International Finance Corporation

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International Finance Corporation
IFC promotes sustainable private sector
investment in developing countries, helping to
reduce poverty and improve peoples lives.
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Private Sector Development in the Electric Power
Sector The IFC Experience in the 90s

• Rafael V. Dominguez
• Operations Evaluation Group
• International Finance Corporation

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IFC facilitated private sector participation in
power in the 90s

• Financed 57 projects (29 were evaluated)
• Undertook 33 advisory operations
• Supported 7 grant-funded energy efficiency
  renewable energy projects

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IFC projects achieved good outcomes

• Quick solution to supply shortages
• Met a compelling economic need
• Helped improve sector efficiency reliability
• Stimulated further private sector investments
• Reduced fiscal burden

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.but good project outcomes alone not sufficient
to induce wide reforms

• Projects focused on 1 sub-sector, generation
  first to reform
• T D reform more complex takes time
• Reform commitment waned once shortages resolved
• Country financial crises disrupted reform process

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Project impacts on the ground four
sustainability attributes
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IFC power projects better than
averagedevelopment investment outcomes
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Good development outcomes paired with good
investment outcomes
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Success drivers

• Timely project development execution
• Good structuring risk management
• Incentive/penalty-based contracts (win-win for
  the economy and the financiers)
• Sound environmental practices

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Good investment climate is important

• Sector fundamentalsadequate tariff levels
  payment discipline
• Legal frameworkrule of law dispute resolution
  
• Regulatory frameworkstrong, independent
  transparent regulatory institutions, well defined
  separation from state utility

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Obstacles

• Transmission distribution bottlenecks
• Low demand growth
• Commercial technical difficulties
• Perception of high cost
• Loss of government commitment

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Lessons

• Projects can be structured to succeed in a given
  stage of reform
• Step-wise sector privatization, even if only
  partial, is feasible better than none
• Good contractual arrangements insufficient to
  make projects viable - - must be competitive
• Market forces alone cannot ensure timely
  availability of service

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Issues going forward

• T D slow to open up
• Reduced private capital flows in all sectors
• Competition from advanced markets for scarce
  power investments
• Negative perception of private sector in power
• Withdrawal of many U.S. power developers earlier
  active in developing countries

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Private Sector Development in the Electric Power
Sector The MIGA Experience
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Multilateral Investment Guarantee Agency (MIGA)

• Mission Promoting foreign direct investments to
  improve peoples lives and reduce poverty
• Provides political risk insurance (guarantees) to
  investors and lenders
• Established in 1988
• First guarantee in power issued in 1994

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MIGAs activities in power

• Supported 39 projects total cost 10 billion
• Mostly generation projects in Latin America and
  Asia
• Evaluated 8 projects for this study
• Paid 1 claim to investor, mediated disputes in
  other potential claims

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MIGA achieved good overall outcomes

• Helped resolve power shortages
• Induced further private sector investments
• Contributed to improving living standards

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