The purpose of IIPSA grant funding is two-fold:
(i) to support project preparation activities of infrastructure projects and/or
(ii) to support the overall financing of infrastructure projects.
a. Project preparation grant
In general, funding for preparation of projects falls short of the needs in both the public and private sector, and in most cases sponsors do not have funding available to prepare projects to investment stage. Preparation support in this context can be defined as financial support to create the capacity and guidance to prepare projects for investment, by public and private sector or combination thereof. Project preparation activities start with the confirmation or development of an enabling environment; pre-feasibility and preparation of bankable feasibility studies that inform the project investment structure for either on balance sheet or limited recourse investment, modelling, designs and related activities to prepare an investment business plan. The result is a Project Information Memorandum (PIM) which will be presented to the participating DFIs and other potential debt and equity investors.
The PIM should provide full information on the project that enables investors to have fully prepared projects that they can appraise for funding with speed and cost effectiveness without wasting time with project sponsors in addressing outstanding issues that should have been addressed during the project preparation phase. The application of the preparation grant will go towards funding the activities and expertise to formulate the PIM to consider the project for investment by the IIPSA partners.
b. Grant funding in support of investments
In the case where a project is considered ready for investment, the application will request IIPSA grant funding in support of long term financing from participating DFIs. The different forms of eligible IIPSA grant support are:
(i) technical assistance, to support the management or implementation of the project;
(ii) direct grant, to finance a specific part of the investment (for example: soft components);
(iii) interest rate subsidies; and
(iv) loan guarantee cost financing and insurance premiums.
• Interest Rate Subsidies
The provision of a lump-sum amount shall be issued to reduce the interest rate of the long term loan provided by one or more participating DFIs. Such subsidies shall only be granted in duly justified cases and when it is ensured that they do not create any market distortions
• Loan guarantee cost financing and insurance premiums
This is aimed at the initial stage funding of insurance premiums where it is necessary to ensure the launch of infrastructure projects.