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Protecting themselves from political Risks: Forest Carbon Projects
© goodbyebluesky / pixelio.de
To reduce risks from expropriation, war or civil unrest, agencies like the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) or the Overseas Private Investment Corporation (OPIC) provide protection. For example, a few years after US-based land-use carbon consultant Terra Global Capital (TGC) launched its Oddar Meanchey REDD Project in Cambodia, it asked the Overseas Private Investment Corporation (OPIC) to shield its investment from political risk. The Oddar Meanchey REDD Project is the first Cambodian “avoided deforestation” project; it involves 13 Community Forestry Groups, comprised of 58 villages, which protect 67,853 hectares of forest land in the Northwestern province of Oddar Meanchey.
MIGA and OPIC have insured several carbon offset projects around the world to allow the continuing progress in sustainable forestry, solar energy and wind farms. This gives these projects the chance to move forward in some of the world’s riskiest political and economic environments. In order to reduce pressure on natural forests, MIGA provided its first political risk insurance to a carbon offset project on the Atlantic Coast of Nicaragua. Here, EcoPlanet Bamboo (EPB) is developing a carbon offset project to support the reforestation attempts. The CEO and Co-founder of EPB, Troy Wiseman, says he was attracted to MIGA’s political risk coverage. “Once we had political risk insurance, you could take the risk argument away because the cost of capital would come down,” says Wiseman. “It came down for us by about 40%.” The chance of expropriation also goes down after working with political risk insurances because governments hesitate to interfere with projects like MIGA that are connected ultimately to the World Bank. “MIGA can mediate between the government and the investor to arrive at a solution that will make both parties happy”, MIGA underwriter Gloriana Echeverria says.
The main difference between the two institutions is that MIGA is open to nationals of any of its 179 member states as long as the coverage is for a cross-border investment, while OPIC requires a majority US participation in the aspirated investment.
The complete article from the Ecosystem Marketplace can be read here.