Synopsis
In recent decades, resource-rich developing countries have been using their natural resources as collateral to access sources of finance for investment, countervailing the barriers they face when accessing conventional bank lending and capital markets. One of the financing models that have emerged as a result is the Resource Financed Infrastructure (RFI) model, a derivation of previous oil-backed lending models pioneered by several Western banks in Africa. Under a Resource Financed Infrastructure (RFI) arrangement, a loan for current infrastructure construction is securitized against the net present value of a future revenue stream from oil or mineral extraction. The model has been applied in several African countries, for a cumulative contract value of approximately $30 billion, according to publically available sources. This report, consisting of a study prepared by global project finance specialists Hunton & Williams LLP and comments from six internationally reputed economists and policy makers, provides an analytical discussion of resource-financed infrastructure (RFI) contracting from a project finance perspective. The report is meant as a forum for in-depth discussion and as a basis for further research into RFI’s role, risks, and potential, without any intention to present a World Bank–supported view on RFI contracting. It is motivated by the conviction that if countries are to continue to either seek RFI or receive unsolicited RFI proposals, there is an onus on public officials to discern bad deals from good, to judge unavoidable trade-offs, and to act accordingly. The report aims to provide a basis for developing insights on how RFI deals can be made subject to the same degree of public policy scrutiny as any other instrument through which a government of a low- or lower-middle-income country might seek to mobilize development finance.
Review
...linking resource extraction to infrastructure is a commitment technology... Ministers responsible for depleting their natural assets need a commitment technology to ensure that future decision takers devote a sensible proportion of these unsustainable revenues to the accumulation of assets. --Paul Collier, Oxford University
The study makes useful distinctions between the principles underlying the RFI model and past practices in implementing it, arguing that faults in implementation do not necessarily invalidate the good points of the approach. --Alan Gelb, Center for Global Development
The study provides a framework to evaluate the strengths and weaknesses of various contractual arrangements for infrastructure financing, including the RFI approach. It is pertinent, objective, and well researched. --Justin Yifu Lin, Peking University; Yan Wang, The George Washington University
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