Infrastructure Action Plan: Infrastructure Action Plan: An UpdateAn Update

Presentation to the Presentation to the Advisors of the Executive DirectorsAdvisors of the Executive Directors

Mar

ch 2

2, 2

004

Unmet Infrastructure Needs are Tremendous

Access and Quality Challenges

Infrastructure access is insufficient in most developing countries

• Rural LIC electricity access is ~ 20%• Rural LIC water access is ~ 53%,

sanitation 42%• Even in MICs, access rates are still low

• Rural MIC electricity access is ~ 67%• Rural MIC water access is ~ 75%,

sanitation 60%• Rural infrastructure access is roughly 30%

lower than urban

Access challenge compounded by issues of low infrastructure quality

• e.g. frequent power interruptions and outages

Financing Needs

Total annual financing needs for all developing countries:

~ 7% of developing country GDP

Total Financing Needs & Gaps, 2000-10:

* Includes investment and O&M expenditures (each about 50% of total)

Country Income Category

Expenditure Needs* (% of GDP)

Total Fin. Gaps* (% of GDP)

LDC Average 6.5-7.7% 3.1-4.3%

Lower-income 7.5-9.0% 3.5-5.0%

Middle-Income 5.7-7.0% 2.9-4.3%

Infrastructure Impacts on the MDGs, Poverty, and Growth

Poverty & MDG Impact

“Back of the envelope calculation”

Traditional impact of infrastructure investments on poverty reduction around 1.5-2%

Filling financing gaps in infrastructure could double poverty reduction rates

• In LICs, filling investment gaps could raise the poverty reduction impact to 3.9-4.8%

Infrastructure impact on poverty reduction rates:

Country Income Category

Historical rate

Potential rate

Lower-income 2.1% 3.9-4.8%

Low-middle income

1.5% 2.9-3.7%

Economic Rates of Return

Economic Rates of Return (ERR) on World Bank Infrastructure Projects

0

5

10

15

20

25

30

35

40

FY64-FY99 FY99 - FY03

ER

R a

t E

valu

atio

n (

%)

20%

35%

Significant Progress on Implementing the Infrastructure Action Plan

Action Plan introduced to revitalize the Bank Group’s infrastructure business – July 2003

The Board’s and Senior Management’s consistent communication on the importance of infrastructure enabled the successful implementation of the Action Plan

Regional management teams have also swiftly responded to increased client demand for infrastructure e.g. South Asia regional strategy

e.g. some key new CASs (Indonesia)

Change in the Paradigm: Provided Guidance on Roles of the Private and Public Sectors

Key Messages from the Power Sector Guidance Note 

The Guidance Note on Public and Private Sector Roles in the Supply of Electricity Services addresses the range of options, from purely private to purely public, that most Bank client countries will face as they work with Bank Staff to reform their power sectors and improve

efficiency and growth. The Guidance Note offers the following key messages: 

Generation: Private financing, whether from local, regional or international investors, is preferred. Most governments can create a substantial role for private generators within their sector development strategies. Nonetheless, public support, in the form of IDA/IBRD guarantees and other forms of credit enhancement, will be a critical component of many private financings in the generation, along with IFC and MIGA products.

Transmission: Depending on country policy and sector circumstances, there are substantial lending, guarantee, and insurance

opportunities for the Bank, IFC, and MIGA. The Bank could commit lending to state-owned transmission companies, as a key component of an overall sector development program, provided that minimum corporate governance standards are met.

Distribution: Where public provision is working, or improvements in performance in a public utility are underway, the Bank can consider providing financial support. Where it is not, some form of public private partnership should be considered, such as concession and OBA projects that can attract private investment, focusing on improvements in service quality and service expansion. If private investment still cannot be attracted, then management contracts/leases, accompanied by public investment in part financed by the Bank, can be considered as an interim step.

Regulation: Governments should provide for long-term capacity building but should fix, to the extent possible, provisions for prices and technical and customer service standards in the key regulatory instruments, such as licenses or contracts, for a medium-term period. Regulatory frameworks should be designed bearing in mind local capacities and institutional approaches.

Example: Power Sector Generation: domestic or international private

financing preferred

Transmission: substantial Bank Group opportunities exist (lending/ guarantees)

Distribution: lending only to well performing public utilities; otherwise public-private partnerships to be considered

Guidance Notes also prepared for the Water &

Sanitation, Gas, Transport, and ICT sectors –

ready in April 2004

Strengthened Infrastructure Lending Pipeline for FY04 & FY05

Bank Infrastructure Lending - FY02-FY05*

Pre-Action Plan Action Plan

IFC also projected to increase infrastructure activities; MIGA projected to be stable

* The results of FY04 and FY05 infrastructure deliverables will depend heavily on the allocation of the remaining IDA 13 envelope

0

2,000

4,000

6,000

FY02 FY03 FY04 FY05

Co

mm

itm

ent

$m

IBRD IDA

$5.4b$5.3b

Potential FY04 Lending:

up to $6 billion

Potential FY05 Lending:

~ $6.5-$7 billion

Strengthened Infrastructure Diagnostic Work

Latin America & Caribbean- REDIs: Colombia Peru

Europe and Central Asia- REDIs: Bosnia Bulgaria

Africa REDIs: Madagascar Mauritania Senegal

Middle East and North Africa- REDIs: West Bank/Gaza Morocco

East Asia and Pacific- REDIs: Vietnam Indonesia Philippines Mongolia

South Asia- REDIs: India

WB-JBIC-ADB East Asia Regional Infrastructure Study

WB-IDB Latin America Regional Study

WB-EBRD Europe and Central Asia Regional Study

Recent Economic Developments in Infrastructure (REDIs)

The REDI: Standardized diagnostic of the infrastructure sectors

REDIs can be: an infrastructure snapshot a partial infrastructure diagnostic a full infrastructure diagnostic

Can help develop new business and policy based operations for a given country

Include assessments of access, affordability, quality, efficiency, financial autonomy, fiscal costs, institutional development, and governance

Invested in Infrastructure Performance Indicators

Core Infrastructure Indicators in All Sectors

Access

Quality

Affordability

Cost Efficiency/ Financial Sustainability

Monitoring Sector Performance at the global level

Tracking progress toward MDGs

Contributing to corporate reporting (e.g. Global Monitoring)

Supporting IDA 14 indicators

Improving Resource Allocations at the country level

Identifying priority sectors/ interventions Contributing to results-based CASs Providing input into analytical work

Improving Performance Mgmt. at the project level

Benchmarking key performance indicators (e.g. utilities)

Demonstrating impact and results of specific projects

Strengthening the Bank Group’s Instruments and Approaches

Expanding work at the regional/ cross-country level especially in the Africa

Region

Developing a systematic cross-sectoral policy research program

in collaboration with other units

Exploring sub-sovereign Bank Group engagement the Municipal Fund

Bank Group instruments &

approaches

Improving World Bank Group collaboration expanded

IFC/IDA blend financing in Africa

Strengthening Bank Group risk mitigation instruments increased CAS

envelopes for IBRD guarantees

Staffing and Budget Constraints

Staffing/Human Resources

Staffing levels• 30% decrease in infrastructure sector

staff from FY99-03

Staffing plans-FY04• About 115 gross new staff (55 net) to be

recruited in FY04 • Anchor “incubated” for the regions about

20 staff • Anchor provided high levels of cross-

support

Staffing skills • Balanced technical/ sectoral depth and cross-sectoral/ integrative skills

Continued hiring will depend on medium-term budget planning certainty

Budget ($)

Infrastructure budgets decreased • Regional budgets down 10% from FY00-03

Credit line use in infrastructure• $8m allocation in FY04 for infrastructure• Infrastructure one of three sectors to receive

credit line funding • Credit line will finance about 15% of the

increased delivery in FY04 and FY05

Credit line contingent liabilities • $8 million credit line allocated in FY04

implies appraisal/supervision costs of up to $16 million for subsequent years

Credit line has been very useful for infrastructure, but must remain truly

additional to country base budgets

Key Challenges Going Forward

Addressing fiscal constraints to

public investments

Ensuring infrastructure retains its high quality ratings - currently the

highest of any network

Ensuring better Bank Group collaboration on

infrastructure

Engaging the public on infrastructure’s impact on poverty

reduction

Improving Bank Group services in

Middle-Income Countries

Revitalizing the Bank Group’s infrastructure business is a

medium-term challenge

Infrastructure Action Plan Website

For more information on the Infrastructure Action Plan,

please visit our website:

http://fpd-int.worldbank.org/plan.nsf