The World Bank approved om Dec. 21, 2004, a Partial Risk Guarantee (PRG) for the privatization of the Banat and Dobrogea Electricity Distribution Companies (Discoms) in the amount of EURO 60 million (USD 76.7 million equivalent). The PRG represents a new use of the World Bank’s guarantee instrument in support of privatization transactions.
The PRG aims to support Romania’s energy sector privatization by enabling the Government of Romania and Enel S.p.A. of Italy to implement their Privatization Agreements for the Banat and Dobrogea Discoms.
The PRG will backstop the Government of Romania’s debt obligation to a commercial bank to compensate the Banat and Dobrogea Discoms for loss of revenues resulting from a change or repeal by the Government or the National Energy Regulatory Authority (ANRE) of, or non-compliance by ANRE with, the provisions of the agreed regulatory framework.
The importance of the PRG project is two-fold: it supports Romania’s privatization program in the energy sector and assists the Government and ANRE in the implementation of the regulatory framework. The risk mitigation through the PRG also yielded an additional benefit: it resulted in Enel’s agreement to reduce its return on investment requirement by 2% per annum, translated into a positive impact on the final tariffs. Savings will continue to be realized also after the five-year PRG. This reduction will also be applied by ANRE in the other six distribution companies – all six are to be privatized under the World Bank’s Programmatic Adjustment Loan (PAL) program. Negotiations to privatize the next two electricity distribution companies were completed last week with EON of Germany and CEZ of the Czech Republic.
The International Finance Corporation (IFC) has received a mandate from Enel to provide financing for the Banat and Dobrogea Discoms investment programs.
Enel’s initial investment to acquire a 51% share in the two companies is EURO 112 million. In addition, Enel projects capital expenditure of about EURO 171 million in the 2005-2009 period.
The Partial Risk Guarantee covers a maximum of seven years. The PRG would be priced at 1% per annum on the guaranteed amount payable six months in advance. In addition, there would be a Front-end Fee of 0.50%, an Initiation Fee of 0.15%, and a Processing Fee of up to 0.50%. Of the 1% of the Guarantee Fee, the Bank would refund to the Government that portion of the fee that corresponds to any waiver to Romania of the Bank’s lending spread, subject to there being no breach of the Bank-related Agreements. The above is consistent with the pricing policy for IBRD Guarantees.
The World Bank has been a committed partner in Romania?s development process since 1990, with loans totaling over US$4.2 billion. The 2004-2005 lending program is likely to be the highest amounting to almost US$ 850 million.