What Role for Multilateral Development Banks in Project Finance? Some Thoughts from the Rift Valley Railways in Kenya and Uganda

Abstract

This case study uses primary evidence from the Rift Valley Railways concession-a complex multinational rail concession originating from Mombasa (Kenya) and to Kampala (Uganda)-to discuss strategic roles of multilateral development banks in infrastructure project finance. We find that multilateral development banks were uniquely positioned to play the roles of advisor, honest broker, guarantor and financier required in this transaction. However, we document a number of shortcomings in execution which adversely affected the performance of the concession. First, procurement flaws resulted in the choice of an under-qualified lead investor, and subsequent non-performance of the concessionaire. Second, there was failure to ensure compliance with loan disbursement pre-conditions. Third, governments had unrealistic expectations about the concessionaire's capacity to improve the railway's performance and make major capital investments. Extensive due diligence on the lead investor prior Article

Balancing development returns and credit risks: project appraisal in a multilateral development bank

“…Considering that the sample has few projects in fragile or post-conflict states, political risk mitigation is unlikely to be high. With regards to improved development outcomes, the results suggest that the ADOA framework could be used as an advisory function as opposed to an internal rating agency as suggested in Mutambatsere et al (2013).…”

“…An example is the Rift Valley Railway funded by MDBs where the concessioning of the railway reached financial close, thanks to support which helped to avoid pitfalls experienced in similar projects (Mutambatsere et al 2013). However, in the same project, an opportunity for further design-based additionality was missed in that MDBs should have further facilitated compliance with conditions precedent to disbursement to meet performance targets.…”

“…However, in the same project, an opportunity for further design-based additionality was missed in that MDBs should have further facilitated compliance with conditions precedent to disbursement to meet performance targets. In this regard, Mutambatsere et al (2013) note that MDBs should go further by concurrently playing the roles of advisor, honest brokers, guarantors and financiers.…”