DFID MULTI-LATERAL AID REVIEW Submission from the PIDG

Transcription

1 DFID MULTI-LATERAL AID REVIEW Submission from the PIDG 1. Introduction The Private Infrastructure Development Group (PIDG) welcomes the opportunity to present this contribution to DFID s Multilateral Aid Review. This brief paper and its annex seek to assist DFID in its review of the PIDG s general relevance, relevance to DFID s objectives and the value for money of DFID s contribution to the PIDG. 2. The Importance of Infrastructure for Reducing Poverty and Achieving the MDGs The importance of economic growth as a means of reducing poverty and improving the quality of life in developing countries and the role of infrastructure in promoting economic growth is well documented. Access to even basic infrastructure services is severely lacking across the developing world. In lowincome countries there are an estimated 884 million people without access to safe water, 1.6 billion without electricity, 2.5 billion without sanitation, and more than 1 billion without access to telephone services 1. Lack of modern energy sources, safe water and access to markets and information sharply limit the reach and effectiveness of health care, education and economic opportunities available to poor people. Attainment of the MDGs depends in significant part, and in some cases critically, on improvements in infrastructure services (see the Annex for more information on these vital linkages). Despite its clear benefits for growth and poverty reduction, infrastructure spending is far below what is needed. Moreover, that gap widens as country incomes fall. The World Bank estimates 2 that developing countries need over US$900bn of investments in infrastructure per year, for both new investment and maintenance of existing infrastructure to sustain broader economic growth, thereby contributing towards meeting the MDGs. However, developing countries today spend less than half this amount. Expenditure on infrastructure will thus need to increase rapidly in the period up to the MDG target date of 2015 in order to provide the infrastructure and services necessary for growth and sustained poverty reduction. Of the USD$400 billion per year currently spent on infrastructure in developing countries, calculations 3 indicate that around 68% came from government revenues and borrowing, 28% from private sector investment (PSI) with the remaining 4% coming from official aid programmes recorded as ODA. Governments alone will not be able to meet the funding gap and ODA is unlikely to increase markedly over the medium term. Increasing PSI must therefore play a key role in helping to plug the funding gap. 3. The PIDG The PIDG is a multi-donor membership organisation established by DFID and other donors in 2002 to help plug the funding gap. The reason for creating the PIDG was a belief that certain market and institutional failures constrain the participation of the private sector in infrastructure development and a view that specific initiatives targeted against such failures would foster economic growth and reduce poverty. The PIDG currently has eight members Austria, Germany, Ireland, Sweden, Switzerland, The Netherlands and the UK, plus the World Bank Group, represented by the IFC. 4. Results Achieved (to 31 July 2010) The PIDG has established a number of companies and facilities to address some of the constraints, which have not only been successful in stimulating PSI in infrastructure, but also in delivering pro-poor development outcomes in terms of increased access to infrastructure, increased fiscal benefits and increased employment. The PIDG aims to ensure that its members contributions act as a catalyst for additional funding (and in some cases operational participation) from the international commercial and DFI banking sectors, financial investors and strategic industrial infrastructure companies. The PIDG s mission to mobilise PSI for infrastructure in developing countries achieves results through two channels. The first (the facility channel ) is when investors put their money into PIDG vehicles alongside the PIDG Trust, whose collective financial capacity now totals over US$1 billion. Two examples of facility channel mobilisation 1 World Bank, Sustainable Infrastructure Action Plan FY World Bank Sustainable Infrastructure Action Plan FY Based on DAC Statistics, country level GDP figure and the WB Infrastructure database. 1

2 are, first, that PIDG commitments to EAIF of US$150 million have secured US$450 million commitments from the commercial and DFI banking sectors. Second, PIDG commitments to GuarantCo of US$100 million have generated commitments of US$300 million from the international commercial and DFI banking sector. The second channel (the project channel ) is the investment committed by the private sector into infrastructure projects that are developed or part-financed by PIDG vehicles. Since inception to 31 July 2010, total PSI committed in PIDG-supported projects through the project channel stands at $10.5 billion 4. Results Achieved by the PIDG Facilities (to 31 July 2010): (i) (ii) (iii) (iv) (v) The Emerging Africa Infrastructure Fund Ltd (EAIF) provides long-term hard currency debt to private investors in infrastructure projects in sub-saharan Africa (SSA), where risks are perceived as unacceptably high by commercial lending institutions. EAIF has committed over US$430m in loan financing to 23 projects that have reached financial close, which are expected to deliver almost US$5.7bn of PSI commitments and new infrastructure services to 11.4m people in SSA 5. EAIF s support for pioneering transactions in mobile phone expansions in SSA, at a time when commercial banks were reluctant to provide financing, were pivotal in supporting development and have helped provide services to over 170m people across SSA. GuarantCo Ltd (GuarantCo) provides guarantees for local currency investment for infrastructure projects in the poorer developing countries, thereby also helping to develop local capital markets. GuarantCo has provided guarantees of the equivalent of US$100m to 8 projects that have reached financial close, helping mobilise PSI commitments of over US$1.5bn and serving 8.5m people with new/improved infrastructure 6. GuarantCo has consistently developed innovative transactions and has been a leader in the field of DFI local currency guarantees. In late 2009 it finalised a guarantee for a slum redevelopment project in Mumbai, India, which had been in danger of abandonment due to the financial crisis, and which is expected to result in around 150,000 slum dwellers benefitting from improved living conditions. InfraCo Africa & InfraCo Asia act as principal developers, assuming the upfront costs and risks associated with early-stage project development and thereby reducing the entry costs for investors. InfraCo Africa has successfully developed and sold four projects to date, which have generated PSI commitments of almost US$600m crowding in substantial equity and debt investments and therefore having a major catalysing impact on PSI. These projects are expected to provide 11m people in SSA served with new or improved electricity connections 7. InfraCo Africa is a prominent developer of renewable energy projects it is actively developing a wind farm project in Cape Verde and hydro projects in Zambia. InfraCo Asia was only established in 2010 but has already identified a strong pipeline of projects which it expects will deliver maximum development impacts in line with PIDG objectives. DevCo is a transaction advisory facility, supporting governments in preparing and structuring infrastructure projects for private investment. DevCo has supported 36 transactions, of which 19 have successfully reached financial close impacts from these transactions are expected to include PSI commitments of US$2.4bn and over US$1bn in up-front fees to developing country governments 8. DevCo s portfolio includes 6 projects in the water & sanitation sector, which are predicted to generate US$390m in PSI and serve over 2.8m people with new and/or improved service. Infrastructure Crisis Facility-Debt Pool LLP (ICF-DP) provides a conduit for DFI funding to unlock ongoing PSI supported infrastructure projects in developing countries, which have stalled because of the current debt crisis. 4 PIDG 2009 Annual Report (AR) figure: 46 financially closed PIDG-supported projects expected to generate total PSI commitments of US$9.4bn AR figure: 22 financially closed projects expected to deliver around $5.66bn PSI commitments and provide new infrastructure to 10.48m people 6 No change to figures reported in 2009 AR AR figure: 3 sold projects expected to generate US$148m in PSI commitments and provide access to infrastructure services to over 2m people AR figure: 34 total transactions of which 13 had reached financial close expected impacts from these: PSI commitments of almost US$2bn and US$960m up-front fees 2

3 Established in late 2009, ICF-DP has already provided US$45m to two projects adversely affected by the financial crisis, ensuring their continuation and having a strong signalling effect to regional markets 9. (vi) The Technical Assistance Facility (TAF) provides grant funding for local capacity building in association with any of the above PIDG facilities/companies. TAF has approved US$13.7 million in grants, 85% of which have been utilised in DAC I and II countries and more than 97% in Sub-Saharan Africa 10. At 31 July 2010, PIDG donors had disbursed a total of US$390 million to PIDG 11, of this US$200m came from DFID (51% of the total). This has enabled PIDG companies and facilities to support 79 projects in over 35 countries 12, of which 72% are in the Least Developed Countries (LDCs) and Other Low Income Countries 13 (columns I and II of the OECD DAC List of ODA Recipients), and 58% are in SSA. Of this portfolio of projects, 55 have reached financial close and have generated PSI commitments of US$10.5 billion 14, meaning that every $1 of PIDG donor funding has helped, or is expected to help, deliver $27 of private sector investment in infrastructure in developing countries 15. PIDG-supported projects that have already achieved financial close are expected to generate significant fiscal impact of US$2.5 billion in up-front fees to government and US$1.1 billion in avoided subsidies 16. Once construction has been completed, these projects are expected to also provide new and/or improved infrastructure services to over 50 million people, direct employment (short-term and long-term) to around 170,000 people 17, as well as helping to facilitate (and contributing to) increased economic activity and growth in the countries concerned. The PIDG is constantly reviewing the current market and institutional situation in its target countries to assess what the needs are and, where appropriate, to design new interventions to meet these demands. 5. Value for money The results have been achieved with total administration costs from 2002 to 31 July 2010 of US$8.16m 18 (equivalent to around 0.5% of funds under management per year). Whilst the PIDG companies initially use a portion of PIDG members funding for working capital, the administrative costs of the companies are ultimately expected to be met from profits generated by each company. This is already being achieved by EAIF, which is now achieving annual profits of c. US$5 million, and is well on the way to being achieved by GuarantCo and InfraCo Africa. Overall management and coordination of the PIDG is carried out by the Programme Management Unit (PMU), selected by international competitive tender, with approximately 4 full-time equivalent staff. 6. Management for results The PIDG structure allows those best equipped to undertake the various activities of the PIDG to do so as efficiently and effectively as possible, harnessing private sector capabilities. The PIDG members provide their funding through a trust resident in the UK for tax purposes, but which has sovereign immunity for tax purposes. SG Hambros Trust Company Ltd, based in London, acts as Principal Trustee. The PIDG companies each have a Board of Directors. The Boards, in consultation with the PIDG members, have outsourced the day to day activities of the companies to professional fund managers/project developers through international competitive tender. Overall policy and strategy are set by the PIDG members, investment decisions are taken by the Boards and project identification and portfolio management are the responsibility of the managers. The progress, achievements and development impact of the PIDG facilities/companies are continually 9 As a new PIDG facility, no impacts were recorded for ICF-DP in the 2009 AR 10 No change to figures reported in 2009 AR AR figure: US$360m, of which DFID had disbursed US$179m (49%); each US$1 of PIDG donor funding disbursed had been followed by PSI commitments of US$ AR figure: 72 projects 13 With per capita Gross National Income (GNI) of less than $935 in See footnote 4 for 2009 AR figure 15 See footnote 11 for 2009 AR figure AR figure: 46 financially closed PIDG-supported projects expected to generate US$2.4bn in up-front fees and US$400m in avoided government subsidies AR figure: 29.8m people expected to be served with new and/or improved infrastructure, over 170,000 short and long-term jobs created; AR figure: US$6.41m 3

4 monitored by the PMU through a results monitoring framework agreed with the PIDG members. All projects are assessed for their expected developmental impact ex-ante and the PIDG sets ambitious annual targets for the facilities/companies in their logframes, which form a central part of their business plans and which they report against regularly. PIDG supported projects that completed their construction phase two years ago are now being monitored for actual impacts to ensure that PSI and developmental targets are being delivered on the ground. Both ex-ante and ex-post, actual development impact indicators are monitored, updated and published by the PMU. The results to date for these 12 projects show actual development impact to be higher than that predicted for all key indicators. In addition to results monitoring, the PMU commissions independent reviews of each facility/company on a three to four year cycle. To date, all of these have been positive, with any recommendations for improvement being quickly incorporated. In addition, an independent review in 2008 of DFID s Private Sector Infrastructure Investment Facilities 19 found the PIDG facilities to be relevant, innovative and to have a successful track record. 7. Cross cutting issues Increased infrastructure service provision is essential if there is to be any hope of achieving MDGs 1 6. Improved transport access, coupled with clean water and sanitation, are major components of reducing infant mortality and increasing life expectancies. Electricity provision supports improved health and education outcomes, and displaces inefficient and polluting alternatives. Improved access to water and modern energy provision help reduce the daily burden of women and girls freeing up time for other activities (e.g. commerce and/or education). In addition, the PIDG s unique approach brings together donors, recipient country governments, development finance institutions, international banks and private sector developers in order to deliver development results through infrastructure, thereby also addressing MDG 7. The PIDG delivers aid efficiently and effectively at country level, under a single reporting and monitoring framework, in spite of their being different members. It is thus in full conformity with the Paris principles for aid harmonisation and has a proven track record in this area. All PIDG projects must comply with IFC environmental and social standards. Not only does this ensure that appropriate standards are maintained on PIDG-supported projects, but also has the knock-on effect of encouraging improved standards by private sector partners on projects which they undertake without participation from the PIDG. With regard to transparency, the PIDG publishes full details of its activities on its website ( and produces a detailed Annual Report which is available on the website. 8. Reforms The PIDG members regularly review whether the PIDG is meeting donor and country requirements and whether there is more the PIDG can and should be doing, for example: There is still a significant need to build local capacity (in both the public and the private sectors) to deal with the demands of increased PSI. The continuation of grant funding for local capacity building through the TAF will be a key element to the delivery of this. There is a need for PIDG, through the TAF, to stimulate results-based support for projects serving very poor people, using Output Based Aid methods. Work is currently underway to develop a facility (again as a privately managed and outsourced operation) that will increase PSI in the renewable energy sector in sub-saharan Africa to help meet the dire energy shortage in the region in a manner that is both environmentally sound and sustainable in the longer-term. This facility has been named Green Africa Power (GAP). 9. Conclusion Increasing levels of PSI in infrastructure is vital to achieving the MDGs and other DFID goals. The PIDG is a unique multilateral organisation specifically dedicated to this objective. It has a proven track record and the need for continuing and, in some instances, expanding PIDG activities over the next few years is great. This will require continuing grant support from its donor base. The PIDG is a DFID invention and DFID support has been crucial to its success. Such support will remain essential. PIDG Programme Management Unit August Desk Review of DFID s PSI Facilities, WSP

5 Annex Group Criterion Description Relevance to DFID s objectives 1. Strategic fit Important Role in delivering UK development priorities with country level evidence of this and key international development goals PIDG supported projects help provide infrastructure which is a necessary prerequisite for the achievement of a broad range of the MDGs. Improved energy, transport, information & communication technologies (ICT), etc. encourage and facilitate the increased commercial industrial activity needed to drive the economic growth needed for sustained poverty eradication, and improved water & sanitation reduces disease and enables greater workforce participation, particularly by the poor (MDG 1). Adequate transport communications facilitate access to education in previously unserved areas; improved access to water and energy frees up children s time for education and allows reading and studying to take place in evenings; and ICT allows greater access to educational resources particularly to remote areas (MDG 2). Access to modern energy sources and improved water supplies reduces the domestic burden on women and girls, freeing up time to participate in broader activities of their own choosing (MDG 3). Transport access to medical centres helps reduce child mortality and, coupled with a clean water supply and adequate sanitation, helps improve child and maternal health (MDGs 4 and 5). Improved transport ensures access to health facilities, and clean water & sanitation reduces the prevalence of disease and is a significant element of HIV/AIDS programmes (MDG 6). The development of modern clean alternative energy sources helps improve environmental sustainability, and increasing access to water & sanitation is a key target of MDG 7 (MDG 7). The general PIDG approach to infrastructure service provision (local consultation and participation), coupled with the multi-donor PIDG structure helps develop a global partnership for development (MDG 8). Country level examples include: The InfraCo Africa Kalangala project in Uganda provides clean water, solar powered energy and transport access to a previously unserved, isolated and poor rural community; The EAIF Olkaria project in Kenya will produce clean geothermal power and provide new and/or improved energy to more than 1 million people, many in rural areas; EAIF s Seacom cable project will be the first provider of high bandwidth in East Africa, helping to create a modern telecom infrastructure for the region, directly meeting MDG 7 Target 5 ( In cooperation with the private sector, make available benefits of new technologies, especially information and communications ) The GuarantCo telecommunication project in Chad, which facilitates communications in previously 5

6 unserved areas, helps to boost commercial activities and increase incomes in one of the world s poorest countries; DevCo s support for investment in Liberia s power sector, which increases electricity generation from a level of little more than 2MW to up to 20MW, facilitates increased transmission to currently unserved areas, thus promoting growth and helping tackle extreme poverty. 2. Geographic fit Allocates aid to countries that need it The PIDG concentrates its activities on those countries in columns I and II of the OECD DAC List of ODA Recipients with an emphasis on Sub-Saharan Africa and the poorer countries of South Asia, which face the largest deficits in infrastructure provision per capita. Although some PIDG projects are in countries in column III (e.g. India) these target particularly poor sectors (e.g. slum upgrading). o As at 31 July 2010, PIDG supports 79 projects in 35 countries 20 o 72% of PIDG projects are in DAC 1 and 2 countries o 58% are in Sub-Saharan Africa Allocates aid to countries where it will be best used. PIDG supported projects respond to demand from the private sector in order to meet specific market or government failures that prevent the private sector from investing in infrastructure in developing countries. Hence, there is no allocation of aid in the traditional sense. Instead, PIDG supported projects either respond to requests from potential private sector investors, who are unable to access from other sources the necessary finance to advance projects, or to help governments develop projects to a level where they are able to attract private sector investment. The PIDG is constantly reviewing the current market and institutional situation in its target countries to assess what the needs are and, where appropriate, to design new interventions to meet these demands. Development Effectiveness 3. Results Demonstrates delivery against objectives. Contributes to development of humanitarian results The PIDG s mission is to mobilise private-sector investment for infrastructure... in developing countries. Since its inception in 2002 to 31 July 2010, the PIDG s portfolio of financially closed projects have received PSI commitments of US$10.5 billion 21, from a total investment by the PIDG donors of US$390m, of which DFID has contributed US$200m (51%) 22 ; thus every $1 of PIDG donor funding has helped deliver a total of $27 of investment in infrastructure in developing countries See footnote 12 for 2009 AR figure 21 See footnote 4 for 2009 AR figure 22 See footnote 11 for 2009 AR figure 23 See footnote 11 for 2009 AR figure 6

7 In addition to the above, financially closed PIDG supported projects are expected to generate a direct fiscal stimulus by contributing US$2.5 billion in upfront fees to the exchequer of the poorer developing countries from private sector investors, plus US$1.1 billion in avoided subsidies 24. They are also expected to directly lead to 4,500 short-term jobs during their construction phase and over 160,000 long term jobs during their implementation phase, along with a significant number of indirect jobs created due to the multiplier effect 25 The projects are expected to provide new and improved infrastructure services to over 50 million people 26, in addition to contributing more generally to poverty reduction through facilitating economic growth in some of the world s poorest countries and regions. Going forward, the PIDG has set ambitious targets for the period for its facilities, as follows: o Increase private sector investment in infrastructure by an additional US$6.6bn in poorer developing countries by end 2012, through PIDG-supported projects, o Ensure at least 75% of private sector investment in infrastructure facilitated by the PIDG to be in columns I and II of the OECD DAC List of ODA Recipients, o Increase availability/ improve quality of infrastructure services in poorer developing countries, to an additional million people by end 2012; and o Generate a positive fiscal impact - US$12.5 million of savings from successfully closed DevCo projects each year. 4. Cost Controls Administrative Costs Overall coordination and management is provided by the PMU, which is designed to be lean and cost effective. Annual administration costs are currently 0.5% of disbursed funds under management. All PIDG costs are audited annually by external auditors and the audit reports are forwarded to donors for comment. PIDG companies keep control of expenditure through a budget process and audit. Full financial details of all PIDG facilities are presented to the donors for detailed examination and review. Achieves economy in purchase of programme inputs All PIDG procurement adheres to EU/World Bank procurement processes (as relevant) and seeks to minimise costs whilst achieving maximum value for money. Fees paid to NEDs are set by donors and reviewed regularly. Fund managers are appointed on the basis of open, competitive tender. 24 See footnote 16 for 2009 AR figure 25 See footnote 17 for 2009 AR figure 26 See footnote 17 for 2009 AR figure 7

8 The PMU is selected on the basis of open, competitive tender. Rates of return and cost effectiveness issues are important factors in decision making The fact that PIDG supported projects are all taken forward by the private sector using their own money, ensures that these provide strong financial returns. Company boards seek to ensure that projects also provide strong developmental value and thus generate appropriate economic returns at country level. All PIDG facilities, and the PIDG programme as a whole, are subject to a three to four yearly cycle of external review which includes an examination of cost effectiveness. All reviews to date have been positive. Challenges and supports partners to think about value for money All loans and guarantees issued by PIDG facilities are subject to detailed due diligence by the relevant Fund Management Team which ensures that the implementing partner has adequately addressed all relevant issues, including value for money. If a local developing country partner needs help to address issues because of a lack of staffing knowledge/capacity, TAF support is available to assist the partner improve their ability in the relevant area. Similarly, if a partner government lacks experience in ensuring that it is achieving maximum value for money from a potential PSI investment, PIDG will provide grant support through the TAF to help build local capacity as necessary. In seeking to bring in PSI to existing infrastructure, DevCo works closely with the relevant government departments to ensure that value for money and other issues are fully understood and taken into account in reviewing available options. 5. Partnership behaviour Contributes to donor harmonisation By its very nature as a multi-donor facility, PIDG is a vehicle for donor harmonisation in the promotion of PSI in infrastructure in the poorer developing countries. PIDG works closely with other multi-donor facilities (PPIAF, CLIFF, WSUP, GPOBA) in order to ensure good coordination with their activities and contributes to these where appropriate. PIDG has strong links with, and frequently partners at a project level, a number of IFIs/RDBs (e.g. World Bank Group, African Development Bank and the Asian Development Bank) as well as with DFIs active in the infrastructure sector in PIDG target countries (e.g. FMO, KfW, Proparco, etc). Aligns with country partners The PMU monitors closely the adherence of PIDG supported projects to published and agreed country development plans. PIDG members consult with their country offices on PIDG supported projects as they deem appropriate in order to ensure coordination with development objectives agreed between recipient governments and the 8

9 broader donor community. The vast majority of PIDG-supported projects are regulated, and thus by definition have full support from the recipient government. The PIDG facilities and companies also work in close conjunction with local financiers and project sponsors, often jointly identifying and developing suitable infrastructure projects. This interaction contributes to local capacity building. Because the PIDG facilities always adhere to the highest international standards, in some cases this also increases the quality of the project and the local partners working standards. Adheres to Paris Principles One of the main raisons d être for PIDG is to promote and encourage donor collaboration and coordination on the delivery of development assistance. The PIDG provides a biannual forum for broad donor discussion on strategy and approaches to the encouragement of PSI to infrastructure in the poorer developing countries which are attended not only by PIDG contributing donors, but other interested donors and organisations. The success of PIDG as a donor coordination facility can be judged by the increase in membership from the initial support from DFID at its inception in 2002 to an eight donor organisation in 2010, with other donors showing an active interest in joining. Has flexibility which enables a country-led approach The PIDG financing facilities are market-led and therefore are flexible and responsive to market needs, as well as the requirements of individual countries for infrastructure financing. The PIDG development facilities always work in close cooperation with host country governments in order to deliver their projects. DevCo projects are initiated in direct response to formal requests from governments for assistance and therefore are led by the requirements of local governments. InfraCo Africa also works closely with local governments on its projects on its Cabeolica wind farm project, it stepped in at the request of the Government of Cape Verde to take over a project which was flagging, and successfully turned it around and brought it to near completion. InfraCo Asia will do the same. TAF responds directly to government requests to undertake capacity building programmes, in order to improve their ability to undertake infrastructure projects with the private sector, and therefore works closely with them at all times. For example, on the Kenya-Uganda Railways project, TAF funds are supporting the activities of the Governments of Kenya and Uganda in their efforts to facilitate the creation and strengthening of private SMEs to support the newly privatised railway. 9

10 Organisational Effectiveness 6. Strategic Performance Management Incorporates beneficiary voice Whenever possible and appropriate, the PIDG works with local CBOs and NGOs in order to maximise the pro-poor benefits of projects in which it is involved. On the Kalangala project in Uganda, InfraCo Africa organised a series of meetings with local communities at village level in order to agree proposals for a water treatment and reticulation and the number, location and management arrangements for standpipes. In India, where GuarantCo provided a guarantee to help finance the expansion of a cement production facility, TAF funding is being used to work with local NGOs to develop a women s cooperative to produce concrete blocks using subsidised cement provided by the factory. In Zambia, the Chanyanya irrigation project developed by InfraCo Africa, has helped local villagers form a co-operative to invest in the company which now provides irrigation water to their increasing incomes by a factor of 10. Strategy Delivers Mandate PIDG was formed in order both to encourage increased PSI in infrastructure in the poorer developing countries to increase economic growth and service provision and to provide a platform for donor coordination in this area. Since its launch in 2002 to 31 July 2010, 55 financially closed PIDG-supported projects have received a total of US$10.5 billion in PSI commitments 27. From its initial funding base of just DFID, PIDG now has eight contributing donors who between them have, to 31 July 2010, disbursed US$390 million in PIDG activities. Of this, DFID contributions total approximately US$200m (51%) 28. At the fund level, the donor contribution has brought in commitments totalling US$1 billion to the various PIDG facilities. At the project level, each US$1 of PIDG donor funding disbursed has been followed by PSI commitments of US$ PIDG supported projects currently completed or underway will provide new and/or improved infrastructure services to over 50 million people 30. Leadership is effective PIDG has been designed such that the decision making processes at the various stages of programme and project development are allocated to those best equipped to deal with them. 27 See footnote 4 for 2009 AR figure 28 See footnote 11 for 2009 AR figure 29 See footnote 11 for 2009 AR figure 30 See footnote 17 for 2009 AR figure 10

11 Overarching strategy and policy for both the PIDG and its various facilities is the responsibility of its member donors. Management of the overall PIDG programme as a whole is handled by the PMU, who act as the interface between the members and the facilities and are responsible for ensuring that the policy and strategy is adhered to. Investment decisions, within the agreed investment policy, are the responsibility of the various boards, which comprise individuals with a mix of banking and development experience. (In the case of DevCo and TAF, individual investments are approved on a no objection basis by donors.) Project identification and development is the responsibility of experienced Fund Managers selected on a competition basis from private sector organisations with experience in providing such services in developing country environments. Measures results and uses them to improve decision making. Has a strong evaluation function The PIDG operates a comprehensive results monitoring programme both at the project and at the programme level. At the programme level, all PIDG facilities are required to submit an annual Business Plan for the approval of donors. This includes a full logical framework with all the log frames for the various PIDG facilities being brought together in a cascading logframe for the PIDG as a whole. At each of the twice yearly PIDG meetings the relevant facility/programme manager is required to report progress against the logframe targets and the PMU is required to report progress against the overarching PIDG logframe. At the project level, upon project approval the facility/programme manager is required to complete a standard results monitoring sheet giving details of expected outputs and outcomes against an agreed list of target activities for the PIDG (e.g. PSI attracted, number of people to be provided with services, etc). Following project implementation, a project completion report is completed by the PMU Development Advisor who compares actual achievement against original expectations and highlights areas that need to be addressed moving forward. In addition, all PIDG facilities are subject to a three to four yearly cycle of full evaluation by an independent reviewer who looks at all aspects of operations, including an in-depth look at a selected group of projects. Project completion reports are brought together annually for examination by both facility boards and donors to enable adjustments to be made to policies/strategies/arrangements as necessary in order to address areas highlighted. Full evaluations are subject to detailed discussion at the twice-yearly meetings of donors and action is taken to address any identified shortcomings or areas of concern. 11

12 Has good HR policies and practices The PIDG has no direct employees with all required services being bought in from experienced service providers following competitive tenders let under EU/World Bank procurement rules (as appropriate). At the company level, directors ensure that the reward and remuneration arrangements for fund management staff are both appropriate and linked to the delivery of results. 7. Financial Resources Management Funding allocations are transparent Funding by donors is through a trust, with the principal trustee being SG Hambros Trust Company Ltd in London. Audited accounts of the PIDG Trust are produced annually and these are distributed to donors for circulation through their systems. Donor contributions are published on the PIDG website ( and in the Annual Report, listing the PIDG facilities to which they have contributed. Funding of projects by the PIDG facilities is similarly published on the PIDG website and in the Annual Report. Each PIDG company produces annual audited accounts. Partner Country Views 8. Client Rating Funding is performance based Donor funding for the PMU is allocated on a rolling three year cycle on the basis of a Business Plan and the requirements of donors Funding is based on evidence of proof of need in the next 6 month period and evidence of how previous disbursements have been used. Has effective scrutiny mechanisms. Instruments are appropriate The PIDG and the PMU and all PIDG companies are subject to annual independent external audits. The boards of the PIDG companies have Audit Committees The managers report to the directors of the company, who are in turn responsible for ensuring that such investments are in accord with the investment policy set by the donors. Partner countries view the multilateral as an important and effective development partner Each periodic review of the PIDG facilities (and there are on average now two per year) seeks views on the appropriateness of the facility in meeting the needs of both governments in expanding their infrastructure, and the private sector, on the efficiency and effectiveness of the facility in responding to a request for support. To date, without exception, governments have reported that the PIDG and its facilities are bridging a real gap in the market by helping to leverage in much needed PSI to their provision of infrastructure services. 12

13 Reform Scope 9. Likelihood of change Private sector investors (and the international DFIs) have praised the PIDG facilities on the speed of their decision making and the professionalism of the inputs of their management teams. Positive reforms that will improve relevance and/or effectiveness are likely to take place The PIDG is constantly striving to improve its effectiveness and assess the development impact it delivers, and undertakes a continuous review process of at each level of operations to ensure that it remains relevant to country and market needs and also to the goals of its donors. o All the PIDG facilities, companies, and the PMU are reviewed every three to four years through an independent review to ensure that they remain effective and relevant. Any recommendations for improvements which arise from these reviews are always addressed and implemented where practicable. o The PIDG recently undertook a strategy session with its donor members in order to assess progress to date and to agree on a suitable direction and way forward for the PIDG s operations. This is a regular process. o The PIDG is in the process of undertaking a review of its governance procedures, in order to determine whether the processes currently in place still represent best practice and whether there are any areas for improvement. The PIDG has shown itself to be a very flexible organisation which has been able to adjust and adapt to the changing requirements of its target sector/countries. Initially (i.e. in 2002) long-term debt was seen as the main constraint to PSI in infrastructure and EAIF was established to address this. However, over the years other constraints have arisen from changes in the investment climate and financial market stresses and these have been addressed by the establishment of additional facilities specifically designed to target these: o DevCo was established in 2002 to help structure existing government infrastructure service facilities so as to attract PSI. o The TAF was established in 2003 to help overcome local human capacity constraints to PSI in infrastructure. o GuarantCo was established in its current form in 2006 to facilitate more local PSI to the infrastructure sector. o InfraCo Africa was established in 2005 specifically to development green field projects for PSI to overcome a lack of capacity in a broad range of infrastructure service sectors. o InfraCo Asia was launched in o The ICF-debt pool was established in 2009 as a short-term response to the world financial crisis which had stalled a number of PSI infrastructure projects in PIDG target countries due to a shortage of available debt at affordable prices. The PIDG also continually assesses current market and country needs to identify if there are market failures or unfilled gaps which the PIDG could address. Current areas identified include: 13

14 o o o There is still a significant need to build local capacity (in both the public and the private sectors) to deal with the demands of increased PSI. The continuation of grant funding for local capacity building through the TAF will be a key element to the delivery of this. There is a need for PIDG, through the TAF, to stimulate results-based support for projects serving very poor people, using Output Based Aid methods. Work is currently underway to develop a facility (again as a privately managed and outsourced operation) that will increase PSI in the renewable energy sector in sub-saharan Africa to help meet the dire energy shortage in the region in a manner that is both environmentally sound and sustainable in the longer-term. This facility has been named Green Africa Power (GAP). Cross-cutting issues 10. Cross cutting issues Adapts to fragile contexts Private investors are reluctant to invest in developing countries immediately post conflict but, as things start to stabilise, PSI for infrastructure services can play an important part in economic and political recovery. The PIDG and its facilities are ideally placed to encourage and facilitate such investment. To date, activity in this area has included assistance by DevCo for the private sector participation in the power sector in Liberia, and the use of a GuarantCo guarantee to help bring in private investment to the telecommunications sector in the West Bank. In April 2010 DevCo also successfully concluded the Haiti Telecom project, representing Haiti s largest FDI following the earthquake. PIDG will stand ready (and actively seek) opportunities to further assist in the development of states emerging from conflict and/or disaster. Promotes gender equality Access to piped water and modern energy sources, such as those provided by a number of projects supported by PIDG, free up the time of women and girls to undertake commercial activities and for education. Where appropriate and possible, the PIDG draws upon its resources under the TAF programme to target gender equality issues in association with projects it supports (e.g. the women s cooperative established to operate a block manufacturing plant in association with the GuarantCo supported Calcom cement project; the efforts to ensure that women fully participate in the cooperative formed to manage the InfraCo Africa Chanyanya irrigation project in Zambia). Sensitive to climate change considerations All the PIDG facilities actively seek to encourage alternative energy solutions to power generation needs, e.g. o EAIF is supporting a geothermal generation project in Kenya. o GuarantCo has approved a guarantee towards solar power generation on the Kalangala project in Uganda. 14

15 o o o DevCo has developed a project in the Solomon Islands to bring in PSI for a new hydro-electric generating plant to replace current diesel generators. InfraCo Africa has led on the design and implementation of a wind-farm project in Cape Verde. TAF has provided grant funding to allow Rwanda to better assess the potential for power generation using methane gas trapped at the bottom of Lake Kivu. In addition, the PIDG is now advancing the development of a potential new PIDG facility Green Africa Power which will specifically target the development of renewable energy projects in Africa. 15