Guarantees Program

Through its Guarantee Program, the World Bank aims to:

  • Mobilize private investment (equity and debt) for strategic projects or sector support
  • Mitigate key government-related risks to enable financial viability and bankability
  • Enhance the credit quality of sovereign and sub-sovereign obligors to achieve acceptable or affordable levels
  • Reduce costs and improve financing terms for projects and governments
  • Ensure long-term sustainability of projects

Main Features

  • World Bank Guarantees provide “AAA” risk mitigation with respect to obligations due from government, political sub-divisions, or government-owned entities to private investors (e.g. equity, debt, contractors, etc.) and to foreign public entities on cross-border projects
  • Risk mitigation is of a partial nature and aims to promote balanced risk allocation between government and private investors, or between public entities in cross-border projects

World Bank Guarantees are suitable for:

  • Domestic or international investors
  • Foreign or local currency obligations
  • Domestic or international markets
  • Project financing, corporate financing, and project, corporate or sovereign bonds

·        World Bank Guarantees are flexible and adaptable to multiple contractual structures
·        Tenors may extend to up to 35 years
·        Pricing is concessional

Risks Covered - World Bank Guarantees are suitable to cover a wide array of government-related risks, such as:

  • Contractual risk e.g. payment risk, performance risk, etc.
  • Regulatory risk e.g. change in law, negation or cancellation of license, tariff adjustments, etc.
  • Currency risk e.g. convertibility, transferability, etc.
  • Political risk e.g. expropriation, war and civil disturbance, etc.

In general, World Bank Guarantees are suitable to cover any government-related risks which is not of a purely commercial nature.

Benefits of World Bank Guarantees - World Bank Guarantees offer multiple advantages to the various stakeholders involved in strategic government investments and programs.

For Private Investors - The advantages of World Bank Guarantees for private investors include:

  • Improvement of the overall credit quality of the investment through the partial use of a “AAA” rated instrument to mitigate key risks
  • Reduction or elimination of key risk drivers which are beyond the control of private investors
  • Mitigation of counterparty risk with governments, political sub-divisions, or government-owned entities
  • Strong support to maintain or open new markets despite credit downturns
  • Project bankability, sustainability, and replicability

For Governments

  • Facilitate Public Private Partnerships
  • Attract private sector investors to strategic sectors requiring large and long-term investments
  • Diversification of financing sources beyond development financing
  • Reduction of project costs and cost of commercial financing to affordable levels
  • Reduction of government risk exposure through sharing with private sector investors
  • Reduction of fiscal burden by reducing the need for direct government guarantees
  • Project bankability, sustainability, and replicability

The track record of the World Bank as a provider of Guarantees demonstrates that its involvement is a key factor of project success. Through mobilization of private financing and mitigation of government-related risks for strategic projects and policies, our Guarantee Program supports economic growth and improves public services, thereby contributing to the World Bank’s twin goals of poverty reduction and shared prosperity.


The World Bank Guarantee Program offers two main types of Guarantees:

 

Project-based Guarantees

Project-based Guarantees are applied in the context of specific investment projects where governments wish to attract private investment (equity and/or debt). They are designed to provide risk mitigation with respect to key risks which are essential for the viability of the investment.

These Guarantees may fall under one of the following sub-categories:

Loan Guarantees – intended to provide risk mitigation to commercial lenders with respect to debt service payment defaults caused directly or indirectly by government failure to meet specific payment and/or performance obligations arising from contract, law or regulation. Such as:

- Payment of debt service on commercial loans taken by private projects which rely on contracts with government for their cash flows e.g. tariff level agreed under an implementation agreement between government and a project.

- Payment of debt service on commercial loans taken directly by government

Payment Guarantees – intended to provide risk mitigation to private projects or to foreign public entities with respect to payment default on non-loan related obligations by government. Such as:

- Scheduled or unscheduled pre-determined payment obligations arising from contracts, law or regulation e.g. monthly payments under a Bulk Purchase Agreements (such as power or water purchase agreements), termination payment due under a Government Support Agreement or an airport concession contract as a result of a change in law, etc.

More information on Project-based Guarantees

 

Policy-based Guarantees

Policy-based Guarantees are applied in the context of development policy operations where the World Bank supports a member country with their program of policy and institutional actions that promote growth and sustainable poverty reduction.

This type of Guarantee is intended to provide risk mitigation to commercial lenders with respect to debt service payment defaults by government, when the proceeds of the financing are applied to budgetary support in the context of development policy operations.

More information on Policy-based Guarantees

 


The World Bank applies the following criteria to determine if a given project or policy is eligible for World Bank Guarantee support:

  • The relevant project or policy must be implemented in a member country suitable for IBRD or IDA support.
  • The project or policy must have a clear and defined development impact. It must promote broad-based economic growth, contribute to social and environmental sustainability, enhance the effectiveness of the public or private sector, or otherwise contribute to the development of member states.
  • There must be a need to mobilize private investment (equity or debt) or mitigate government payment risk.
  • The project, whether it is public or private, must be of strong interest to, and have the express commitment of, the host Government.
  • The project must be technically and financially viable and sustainable in the short, medium and long-term.
  • The project can be public or private. If it is a private project, it might be eligible for a World Bank Guarantee if it is the direct beneficiary of an obligation from the Government, a political sub-division of Government, or a Sovereign Owned Entity, which can be guaranteed by the World Bank.
  • In the case of Loan Guarantees, the debt must be extended by commercial entities. World Bank Guarantees are not available to support bilateral debt or debt extended by publicly owned entities that operate under public law for public policy purposes (e.g. DFIs, ECAs).
  • The project must be capable of meeting the World Bank Group environmental, social, and anti-corruption guidelines.
  • In the case of Policy-based Guarantees, the member country must have an adequate macroeconomic policy framework and must also commit to a specific reform program, including sector or macroeconomic policies and country systems. 

The implementation of a World Bank Guarantee requires the establishment of contractual relationships amongst the government as obligor, the private investors as beneficiaries, and the World Bank as Guarantor. It also requires a direct contractual relationship between the World Bank and the member country.

The following are the basic contracts that are required for a World Bank Guarantee. Exceptionally, depending on the specific structure of a project, other contracts may be required.

Guarantee Agreement
This is a contract between the World Bank (IDA/IBRD) and the beneficiaries of the Guarantee. This contract incorporates the terms and conditions of the Guarantee, such as tenor, covered events, conditions, termination and suspension events, etc. In the case of Loan Guarantees it is customary to have the Guarantee Agreement incorporated into the guaranteed loan agreement.

Project Agreement
These are agreements to be entered between the World Bank (IDA/IBRD) and the project company and/or the sovereign/sub-sovereign, depending on the specific structure. These contracts incorporate standard undertakings to IDA/IBRD such as use of proceeds from the underlying financing, proper operation of the project, compliance with World Bank environmental standards, etc.

Guarantee Support Agreement
This is a contract amongst the government, the project company and the World Bank, whereby the government undertakes to pay the project company the amounts that are past due, in the event that the government-owned entity or the sub-sovereign which is the direct obligor fails to make the payments as due. This contract allows governments to address the default situation without triggering the World Bank Guarantee unnecessarily.

Indemnity Agreement
This is a contract between a member country (the sovereign government) and the World Bank, whereby the government will indemnify IDA/IBRD in the event that IDA/IBRD make payments to the beneficiaries under the Guarantee.

 

Pricing of World Bank Guarantees is set by the World Bank Board following the same principles as those applied to its lending instruments.  Level of guarantee fees is set at IBRD and IDA level and is not adjusted by country or project related risks.

Pricing of World Bank Guarantees includes upfront and recurring fees, both of which are generally paid by the implementing entity in the case of project based guarantees and by the Government in the case of policy based guarantees.  Once guarantee-related fees are fixed for a specific guarantee, they remain unchanged for the life of that guarantee.

The following table summarizes the pricing structure and fee levels for World Bank Guarantees.

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Bank Guarantees are an effective instrument to mobilize commercial financing for development purposes. As of 2015, 34 guarantee transactions utilizing US$4 billion in IBRD/IDA commitments supported mobilization of US$12.6 billion of commercial financing plus US$18.6 billion of public financing. In addition, 19 guarantee transactions utilizing US$3.7 billion in IBRD/IDA commitments have been approved by the World Bank Board and are in the final negotiations with private financiers. These 19 transactions are expected to mobilize US$16 billion in commercial financing. 

Project Name

Country

Project Summary

Link to External Site

OSSH Electricity Privatization

Albania

Summary

Project Details

Argentina Policy Based Guarantee

Argentina

Summary

Project Details

Hairpur Power Project

Bangladesh

Summary

Project Details

Morupule B Power Project

Botswana

Summary

Project Details

Thermal Power Plant Guarantees

China

Summary

Project Details

Kribi Power Plant

Cameroon

Summary

Project Details

Colombia Policy Based Guarantee

Colombia

Summary

Project Details

CI-27 Gas Field Expansion

Cote D’Ivoire

Summary

Project Details

Azito Power Project

Cote D’Ivoire

Summary

Project Details

Sankofa Gas Project

Ghana

Summary

Project Details

Amman East Power Plant Project

Jordan

Summary

Project Details

TCC Bond Issue

Jordan

Summary

Project Details

Kenya Electricity Modernization Program

Kenya

 

Project Details

Guarantee Series for IPPs

Kenya

Summary

Project Details

East Africa Trade and Transport Facilitation Project

Kenya, Uganda

Summary

Project Details

Nam Theun 2 Hydropower Project

Lao PDR

Summary

Project Details

Banda Gas to Power Project

Mauritania

Summary

Project Details

Southern Africa Regional Gas Project

Mozambique

Summary

Project Details

Power Sector Guarantees Project

Nigeria

Summary

Project Details

Dasu Project

Pakistan

Summary

Project Details

NPC Bond Issue

Philippines

Summary

Project Details

Taiba Ndaiye IPP Project

Senegal

Summary

Project Details

Phu My 2-2

Vietnam

Summary

Project Details

West Africa Gas Pipeline

Regional

Summary

Project Details

 



Guarantees Portfolio Overview
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Modernizing the Bank's operational policy on Guarantees