PrintPast Issue: January 2005
New Challenge Fund for Output-based Aid
A new resource has opened for output-based aid projects. The United Kingdom's Department for International Development (DFID) has approved a GPB 20 million Challenge Fund, whereby GPOBA will be able to expand the existing scope of its activities to include the funding of subsidy payments for pilot tests of OBA approaches.
GPOBA has recently added three new projects to its portfolio. These projects include: Cape Verde Multi-sector, Morocco Water and Sanitation, and Rwanda Health. The projects will help identify pilots that involve explicit performance-based subsidies, while considering key institutional and design issues, and where relevant provide a review of OBA-type mechanisms that exist to date.
OBApproaches are a forum for presenting experience in the design and implementation of projects involving explicit performance-based subsidies. Three case studies -- Cambodia Water, Nepal Telecommunications, and Mozambique Electricity -- are presented here.
OBA projects have two different types of cash flows: user fees and government subsidies. Before committing funds to a project, commercial project finance providers assess the riskiness of each cash flow element. In many countries government payments are not considered creditworthy. World Bank guarantees offer one way to raise the quality of government OBA payments. This enables a project to attract commercial financing.
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