Cameroon is to become the first African state to pioneer a new initiative launched by the International Private Infrastructure Association (IPIA) meant to arrest the decline in investment in infrastructure projects in emerging markets.

Payment Contingency Funds (PCFs) are letter of credit (L/C) 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.

Infrastructure support

Representatives of the US-based IPIA met with ministers and officials in Cameroon this month and agreed to hold further meetings to establish which infrastructure projects will be PCF supported.

A delegation from Cameroon will travel to Washington in January 2006, and decisions on the projects to be PCF supported will be made in the following March. Officials from IPIA have been working with their counterparts from Cameroon since December 2004.

Investment decline

IPIA was established in 2004 as a membership association to reverse the 77 per cent decline from 1998 to 2002 in financial institution lending for infrastructure in emerging economies.

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

L/Cs from the host government;

Contingent grant L/Cs from the US and other G8 nations;

L/Cs from beneficiaries of qualifying project;

L/Cs from defence contractors as a vehicle for satisfying overhanging offset obligations, and

Other sources identified and recruited by IPIA.

Project scope

Customised PCFs provide a first tier of debt insurance backed by re-insurance. The result is re-enabling of non-recourse project financing that could be used in power generation, power transmission systems, water treatment plants, telecommunication systems, roads and port expansion projects.

The PCFs guarantee risks resulting from economic crisis or currency devaluation for example.

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