Multisectoral Policies for Preinvestment

Objectives

In order to accomplish its basic function of "contributing to the acceleration of the process of economic development of the member countries, individually and collectively" through the financing of specific investment projects, it is a matter of fundamental importance for the Bank that the countries have an adequate number of properly formulated specific projects within the priorities established for the development of each country.

The key objective of the Bank in its global operations to finance preinvestment is to cooperate with member countries to improve the efficiency and flexibility of the investment process, that is, to facilitate achievement of the goals set in the national development plans and to help to increase the supply of investment alternatives. In pursuing this aim, the Bank will endeavor to see that the use of resources of the preinvestment programs results in the accomplishment of the following operational objectives:

  • Contribute to an increase in the number and an improvement in the quality of the specific investment projects which are prepared for submission to the Bank or other international, national, public or private organizations in an effort to secure loans or capital subscription.
  • Promote the performance of sectoral and regional development studies with a view to identifying those projects meriting the highest priority in the public and private sectors, including comparison of the various alternatives in terms of economic and social costs and benefits.
  • The identification of projects in a given sector should be coordinated, to the extent applicable, with studies in other sectors so as to assure proper correlation among complementary investments.
  • Help to assure that the studies prepared consider the sue of the best available technology, including productivity and ecology standards appropriate to local conditions; and that they are consistent with the rules and conditions established by internal and external financing agencies, so that the periods for negotiation and approval of loans will be shortened. With this in view, the projects prepared should include a justification of their priority, a determination of their technical, economic and financial feasibility and, when applicable, a preliminary or final engineering study and design.
  • Assist in improving the organization, operation and technical capability of public and private agencies that administer preinvestment resources, plan the preparation of preinvestment studies and select and evaluate the resultant investment projects.
  • Facilitate the participation of local consulting firms, professionals and experts in the preparation of preinvestment studies and development projects. In this context, Bank assistance may be required in promoting the organization of specialized technical consulting firms, either national or mixed, in the member countries.
  • Provide the private sector the opportunity to participate in preinvestment programs, in order to generate a larger number of opportunities for private capital to invest in accordance with a country's development priorities; and, encourage more efficient use of management resources, experience and technology of private enterprise.

 

Fields of Activities

The Bank conducts preinvestment activities by:

  1. Helping to improve the institutional capacity of the member countries to prepare development plans (both general and sectoral) and sectoral and subsectoral investment programs, and to formulate and present investment projects;
  2. Cooperating with the member countries in the preparation of development plans and sectoral programs and in the various stages of the preparation of specific investment projects;
  3. Supporting initiatives of member countries leading to the preparation of projects of multinational scope that would accelerate the process of integration in the region; and
  4. Making available to member countries, in the form of global operations, resources that would make it possible to decentralize the Bank's action and multiply the effort for preparation of projects suitable for internal and external financing.

 

Types of Operations

The Bank's preinvestment activities take the form of independent and individual operations, operations included as part of a loan, or global operations.

Individual and independent operations may be carried out on a nonreimbursable, contingent recovery or reimbursable basis. This is governed by the current policies and rules for technical cooperation.

The operations included as part of a loan are reimbursable and governed by the rules and policies in effect for loan operations.

Global operations may be either loans or mixed operations (partly reimbursable, partly nonreimbursable and/or partly contingent-recovery). Regardless of the form, they are processed and executed in the same way as loan operations.

Global Operations are usually reimbursable. However, the Bank may authorize a global preinvestment operation using a combination of reimbursable, nonreimbursable and/or contingent-recovery resources. At least the first and one other of the conditions set forth below must be met in order for a global operation to take this form of mixed financing:

a) The operation must involve one or more of the member countries of the Bank which are less developed countries of the region and/or are characterized by insufficient market;

b) The nonreimbursable portion must be earmarked exclusively for partial or total financing of basic studies;

c) If nonreimbursable resources are used for specific projects, the latter must be designed to benefit low-income groups or economically depressed geographic regions;

d) Up to 50% of the cost of studies whose outcome is negative that have been financed through contingent recovery subloans will be considered as nonreimbursable resources.

Management will issue the pertinent rules and regulatory procedures within the policy guidelines herein established, and will keep the Board of Executive Directors informed on these matters.

 

Types of Eligibles Studies

The studies financed with resources of the global preinvestment programs fall under two headings: specific studies and general studies. The following guidelines, while not exhaustive, illustrate the main differences between the two types of studies.

 

1. SPECIFIC STUDIES:

  • Prefeasibility studies and technical and economic feasibility studies of specific programs or projects.
  • Engineering studies, including plans, specifications and final designs preliminary to the execution stage of projects whose technical and economic feasibility has been demonstrated.
  • Complementary studies to improve the presentation or fulfill the requirements for requesting external or internal financing of projects.

 

2. GENERAL STUDIES:

  • Basic studies of regional, sectoral or subsectoral scope, including studies of watersheds, natural and human resources, aerophotogrammetric surveys, etc., the purpose of which is to identify or establish bases for the identification of prospective specific projects and programs or quantification of investment requirements in a region or economic sector or subsector.
  • Preliminary studies to analyze alternatives from a technical and economic standpoint so that a decision can be made as to whether and when a program, project or group of projects should be analyzed more extensively or in greater detail.
  • Studies oriented toward investigating specific technological processes or their adaptation to a country, within the framework of a national policy for the transfer and adaptation of technology.
  • Studies designed to strengthen institutional capabilities.

 

Criteria for Selection of Studies

The executing agency's manual or the program's operating regulations will contain criteria for selection of studies which will in general be consistent with each country's development plans and policies and established priorities and with the criteria for investment in the various sectors and subsectors of activity. This criteria should, to the extent possible, include objective indicators of the priority of specific projects to be studied, in terms of economic efficiency for projects of an economic nature and in terms of economy of cost and other indicators for social projects. In both cases, the social benefits of the projects will be taken into account, including such aspects as the impact on income distribution and employment. In both categories, all relevant alternatives will be considered with respect to scale location and optimum timing for the execution of projects, in order to maximize the likely development impact of the project selected. At the feasibility or prefeasibility study stage, the indicators used will be expressed in terms of preliminary estimates or working assumptions to be progressively improved as the study goes forward.

Eligibility of the Borrower and Executing Agencies

The Bank makes global preinvestment loans to member countries or to regional or subregional agencies composed of member countries of the Bank. An official guarantee is generally required.

Borrowers or executing agencies may be:

a) Planning agencies or their units specializing in preinvestment operations; or

b) Development organizations, banks or financial institutions.

The Bank may give consideration to further preinvestment financing for a specific project when the costs reach a magnitude warranting a direct loan from the Bank.

Generally speaking, global preinvestment loans will be made to a single institution in each country, and every effort will be made so that the pertinent conditions and operating procedures will be simple, flexible and broad enough to place the resources within the reach of all public and private entities participating in the preparation of investment projects. These entities may request preinvestment financing directly from the Bank's principal borrower, if this should be necessary, or they may prefer to use intermediaries, if this is considered the most practical or efficient course of action.

In countries having no preinvestment funds or national preinvestment agencies, the Bank will continue to carry out an intensive cooperation program to finance directly the contracting of preinvestment studies, but it will also extend support for the establishment of preinvestment funds or agencies according to the needs of member countries. These funds will be endowed with capital contributions from the national governments, resources from Bank loans, and other internal or external resources. Recoveries of principal of the loans will, to the extent not needed for the service of the debt, revert to the funds for use with the resources mentioned above.

The Bank will assure itself that the prospective executing agency has a manual of operating regulations clearly stipulating the rules that will govern the use of resources of the program. The manual should include:

a) The Basic organization scheme of the executing agency; b) the criteria for selection and evaluation of studies;c) the procedures for the processing and financial administration of operations; and d) the principal aspects on which the preparation of terms reference for studies should be based; e) the basic points to be covered in subloan and consulting contracts, including the financial conditions; f) the methods for administrative and technical control and supervision of operations; g) the procedures for selection of consultants; and h) when applicable, the form of operations with financial intermediaries.

 

Consulting Services

For purposes of the present policy, consultants are any natural or legal persons eligible to provide consulting services under Bank policy.

Consulting contracts should be awarded to those consultants best qualified to render the professional services called for by the study in question. The cost of the services should not be a determining factor in making the award. Non-profit institutions (universities, foundations or autonomous public agencies) will be used when it is felt they can provide a better study.

Eligible consultants are those:

a) who are properly accredited by the national preinvestment funds or agencies or executing agencies, as the case may be, as highly qualified because of their acknowledged experience in the work of the type involved; the success of previous work; their knowledge of the region; their ability to organize efficiently sufficient staff to do the work within the stipulated time; their complete removal from any possible conflict of interest; and

b) who satisfy the requirements of the following paragraph concerning nationality.

Executing agencies, financial intermediaries and ultimate beneficiaries may not establish any conditions precluding or limiting the selection or contracting of consultants by reason of their nationality, when the consultants come from member countries of the Bank. Limitations on the origin of consulting services will depend on the sources of funds used by the Bank in each operation. The pertinent limitations will be stipulated in the contract.

In cases where the qualifications of a local national professional services firm, or of a consortium of local and foreign firms, are determined to be equal to those of a foreign firm, preference in the selection will be given first to the local national firm and second to the consortium of local and foreign firms.

The rules governing the selection and contracting of consulting firms that provide professional services are contained in the Procurement of Goods and Services Manual (GS).

 

Technical Assistance

The Bank may take the initiative in reaching agreement with the applicant on the direct assistance or technical cooperation required to strengthen the executing agency for designing the proposed program and getting it under way. This technical cooperation may be provided either before or parallel to the preinvestment operation.

In addition, the Bank will continue its efforts to cooperate in the training of technical operational staff of preinvestment funds or institutions. This will be done through:

  • a) The organization of seminars on financial institutions at the Bank's headquarters, including the preparation of the necessary training materials;b) observation visits to national preinvestment institutions which have achieved the greatest success in the execution of programs; and c) training programs on special subjects such as project identification and preparation, project evaluation and financial management.
  • Preparation of model terms of reference and other documents relating to preinvestment, and of operating manuals for distribution in the countries together with guidelines for the submission of applications to the Bank for loans in the various sectors.
  • Organization of programs to provide advice and training in the selection and contracting of consultants, with the aim of raising the level of professional competence so that this work can be done more independently in the future.
  • The assignment of Bank staff to short-term advisory missions to assist in solving problems or improving institutional aspects when the work is not of sufficient size or complexity to require the hiring of independent consultants.

 

Participation of the Private Sector

In each program, the Bank may earmark an adequate proportion of funds to finance preinvestment studies in the private sector. Since in many cases such studies can be promotional in nature and since the Bank's experience is that there is a certain degree of reticence in the private sector to perform studies of this type, the policy of the Bank is aimed at stimulating access to Program resources. Taking into account the specific nature of each individual operation, in each case the Management will propose to the Board of Executive Directors what proportion of resources of the Program should be earmarked for the private sector and what incentives it recommends. Neither should represent rigid goals in any event. On the contrary, depending on the results achieved, the Management may authorize changes both in the proportion and in the type of incentives, provided that this does not run counter to the general policy guidelines provided herein. To achieve this objective, consideration may even be given to financing projects of the private sector under contingent-recovery terms to cover the possibility that the studies may produce negative results.

To the extent possible, an attempt should be made to ensure that the funds of a program are channeled to the private sector through intermediary financing institutions such as private industrial and agricultural finance corporations or the public development banks. Before the Bank authorizes a global preinvestment operation, the executing agency will be required to have reached an agreement with the financial intermediaries of the Program concerning the operating mechanism or mechanisms.

The Bank can promote a greater private participation in its preinvestment programs through measures of a promotional nature such as encouraging the funds or executing agencies to adopt the following measures:

a) continue to increase the access by private investors to the resources of the fund, through lines of credit or discount facilities in public and private banks of the member countries or other financing and investments systems according to the policies of the pertinent member countries;

b) use a small proportion of the differential between the interest received by the Bank and that received by the ultimate beneficiary to finance promotional activities in the private sector, including joint campaigns of executing agencies and financial intermediaries;

c) establish minimum levels of guarantee compatible with sound banking practice;

d) establish more attractive interest rates and consider allowing longer amortization and grace periods;

e) allow a portion of subloans, up to predetermined limits and maximum percentages, to be provided on contingent-recovery terms; and

f) respect the confidentiality of the information and reports submitted by a consultant to a private beneficiary, except when the sub-borrower authorizes total or partial publication of the results of a consultant's work. The Bank may also use other measures to promote the participation of the private sector in the use of preinvestment resources. For example, in granting global industrial or agricultural loans, in clearly justified cases, the Bank may include a portion to finance preinvestment studies in the respective sector.

In cases where the requesting government advises the Bank that it is not interest in receiving funds for relending to the private sector, management should limit itself to processing and evaluating the application and noting this fact in the document it submits to the Board of Executive Directors.

Amount of the Loans

The amount of the preinvestment loans will depend on the existing demand for studies and the prospects for commitment and disbursement of funds.

Financial Terms and Conditions

The terms and conditions applicable to preinvestment global operations vary according to he mechanism used and the beneficiary country. In any event, the Bank will apply the terms, rules and procedures pertaining to the sources of funds used.

The resources must be disbursed over a period not to exceed four years and committed within a term of three years.

Programs and Local Contribution

The proportion of the local cost of a preinvestment program that the Bank may finance will be determined by the rules and policies in effect on the use of resources.

According to the policy guidelines applicable to global lending operation, the resources of he Program will consist of:

a) the funds derived from the Bank's operations; and b) a contribution made by the borrower or executing agency. The contribution from the beneficiaries is not included in the financed amount of the Program, but its conditions and terms are set forth in the pertinent loan regulations. Only the recoveries of principal will become part of the Program. The interest and other charges will be part of the resources freely usable by the executing agency.

To the extent possible, the ultimate beneficiaries should contribute funds of their own to finance part of the total cost of a study. This will not be required when the executing agency grants a loan to a ministry or administrative unit of the public sector. In this case, the subloan or loan may cover up to the entire cost of the study.

 

Continuity of the Programs and Debt Servicing

In order to assure continuous availability of resources for preinvestment, the borrower will be required to reach an agreement with the Bank that the executing agency will receive the contributions promptly as they are needed so that the annual volume of operations is maintained at an acceptable level.

To establish the minimum level, case by case, the Management will consider factors such as:

a) the degree of development of the member country;b) the flow of funds of the executing agency as a whole, or of the program and previous programs, if the executing agency is a different entity; c) the medium-term projection of foreign exchange needs; and d) if applicable, the projections of the agency's debt-servicing obligations.

The Management will be authorized to approve modifications in the minimum level whenever the indicators used to calculate it have changed substantially.

In order to prevent interruptions in the activities of the preinvestment agency or of a program, the Bank should take all necessary measures so that the analysis and processing of subsequent global operations with the same agency can be done in the most expeditious manner possible.

When the Bank grants a subsequent loan, the rules and procedures agreed upon for it can replace those that were in effect for the previous operation, both as concerning the funds of the previous program that have not been disbursed by the effective date of the new operation, and as regarding recoveries.

Subloans will be subject to the condition that if the beneficiary obtains a loan for the project involved in the study, the cost of the study will be repaid to the program from the first disbursement from the loan, provided this is compatible with the operating policy of the agency financing the project resulting from the study.

To the extent possible, the debt servicing on global preinvestment operations will be assumed by the government in order to facilitate capitalization of the program. When this is not possible, the contract should include a provision that recoveries of resources of the program are to be used first for debt servicing and then for financing additional preinvestment studies. The interest and commissions on the subloans can be used for administrative or promotional expenses. However, in temporary periods of high liquidity, idle resources can be invested in bonds or short-term securities providing a suitable rate of return.

 

Limitations and the Use of Program Resources

The resources of a program can be used only to grant subloans, except as otherwise stipulated in this document. The subloans must be used to finance the contracting by the subborrower of consultants to prepare preinvestment studies included under this policy.

The Bank may allow exceptions to the above general rule if the executing agency has established a fund or account for nonreimbursable operations which is properly regulated as to its objectives, means and procedures and if part of the nonreimbursable resources of the operation have been deposited in that fund or account by agreement with the Bank. In such cases, the nonreimbursable or contingent-recovery operations will be reserved for the specific purposes indicated above in "Types of Operations" (Page 2).

Furthermore, the agency can approve nonreimbursable operations in any field and for any type of study with resources that the government has specifically assigned to it for such purposes or with resources it holds in trust or administration, which will be governed by the pertinent special contracts.

There will be no limitations on using program resources to finance preinvestment studies for projects in member countries other than the borrowing country.

Unless authorized by the Bank, when the provision of consulting services involves the use of equipment, resources of the program can be used only to finance the depreciation or rental cost of equipment directly related to the execution of studies commissioned under contract.

The resources of the program may generally not be used for payment of administrative costs and emoluments of the borrower, executing agency, intermediary agencies, a ministry or planning office, or beneficiaries.

Without prejudice to the preceding paragraph, the local counterpart resources may be used to finance the promotional administrative expenses of the preinvestment funds or agencies, in the amount indicated in the loan contract with the Bank.

According to the nature of each global operation, the Bank will establish limits above which it reserves the right to review only the terms of reference and the selection of consultants by the executing agency. The limit that the Management proposes to the Board of Executive Directors in each case will depend on the experience and technical and administrative capacity of the executing agency.

In this regard, it should be taken into account that the policy is to attempt to give the greatest possible autonomy to the executing agencies of preinvestment programs.

In general, not less that 70% of the resources of the program should be earmarked for preinvestment studies aimed at the preparation of specific investment projects. In cases when it is necessary to allocate more than 30% to general preinvestment studies, the pertinent justification should be included in the loan document.

Since one of the objectives of the Bank's preinvestment policy is to increase the number of investment projects, the resources of the program are not to be concentrated on financing a small number of studies. To prevent this, according to circumstances in each country, each contract should stipulate the maximum amount of resources of the program that can be committed to a single study.

In the regulatory and procedural rules, limitations should also be placed on the number of studies and the amount that can be made available to a single consultant. These rules should be established for each specific case in the pertinent contract.

It is the responsibility of the Management to issue rules and procedures for the administration of the programs. These should cover such matters as disbursements, revolving funds, reports, contracting of consultants, and sources of goods and services.

Promotional Operations

With the resources of the global loan it will only be possible to finance up to 50% of the cost of each promotional study that has been contracted prior to identifying the beneficiary, public or private, that would consider executing the resultant investment project. In any event, the loan document will specify the maximum proportion of resources of a program that can be used for this type of study.

 

Reports

The Management will regulate all aspects concerning the reports to be submitted by borrowers or beneficiaries in order to allow adequate follow-up on each operation and facilitate its supervision and control. This should be done bearing in mind the policy guidelines established herein to the effect that duplication of efforts should be avoided and borrowers should not be burdened with reporting requirements that are not absolutely necessary. Only information that is relevant should be requested, and it should be provided quickly.

The borrower or executing agency is required to submit audited annual financial statements to the Bank including reports on recoveries and previous preinvestment programs. The statements should be audited by auditors approved by the Bank and in a manner acceptable to the Bank.

The borrower or executing agency will also be required to submit periodic reports according to a schedule approved by the Bank. In addition to financial and other data, these reports should include: a) the results of the studies and of investments driving from preinvestment studies; b) the status of the studies in progress; c) a detailed list of the studies projected or planned for the following 12 months, stating the objectives, costs and financing calculations; d) the recoveries and their utilization; and e) additional contributions to the program

.

An annex to the contract will stipulate the data required to be submitted until the Bank has completed disbursements. During the first five years following the date of the last disbursement, borrowers or executing agencies will continue to submit short annual reports on the above-mentioned matters so that the Bank can exercise close coordination between its own technical cooperation programs and the studies financed directly by the national preinvestment funds or agencies

.

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Prevailing Reference Documents: GP-38-6, February, 1977 GP-38-7, January, 1980.

* The operational policies of the Inter-American Development Bank are intended to provide operational guidance to staff in assisting the Bank's borrowing member countries. Over the course of the Bank's more than 40 years of operations, the approach to developing operational policies has taken various forms, ranging from the preparation of detailed guidelines to broad statements of principle and intent. Many policies have not been updated since they were originally issued, and a few reflect emphases and approaches of earlier years which have been superseded by specific mandates of the Bank's Governors, the most recent being the Eighth Replenishment mandates of 1994.

In accordance with the Bank's information disclosure policy, the Bank is making all of its operational policies available to the public through the Public Information Center. Users please note that the Bank's operational policies are under a process of continuous review. This review process includes preparation of best practice papers summarizing experience at the Bank and other similar institutions, and sector strategy papers.

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