Turkey's Elaziğ Hospital PPP shows how two different instruments-a European Bank for Reconstruction and Development (EBRD) standby liquidity facility and extended political risk insurance from MIGA-were used to tackle the ability and willingness to pay of government counterparties. Elazig Hospital is a 1,038-bed complex comprising two hospitals and one clinic (Moody's Investors Service 2016). The project site was delivered in October 2016 and construction was supposed to have been completed in September 2018. The bond issued to fund the PPP project totaled €282 million ($335 million). The availability payments are to be paid by the Ministry of Health for services provided by the project company, ProjectCo. To finance the project, two types of bonds rated by Moody's Investors Service were used: A1 bonds, which are credit enhanced, and A2 bonds, which are not.
The bonds benefited from two types of risk mitigation: MIGA's extended political risk insurance coverage, which includes classic coverage (transfer restriction and expropriation) and breach of contract. And a subordinated liquidity facility from the ERBD, which covers ProjectCo in case of a breach of contract by the Ministry of Health.
Because of the level of risk mitigation provided by MDBs, this project was rated Baa2; that is, above Turkey's Ba1 sovereign ceiling. This is unusual in PPP projects generally, and it is even more unusual in social sector PPPs. Historically, ratings above the sovereign occur in mineral or oil extraction, which tend to have the characteristics-insulation and offshore, hard currency revenue-needed for a higher rating.
A major factor for this PPP's success was the credit enhancement provided by MIGA and the ERBD, which was not affected by Turkey's sovereign environment. To break through a sovereign ceiling, a project must have better credit fundamentals than the sovereign and be insulated from domestic macroeconomic and financial disruptions.
Multilateral support for Turkey's health sector was also a factor for the higher ratings. This showed that upstream loans and technical assistance can have material impact on the bankability of PPPs. It should be noted that the European Investment Bank uses a similar mechanism to the liquidity facility used by the ERBD in this project-an unfunded letter of credit that can cover up to 20% of a project's cost during either the construction or operation phases. This facility can also raise projects below investment grade to investment grade (EIB 2012).