European Union Investment Guarantee Trust Fund for Bosnia Herzegovina
The European Union
Multilateral Investment Guarantee Agency
The European Union Investment Guarantee Trust Fund (the Trust Fund) is established with the sole purpose of encouraging the flow of foreign direct investments to Bosnia and Herzegovina. It seeks to achieve this mandate by providing eligible foreign investors guarantees against major political risk concerns associated with investing in the country. The Trust Fund, totaling 10 MECU1, was created at the initiative of the European Commission in response to the demand expressed by the private sector. The Trust Fund is administered by the Multilateral Investment Guarantee Agency (MIGA).
MIGA was established on April 12, 1988, as a member of the World Bank Group. Its purpose is to encourage foreign investment in developing countries by providing:
In 1988, MIGA membership included 29 World Bank member countries that subscribed to 53 percent of the Agency's authorized capital ofUS$1.08 billion. MIGA's membership has since expanded to include some 140 member countries that subscribe to 99 percent of the Agency's authorized capital. Another 19 countries are in the process of fulfilling membership requirements (a list of MIGA member countries is available upon request).
The Trust Fund offers long-term political risk insurance to eligible investors for eligible investments in Bosnia and Herzegovina. Beyond insurance protection, MIGA's participation in a project enhances confidence that the investor's rights will be respected, an advantage inherent in the Agency's organization as a voluntary association of developing and developed countries.
The coverages described below may be purchased individually or in combination, but selection of the desired coverages must be made by aninvestor before MIGA issues a Contract of Guarantee on behalf of the Trust Fund.
Transfer Restriction. Protects against losses arising from an investor's inability to convert local currency (profits, principal, interest, royalties, capital and other remittances) into foreign exchange for transfer outside the host country. Transfer Restriction coverage insures against excessive delays in acquiring foreign exchange caused by host government action or failure to act, by adverse changes in exchange control laws or regulations, and by deterioration in conditions governing the conversion and transfer of local currency. Currency devaluation is not covered.
On receipt of the blocked local currency from an investor, MIGA pays compensation from the Trust Fund in the currency of its Contract of Guarantee.
Expropriation. Protects against partial or total loss of the insured investment as a result of acts by the host government that reduce or eliminate ownership of, control over, or rights to the insured investment. In addition to outright nationalization and confiscation, "creeping" expropriation -- a series of acts that, over time, have an expropriatory effect -- is also covered. Bona fide, non-discriminatory measures taken by the host government in the exercise of legitimate regulatory authority are not covered.
For total expropriation of equity investments, MIGA pays from the Trust Fund the net book value of the insured investment. For loans and loan guaranties, MIGA insures the outstanding principal and any accrued and unpaid interest.
Compensation will be paid upon assignment of the investor's right, title, and interest in the expropriated investment (e.g., equity shares or principal and interest in a loan agreement) to MIGA.
War and Civil Disturbance. Protects against loss from damage to, or the destruction or disappearance of, tangible assets caused by politically motivated acts of war or civil disturbance in the host country, including revolution, insurrection, coups d'état, sabotage and terrorism. For equity investments, MIGA will pay from the Trust Fund the investor's share of the least of the book value of the assets, of their replacement cost, or of the cost of repair of damaged assets. For loans and loan guaranties, MIGA will pay from the Trust Fund the insured portion of the principal and interest payments in default as a direct result of damage to the assets of the project caused by war and civil disturbance.
War and Civil Disturbance coverage also extends to events that, for a period of one year, result in an interruption of project operations essential to overall financial viability. This type of business interruption is effective when the investment is considered a total loss; at that point, MIGA will pay from the Trust Fund the net book value of the total insured equity investment. For loans and loan guaranties, MIGA pays from the Trust Fund the insured portion of the principal and interest payments in default as a result of business interruption caused by covered events.
Denial of Justice (Breach of Contract). Protects against host government acts by which (i) the guarantee holder does not have recourse to a judicial or arbitral forum to determine the claim of repudiation or breach; or (ii) a decision by such a forum is not rendered within a reasonable period as specified in the Contract of Guarantee, which shall not be less than two years from the initiation of a proceeding by the guarantee holder and the final decision of the forum; or (iii) a final decision cannot be enforced.
MIGA can insure new investments. New investment contributions associated with the expansion, modernization, or financial restructuring of existing projects are also eligible, as are acquisitions that involve the privatization of state enterprises.
Eligible forms of foreign investment include equity, shareholder loans, and loan guaranties issued by equity holders, provided the loans have a term of at least three years. Loans by unrelated lenders (i.e., by a commercial bank) can also be insured. Other eligible forms of investment are technical assistance and management contracts, and franchising and licensing agreements, provided they have terms of at least three years and the investor's remuneration is tied to the project's operating results.
Since the Fund is designed to facilitate small and medium size investments, priority will be given to investments with a total project cost of US$10 million or less. Projects should also be majority privately-owned and/or operated.
In keeping with the objective of the European Union and MIGA to promote economic growth and development, investment projects must be financially, economically and environmentally sound and should contribute to host country needs, such as job creation, technology transfer, and export generation.
An eligible investor is a national of a European Union member country, although exceptions can be made for investors of certain East European countries. Investors from Bosnia and Herzegovina may also be eligible provided the assets to be invested are transferred from outside the host country. A corporation is eligible for coverage if it is either incorporated in and has its principal place of business in a European Union member country or if it is majority-owned by nationals of member countries in a European Union member country.
The term of coverage available is up to 15 years. The contract term for investments, other than equity, generally follows the term of the insured agreement. MIGA cannot terminate the Contract of Guarantee unless the insured defaults on its contractual obligations. The insured may reduce or cancel coverage on any anniversary date of the contract.
AVAILABILITY OF COVERAGE
MIGA may insure equity investments for up to 90 percent of the investment contribution. In the case of loans and loan guaranties, MIGA may insure up to (i) 90 percent of the principal, plus (ii) an additional 150 percent of the principal to cover interest that will accrue over the term of the loan. For technical assistance contracts and similar agreements, MIGA insures up to 90 percent of the total value of payments due under the insured agreement. Regardless of the nature of the project, an investor is required to remain at risk for at least 10 percent of any loss. The amounts described above constitute the amount of guarantee available for each risk category and for the insured investment.
Preliminary Application for Guarantee. An investor seeking coverage under the Trust Fund should submit a Preliminary Application to MIGA before the investment is made or irrevocably committed. The Preliminary Application provides the information MIGA needs to make a provisional determination of the eligibility of the investor and the investment. Upon qualification, a Notice of Registration, along with a Definitive Application for Guarantee, will be sent to the investor.
Investors are encouraged to contact MIGA if they have any questions about the eligibility of an investment.
Definitive Application for Guarantee. Once investment and financing plans are established, an investor should promptly complete and return the Definitive Application to MIGA along with any relevant project documentation, such as a joint venture contract, feasibility study, and an environmental assessment, if available. The Definitive Application provides the detailed information MIGA needs for its review of the project and the preparation of a Contract of Guarantee. This information includes the eligibility of the investor, the amount and type of investment, types of coverage desired, the developmental effects of the project, and substantiation of the project's financial and economic viability.
There is no charge for filing a Preliminary Application. However, there will be an Application Fee of US$2,500 to process Definitive Applications. If the application is submitted and a guarantee is offered and accepted, the fee will be credited against the first year's premium.
In some cases, there may be exceptional underwriting costs incurred by MIGA in evaluating projects that are environmentally sensitive (e.g., oil and gas, mining, infrastructure) or whose complex financial structures require retention by MIGA of outside advisors. In such cases, the investor will be required to advance funds to MIGA to cover those costs.
MIGA is pleased to participate alongside public and private political risk insurers in coinsurance and reinsurance arrangements for joint coverage of eligible investment projects in Bosnia and Herzegovina.
In December 1996, the International Development Association, a member of the World Bank Group, approved the creation of a program to provide guarantees against a range of political risks primarily for short- to medium-term commercial (mainly working capital) transactions between Bosnian enterprises and foreign companies, suppliers and banks. The guarantees will be issued by the Investment Guarantee Agency (IGA), an independent local corporation owned by the Government of Bosnia and Herzegovina, and backed by standby letters of credit issued by IGA's agent bank (ING Bank of the Netherlands). These will be, in turn, backstopped by funds from IDA and other donors, which the agent banks hold in escrow. For information on MIGA, please contact Ms.Camija Kozaric, Director General, Sarajevo. Telephone/Facsimile: (387-71) 202-230/231.
Ms. Stine Andresen
Multilateral Investment Guarantee Agency
1800 G Street, N.W. - 12th Floor
Washington, D.C. 20433, U.S.A.
Telephone: (202) 473-6157
Facsimile: (202) 522-2630
Telex: RCA 248423
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