With more than 41 million people, São Paulo is Brazil’s most populous state. While its transport network is one of the most developed and modern in Brazil, it is still insufficient for the state’s current and future needs.
The State of São Paulo has sought to address the situation for some time and the World Bank has played an important role through lending and technical assistance. An important component of this work is the São Paulo State Sustainable Transport Project that aims to rehabilitate roads in several key corridors and reconstruct two bridges.
Yet, with a total cost estimated at $729 million, this project faced a major financing hurdle. In September of 2013, the World Bank approved a $300-million loan toward the initiative. But with growing demand for loans from Brazil’s poorest states, the bank was unable to commit additional funds. The State of São Paulo itself committed $129 million. That left a shortfall of $300 million.
The challenge the project faced was to mobilize the additional funds at an acceptable cost. The World Bank and the State of São Paulo moved quickly to look for a solution.
A successful partnership
“Looking at the investment needs of the project and the constraints of the World Bank’s lending envelope, we knew we had to catalyze and leverage private-sector resources to provide a comprehensive financial solution to the client,” says Miguel Navarro-Martin, Head of Banking Products at the World Bank’s Treasury—which mobilizes financial resources from external sources as an important area of its work.
A partnership with the Bank Group’s Multilateral Investment Guarantee Agency (MIGA) was a natural answer. In addition to political risk insurance, MIGA provides credit enhancement products that protect commercial lenders against non-payment by a sovereign, sub-sovereign, or state-owned enterprise.
In an innovative move, the State of São Paulo bid out the project to commercial banks with a requirement that their loans be backed by MIGA’s credit enhancement instrument.
The result? MIGA issued guarantees to Banco Santander of Spain on a $300-million loan. MIGA’s support to this milestone project will help make the State of São Paulo’s transport system more reliable, safe, and resilient to natural disasters.
“Santander is proud to participate in this project—together with World Bank and MIGA’s support—that will contribute to improving the State of São Paulo's transport and logistics efficiency, safety, and disaster risk management,” says Octaviano Couttolenc Mestre, Global Head of Export & Agency Finance for Banco Santander.
Together, the MIGA-backed and World Bank loans will finance the rehabilitation and upgrading of 650 kilometers of roads and the reconstruction of two bridges for inland waterway transport on the Tiete River. These improvements will reduce logistics costs to benefit local and regional industry. The state also expects the project to increase employment and wages across a wider geographic area.