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Private Sector Operations: Strategic Directions and Review :
V. Operational Improvements
A. Single Project Exposure Limit
74. Under the current PSO policy, ADB may provide the lower of $50 million or 25 percent48
of total project cost. ADB established the exposure limit of $50 million in 199049 for the types of
project proposals handled by ADB at that time. However, a number of significant changes have
happened since that time. The investment requirements of many ADB-assisted private
infrastructure projects have increased in the last decade.50 With inflation, the $50 million ceiling
no longer represents the same real value as in 1990. ADB needs to maintain the value of its
participation to be able to play an effective role in a project (para. 86). Given the range of project
proposals considered for assistance, ADB should have the flexibility to consider a somewhat
larger amount of assistance, particularly if it furthers ADB’s development objectives.
75. Other MDBs observe similar prudential norms in PSO. Indeed comparator MDBs, such
as EBRD, Inter-American Development Bank (IADB), and IFC, have a higher single project
exposure limit than ADB (Box 2).
Box 2. Single Project Exposure Limits of MDBs
|
| ADB | EBRD | IADB | IFC |
| The lesser of 25
percent of project
cost or $50 million
(equivalent to less
that 0.46 percent of
ADB's paid-in capital
and reserves at end-2000) |
The lesser of 35
percent of the long-term
capital of the
obligor or 5 percent
of EBRD’s paid-in
capital and reserves
(equivalent to about
$225 million at end-2000)
|
The lesser of 25
percent of project
cost (or 40 percent
for small countries) or
$75 million
(equivalent to 0.6
percent of IADB’s
paid-in capital and
reserves at end-2000)
|
The lesser of 25
percent of project
cost or 3 percent of
IFC’s paid-in capital
and reserves
(equivalent to about
$170 million in 2000)
|
|
ADB = Asian Development Bank, EBRD = European Bank for Reconstruction and Development
IADB = Inter-American
Development Bank, IFC = International Finance Corporation
|
76. Given the foregoing factors, a single project exposure limit of the lesser of $75 million or
25 percent of total project cost51 would be more appropriate for ADB’s current business
orientation and client need.52 Equity participation will continue to be subject to two restrictions:
(i) ADB's share is not to exceed 25 percent of the issued capital of any investee company,53 and
(ii) ADB is not the largest single shareholder in the company.54
___________________
- 33 percent for projects under $5 million is allowed pursuant to item c(ii) of paragraph 220 of R146-90: Second
Review of Private Sector Operations, 5 October.
- Increased from $30 million pursuant to item c(i) of paragraph 220 of the second review of PSO (footnote 48).
- Large infrastructure projects can have a total investment cost of $500 million to $1 billion and above.
- The PRG Paper (footnote 45) provides for a PRG limit at twice the PSO single project exposure limit. If the
proposed increase in the PSO single project exposure limit is approved, the PRG limit will correspondingly increase
from $100 million to $150 million, but not to exceed 50 percent of total project cost. Since a PRG cannot be issued
on a stand-alone basis, it will normally be combined with a direct exposure (loan and/or equity investment). For
determining combined compliance with the PSO single project exposure limit, the PRG exposure to a project will
normally be given a risk weight of 50 percent, while the loan, equity investment, and/or the present value of a PCG
will have a weight of 100 percent. The risk weighting of PRG will be subject to the guidance of the Guarantee
Committee, which may increase the 50 percent risk weight depending on the specific risks covered.
- The increased PSO single project exposure limit would be useful for, among others, improving the financial
sustainability of large projects, where ADB’s long-term funding can further lengthen the average tenor of debt.
- Items (ii)(a) of paragraph 97 of R70-88: A Review of Private Sector Operations, 7 June (the first review of PSO).
- To be applied flexibly for justifiable reasons pursuant to item (ii)(b) of paragraph 97 of the first review of PSO
(footnote 53). For instance, the shareholding of the sponsor group as a whole may be taken into account instead of
the individual shareholdings of the sponsors.
- Indirect interventions through investment funds or financial institutions will continue to be the main approach in
PSO for assisting SMEs and microenterprises.
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