at June 30, 2011 ($20,684,000 – June 30, 2010) is included in Net assets under retirement benefits plans on the Balance Sheet. 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 in fiscal year ended June 30, 2011 Net actuarial loss $3,054 $3,460 $3,973 $10,487 Prior service cost 264 - 24 288 Net amount recognised in Accumulated Other Comprehensive $3,318 $3,460 $3,997 $10,775 Loss Amounts included in Accumulated Other Comprehensive Loss in fiscal year ended June 30, 2010 Net actuarial loss $9,704 $3,376 $2,856 $15,936 Prior service cost 363 12 31 406 Net amount recognised in Accumulated Other Comprehensive $10,067 $3,388 $2,887 $16,342 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, 2012 are as follows: In thousands of US dollars SRP RSBP PEBP Total Net actuarial loss $309 $178 $290 $777 Prior service cost 99 - 7 106 Net amount recognised in Accumulated Other Comprehensive $408 $178 $297 $883 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. 106 | MIGA ANNUAL REPORT 2011 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. 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, 2011 and June 30, 2010: SRP RSBP PEBP In percent 2011 2010 2011 2010 2011 2010 Weighted average assumptions used to determine projected benefit obligations Discount rate 5.30 5.75 5.50 6.00 5.20 5.75 Rate of compensation increase 5.90 6.20 5.90 6.20 Health care growth rates - 6.90 7.00 at end of fiscal year Ultimate health care growth rate 4.00 4.25 Year in which ultimate rate is 2022 2022 reached Weighted average assumptions used to determine net periodic pension cost Discount rate 5.75 7.00 6.00 7.00 5.75 7.00 Expected return on plan assets 6.75 7.75 7.75 7.75 Rate of compensation increase 6.20 6.70 6.20 6.70 Health care growth rates - 7.00 7.00 at end of fiscal year Ultimate health care growth rate 4.25 4.75 Year in which ultimate rate is 2022 2017 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 3,200 (2,500) Investment Strategy The investment policies establish 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. MIGA ANNUAL REPORT 2011 | 107 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 rea- sonable level of confidence based on the actuarial assumptions. Given the relatively long investment horizons of the SRP and RSBP of approxi- mately 10 years, 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, and the portfolio is cur- rently in transition to the new SAA. The following table presents the actual and target asset allocation at June 30, 2011 and June 30, 2010 by asset category for the SRP and RSRP. In percent SRP RSBP Target Target Allocation % of Allocation % of Effective Plan Assets Effective Plan Assets January 2011 May 2011 Asset Class (%) 2011 2010 (%) 2011 2010 Fixed Income & Cash 31 32.6 40.6 24 33.2 35.7 Public Equity 27 23.9 15.5 29 26.6 22.6 Private Equity 15 20.2 19.8 20 24.9 25.6 Hedge Funds 15 10.8 13.3 15 8.1 10.4 Real Assets 12 12.5 10.8 12 7.2 5.7 Total 100 100 100 100 100 100 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 Risk management is an integral part of managing the assets of the plans. Liability-driven 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 SRP overall investment risk in the asset allocation process. The investment risk is regularly monitored at the absolute level, as well as at the relative levels with respect to policy benchmarks, and in the case of the SRP, to the liabilities. To assess the impact of extreme market events, stress tests are performed periodically using relevant market scenarios. Credit risk is controlled through the application of the eligibility criteria and concentration limits for transactions with individual issues. Counterparty risk exposure on over-the-counter derivatives is mitigated through the use of master netting arrangements and collateral. The Plan manages its liquidity risk primarily by investing a portion of the asset base in securities that are either very liquid or can be liquidated at a fairly short notice at a reasonable price and by maintaining an adequate cash cushion. The level of illiquid asset classes appropriate in the portfolio also takes into account projected liquidity requirements. Risk management for different asset classes is tailored to their specific characteristics and is an integral part of external manager due diligence. In addition, monitoring of performance (both manager and asset class) against benchmarks and compliance with investment guidelines are carried out as part of the risk monitoring process. 108 | MIGA ANNUAL REPORT 2011 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, 2011 and June 30, 2010. 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 MIGA ANNUAL REPORT 2011 | 109 Fair Value Measurements on a Recurring Basis as of June 30, 2010 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 $- $1,864 $- $1,864 $- $149 $- $149 Securities 2,452 - - 2,452 291 - - 291 purchased under resale agreements Government and 29,491 2,267 - 31,759 1,016.7 1,549 - 2,566 agency securities Corporate and con- - 4,962 42 5,004 - 853 3 856 vertible bonds Asset-backed securities - 1,288 545 1,832 - 53 18 70 Mortgage-backed - 7,384 248 7,632 - 140 6 145 securities Total Debt Securities 31,943 17,765 834 50,542 1,308 2,743 26 4,077 Equities US common stocks 2,969 - - 2,969 253 - - 253 Non-US common 9,435 - - 9,435 1,009 - - 1,009 stocks Mutual funds 532 - - 532 48 - - 48 Real estate investment 1,890 - - 1,890 12 - - 12 trusts (REITS) Total Equity Securities 14,826 - - 14,826 1,323 - - 1,323 Commingled funds - 6,001 - 6,001 - 1,179 - 1,179 Real estate (including - - 7,892 7,892 - - 632 632 infrastructure and timber) Private equity - - 23,557 23,557 - - 2,888 2,888 Hedge funds - 12,378 4,499 16,877 - 800 367 1,167 Derivative assets/ 48 (146) - (98) 1 61 - 62 liabilities Other assets/liabilities - - - (1,083) - - - (76) Total Assets $46,816 $35,997 $36,782 $118,513 $2,632 $4,783 $3,913 $11,252 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 may be 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 cash flow models using market-based parameters such as yield curves, interest rates, volatilities, foreign exchange rates and credit curves. Some debt securities are valued using 110 | MIGA ANNUAL REPORT 2011 techniques that require significant unobservable inputs. The selection of these inputs may involve some judgment. Plan management believes its estimates of fair value are reasonable given its processes for obtaining securities prices from multiple independent third-party vendors, ensuring that valuation models are reviewed and validated, and applying its approach 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 secu- rities exchanges are valued at the last reported sale price on the last business day of the fiscal year. 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 that 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. 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 inputs. The following tables present a reconciliation of Level 3 assets held during the years ended June 30, 2011 and June 30, 2010. 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. In thousands of US dollars SRP - Fair Value Measurements Using Significant Unobservable Inputs (Level 3), 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 3,240 the period Purchases, issuance and 3 26 (20) 395 1,678 (1,815) 267 settlements, 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 39,384 MIGA ANNUAL REPORT 2011 | 111 In thousands of US dollars RSBP - Fair Value Measurements Using Significant Unobservable Inputs (Level 3), Year Ended June 30, 2011 Corporate Asset- Mortgage- and con- Private Hedge backed backed Real Estate Total vertible Equity Funds Securities Securities Debt Balance as of July 1, 2010 3 18 6 2,888 632 367 3,913 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 25 40 413 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 8 3,412 889 298 4,624 In thousands of US dollars SRP - Fair Value Measurements Using Significant Unobservable Inputs (Level 3), Year Ended June 30, 2010 Corporate Asset- Mortgage- and con- Private Hedge backed backed Real Estate Total vertible Equity Funds Securities Securities Debt Balance as of July 1, 2009 49 352 1,811 18,560 6,553 18,447 45,772 Actual return on plan assets: Relating to assets still held 10 50 210 2,901 (183) 3,404 6,392 at the reporting date Relating to assets sold during 6 53 7 1,342 124 476 2,008 the period Purchases, issuance and set- (8) 140 (178) 754 1,398 (6,539) (4,432) tlements, net Transfers in (out) (15) (50) (1,603) - - (11,289) (12,957) Balance as of June 30, 2010 42 545 248 23,557 7,892 4,499 36,782 In thousands of US dollars RSBP - Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Year Ended June 30, 2010 Corporate Asset- Mortgage- and con- Private Hedge backed backed Real Estate Total vertible Equity Funds Securities Securities Debt Balance as of July 1, 2009 1 35 75 2,281 518 1,348 4,258 Actual return on plan assets: Relating to assets still held 0 (1) 6 355 (32) 91 419 at the reporting date Relating to assets sold during - 6 (0) 133 7 30 176 the period Purchases, issuance and set- (0) (26) (5) 119 139 (473) (246) tlements, net Transfers in (out) 2 4 (70) - - (629) (693) Balance as of June 30, 2010 3 18 6 2,888 632 367 3,913 112 | MIGA ANNUAL REPORT 2011 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, 2011. In thousands of US dollars SRP RSBP PEBP Before Medicare Medicare Part D Part D Subsidy Subsidy July 1, 2011 - June 30, 2012 $4,895 $313 $8 $433 July 1, 2012 - June 30, 2013 5,209 358 9 432 July 1, 2013 - June 30, 2014 5,500 404 10 456 July 1, 2014 - June 30, 2015 5,907 449 11 516 July 1, 2015 - June 30, 2016 6,273 495 13 557 July 1, 2016 - June 30, 2021 37,020 3,380 88 3,342 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, 2011 is $2,388,000 and $999,000, 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, 2011 and June 30, 2010 are as follows: In thousands of US dollars June 30, 2011 June 30, 2010 Fees charged by IBRD $9,758 $8,046 Fees charged by IFC 3,389 514 At June 30, 2011 and June 30, 2010, 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, 2011 June 30, 2010 Pension and Pension and Administrative Other Administrative Other Total Total Services Postretirement Services Postretirement Benefits Benefits IBRD $(3,040) $4,541 $1,501 $(2,867) $3,992 $1,125 IFC (1,043) - (1,043) (314) - (314) $(4,083) $4,541 $458 $(3,181) $3,992 $811 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, 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 MIGA ANNUAL REPORT 2011 | 113 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 the 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 the latent factor model of the Merton framework in credit risk modeling. The Economic Capital (EC) concept is a widely recognized risk management tool in the banking and insurance industries, defining the amount of capital an organization needs to hold in order to sustain larger than expected losses with a high degree of certainty, over a defined time horizon and given the risk exposure and defined risk tolerance. MIGA defines its economic capital as the 99.99th per- centile 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. EC-based risk measures are combined with nominal exposures and income information in a comprehensive portfolio exposure and risk report prepared for MIGA management on a monthly basis. 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 any 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 pre- payment 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 in FY11 by approximately $21.3 million (FY10: $6.1 million). 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 114 | MIGA ANNUAL REPORT 2011 in the USD/Euro year-end exchange rate would impact net income in FY11 by approximately $8.1 million (FY10: $11.6 million) and net guarantee exposure by approximately $203.4 million (FY10: $132.2 million). 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. 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 severe stress scenarios where claims situations propagate through contagion across countries and regions. As of June 30, 2011, there were claims filed with the Agency for $10 million. It is estimated that a claims payout would be made within a year, provided that the claim is valid. 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 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 operational risk management system to strengthen monitoring of the operational risks and controls in the financial reporting process, 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. 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. MIGA ANNUAL REPORT 2011 | 115 Appendices appendices Governors and Alternates Directors and Alternates: Voting Power MIGA Member Countries 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 116 | MIGA ANNUAL REPORT 2011 MIGA ANNUAL REPORT 2011 | 117 Governors and Alternates, as of June 30, 2011 Member Governor Alternate Afghanistan Omar Zakhilwal Mohammad M. Mastoor Albania Ardian Fullani Fatos Ibrahimi Algeria Karim Djoudi Abdelhak Bedjaoui Angola Ana Dias Lourenco Job Graca Antigua and Barbuda Harold E. Lovell Whitfield Harris, Jr. Argentina Amado Boudou Mercedes Marco del Pont Armenia Tigran Davtyan Vardan Aramyan Australia Wayne Swan David Bradbury Austria Maria Fekter Edith Frauwallner Azerbaijan Elman S. Rustamov Shahin Mustafayev Bahamas, The Hubert A. Ingraham 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 N. Rumas Andrei M. Kharkovets Belgium Didier Reynders Franciscus Godts Belize Dean Barrow Yvonne Sharman Hyde Benin Marcel de Souza Adidjatou A. Mathys Bolivia Elba Viviana Caro Hinojosa Luis Alberto Arce Catacora Bosnia and Herzegovina Nikola Spiric Boris Tihi 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 Clotilde Nizigama Leon Nimbona Cambodia Keat Chhon Aun Porn Moniroth Cameroon Louis Paul Motaze Dieudonne Evou Mekou Canada James Michael Flaherty Margaret Biggs Cape Verde Cristina Duarte Leonesa Lima Fortes Central African Republic Sylvain Maliko Bendert Bokia Chad Mahamat Ali Hassan Bichara Doudoua Chile Felipe Larrain Bascunan Rosanna Costa Costa China Xie Xuren Li Yong Colombia Juan Carlos Echeverry Garzon Hernando Jose Gomez Restrepo Congo, Democratic Republic of Mapon Matata Ponyo Jean-Claude Masangu Mulongo Congo, Republic of Pierre Moussa Leon Raphael Mokoko Costa Rica Fernando Herrero Acosta Rodrigo Bolaños Zamora Côte d’Ivoire Charles Koffi Diby Moussa Dosso Croatia Martina Dalic Zdravko Maric Cyprus Charilaos Stavrakis Christos Patsalides Czech Republic Miroslav Kalousek Tomas Zidek Denmark Soren Pind Ib Petersen Djibouti Ali Farah Assoweh Simon Mibrathu 118 | MIGA ANNUAL REPORT 2011 Governors and Alternates, as of June 30, 2011 (cont’d) Member Governor Alternate Dominica Roosevelt Skerrit Rosamund Edwards Dominican Republic Juan Temistocles Montas Daniel Toribio Ecuador Patricio Rivera Yanez Katiuska King Mantilla Egypt, Arab Republic of Fayza Aboulnaga Mounir Fakhry Abdelnour El Salvador Alexander Ernesto Segovia Juan Ramon 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 Jyrki Katainen Pentti Pikkarainen France Francois Baroin Ramon Fernandez Gabon Magloire Ngambia Roger Owono Mba Gambia, The Mambury Njie Mod A.K. Secka Georgia Dimitri Gvindadze Vera Kobalia Germany Dirk Niebel Joerg Asmussen Ghana Kwabena Duffuor Seth Terkper Greece Michalis Chrisochoidis Ioannis Drymoussis Grenada V. Nazim Burke Timothy Antoine Guatemala Erick Coyoy Echeverria Alfredo Del Cid Pinillos Guinea Kerfalla Yansane Souleymane Cisse Guinea-Bissau Helena Nosolini Embalo Jose Carlos Varela Casimiro Guyana Bharrat Jagdeo Ashni Singh Haiti Ronald Baudin Charles Castel Honduras William Chong Wong Maria Elena Mondragon Ordonez Hungary Roland Natran Laszlo Orlos Iceland Ossur Skarphedinsson Steingrimur J. Sigfusson 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 Kevin Cardiff Israel Stanley Fischer Michal Abadi-Boiangiu Italy Mario Draghi Carlo Monticelli Jamaica Audley Shaw Wesley George Hughes Japan Yoshihiko Noda Shinichi Nishimiya Jordan Jafar Hassan Saleh Al-Kharabsheh Kazakhstan Erbol Orynbayev Timur Suleimenov Kenya Uhuru Kenyatta Joseph Kanja Kinyua Korea, Republic of Jaewan Bahk Choongsoo Kim Kosovo Bedri Hamza (vacant) Kuwait Mustafa Al-Shamali Bader Mohamed Al-Saad Kyrgyz Republic Melis T. Mambetjanov Uchkunbek Tashbaev MIGA ANNUAL REPORT 2011 | 119 Governors and Alternates, as of June 30, 2011 (cont’d) Member Governor Alternate Lao People’s Democratic Republic Somdy Douangdy Somphao Phaysith Latvia Andris Vilks Artis Kampars Lebanon Nicolas Nahas Mohammad Safadi Lesotho Timothy T. Thahane Mosito Khethisa Liberia Augustine Kpehe Ngafuan Amara Konneh Libya (vacant) (vacant) Lithuania Ingrida Simonyte Rolandas Krisciunas Luxembourg Luc Frieden Arsene Jacoby Macedonia, former Yugoslav Republic of Zoran Stavreski Vladimir Pesevski Madagascar (vacant) (vacant) Malawi Ken Edward Kandodo Abi Marambika Shawa Malaysia Mohd. Najib Abdul Razak Wan Abdul Aziz Wan Abdullah Maldives Ali Hashim Ahmed As-ad Mali Lassine Bouare Sambou Wague Malta Tonio Fenech Alfred S. Camilleri Mauritania Sidi Ould Tah Mohamed Lemine Ould Ahmed Mauritius Pravind Kumar Jugnauth Ali Michael Mansoor Mexico Ernesto Cordero Arroyo Gerardo Rodriguez Regordosa Micronesia, Federated States of (vacant) Rose Nakanaga Moldova Veaceslav Negruta Dumitru Ursu Mongolia Bayartsogt Sangajav Purevdorj Lkhanaasuren Montenegro Milorad Katnic Nemanja Pavlicic Morocco Salaheddine Mezouar Nizar Baraka Mozambique Aiuba Cuereneia Ernesto Gouveia Gove Namibia Saara Kuugongelwa-Amadhila Ipumbu Shiimi Nepal Bharat Mohan Adhikari Krishnahari Baskota Netherlands Jan Kees de Jager Ben Knapen New Zealand Bill English Gabriel Makhlouf Nicaragua Alberto Jose Guevara Obregon Antenor Rosales Bolanos Nigeria Olusegun O. Aganga Danladi Kifasi Norway Erik Solheim Ingrid Fiskaa Oman Ahmed Macki Darwish bin Ismail Al Balushi Pakistan Salman Siddique Muhammad Saleem Sethi Palau Kerai Mariur Dennis Oilouch Panama Alberto Vallarino Clement Dulcidio De La Guardia Papua New Guinea Patrick Pruaitch Simon Tosali Paraguay Dionisio Borda Manuel Vidal Caballero Gimenez Peru Ismael Alberto Benavides Ferreyros Luis Miguel Castilla Rubio Philippines Cesar V. Purisima Amando M. Tetangco, Jr. Poland Michal Baj Andrzej Ciopinski Portugal Fernando Teixeira dos Santos Carlos Costa Pina Qatar Yousef Hussain Kamal Abdullah Bin Saoud Al-Thani Romania Gheorghe Ialomitianu Cristian Popa Russian Federation Aleksei Kudrin Elvira S. Nabiullina 120 | MIGA ANNUAL REPORT 2011 Governors and Alternates, as of June 30, 2011 (cont’d) Member Governor Alternate Rwanda John Rwangombwa Kampeta Sayinzoga St. Kitts and Nevis Denzil Douglas Janet Harris St. Lucia Stephenson King Isaac Anthony St. Vincent and the Grenadines Ralph E. Gonsalves Laura Anthony-Browne Samoa Faumuina Tiatia Liuga Iulai Lavea Saudi Arabia Ibrahim A. Al-Assaf Muhammad S. Al-Jasser Senegal Abdoulaye Diop Mamadou Abdoulaye Sow Serbia Mirko Cvetkovic Verica Kalanovic Seychelles Ahmed Afif Sherin Renaud Sierra Leone Samura Mathew Wilson Kamara Sheku S. Sesay Singapore Tharman Shanmugaratnam Peter Ong Boon Kwee Slovak Republic Ivan Miklos Viliam Ostrozlik Slovenia Franc Krizanic Mitja Mavko Solomon Islands Gordon Darcy Lilo Shadrach Fanega South Africa Pravin Jamnadas Gordhan Lesetja Kganyago Spain Elena Salgado Jose Manuel Campa Fernandez Sri Lanka Mahinda Rajapaksa P. B. Jayasundera 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 Chave Syrian Arab Republic Mohamad Nedal Al-Chaar (vacant) Tajikistan Abdughaffor A. Rahmonov Djamoliddin Nuraliev Tanzania Mustafa Haidi Mkulo Ramadhani Mussa Khijjah Thailand Korn Chatikavanij Areepong Bhoocha-Oom Timor-Leste Emilia Pires Joao Goncalves Togo Dede Ahoefa Ekoue Aheba Johnson Trinidad and Tobago Winston Dookeran Alison Lewis Tunisia Abdelhamid Triki Lamia Zribi Turkey Ibrahim H. Canakci Evren Dilekli Turkmenistan Annamuhammet Gochyev Gochmyrat A. Myradov 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, República Bolivariana de Jorge Giordani (vacant) Vietnam Nguyen Van Giau Nguyen Van Binh Yemen, Republic of Abdulkarim I. Al-Arhabi Mutahar Abdulaziz Al-Abbasi Zambia Situmbeko Musokotwane Likolo Ndalamei Zimbabwe Tendai Biti Gideon Gono MIGA ANNUAL REPORT 2011 | 121 Directors and Alternates: Voting Power, as of June 30, 2011 Director Alternate Casting votes of Total votes % of total Elected by the votes of the six largest shareholders Ian H. Solomon (Vacant) United States 32,805 15.03 Nobumitsu Hayashi Takaya Kishi Japan 9,220 4.23 Ingrid G. Hoven Ruediger Von Kleist Germany 9,177 4.21 Ambroise Fayolle Anne Touret-Blondy France 8,806 4.04 Susanna Moorehead Stewart James United Kingdom 8,806 4.04 Yang Shaolin Zou Ciyong China 5,771 2.64 Elected by the votes of other shareholders Rudolf Treffers Tamara Solyanyk Armenia, Bosnia and Herzegovina, Bulgaria, 11,786 5.40 (Netherlands) (Ukraine) Croatia, Cyprus, Georgia, Israel, Macedonia (former Yugoslav Republic of), Moldova, Montenegro, Netherlands, Romania, Ukraine Gino Alzetta (Belgium) Konstantin Huber Austria, Belarus, Belgium, Czech Republic, 11,049 5.06 (Austria) Hungary, Kosovo, Luxembourg, Slovak Republic, Slovenia, Turkey Marie-Lucie Morin Kelvin Dalrymple Antigua and Barbuda, The Bahamas, 10,171 4.66 (Canada) (Barbados) Barbados, Belize, Canada, Dominica, Grenada, Guyana, Ireland, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines Merza H. Hasan (Kuwait) Ayman Alkaffas Bahrain, Egypt (Arab Republic of), Iraq, 8,601 3.94 (Arab Republic of Jordan, Kuwait, Lebanon, Libya, Maldives, Egypt) Oman, Qatar, Syrian Arab Republic, United Arab Emirates, Yemen (Republic of) Anna Brandt (Sweden) Jens Haarlov Denmark, Estonia, Finland, Iceland, Latvia, 7,894 3.62 (Denmark) Lithuania, Norway, Sweden Piero Cipollone (Italy) Nuno Mota Pinto Albania, Greece, Italy, Malta, Portugal, 7,866 3.60 (Portugal) Timor-Leste Hassan Ahmed Taha Denny H. Kalyalya Botswana, Burundi, Eritrea, Ethiopia, The 7,648 3.50 (Sudan) (Zambia) Gambia, Kenya, Lesotho, Liberia, Malawi, Mozambique, Namibia, Rwanda, Seychelles, Sierra Leone, Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe Marta Garcia (Spain) Juan Jose Bravo Costa Rica, El Salvador, Guatemala, 7,638 3.50 Moises (Mexico) Honduras, Mexico, Nicaragua, Spain, Venezuela (República Bolivariana de) Rogerio Studart (Brazil) Vishnu Dhanpaul Brazil, Colombia, Dominican Republic, 7,612 3.49 (Trinidad and Ecuador, Haiti, Panama, Philippines, Tobago) Suriname, Trinidad and Tobago James Hagan (Australia) In-Kang Cho Australia, Cambodia, Korea (Republic of), 7,542 3.46 (Republic of Korea) Micronesia (Federated States of), Mongolia, New Zealand, Palau, Papua New Guinea, Samoa, Solomon Islands, Vanuatu 122 | MIGA ANNUAL REPORT 2011 Directors and Alternates: Voting Power, as of June 30, 2011 (cont’d) Director Alternate Casting votes of Total votes % of total Elected by the votes of other shareholders (cont’d) Pulok Chatterji (India) Kazi M. Aminul Islam Bangladesh, India, Sri Lanka 7,171 3.29 (Bangladesh) Javed Talat (Pakistan) Sid Ahmed Dib (Algeria) Afganistan, Algeria, Ghana, Iran (Islamic 7,091 3.25 Republic of), Morocco, Pakistan, Tunisia Jorg Frieden (Switzerland) Michal Krupinski Azerbaijan, Kazakhstan, Kyrgyz Republic, 6,914 3.17 (Poland) Poland, Serbia, Switzerland, Tajikistan, Turkmenistan, Uzbekistan Agapito Mendes Dias Mohamed Sikieh Kayad Benin, Burkina Faso, Cameroon, Cape Verde, 6,864 3.15 (São Tomé and Principe) (Djibouti) Central African Republic, Chad, Congo (Democratic Republic of), Congo (Republic of), Côte 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 6,452 2.96 (Indonesia) Bohan (Malaysia) Republic, Malaysia, Nepal, Singapore, Thailand, Vietnam Vadim Grishin Eugene Miagkov (Russian Russian Federation 5,769 2.64 (Russian Federation) Federation) Abdulrahman M. Ibrahim Alturki (Saudi Saudi Arabia 5,769 2.64 Almofadhi Arabia) (Saudi Arabia) Felix Alberto Camarasa Varinia Cecilia Daza Argentina, Bolivia, Chile, Paraguay, Peru, 5,731 2.63 (Argentina) Foronda (Bolivia) Uruguay Renosi Mokate Mansur Muhtar Angola, Nigeria, South Africa 4,059 1.86 (South Africa) (Nigeria) In addition to the directors and alternates shown in the foregoing list, the following also served after November 1, 2010: Director End of period of Alternate director End of period of service service Michel Mordasini March 14, 2011 Irfa Ampri May 1, 2011 (Switzerland) (Indonesia) Chang Junhong November 9, 2010 (China) Michihiro Kishimoto February 7, 2011 (Japan) Do-Hyeong Kim April 26, 2011 (Republic of Korea) Note: Guinea (332 votes) and Madagascar (417 votes) did not participate in the 2010 Regular Election of Directors. MIGA ANNUAL REPORT 2011 | 123 MIGA Member Countries – 175 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 – 150 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 • Nigeria • Rwanda • Senegal • Seychelles • Sierra Leone • South Africa • Sudan • Swaziland • Tanzania • Togo • Uganda • Zambia • Zimbabwe Countries in the Process of Fulfilling Membership Requirements – Developing Countries – 3 Comoros, Niger, and São Tomé and Principe 124 | MIGA ANNUAL REPORT 2011 Signatories to MIGA’s Convention, as of June 30, 2011 Afghanistan Dominican Republic Liberia São Tomé and Principe* Albania Ecuador Libya Samoa Algeria Egypt, Arab Republic of Lithuania Saudi Arabia Angola El Salvador Luxembourg Senegal Antigua and Barbuda Equatorial Guinea Macedonia, FYR of Serbia Argentina Eritrea Madagascar Seychelles Armenia Estonia Malawi Sierra Leone Australia Ethiopia Malaysia Singapore Austria Fiji Maldives Slovak Republic Azerbaijan Finland Mali Slovenia Bahamas, The France Malta Solomon Islands Bahrain Gabon Mauritania South Africa Bangladesh Gambia, The Mauritius Spain Barbados Georgia Mexico Sri Lanka Belarus Germany Micronesia, Fed. States of Sudan Belgium Ghana Moldova Suriname Belize Greece Mongolia Swaziland Benin Grenada Montenegro, Republic of Sweden Bolivia Guatemala Morocco Switzerland Bosnia and Herzegovina Guinea Mozambique Syrian Arab Republic Botswana Guinea-Bissau Namibia Tajikistan Brazil Guyana Nepal Tanzania Bulgaria Haiti Netherlands, The Thailand Burkina Faso Honduras New Zealand Timor-Leste Burundi Hungary Nicaragua Togo Cambodia Iceland Niger* Trinidad and Tobago Cameroon India Nigeria Tunisia Canada Indonesia Norway Turkey Cape Verde Iraq Oman Turkmenistan Central African Republic Iran, Islamic Republic of Pakistan Uganda Chad Ireland Palau Ukraine Chile Israel Panama United Arab Emirates China Italy Papua New Guinea United Kingdom Colombia Jamaica Paraguay United States Comoros* Japan Peru Uruguay Congo, Democratic Republic of Jordan Philippines Uzbekistan Congo, Republic of Kazakhstan Poland Vanuatu Costa Rica Kenya Portugal Venezuela, R. B. de Côte d’Ivoire Korea, Republic of Qatar Vietnam Croatia Kuwait Romania Yemen, Republic of Cyprus Kyrgyz Republic Russian Federation Zambia Czech Republic Lao People’s Dem Rep. Rwanda Zimbabwe Denmark Latvia St. Kitts and Nevis Djibouti Lebanon St. Lucia Dominica Lesotho St. Vincent and the Grenadines * Non-member country MIGA ANNUAL REPORT 2011 | 125 Subscriptions to the General Capital Increase, as of June 30, 2011 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 2,867,300 126 | MIGA ANNUAL REPORT 2011 Subscriptions to the General Capital Increase, as of June 30, 2011 (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 MIGA ANNUAL REPORT 2011 | 127 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 128 | MIGA ANNUAL REPORT 2011 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 Rockland Steel Trading Ltd. Africa Juice BV Africa Pty. Ltd Rodeo Power Pte Ltd Agro-Industrial Investment and Hitachi Construction Machinery Sasol Gas Holdings (Pty) Ltd. Development SA Southern 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 SN Power Holding Singapore PTE Ltd. Banque Nationale de Paris (Guayaquil) B.V. Société Malienne de Promotion Barloworld Equipment UK Limited Intertek International Ltd Hôtelière S.A. Bartrac Equipment GBL Investcom Global Ltd. Sojitz Corporation Bergenshalvoens Kommunale Itochu Corporation Sonatel Kraftselskap 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 Logísticos Umeme Holdings limited Office National de Telcomms."TUNISIE Dubai Islamic Bank UniCredit Bank AG TELECOM" East West Gold Corporation UniCredit MedioCredito Centrale S.p.A. ONDD EDF International UNION FENOSA Desarrollo y Orange Participations SA Energy Engineering Investment Ltd Acción Ext.-UFACEX Orascom Telecom Eskom Vattenfall AB Orca Credit Holdings LLC Finrep Ges M.B.H Wesdeutsche Landesbank Girozentrale Organization de Ingeniería 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 MIGA ANNUAL REPORT 2011 | 129 Photo Credits Cover Scott Wallace, World Bank Group; WestLB AG; Vattenfall AB page 4 Mark Elton, MIGA page 6 Suzanne Pelland, MIGA page 8, 9 Mohamed Abdmouleh; Wu Zhiyi, World Bank Group page 10 Ryan Rayburn, World Bank Group page 13 Ryan Rayburn, World Bank Group; Suzanne Pelland, MIGA page 15 Frank Vincent, World Bank Group page 16, 17 UPM Fray Bentos, Uruguay; africaJUICE; Mark Elton, MIGA page 19 africaJUICE; Rebecca Post, MIGA page 23 UPM Fray Bentos, Uruguay; Michael Foley, World Bank Group page 24, 25 ProCredit Holding©; Karo Dis Ticaret ve Sanayi Ltd. Sti.; Alan Narayadu, MIGA page 27 WestLB AG; Suzanne Pelland, MIGA; ProCredit Holding© page 36 Curt Carnemark, World Bank Group page 40 World Bank Group page 46 UPM Fray Bentos, Uruguay page 49 Dana Smillie, World Bank Group page 51 Mark Elton, MIGA page 60 Mark Green, Financial Times page 61 miga.org page 62 Vattenfall AB page 66 Mark Elton, MIGA page 68 Simone D. McCourtie, World Bank Group page 70, 71 Natalia Cieslik, World Bank Group; UPM Fray Bentos, Uruguay; ProCredit Holding© page 116, 117 Mark Elton, MIGA; Mark Elton, MIGA; Mohamed Abdmouleh ISBN 978-0-8213-8914 130 | MIGA ANNUAL REPORT 2011 Contact Information Senior Management Izumi Kobayashi ikobayashi@worldbank.org Executive Vice President James P. Bond jbond@worldbank.org 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 Guarantees Nabil Fawaz nfawaz@worldbank.org Agribusiness, Manufacturing, and Services Olivier Lambert olambert@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 MIGA ANNUAL REPORT 2011 | 131 INSURING INVESTMENTS r ENSURING OPPORTUNITIES 132 | MIGA ANNUAL REPORT 2011 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 978-0-8213-8914