Private Sector DepartmentAs the private sector becomes more involved in areas previously held by the public sector (particularly in infrastructure) there is a need for long-term finance for private-sector operations. To help meet this need, the IDB established in 1994 the Private Sector Department, a specialized operational department within the Bank, to provide long-term financing and guarantees for private infrastructure projects in the region. LoansThe Bank can lend directly to the private sector without government guarantees for infrastructure projects, whether greenfield or refurbishing operations, as a means to encourage other investors and lenders to participate in energy, transportation, water supply, waste management and telecommunications. The Bank's participation in a single project is limited to $75 million or 25 percent of the project's total cost, whichever is lower. Though pricing follows commercial terms, these loans can have up to 20-year maturities. Unlike IDB projects in the public sector, investors do not have to be from member countries of the Bank, although more than 50 percent of the shares must be held by investors from member countries. There is no requirement that there be majority ownership by local investors. GuaranteesInfrastructure projects often involve government entities, whether they be regulators or suppliers of inputs or purchasers of outputs. These contractual undertakings are often determining factors in whether equity investors and lenders participate in an operation. The new guarantee program of the Bank is designed to address these risk factors. Both public and private projects are eligible for IDB guarantees, which are provided to lenders (not to equity holders). The Bank has established two guarantee structures, namely, partial risk guarantees and partial credit guarantees. Partial risk guarantees may cover up to 100 percent of a loan for specific political risks, such as sovereign contractual obligations or transferability. These guarantees require a government counter-guarantee. Partial credit guarantees may cover a portion of financing provided by private financiers. The Bank's guarantees turn medium-term finance into a longer-term arrangement. This can be achieved through guarantees for longer maturities, liquidity guarantees in the form of put options and take-out financing or by rolling guarantees that cover a fixed number of scheduled payments. Up to 50 percent of a loan can be guaranteed, with or without a government counter-guarantee. Projects with IDB guarantees may be carried out in conjunction with an IDB loan or stand- alone. Project sponsors are not required to be from member countries of the Bank; however, the project company must be incorporated in the country where the operation is being carried out (in one of the Bank's 26 borrowing countries).
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