PIDG uses public funds to mobilise private capital for infrastructure development. To prevent ‘crowding out’ the private sector in doing so, it is critical that the specific inputs and services provided by PIDG complement rather than substitute those already in the market.
There are financial and non-financial ways in which the participation of PIDG is additional to the private sector and PIDG and its companies articulate and report on them.
Often PIDG’s additionality is demonstrated through innovative financing structures and an appetite for risk and long-term commitment that is above the market. PIDG’s intervention must be in response to specific market failures and lead to a more correct pricing of risk over time, rather than undercutting a functioning market.
PIDG companies played a highly additional role in the financing of the Akuo Kita solar power plant in Mali – a least developed and conflict-affected country with no existing precedent for a utility-scale solar PV initiative. EAIF acted as the mandated lead arranger of a debt package that no commercial banks were willing to provide due to country risk and was the sole provider of a long-tenor mezzanine loan, which is essential to ensuring that electricity tariffs for the people of Mali remain low. Through the provision of a debt service reserve account guarantee, GuarantCo introduced an innovative instrument to ease the developer’s debt service obligations, which would also allow local banks and private sector equity investors to participate in the transaction without having to provide cash collateral as would otherwise be the case in Mali.
As mandated lead arranger for the debt to the Kigali Bulk Water project in Rwanda, EAIF managed to ensure its financial viability and accommodate tight project economics by structuring the debt repayment over 18 years and securing $6.3m in viability gap funding from TAF.