The NSIA-NIF example

SIFs also access origination routes not commonly found in PcFs because of the public sponsor’s access to target markets and the SIF’s long investment horizon, which allows the fund to develop early-stage projects. These routes include the following.

• The public sponsor proposes investment opportunities through formal or informal agreement. Whether the SIF’s sponsor proposes investments through a formal or informal agreement, it is crucial that the SIF retain full independence over investment decisions. Asia climate Partners (AcP), for instance, occasionally receives investment proposals from its public sponsor, the Asian development Bank, but maintains full discretion over investment decisions (see AcP case study in appendix A). A formal agreement to propose investment opportunities, if in place, should establish transparent procedures. The agreement may impose restrictions to ensure that the SIF is not administratively overburdened by less than robust proposals or steered toward unviable investments. For instance, in a public capital SIF, the agreement may (1) limit the number of government entities eligible to submit proposals, to avoid overloading the SIF with low-quality projects that lack support at the top echelons of relevant ministries; (2) specify a minimum level of documentation required for a proposal to be considered; and (3) include an obligation for the

SIF to review all eligible proposals, avoiding favoritism toward certain government entities. Box 6.1 summarizes the provisions of such a formal agreement in place at the nigeria Sovereign Investment Authority’s nigeria

Infrastructure Fund (nSIA-nIF). • The SIF pitches to the public sponsor investment opportunities that require the sponsor’s active cooperation. For instance, India’s national Investment and

BOX 6.1

Formalizing the process for investment proposals by the public sponsor: The NSIA-NIF example

The nigeria Sovereign Investment Authority (Establishment, etc.) Act, 2011 (nSIA Act 2011) requires the nigeria Infrastructure Fund (nIF) to review and analyze against the criteria of financial return all written proposals submitted to it by the nigerian federal government and any state or local government.a

Investment proposals must be submitted in formal letters for consideration by nSIA-nIF. Before being sent to nSIA-nIF, such written proposals are usually approved at very senior levels in the presidential office, ministries, or other government bodies—ensuring that nSIA-nIF is not overloaded with requests that have little strategic priority for the government.

upon receiving a written proposal, nSIA-nIF is required to review it, regardless of the government entity submitting it. The investment decisionmaking process is the same as for any other investment considered by nSIA-nIF, including three levels of due diligence and screening by the investment team, review and approval by the executive committee and direct investment committee, and— in the best scenario—final approval by the nSIAnIF board. nSIA-nIF independently analyzes investment proposals received from government entities and is free to reject transactions that do not meet its financial return requirements.

Source: World Bank; see NSIA-NIF case study in appendix A. a. Article 41.4 of the NSIA Act 2011 says, “The Authority shall review and analyse against criteria of financial return all written proposals of the Federal Government, State Government, Federal Capital Territory, Local Government, and Area Councils submitted to the Authority and the Authority shall issue appropriately detailed parameters and procedures for the submission of such proposals.”