The Risk Mitigation Reserve Trust
All projects to be successful require appropriate risk allocation and normally the risk is held by the party best able to manage it. Traditionally, he who bears the risk reaps the reward. Under the Federation structure, apart from the sharing of minimal risk (10% of project budget) that the Member takes, the risks are those of the Federation and the rewards go directly to the members of the community who benefit from the development of the project.
The Federation structure eliminates sovereign risk, political risk, exchange / currency transfer risks, project risks (pre-tender, design, development, construction and implementation) and credit risks for credit institutions and project investors.
The Federation of FairFund Foundations will:
- Through an Irish registered SPV or through a Partnership offer protection to project investors and shareholders against partial or total loss of an investment or loan in respect of all risk generally related to any investment or bank loan. (Commercial Risk is generally not covered)
- Cover risks resulting from acts by the host government that:
- reduce or eliminate ownership of, control over, or rights to the protected investment
- constitute nationalisation and confiscation and / or "creeping" expropriation (i.e. a series of acts that over time have an expropriator effect).
Bona-fide, non-discriminatory, measures taken by the host government in the exercise of legitimate regulatory authority are not covered. Loss of earnings past, current or future are not protected.
- Protect against total expropriation of equity investments. It will pay from its Trust Reserve the net book value of the SPV / Partnership registered investment. For loans and loan guaranties, the Federation will guarantee the Lender the net unrecoverable outstanding principal. In exceptional cases, it may pay any accrued and unpaid interest.
Compensation may be payable upon assignment of the investor's right, title and interest in the expropriated investment (e.g. equity shares or principal and interest in a loan agreement).
- In the case of Force-Majeure, war and civil disturbance, through the related SPV or through the Partnership, protect against loss from or damage to, or the destruction or disappearance of, tangible assets caused by natural disaster or by politically motivated acts of war or civil disturbance in the host country, including revolution, insurrection, coups d'etat, sabotage and terrorism.
For equity investments, the Federation will pay from its RMRT the investor's share of the least of either the book value of the assets, of their replacement cost, or of the cost of repair of damaged assets.
For loans and loan guaranties, the Federation will pay from its RMRT the registered recourse guaranteed portion of the principal and interest payments in default as a direct result of damage to the assets of the project by natural disaster. Only principal will be paid if the loss is caused by war or civil disturbance.War and civil disturbance protection will also extend to events that, for a period of one year, result in an interruption of project operations, which are essential to overall financial viability. This protection will be effective when the investment is considered a total loss. At that point, the Federation will pay from its RMRT the net book value of the total registered equity investment. For loans and loan guaranties, the Federation will pay from its RMRT the registered portion of the principal and interest payments in default as a result of business interruption.
- Protect and pay from its RMRT any losses sustained by investors and lenders by reason of a denial of judicial remedy, i.e. (i) there is no recourse to a judicial or arbitral forum to determine the claim of repudiation or breach, (ii) a decision by such a forum is not rendered within a reasonable period of time; or (iii) a final decision of such forum cannot be enforced. The Federation will retain at all times matching value in cash or assets readily convertible to cash to meet its risk mitigation obligations.