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Re-engaging Investors

How the World Bank Group removes generation risks in emerging markets.

Fortnightly Magazine - February 2006

new ones. Bulgaria has enjoyed annual economic growth rates of at least 4 percent for the past four years, nearly double the average growth in European Union (EU) countries. And when it joins the EU, as expected, that will provide another level of political and regulatory stability to the country, which will further enhance the investment climate.”

The new AES Maritza East 1 plant represents a new generation of environmentally compliant, efficient power facilities. The plant is expected to be fully operational in 2009.

The agreement between the guarantee holders and MIGA paved the way for syndication of long-term commercial bank funding, which the arrangers said was dependent on MIGA’s involvement.

International lenders are concerned about the risks of transfer restriction and currency inconvertibility, which can drive up financing costs. MIGA’s transfer restriction and currency inconvertibility coverage protects investors against losses from an inability to convert local currency into foreign exchange for transfer outside the host country. Even when governments impose a moratorium on moving currency, as members of the World Bank Group they may agree to exclude MIGA-insured projects and permit the transfer.

MIGA’s insurance complements support from the European Bank for Reconstruction and Development in the form of A and B loans, guarantees from Coface and Hermes, and local and international commercial banks.

Political risk insurance cannot remove the uncertainties associated with infrastructure investments, but the combination of sound deal structure and clear and reasonable expectations by all parties can mitigate some of these risks.