MIGA: Supporting Iceland’s Investors in Emerging Markets June 2006

1. MIGA: Supporting Iceland’s Investors in Emerging Markets June 2006 WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY

2. The World Bank Group created 1944 IBRD International Bank for Reconstruction and Development 1960 IDA International Development Agency 1956 IFC International Finance Corporation 1966 ICSID International Centre for the Settlement of Investment Disputes 1988 MIGA Multilateral Investment Guarantee Agency Promote FDI with the use of guarantees and TA

3. What is MIGA? • Member of World Bank Group • 167 members • Capital: $2 billion • Capacity: up to $9 billion • Gross/Net Exposure: $5.1 b/$3.3 b • FDI Facilitated: Over $50 b • Coverage in more than 85 countries • Private and public partners

4. MIGA’s Services We promote FDI into developing countries through: • Political risk guarantees for investors/lenders • TA for developing country IPAs • Online investment promotion: • Ipanet, PrivatizationLink and FDIXchange • Investment dispute mediation services

5. On-Line Services for Investors, Lenders The Investment Promotion Network: www.ipanet.net PrivatizationLink: www.privatizationlink.com FDI Xchange: www.fdixchange.com

6. MIGA Guarantees: Insurance…….but also risk management CREDIT ENHANCEMENT • improves the overall risk-return profile of the project • may reduce provisioning requirements for lenders • may lower cost of financing, lengthen tenors • can protect corporate balance sheet CONFIDENCE • deterrent against host government interference • gives investors confidence investing in frontier markets • mediation of investment disputes STABILITY • provides stable environment for business operations + WORLD BANK GROUP “STAMP OF APPROVAL”

7. Risk Management CreditEnhancement Confidence political risk insurance for projects Better Prospect of compensation reduction of both capital costs and financing cost deterrence of adverse host government actions greater interest from debt and equity investors project risk / return profile improves for all investors investors gain confidence more deals are closed

8. MIGA Guarantees Investors/ financialinstitutions CommercialRisk Non-commercial Risk MIGA • Coverages • Transfer restriction and currency inconvertibility • Expropriation • War and civil disturbance • Breach of contract Cross border

9. Coverage: Transfer Restriction/ Inconvertiblity • inability to convert local currency into forex • inability to transfer forex out of host country • excessive delays in acquiring forex • currency depreciation not covered

10. Coverage: War/Civil Disturbance/Terrorism/Sabotage • damage/disappearance of tangible assets • longer-term business interruption

11. Coverage: Expropriation • nationalization and confiscation • “creeping” expropriation • expropriation of funds • partial expropriation (case by case) • includes sub-sovereigns

12. Coverage: Breach of Contract • breach or repudiation of a contract or agreement with government entity • non-enforcement of an arbitration • includes sub-sovereigns

13. Types of investments covered • New investments (incl. modernization, restructuring, expansion, etc.) • 3-15 (20) years • Up to 90% of investment amount; up to 95% of loans • No minimum amount; high ceilings • Equity and quasi-equity • Shareholder loans and loan guaranties • Non-Shareholder loans • Capital Markets transactions • Technical Assistance • Management Contracts • Leases • Franchising and Licensing Agreements • Performance Bonds • O&M Agreements

14. Guarantee process • Preliminary application (online, no fee) • Must be done before investor commits to project • Completely confidential and non-binding • Definitive application • MIGA due diligence • Host country approval • Board concurrence • Guarantee signed by MIGA and investor

15. Claims Experience • Over 800 contracts ($14 billion) issued • Three claims filed and paid • 2000: Indonesia power plant -- $15 m – expropriation • 2004: Nepal hydroelectric station -- $145,000 – civil war damage • 2005: Argentina – expropriation (ca. $1.5 million) • Extensive experience successfully mediating disputes • Most in power, mining sectors • Transfer restriction – multilateral exception for MIGA-covered investments: • 1998 – Russia • 2001 – Argentina • 2004 -- Venezuela

16. Typical Project Structure Loan Guarantee Foreign Investor Bank Equity Loan Iceland Peru Shareholder Loan Project Enterprise

17. Guarantees Portfolio Europe and Central Asia Latin America/Caribbean Africa Asia and the Pacific Middle East and North Africa 45 25 16 13 3 $5.1 B Infrastructure Financial Oil, Gas and Mining Agribusiness and Manufacturing Tourism and Services 39 39 9 8 5 Gross Exposure, by sector and region*, in percent (as of 06/30/05) * Figures exceed 100% due to master contract with one client

18. Case Study 1: Hydro Power – Laos The Proposal Significant hydropower potential but very limited internal electricity demand Major electricity market but limited internal energy resources US$1.25 B trans-basin power plant in Lao PDR with transmission facilities to the Thai border Laos Tailand Thailand Project Project

19. Case Study 1: Hydro Power – Laos Overcoming Obstacles ISSUES SOLUTION Lao Government budget limitations Limited environmental and technical capabilities of Laos USD1.5 B cost Commercial lenders would not assume political risks in Laos or Thailand Public Private Partnership WB advisory and technical assistance + experienced international power developer: EDF Project Finance scheme Political Risk Guarantees

20. Case Study 1: Hydro Power – Laos Project Structure World Bank ADB MIGA NTP 1 EDF 1 EGGO US $ Banks Thai Baht Banks Shareholder Agreement & Equity Bilateral Agencies ECAs Loans Nam Theun 2 Power Company

21. Case Study 1: Hydro Power – Laos Risk Allocation • Risks associated with relationship between Laos and Thailand leveraged through contractual obligations of both governments • Additional leverage created through equity ownership by state-owned power companies of both countries • Social and environmental problems resolved through the World Bank involvement • Laos state-owned company contributes equity using IDA funds • Project developed with 80% debt-to-equity ratio. Debt arranged by 9 leading commercial banks along with guarantees from MIGA, PRG, ADB and ECAs • Funds provided by Thai banks

22. Case Study 1: Hydro Power – Laos Main Risks to Lenders • Breach of Concession in Lao: Non-payment of termination payments triggered by • Confiscation of assets • Declared wars • Embargoes • Expropriation • Breach of the Power Purchase Agreement in Thailand: • Defaults on payments for electricity by EGAT; • Non-payment of termination payments under the PPA • Transfer Restriction (as a default option for the Breach of Contract) • Expropriation through administrative, legislative and regulatory decisions for which there were no termination payments in the contracts • War and Civil Disturbance unrelated to the actions of both governments

23. Case Study 1: Hydro Power – Laos MIGA’s Value-Added • Assisted in: syndication of larger amount of funds by Fortis bank and extension of finance period • Provided customized solution to multi-country risks: MIGA covered not only political risks in Laos but risks in Thailand (breach of the purchase agreement between the project and Thai state-owned company, EGAT) • Collaborated with sister agencies MIGA worked side by side with ADB and PRG to provide equal playing field for other arrangers

24. Case Study 2: Geothermal Power – Kenya • $119 m in guarantees for OrPower 1 and 4 • Coverage against all 4 risks • BoC coverage for Site Agreement • Investor: Ormat (Israel) • Olkaria geothermal fields in Rift Valley • Phase 1: 12 MW; Phase 4: 48 MW • Alternative to hydro • Significant local employment, sourcing of goods and services • Revenues for government • Extensive mediation in past 2 years

25. Case Study 3: • SME Telecoms/IP Investment – Sierra Leone • $2.8 m guarantee against 3 risks • Conflict-affected country • Limited, unreliable, expensive internet access • Israeli investor ($3 m equity investment) • Fixed line broadband wireless access and voice-over IP network • Covered under MIGA’s Small Investment Program: • coverage up to $5 m (no minimum) • streamlined process • special pricing • 3-risk “package” (no BoC coverage)

26. thank you! www.miga.org Elena Palei Ph: +1-202- Fax: +1-202-522-2630 E: epalei@worldbank.org Keith Martin Ph: +1-202-473-2815 Fax: +1-202-522-2630 E: kmartin@worldbank.org