The IIGF provides guarantees for one or more financial obligations of a contracting authority participating in a PPP consortium. If the profitability of the PPP project is disrupted due to risks presented by the contracting authority, the IIGF pays compensation. Construction risk guarantees protect investors and lenders from risks that jeopardize the completion of construction and the start of operation of new infrastructure projects. Currency hedging instruments are designed to protect investors from exchange rate fluctuations. Currency fluctuations pose a significant risk when credit payments must be made in a currency different from the project revenues. Foreign exchange risk guarantees can also be designed as fixed currency swaps or inflation-linked cross-currency swaps. Monetary guarantees are particularly valuable in developing countries where currencies are not convertible. The Indonesian Infrastructure Guarantee Fund (IIGF) is an independent state-owned enterprise 100% owned by the Indonesian government. The IIGF was established in December 2009 in accordance with Government Decree No. 35/2009 to be the only institution – or “one-stop shop” – for the assessment, structuring, claims handling and provision of state guarantees for public-private partnership (PPP) infrastructure projects in Indonesia. The IIGF is the central window for assessing infrastructure PPPs for government guarantees to ensure consistency, clarity and standard procedures, as well as better management of MOF`s fiscal risk compared to government guarantees. As part of the Single Window approach, the IIGF uses a single set of standard and best-in-class standards, procedures and operational standards for the evaluation of guarantees codified in the IIGF Steering Committee, which was developed with technical support from the World Bank. IiGF has been using these procedures since 19 November 2012 to process all IIGF safeguards.
This leads to a standardization of the Indian government`s approach to providing credible guarantee support to PPPs with high-quality project preparation, including financial and structural parameters as well as environmental and social protection measures. Both types of warranties – the IIGF warranties and the IIGF warranties supported by WB – follow government regulations and a common set of internationally recognized standards and operating procedures codified in the IIGF`s official documentation (i.e., user manual or OM). In view of the growing demand for infrastructure to support Indonesia`s economic growth, the Government of India has given priority to the acquisition of private capital, expertise and efficiency in the development of public infrastructure. The Government of India is committed to establishing a strong framework for private infrastructure financing and has established the IIGF as a “central financing window” to provide guarantees to mitigate the risk of government action or inaction on certain PPP contracts/arrangements. Indonesian Presidential Decree No. 78/2010 defines the IIGF guarantee scheme, and Support Decree No. 260/2010 of the Minister of Finance defines how guarantees for PPPs would be issued. It is important to note that the IIGF is a guarantee fund and not an implementing body for PPP projects; The government agency responsible for each PPP is called the Contracting Agency (CA). For each project, the relevant certification body submits an application to the IIGF regarding the potential coverage of the guarantee, after which the iiGF provides the CERTIFICATION BODY with a comprehensive set of guidelines – including eligibility criteria, a detailed checklist for the application dossier and requirements for environmental and social protection measures. The IIGF provides advice and consultation to certification bodies related to certification to understand the process, PPP regulation, guarantee mechanism, role and requirements for guarantee evaluation, etc., on the basis of which certification bodies can submit a guarantee claim to the IIGF. Once HQ has submitted its application package for a project, the IIGF will: (i) review the HQ submission to determine whether the project is eligible for continuation and what risks need to be covered; (ii) carry out a thorough assessment of the advisability of providing a guarantee on the basis of the CA pre-feasibility study and the IIGF`s own analysis; (iii) structure the guarantee package; (iv) issue the warranty and then monitor the project during construction and operation to ensure that the parties involved implement the project in accordance with their respective responsibilities under the Guarantee Agreement (GA) and the Recourse Agreement (RA).
In the event of a warranty call, iiGF will take care of the damage assessment and make the payment of the associated warranty to the recipient of the warranty. An appeal mechanism then allows the IIGF/MOF to recover these payments from the CA concerned. Loan guarantees cover the borrower`s debt service obligations relative to the amount of secured capital and interest payable to lenders. Credit guarantees cover the risk of default regardless of the cause of the non-payment, whether political or commercial. The instrument can be designed to address specific debt repayment structures and risks at different stages of the project. The guarantee can protect the entire amount borrowed or only part of it – the so-called partial risk guarantee. It can be designed to cover various forms of debt, including bank loans, shareholder loans, loans guaranteed by shareholders or third parties, capital market debt securities, bonds, finance leases, letters of credit, loans to order and bills of exchange. (i) IIGF guarantees covered by IIGF`s own funds.
Political risk guarantees protect investors and lenders from political incidents that result in interruptions or termination of the construction, operation and operation, ownership and/or contractual relationship of an infrastructure project. .