IPIA - International Private Infrastructure Association

The Payment Contingency Fund (PCF) Program

Payment Contingency Funds are Letter of Credit based reserve funds that back host government approved infrastructure projects by guaranteeing servicing of project debt in the event of non-payment or other revenue shortfall. Underlying agreements define the precise trigger mechanisms resulting in the shortfalls, such as economic crisis or currency devaluation. IPIA assists host governments of developing economies to design, establish, administer and market a custom PCF suitable to their private infrastructure investment climate.

The resulting contingency funds will guarantee debt by insuring payment from electricity distribution companies, local water districts, or other contracting off-takers. The PCF’s provide a stronger alternative to a typical sovereign guarantee in that IPIA controls disbursement of the contingency fund given defined trigger mechanisms. The PCF’s enable project finance closing given the dominant role played by IPIA’s financial institution advisory boards in defining country-based contingency fund policies.

In contrast to a sovereign guarantee or related partial risk guarantee, the contingency funds represent hard reserve payment commitment. The funds are capitalized through:

Letters of credit from the host government;
Contingent grant letters of credit from the US and other G8 nations,
Letters of credit from beneficiaries of qualifying project;
Letters of credit from defense contractors as a vehicle for satisfying overhanging offset obligations;
Other sources identified and recruited by IPIA.

PCF’s will enable infrastructure private financing at a multiple of 8 to 10 times the size of the capitalized contingent fund. This level covers 12 to 18 months of operations and debt servicing in the event of non-payment or revenue shortfall. OPIC, MIGA and other insurance programs would insure the revenue flow beyond the threshold covered by IPIA. The payment contingency funds also enable insurance wraps for the underwriting of AA or even AAA-rated, low interest development bond in world capital markets.