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A workshop on sustainable development plans for provincial and regional governments was held in April 2010, and used international examples to demonstrate how access to market-based fi nance can result from fi scal discipline, sound fi nancial management, and investment planning. The fi rst SNTA grant helped the Municipality of Lima obtain a credit rating from an international credit rating agency, identify potential sources of fi nance for new infrastructure investments, and assess ways of replacing existing short-term debt with sustainable longer-term fi nancing. This work resulted in compliance with sub-national fi scal prudence rules and helped Lima make a signifi cant contribution to the Metropolitano Bus Rapid Transit Corridor Project, also supported by the World Bank and the Inter-American Development Bank. The second SNTA grant helped the Regional Governments of Arequipa and Cuzco, the Provincial Municipality of Santa (Chimbote), the Municipality of Piura, and Arequipa’s water utility SEDAPAR prepare for and obtain credit ratings from a local credit rating agency. In the case of the Regional Government of Arequipa, SNTA’s technical assistance also included support in navigating the sub-national borrowing approval process, fi nancial coaching, and a review of technical documentation. DONOR COORDINATION SNTA activities complemented on-going work in Peru by several donors and international fi nance institutions, including work by the United Nations on water utility fi nancing, successful efforts by the International Finance Corporation (IFC) to establish a sub-national guarantee facility in 2008, and funding from the World Bank to the central government for projects executed by regional authorities. Since 1999 PPIAF, a multidonor technical assistance facility, has helped developing countries use publicprivate partnerships to improve their infrastructure. A key focus has been upstream technical assistance to support the development of an enabling environment for such partnerships. This series highlights how PPIAF’s support has made an impact on the ground. OUTCOMES www.ppiaf.org SNTA’s technical assistance, and close collaboration with key partners, facilitated a $70 million commercial bank loan to the Municipality of Lima by BBVA Banco Continental, signed in April 2010. The loan was partially backed by a $32 million IFC guarantee. This was the largest market-based fi nancing ever realized by a sub-national government entity in Peru. The maturity of this loan was double that of previous debt incurred by the municipality. As a result of the second phase of SNTA support, the Regional Government of Arequipa signed a $10 million loan with a local commercial bank—the fi rst time a Regional Government in Peru borrowed without a sovereign guarantee. As in Lima’s case, the loan was backed by another IFC guarantee. All other banks invited to arrange the fi nancing (without IFC’s guarantee) declined interest in the transaction. With the help of this loan, Arequipa will fi nance its regional road rehabilitation program. Other Peruvian authorities supported by PPIAF’s SNTA program are also advancing steadily toward creditworthiness and additional transactions are expected. IMPACTS By doubling the tenor of the BBVA loan, the Municipality of Lima’s monthly debt service payments were much more affordable and left more city revenues available to cover critical operating expenses. Important milestones were also reached in improving Lima’s fi nancial management, such as the consolidation of the accounts of the Municipality of Lima and the 19 public companies and other entities it controls. RELATED PPIAF/SNTA ACTIVITIES IN PERU • 2008: Access to Commercial Banks and Capital Markets (SNTA), $355,296 • 2009: Access to Commercial Banks and Capital Markets, Phase II (SNTA), $499,776 • 2010: Strategic Plan for the Universal Service Fund, $75,000 • 2011: Technical Assistance to the Metropolitan Municipality of Lima (SNTA), $350,000 • 2011: Technical Assistance to Peruvian Water Utilities (SNTA), $75,000 Learn more about SNTA at www.ppiaf.org/snta
PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY April 2011 IMPACT STORIES SNTA Supports a Water Utility in Brazil’s Frontier Region PPIAF’s Sub-National Technical Assistance (SNTA) support to the Brazilian water utility DESO has helped to secure a BRL 18.9 million fi nancing by substantially improving the company’s ability to interact with fi nanciers. SNTA provided technical assistance in 2010 to help DESO prepare fi nancial projections and a credit memorandum on the company. By delivering this forward-looking analysis to the company and going through the process of discussing the impact of the key turnaround initiatives in future fi nancials, the company has attracted more interest from commercial banks to refi nance the company’s BRL 40 million short- and mediumterm debt. As a result of SNTA support, a Brazilian water utility in a frontier region became ready to borrow on commercial terms and, through the fi nancing obtained, gained effi ciencies by reducing water losses and energy consumption. The water company owned by the Brazilian state government of Sergipe (“DESO”) had gone through several years of mismanagement when, in early 2007, the state government decided to hire professional managers to run the company. Although the results of the management change were starting to show, the company still did not have access to commercial sources or to local development fi nance institutions. DESO could not adequately demonstrate the impact of the fi nancial and operational turnaround being implemented to the potential fi nanciers. Furthermore, they did not have suffi cient capacity or experience to prepare a forward-looking view that investors and fi nanciers would normally request. PPIAF SUPPORT The state government of Sergipe thus sought assistance from the Public-Private Infrastructure Advisory Facility (PPIAF)’s SNTA program in 2010 to improve the company’s ability to interact with potential fi nanciers. PPIAF-SNTA quickly brought in a fi nancial consultant to assist DESO in preparing fi nancial projections and a credit memorandum on the company. Only a handful of top tier pubic water utilities in Brazil have access to both commercial banking and capital markets. They have the capacity and experience to prepare information and conduct forward looking analysis to show their creditworthiness. The rest of the water utilities have much more limited capacity and experience in dealing with commercial banking and capital markets. Water utilities in the north and northeast of Brazil lag particularly behind, given the lower income client base and precarious fi nancial situation, exacerbated by generally weak corporate governance and lack of well trained and skilled staff on fi nancial assessments. Not all utilities are suited for private management, given the operating environment, including political sensitivity. In such a case, private fi nancing of infrastructure may be a more effective way to introduce commercial orientation, better disclosure of fi nancial operational information, medium-term planning, and even better corporate governance. To this effect, SNTA helped the Brazilian water utility DESO achieve the following objectives:
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LICs MICs PPIAF SNTA DAC 1 $3,398,6
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contains a comprehensive list of ou
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Date Sender Comments November 9, 20
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We have also sponsored several othe
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early on, preliminary requests for
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