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Investment Promotional

Financing Facility- a new

dimension in infrastructural

refinancing

09th

December 2011, by Taskin Shakib

Bangladesh Government has taken theInvestment Promotion Financing Facility(IPFF) Project to make available debtfinancing through private sector financialintermediaries for eligible, governmentendorsed infrastructure projects, to bedeveloped by the private sector. The projectsfunded (partially) by IPFF, under the private-public partnership (PPP) scheme can also be

solely developed by the private sector, but hasto be identified by the government to be in thepublic interest. The project seeks to assist theGOB in facilitating new infrastructure projectswith potentiality of private sector participationand in developing the capacity of the financialsector for the ongoing provisions ofinfrastructure finance.

Why Private-Public Partnership?

Due to the lacking of fund utilizationby Government (alone)

Private sector solely is not capableenough for infrastructure developmentinvestments.

The development goals of the project reflectkey priorities identified by the World BankBangladesh Country Assistance Strategy(CAS), namely,

To accelerate private-sector ledgrowth

To support an integrated approach torural development, and

To strengthen government and buildinstitutions

The significance of effective utilization andimplementation of infrastructure developmentprojects, especially energy plants is one of the

most key concerns of the Government ofBangladesh. Due to aforementioned reasons,the GOB has come up with the plan of PPP.This is one of the key agendas of the GOB andconcerned authority of Bangladesh.

Overall strategies

Investment Promotion & Financing facility(IPFF) has been working since 2006 with twomain components:

Credit or on-lending component Technical Assistance (TA) component

Credit /on-lending component: Theobjectives of IPFF project are to makeavailable partial debt financing available

through private sector financial intermediaries.The project has successfully completed firstphase of its operation by disbursing 100% ofits credit line (on-lending) componentamounting US $57.5 million (47.5.mIDA+10m GOB) equivalent of 422.23 croreBDT to seven small power plants throughdifferent Banks and financial intermediaries.Since the IPFF project has exhausted thecredit line component in its third year ofoperation, and a considerable excess demandfor infrastructure exists, a financing agreement(FA) signed on 07/06/2010 between the WorldBank and GOB which facilitates an additionalfinancing to tune of 257 million US$ in favorof IPFF of which the credit number (on-lending) components amounts for 250 m US$.

The technical assistance (TA):component ofIPFF equivalent to US$2.50 million has beencontributing to enhanced knowledge andunderstanding on PPP among the public sectoragencies as well as private sector financiersand entrepreneurs

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Functional utility

One of the main features of the facility is thatat least 30% cost of any approved projectshould be borne by the entrepreneurs' ownsource and maximum 70% is to be provided as

debt financing; out of which 20% is to beprovided by the participating financialinstitutions (PFIs)

Fund Flow to Private Investors through IPFF cell

and PFI:

Request for No objection from WB

IPFF Loans

Request for fund

Request for Fund

Facility Loan, other Fis Loan and Investors Equity

PFI Loans and IPFF loans

Figure 2: Fund flow to investors through IPFF

IPFF Fund Flow example:

(Assuming Investment project term is 15years, Project cost-100cr, interest rate onFacility Loan W.A.Y of 364 days T.bill+30basis point)

First of all IPFF (Bangladesh Bank)gives 60cr fund (owned by Ministry of

Finance), to the Participating financialInstitutions (PFIs) at interest rate 364days T.Bill+30basis point.

The private sector promoter needs atleast 25% equity contribution to accessIPFF loan. Whereas PFIs need tocontribute at least 15% of the projectcost and rest 60% may be financed byIPFF.

(60+15+25) crore = (Debt+Equity) =100cr, sot of the entire project.

GoB & WB

IPFFProjectBangladeshBank

Participating Financial

Institutions (PFI)

Private Investor

PPP Infrastructure Projects