Overseas Private Investment Corporation: Additional Actions Could Improve Monitoring Processes
Published: 2015-12-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: OPIC helps mobilize private capital to address development challenges globally and advance U.S. development assistance objectives.
GAO was asked to provide information on OPIC's financing commitments and its project selection and monitoring practices. This report examines (1) the amounts and types of OPIC financing support for fiscal years 2008 through 2014, (2) how OPIC selects projects, and (3) how OPIC monitors projects.
To address these objectives, GAO analyzed OPIC data for its commitments made in fiscal years 2008 through 2014, to reflect recent activity. GAO also reviewed OPIC policies, annual reports, and selection and monitoring documents for a nongeneralizable sample of 21 projects in four countries. The country and project selections were based on several factors, including OPIC financing amounts, ease of doing business ratings, and project sector. GAO interviewed officials from OPIC and other organizations as well as officials and clients in Honduras and Pakistan, two countries with particularly challenging business climates.
section_title: What GAO Found
paragraphs: The Overseas Private Investment Corporation (OPIC) provides loans, loan guarantees, and political risk insurance to private entities to support development in over 150 countries. In fiscal years 2008 through 2014, OPIC made 718 commitments worldwide valued at about $20 billion. OPIC committed the majority of this financing support to projects in Latin America and the Caribbean and in Sub-Saharan Africa, and 25 percent to countries with low per capita incomes.
OPIC has policies to guide its project selection process, including confirming a connection to the United States and reviewing potential environmental and social, worker rights, and human rights impacts. In its review of a nongeneralizable sample of projects, GAO found that OPIC generally followed these policies. While GAO found that OPIC completed required human rights reviews, the responsibility for reviewing human rights-related information is spread across groups, and OPIC lacked clear guidance for conducting these reviews. OPIC recently developed new guidance that identifies roles and responsibilities for these reviews. GAO also found that OPIC has recently adopted additional guidelines which may support more systematic cumulative environmental and social impact analyses.
OPIC monitors ongoing projects but may lack adequate information about some projects' policy compliance and impacts. OPIC uses annual client-reported data, a limited number of site visits, and independent consultant reports, among other things, to monitor projects' policy compliance and impacts. OPIC policy does not designate time frames for submitting site visit reports, and some reports GAO reviewed were written several years after the visits. OPIC's policy teams visit about one-tenth of active projects each year. Site visit reports GAO reviewed identified compliance issues that clients had not reported, indicating that OPIC may lack complete and accurate information on the status of some projects. Thus, OPIC's current monitoring processes may not provide adequate information on projects' annual policy compliance and development impact status to support program goals.
section_title: What GAO Recommends
paragraphs: GAO recommends that OPIC (1) establish time frames for submitting site visit reports and (2) assess its monitoring processes to ensure risks associated with current practices are acceptable for meeting OPIC's program goals. OPIC concurred with these recommendations.

section_title: Letter
paragraphs: The Overseas Private Investment Corporation (OPIC) is the U.S.  government’s development finance institution, created to complement  U.S. development assistance objectives by mobilizing private capital to  address development challenges around the world. Much of OPIC’s  financing support has been for projects in countries with challenging  business environments, often lacking adequate infrastructure and  effective governance. For example, 54 percent of OPIC’s commitments,  during fiscal years 2008 through 2014, were in countries ranked in the  lower half of the World Bank’s ease of doing business index. In 2003,  Congress passed legislation reauthorizing OPIC through November 1,  2007. Since then, Congress has extended OPIC’s authority to issue  political risk insurance and loan guarantees and to make direct loans  through annual appropriations for varying periods of time, in no more than  1-year increments.
You asked us to provide information on OPIC’s project selection and  monitoring practices. This report examines (1) the amounts and types of  OPIC’s global financing support from fiscal year 2008 through fiscal year  2014, (2) how OPIC selects projects, and (3) how OPIC monitors  projects.
To address these objectives, we reviewed OPIC documents and project  files and interviewed OPIC staff as well as officials from other U.S.  agencies that participate with OPIC in approving projects as members of  OPIC’s Board of Directors, including the Departments of State (State) and  the Treasury (Treasury); the Office of the U.S. Trade Representative  (USTR); and the U.S. Agency for International Development (USAID). We  also met with officials from the World Bank, including the International  Finance Corporation (IFC). We analyzed OPIC-provided data for new  commitments it made in fiscal years 2008 through 2014 to characterize  OPIC’s recent financing support. To assess the reliability of the OPIC- provided data and to better understand the classifications and sources  used in its compilation, we interviewed OPIC officials concerning the  collection, maintenance, and accuracy of these data. We also performed  electronic data testing. We determined that the data were reliable for our  purpose, which was to analyze OPIC’s new commitments for background  and context. We reviewed documents for a nongeneralizable sample of  21 projects in four countries where OPIC has supported investments  since 2008—Honduras, Kenya, Pakistan, and Peru. We selected these  countries based on factors including OPIC’s commitment amounts,  diversity of project sectors, geographical coverage, and ease of doing  business index ratings. From these countries, we selected a  nongeneralizable sample of OPIC projects based on (1) size relative to  the total OPIC commitments in the country; (2) sector; (3) type of  financing instrument; (4) age of the commitment; and (5) whether any  disbursements had been made. To guide our review and analysis of  OPIC’s project selection and monitoring processes, we created two data  collection instruments. In addition, we conducted fieldwork in Honduras  and Pakistan, where we visited project sites and interviewed U.S.  embassy officials, host-government officials, recipients of OPIC loans and  loan guarantees, and officials from other development finance institutions.  We did not review the sufficiency of OPIC’s credit and legal due diligence  processes or OPIC’s processes for monitoring projects’ financial  performance. For additional information concerning our scope and  methodology, see appendix I.
We conducted this performance audit from December 2014 to December  2015 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: OPIC’s Financing Seeks to Promote Development and Other Policy Goals by Supporting U.S. Investment Abroad
paragraphs: OPIC, a U.S. government agency under the policy guidance of the  Secretary of State, provides financing support to promote development  and other policy goals by supporting U.S. direct investment in over 150  countries, with a mandate to give priority to low-income and emerging  economies. OPIC’s direct loans, loan guaranties, political risk insurance,  and private equity investment funds promote U.S. private investment by  mitigating risks for U.S. firms making qualified investments overseas,  often in difficult business environments. Since it began operating in 1971,  OPIC has supported more than $200 billion of U.S. private investment.  Examples of OPIC-supported projects include solar and wind power,  financing for affordable housing, investments in affordable healthcare,  microfinance, agriculture, and manufacturing (see fig. 1).
OPIC is self-sustaining, and is required by law to hold its revenues and  income in order to pay OPIC expenses, cover transfers and additions to  the insurance and guaranty reserves, and pay dividends. For example, it  uses revenues from fees charged to clients, interest, and insurance  premiums and interest earned on the U.S. Treasury securities it holds to  cover its operating cost and any program losses. OPIC’s maximum  spending levels for administrative and program expenses are set annually  by Congress. In each of fiscal years 2014 and 2015, Congress authorized  approximately $63 million for OPIC’s administrative expenses. OPIC is  authorized by law to incur up to $29 billion in maximum contingent  liability—the amount OPIC would incur if claims were made on all  insurance contracts and borrowers defaulted on all loans.
As of September 30, 2015, OPIC’s outstanding financial commitments— the value of its portfolio—were approximately $19.9 billion, which is  slightly more than two-thirds of its legislated limit of $29 billion. The value  of OPIC’s portfolio has ranged from about $11.2 billion to about $18  billion in fiscal years 2000 through 2014. OPIC officials stated that the  agency’s portfolio size is constrained by its administrative budget, as  OPIC’s ability to originate, develop, process, monitor, and execute  transactions is directly related to its resources, primarily the number of  staff its budget supports. In fiscal year 2015, OPIC employed  approximately 230 full-time staff.
section_title: OPIC’s Organizational Structure and Operations
paragraphs: OPIC’s investment portfolio is managed by seven staff offices and  departments, and the organization is overseen by an individual who  serves as both President and Chief Executive Officer (CEO). Five offices  and departments are responsible for managing OPIC’s overall operations  (see fig. 2).
OPIC’s Office of Investment Policy (OIP) is responsible for ensuring that  all projects selected for funding comply with statutory requirements and  general OPIC policy requirements, as well as for monitoring projects once  they become active. According to OPIC officials, OIP works closely with  OPIC’s business lines to conduct a full policy review of all projects. In  addition, the Department of Financial and Portfolio Management is  responsible for the financial leadership and oversight of OPIC through  financial management, controls, and risk and portfolio management.
In response to congressional committee reports encouraging OPIC to  adopt an accountability mechanism, OPIC created the Office of  Accountability in 2005. The office addresses concerns, complaints, or  conflicts about OPIC activities. Project-affected communities, project  sponsors, and project workers may approach the Office of Accountability  to request that such concerns be reviewed and addressed. The office  also provides mediation services. The director of the Office of  Accountability is a senior level appointee approved by the OPIC President  and CEO, and reports directly to the President and CEO. According to  OPIC officials, the director serves one 3-year term, may be reappointed  for no more than one additional 3-year term, and may only be removed  from office by a resolution of the Board of Directors.
section_title: OPIC Committed Over $20 Billion to Projects Worldwide for Fiscal Years 2008 through 2014
paragraphs: For fiscal years 2008 through 2014, OPIC committed approximately $20  billion in financing support to 718 projects worldwide (see fig. 3). As the  figure illustrates, the average size of OPIC’s commitments was higher  from 2011 through 2014 compared with previous years, with the number  of commitments declining while total commitment values were generally  higher. This reflects, in part, OPIC’s financing support for several large  power generation and financial services projects during that period.
subsections: section_title: Financial Instruments
paragraphs: OPIC uses four financial instruments to support projects: loan  guarantees, direct loans, investment funds, and political risk insurance.
Loan guarantees: OPIC provides loan guarantees to third-party  lenders. Loan guarantees provide a guarantee for loans underwritten  by participating financial institutions according to agreed credit criteria  and are typically provided in amounts up to $250 million.
Direct loans: OPIC provides direct loans to U.S. small businesses.
The loans range from $600,000 to $50 million.
Investment funds: OPIC facilitates equity investment in developing  and emerging markets by providing debt financing to privately  managed equity investment funds. These funds make direct equity  and equity-related investments in portfolio companies, enabling U.S.  firms to expand operations in overseas markets where they otherwise  could not due to insufficient availability of resources.
Political risk insurance: OPIC provides political risk insurance to cover  certain political risks involved in investing in developing countries.  According to OPIC officials, the share of insurance in OPIC’s active  portfolio has declined over the past 20 years due, in part, to the  increasing number of private and public providers of political risk  insurance.
In terms of value, the largest share of OPIC’s new commitments  worldwide in fiscal years 2008 through 2014 were loan guarantees,  representing 57 percent of the approximately $20 billion total value of  commitments made during the period (see fig. 4).
section_title: Regions
paragraphs: During fiscal years 2008 through 2014, OPIC committed to projects in  seven regional categories: Sub-Saharan Africa, Asia and the Pacific,  Europe, Latin America and the Caribbean, the Middle East and Northern  Africa, and New Independent States, as well as investments designated  for projects encompassing multiple countries and regions (cross- regional). Figure 5 shows commitment values and numbers by region.  In fiscal years 2008 through 2014, OPIC committed the majority of its new  financing support to projects in two regions: Latin America and the  Caribbean and Sub-Saharan Africa. For example, OPIC is participating in  the Power Africa initiative, which aims to support energy projects in Sub- Saharan Africa. In 2013, OPIC pledged to provide $1.5 billion for energy  projects in Africa by 2018 and as of September 25, 2015, OPIC had  already committed approximately $1.3 billion for Power Africa projects.
section_title: Country Income Levels
paragraphs: OPIC is required by law to give preferential consideration to investment  projects in less developed countries that have per capita incomes of $984  or less in 1986 U.S. dollars, and restrict its activities in higher income  countries with per capita incomes of $4,269 or more in 1986 U.S.  dollars. Based on these statutory definitions, OPIC categorizes  countries’ per capita incomes as low, middle, and high. The per capita  income categories equate to the following in 2014 dollars: per capita  incomes not greater than $1,836 for low income countries; between  $1,836 and $7,964 for middle income countries; and greater than $7,964  for high income countries. In fiscal years 2008 through 2014, OPIC’s  new commitments for projects in low per capita income countries  represented 34 percent of the total number of new commitments and 25  percent of the total value. According to OPIC officials, based on  legislative history, OPIC interprets the statutory requirement as allowing it  to support projects in higher income countries that are highly  developmental, focus on underserved areas or populations, or support  U.S. small businesses. See figure 6 for the composition of OPIC’s fiscal  years 2008 through 2014 commitments according to country per capita  income level.
section_title: Sectors
paragraphs: In fiscal years 2008 through 2014, OPIC committed the majority of its total  new financing support to projects in the financial services sector—over  half by value—and power generation sector—almost one quarter by  value (see fig.7). However, the majority of financing support OPIC  provides to the financial services sector, primarily banks, is then lent to  others for specified purposes, such as the lending to microfinance  institutions or companies in other sectors. Nonfinancial services and  manufacturing are other key sectors OPIC supported, followed by  agriculture, communications, construction, oil and gas, mining, tourism  and hotels, and transportation. OPIC increased its commitments in power  generation projects from about $1.4 million in fiscal year 2008 to  approximately $1.2 billion in fiscal year 2014. Approximately 82 percent of  OPIC’s power generation commitments in fiscal years 2008 through 2014  were for renewable energy projects, reflecting OPIC’s strategic focus on  promoting renewable energy options in the developing world.
section_title: OPIC’s Commitments in Selected Countries Differed in Size and Industry Focus
paragraphs: OPIC commitments during fiscal years 2008 through 2014 varied for the  four focus countries in our review—Honduras, Kenya, Pakistan, and Peru  (see app. II for a list of all OPIC commitments made in the four countries  during that period and app. III for brief descriptions of each of the 21  projects we selected for this review). Of the four countries, Pakistan and  Peru received the largest amount of new OPIC commitments with $646  million for 17 projects in Pakistan, and $625 million for 18 projects in  Peru. New commitments in Honduras totaled $246 million for 11 projects,  and in Kenya totaled $399 million for 11 projects. Kenya, Pakistan, and  Peru each had OPIC investments in large-scale energy projects (see fig.  8).
section_title: OPIC Policies Guide Project Selection, and OPIC Recently Adopted Additional Guidance to Enhance the Policy Clearance Process
subsections: section_title: OPIC’s Policies Guide the Project Selection Process
paragraphs: OPIC has established policies that guide its project selection process,  which includes a review of projects’ eligibility against OPIC policy and  statutory requirements and due diligence reviews, among other  evaluations. The process OPIC follows when reviewing potential projects  is generally the same, with some modifications for projects that are  supported through framework agreements between OPIC and large  financial institutions. This process has seven steps:
Prescreening—informal review of proposals or discussions with  potential applicants.
Application intake—formal acceptance of application materials.
Screening—initial review of a project against eligibility, financial, and  legal requirements.
Credit and legal due diligence reviews—formal evaluation of the risks  to which a project may expose OPIC.
Policy clearances—review of a project’s impact on the U.S. economy,  development in the host country, environmental and social issues,  worker rights, and human rights.
Final commitment review and approval—final approvals based on the  project’s level of financial risk.
First disbursement—release of committed funds once an agreement  is finalized.
A small percentage of project proposals and applications ultimately obtain  financing support. According to OPIC, during fiscal years 2000 through  2012, officials prescreened about 20,000 project proposals and formally  accepted 3,175 applications. About 37 percent of the 3,175 applications  completed the full review process and reached disbursement (see fig. 9),  which is about 6 percent of the approximately 20,000 project proposals  reviewed.
Prior to formally accepting an application, OPIC staff may prescreen  projects that they identify through several means. According to OPIC  officials, OPIC relies on clients and partners, interagency contacts, and  business development efforts to identify potential opportunities. For  example, OPIC identifies opportunities through repeat clients, referrals,  and large partner banks. OPIC also collaborates with several U.S.  agencies to identify projects. For example, it is coordinating with State  and the Trade Development Agency on the U.S.-Africa Clean Energy  Finance Initiative, a 4-year, $15 million program to stimulate private  sector investment in the African clean energy sector. In addition, embassy  officials in Honduras and Pakistan said they try to identify potential  projects for OPIC that support the embassy’s strategic goals. Further,  OPIC officials organize or participate in activities—such as workshops,  conferences, and trade shows—to educate potential clients about OPIC.  For example, OPIC organizes workshops, called Expanding Horizons, in  several major cities each year.
OPIC staff prescreen projects through informal discussions with potential  applicants by phone, email, and at events. This includes informally  reviewing projects against OPIC’s eligibility, financial, and policy  requirements (discussed below). Applicants that successfully meet these  requirements may formally submit their application and other required  documents.
subsections: section_title: OPIC Screens Projects for Eligibility and Other Requirements
paragraphs: OPIC policy requires officials to screen accepted applications to identify  flaws that may prevent an applicant’s ultimate selection. This screening  includes, among other things, the review of projects against OPIC policy  and statutory requirements concerning eligibility restrictions and an initial  review of the project’s additionality—whether OPIC’s support of a project  “adds value” because it is a project that a private lender would not  otherwise support given country risk or other factors.
Connection to the United States  OPIC policy requires that there be a meaningful connection between an  OPIC-supported project and the U.S. private sector. OPIC’s guidance  concerning the U.S. connection requirement outlines which entities are  considered to be U.S. private sector entities and what constitutes  sufficient U.S. involvement. The U.S. connection requirement can be met  by the applicant, the project company, or some other supporting entity,  such as a services provider. Projects must meet both aspects of the U.S.  connections policy requirement to obtain OPIC financing support, unless  the President and CEO of OPIC approves a waiver or exception.
OPIC’s policies allow for substantial flexibility in implementing the U.S.  connection requirement. For example, the U.S. connections requirement  specifies that various entities can qualify as U.S. private sector entities,  including a U.S. citizen or a nonprofit organized in the United States that  may or may not have a U.S. board member. Similarly, the requirement  can be met through a U.S. entity’s direct equity investment of at least 25  percent in the project or through subcontracting with a U.S. company for  services, such as maintenance services, that equate to at least 25  percent of the project equity. Table 1 outlines OPIC’s current criteria with  respect to determining U.S. connections.
The 21 OPIC-sponsored projects we reviewed met the U.S. connection  definition of an eligible U.S. entity in a number of ways. Two projects  were sponsored by a U.S. citizen; 12 were sponsored by a U.S. for-profit  entity; 4 were sponsored by a U.S. nonprofit, 1 of which did not have any  U.S. board members; and 3 met more than one of the criteria.
Applicants also met the U.S. involvement requirement in a number of  ways. For example, for a school building project in Kenya the applicant  provided over 25 percent of the equity for the project. In another case, a  wind power project in Pakistan met the requirement by contracting with a  large U.S. company to purchase wind turbine generators and operation  and maintenance services worth more than 25 percent of the equity in the  project. One OPIC client told us that he thought the U.S. sponsor needed  to fund 25 percent of the project equity to obtain OPIC support. He later  learned that similar projects in that country successfully met this  requirement by contracting with or purchasing equipment from large U.S.  companies, which he said was an easier way for project companies to  meet OPIC’s U.S. connection requirement. According to OPIC officials,  OPIC may determine that a project company should meet specific criteria  for the eligibility requirements due to credit-related factors.
Small Business Requirement for Direct Loans  OPIC’s governing statute restricts the types of projects eligible for direct  loans, and all the direct loan projects we reviewed met OPIC’s small  business requirement. OPIC can only provide direct loans to projects  sponsored by or significantly involving U.S. small businesses or  cooperatives. OPIC defines small businesses as any business with  annual revenues of less than $400 million in the last fiscal year, 500 or  fewer employees, or any newly formed entity or individual owner that has  a net worth of less than $100 million. Eight of the 21 projects we  reviewed received a direct loan from OPIC, and all of these projects met  OPIC’s small business requirement.
Screening also includes an initial review of the project’s additionality.  Additionality in the OPIC context refers to whether or not OPIC’s support  of a project “adds value” because it is a project that a private lender would  not otherwise support given country risk or other factors. We found that  OPIC documented how all the projects in our sample met the additionality  requirement. For example, 18 of the 21 projects met the additionality  requirement because the host country had high country risk ratings (see  table 2).
U.S. embassy officials and OPIC clients we met with in Honduras and  Pakistan stressed that high levels of country risk severely inhibited private  sector financing. For example, one client noted that it was not willing to  assume the risk of financing a project in Honduras without a loan  guarantee from OPIC or another development finance institution. In  addition, two OPIC clients in Pakistan said that local banks offer shorter  term loans and one client noted that other development finance  institutions offered financing options at high interest rates that were  unreasonable for nonprofit organizations. Lastly, three OPIC clients we  interviewed in Honduras and Pakistan said that they could not fund their  project without OPIC due to a lack of private sector funding.
Based on the completed screening, OPIC either rejects the project,  suggests changes to the applicant to improve the likelihood of  acceptance, or moves the project forward. For projects deemed ready to  advance, an OPIC official concurrently initiates credit and legal due  diligence reviews and the policy clearance process.
section_title: OPIC Conducts Credit and Legal Due Diligence Reviews
paragraphs: OPIC conducts credit and legal due diligence reviews to identify and  evaluate risks to which OPIC may be exposed. According to OPIC policy,  the credit due diligence review includes, in part, evaluation of the financial  condition of key project participants; markets and marketing strategy;  project management quality and structure; financial projections; project  country political and economic analysis; and credit checks for key project  participants. OPIC policy states that the legal due diligence review  consists of legal and regulatory evaluations concerning, for example, the  complexity of the legal framework in the host country and the jurisdiction  of the governing law for various project agreements. OPIC is also to  conduct character risk due diligence on the project company, the  borrower, and other relevant entities in accordance with OPIC policy, to  uncover any derogatory information about an OPIC project, its sponsors,  investors, or key personnel to minimize risks to OPIC’s portfolio and  reputation. Satisfactory completion of the character risk due diligence is  a non-waivable condition of any binding OPIC commitment. When issues  of concern are identified, OPIC staff are required to provide a detailed  analysis of such issues and related recommendations to upper  management and, potentially, the President and CEO of OPIC.
Based on our review of project file documentation, we found that OPIC  conducted credit and character risk due diligence reviews when  required. For example, for one project we reviewed, OPIC identified a  potential character risk due diligence issue concerning one of the  project’s contractors. OPIC staff conducted additional due diligence  reviews related to these issues, appropriately documented the concerns  and resolution, and alerted management to the potential issue.
section_title: OPIC Requires the Completion of Four Policy Clearances for Each Project
paragraphs: OPIC policy requires officials to document the completion of four distinct  policy clearances for each project: (1) U.S. economic effect and host- country developmental impact, (2) environmental and social impacts, (3)  worker rights, and (4) human rights. OIP officials are to conduct these  reviews, based on applications, responses to questionnaires, other client- provided documentation, and other information. We found that OIP  completed the four policy clearances for all 21 projects in our sample. In  addition, according to OIP officials, they participate in screening  discussions and attend other credit-related project meetings to learn more  about the financial structure of the potential project and to share any  potential policy-related risks with other OPIC officials. The specific review  processes are outlined in OPIC policies, which have evolved over time.  Figure 10 outlines the policy clearance structure.
U.S. Economic and Host Country Development Clearance  This clearance has two distinct reviews—the project’s expected impact on  the U.S. economy and on development in the host country.
U.S. economic impact. Congress directed OPIC to seek to support  projects that have positive trade benefits for the United States and to  decline projects expected to cause any significant reduction in U.S  employment if the reduction is occurring because the investment  involves substantially the same product for the same market. OPIC  has guidelines for conducting U.S. economic impact analysis, and  relies largely on applicant-provided project information. In some  cases, OPIC policy requires the development of an industry analysis  to assess the health of the U.S. industry to determine whether the  project’s output could potentially harm U.S. jobs.
Host-country development impacts. OPIC is required by law to  prepare and maintain statistics on each project’s impact on  development in the host country, and to report its assessment of the  development impact to Congress each year. According to OPIC  officials, OPIC conducted qualitative assessments of each project’s  expected development impact prior to 2000. OPIC also collected and  reported on quantitative information such as host-country job creation  and tax payments. OPIC officials stated that they sought to make the  estimated development impact more quantifiable with the creation of  its Development Impact Matrix, which uses both qualitative and  quantitative measures to establish a development impact score that  enables comparison across projects. The matrix includes specific  indicators for physical investments and financial services projects.  This matrix has been updated twice since 2007, and according to  officials the updates have been based on site visits, feedback from  USAID, and best practices, and OPIC is currently in the process of  updating it for a third time (see app. IV for an example of OPIC’s  development impact scoring).
OPIC reports each year on the estimated development impact of new  projects committed in that year in its Annual Report on Development  Impact, in accordance with statutory requirements. For example, in its  2013 report, OPIC estimated that new projects committed in fiscal  year 2013 would result in $8.9 billion in investments in developing and  emerging markets and create almost 18,000 jobs in host countries.  According to officials, OPIC determines the estimated development  impact by evaluating estimates provided by the client and scoring the  relevant indicators for a project during the policy clearance process.
However, estimating meaningful information on development impacts  is inherently difficult. Officials from OPIC and IFC—the World Bank’s  development finance institution—stated that demonstration effects  and spillover effects of projects can be critical to development but are  difficult to identify and measure. For example, IFC officials said that it  is difficult to measure the ability of a successful new project to spur  similar projects in a country.
Environmental and Social Impacts, Worker Rights, and Human  Rights Clearances  Congress directed OPIC to issue a comprehensive set of environmental,  transparency, worker rights, and human rights guidelines that are binding  on OPIC, consistently applied to all projects, and at least as rigorous as  the environmental and social policies developed by the IFC in 2009.  According to officials, OPIC’s Environmental and Social Policy Statement,  effective in 2010, addresses this requirement. OPIC’s Environmental and  Social Policy Statement describes its standards and assessment and  monitoring requirements for environmental and social, worker rights, and  human rights impacts. The statement also adopts the IFC’s  Performance Standards on Environmental and Social Sustainability.  According to OPIC officials, OPIC’s OIP Procedures Manual guides  officials’ implementation of the Environmental and Social Policy  Statement.
Environmental and social impacts clearance. OPIC, as required by  policy, categorizes projects as A, B, C, or D based on environmental  and social risk factors, and this categorization determines the level of  review and monitoring a project receives. Further, OPIC is to  consider direct, indirect, induced, regional, trans-boundary and  cumulative environmental and social impacts when categorizing  projects during the environmental and social clearance process.  According to officials, OIP also reviews and documents human rights  issues, such as community health and safety, land ownership, and  indigenous peoples, as part of the environmental and social clearance  process.
Category A projects represent the highest risk for environmental and  social impacts, with the categorization based on the inherent risk of  the project before any mitigation measures are taken. Category A  projects represented 3 percent of OPIC’s active projects as of June  30, 2015. OPIC’s Environmental and Social Policy Statement provides  qualitative definitions for the four environmental and social categories,  and it includes a list of sensitive sectors and project factors that may  lead to a Category A categorization.
OPIC’s Environmental and Social Policy Statement and OPIC’s  governing statute requires that Category A projects undergo additional  review during the selection and monitoring phases, including  review of an applicant-provided environmental and social impact  assessment, including a 60-day public comment period; additional post-selection monitoring, such as third-party audits; at least one monitoring site visit to each project within 3 years of  finalizing the agreement, to the extent feasible.
According to officials, OPIC has visited every Category A project as  required, except for two projects that officials were unable to visit due  to security concerns.
OPIC’s Environmental and Social Policy Statement also specifies  categorical prohibitions, which are projects that OPIC will not fund.
For example, OPIC will not fund the construction of certain large  dams.
Worker rights clearance. In accordance with its governing  legislation, OPIC will only support projects in countries that have, or  are taking steps to adopt, laws that uphold internationally recognized  worker rights. The Environmental and Social Policy Statement  includes guidance for determining if a country meets labor eligibility  requirements. OPIC considers as eligible any country on the  Generalized System of Preferences list, because that status  indicates they meet certain internationally recognized worker rights.  According to officials, OIP also reviews and documents human rights  issues that specifically concern labor rights, such as forced and child  labor issues, as part of the worker rights clearance process.
In 2010, OPIC introduced the Special Consideration classification for  projects with a higher risk of violating labor rights. OPIC may classify  projects as Special Consideration based on an assessment of the  likelihood, severity, and degree of possible labor rights violations, and  their relevance to a project. OPIC has designated 10 projects as  Special Consideration since that time. OPIC requires all Special  Consideration projects to submit an annual labor report summarizing  workplace conditions and to conduct one third-party audit within the  first 3 years of operations. In addition, OPIC policy states that it will  endeavor to conduct at least one OPIC site visit within 3 years of the  execution of the OPIC agreement.
Human rights clearance. OPIC’s governing legislation directs it to  consult with the Secretary of State and take into account all available  information concerning the effect of a project on human rights and  fundamental freedoms in the host country. OPIC’s policies require  that it screen projects using a process mutually agreed upon by OPIC  and State, which State documented in a 2006 memorandum. The  memorandum designates which agency is responsible for providing  human rights reviews, depending on the current status of human  rights violations in a country and project characteristics such as sector  and degree of host government involvement. This status is  documented in the human rights sensitivity list maintained by OPIC  and reviewed quarterly by State. The list includes all the countries in  which OPIC is authorized to conduct activities and is divided into three  categories based on the human rights situation in each country. The  responsibility for conducting the review is based on the project country  categorization and other information.
OPIC documents when a human rights clearance has been conducted  for each project, regardless of which agency provides the clearance.  OPIC officials said that the purpose of this human rights clearance  document is only to confirm that a clearance occurred, in accordance  with the statutory requirement to consult with State on the effect of a  project on human rights in the host country.
According to OPIC officials, when OPIC conducts the human rights  review, it bases the clearance approval on a review of human rights  issues and the documentation of that review in other clearance  documents. As discussed above, OPIC conducts the review and  documentation of relevant human rights issues during the  environmental and social and worker rights clearance processes,  according to OPIC officials. In reviewing the clearances for 21  projects, we identified 2 projects for which OPIC did not document its  review of human rights issues in the environmental and social  clearance or the worker rights clearance. However, the clearances for  these two projects did include human rights-related conditions that the  project companies would need to meet to obtain OPIC financing  support. In addition, OPIC completed the clearances for these two  projects in 2006 and 2007, which, according to OPIC officials, predate  newer policies concerning policy clearance documentation.
section_title: Approval for Commitment and First Disbursement Is Based on Project’s Level of Financial Risk
paragraphs: After completion of the credit and legal due diligence reviews and the four  policy clearances, OPIC management reviews projects based on the  financial level of risk each project poses, with the largest projects—those  valued at more than $50 million—requiring approval from OPIC’s Board of  Directors. OPIC’s board reviewed and approved sixteen percent of the  number of commitments OPIC made in fiscal years 2008 through 2014,  which constitutes 72 percent of the total dollar value of these  commitments. Thirteen percent of the number of commitments OPIC  made during this period—representing 67 percent of the total dollar  value—were for amounts greater than $50 million. Several commitments  were approved by the board for reasons other than monetary value.
For commitments requiring board approval, OPIC is to solicit input from  its board members—eight members from the private sector and seven  from the federal government, including OPIC, the Departments of  Commerce, Labor, State, Treasury, USAID, and USTR. Prior to board  meetings, OPIC provides board members with key project documents.  According to officials from OPIC, State, Treasury, USAID, and USTR, it is  routine for board members to discuss specific issues regarding the  projects among themselves and with OPIC prior to the meetings. For  example, USTR officials stated that USTR provides guidance and  oversight on project selection concerning a proposed project’s impact on  U.S. trade policy. According to State officials, the agency provides  guidance with respect to foreign policy considerations, such as whether  OPIC should support projects in a particular country because of current  political considerations, or the reputations of sponsors and investors. A  State official said that they generally raise concerns with OPIC earlier in  the vetting process, but occasionally contentious issues arise for projects  presented for board approval. These issues have in some cases been  resolved through the inclusion of mitigation measures such as conditions  to the loan agreements.
A project reaches commitment when it receives final management  approval and a legally binding document is signed. At commitment, OPIC  creates the budgetary or financial obligation for the project. As shown in  figure 9 above, about 16 percent of applications that reached commitment  during the fiscal year 2000 through 2012 period did not reach  disbursement. According to OPIC officials, OPIC may, for example, be  unable to reach a final agreement with the client concerning loan terms.  After the initial disbursement, OPIC’s monitoring functions assume  responsibility for the projects in accordance with OPIC policy.
section_title: OPIC Recently Developed Additional Guidance for Conducting Human Rights Reviews
paragraphs: OPIC recently developed additional guidance to identify responsibilities  concerning the review of specific human rights issues and enhance  human rights due diligence procedures. Although OPIC had established  policies for the project selection process, we found during the course of  our work that these policies did not provide comprehensive guidance for  reviewing and documenting human rights information that is required to  be considered for assistance. OPIC officials said that the review of human  rights issues is done as part of its environmental and social and worker  rights clearances, consistent with the IFC Performance Standards.  However, we found that neither OPIC’s Environmental and Social Policy  Statement nor the OIP Procedures Manual provided comprehensive  guidance on the human rights issues that OPIC officials should consider  during the clearance process, or how these reviews should be carried out  and documented.
We further found that OPIC’s policies did not clearly identify the  requirements and delineate responsibilities for considering human rights  information. OPIC’s Environmental and Social Policy Statement requires  all projects to meet applicable IFC Performance Standards. The IFC  Performance Standards do not explicitly address human rights but, rather,  the standards state that human rights issues are addressed throughout  the standards. Although OPIC’s policies require the Environmental and  Social Group and the Labor and Human Rights Group to identify those  IFC Performance Standards relevant to their review of a project in the  clearance document, the policies did not dictate which performance  standards each team is responsible for addressing.
When we discussed our concerns with OPIC officials, they agreed that  the documentation of their human rights reviews was not clear. In  response, OPIC developed additional guidance establishing roles and  responsibilities for human rights reviews. This new guidance outlines how  specific human rights issues covered in the Universal Declaration of  Human Rights correspond to the IFC Performance Standards and  assigns responsibility within OIP for reviewing and documenting each  issue.
OPIC has also taken steps to strengthen its human rights reviews in  response to a 2014 report by its Office of Accountability, which  recommended that OPIC establish enhanced human rights due diligence  procedures. In February 2014, OPIC’s senior management requested  the Office of Accountability to conduct an independent review of OPIC’s  experience with two related projects in Liberia for which they received a  number of complaints. In 2008, OPIC approved the two projects, a biofuel  project and a 35-megawatt power plant project owned by the same parent  company. The report found that OPIC’s human rights policies did not  state when enhanced human rights due diligence should be triggered  during project selection.
In a March 2015 congressionally mandated response to the Office of  Accountability’s report, OPIC reported that it had, among other things,  (1) developed enhanced screening procedures to better identify factors  contributing to higher human rights related risks and (2) deployed  specialized social consultants to project sites as part of the human rights  due diligence review. OPIC is currently following draft guidance for  enhanced screening procedures developed in response to the Office of  Accountability recommendation. Under these procedures, projects with  heightened risk may be required to undergo additional third party audits  based on the draft guidance. However, the draft guidance does not  describe who is responsible for conducting this review or how it is to be  documented. According to officials, OPIC identified five new projects as  higher risk in 2015 and will require these projects to participate in third  party audits once the projects are operational. OPIC also hired three  specialized social consultants, and has identified a number of additional  social consultants with whom the agency can contract with when  necessary. According to OPIC officials, the agency plans to finalize the  draft screening procedures for the enhanced human rights due diligence  reviews in coordination with its update of the Environmental and Social  Policy Statement and OIP Procedures Manual.
section_title: OPIC Recently Adopted Additional Guidelines for Conducting Cumulative Impact Assessments
paragraphs: OPIC recently adopted additional guidelines for conducting cumulative  impact assessments that may support more systematic analyses.  According to OPIC policy, OPIC is to categorize projects based, in part,  on its preliminary assessment of the potential environmental and social  risks and impacts—including cumulative impacts—of a project in the  absence of any required mitigation. Cumulative impacts are those that  result from the successive, incremental, or combined effects of an action,  project, or activity in combination with other existing, planned, or  reasonably anticipated future projects or activities. Cumulative impact  assessments are conducted to analyze the potential impacts and risks  that proposed projects and activities—including projects supported by  other organizations or companies—will have on valued environmental  and social components, such as biodiversity, water supply, and cultural  heritage. Cumulative impact assessments can be challenging to conduct,  because cumulative impacts can depend on factors for which complete  information, such as details of other companies’ project designs, is not  available or is difficult to obtain. According to the IFC’s 2013 handbook for  conducting cumulative impact assessments, a comprehensive  assessment requires the participation of many parties and is best led by  local governments or regional planners because effectively designing and  implementing the assessment is often beyond the capacity of a single  developer.
OPIC committed to supporting four wind power projects in one region in  Pakistan before the completion of an OPIC-contracted cumulative impact  assessment. However, OPIC officials told us that they approved the  projects because available evidence indicated that the wind power  projects would not cause significant cumulative impacts. In the  environmental and social clearances for the two wind power projects in  Pakistan we reviewed, OPIC noted that there were 14 proposed wind  power projects in the region and that each planned to produce 50  megawatts of energy. The clearances stated that as a result, there is  the potential for cumulative impacts to the community, biodiversity, and  resource availability. Although the United Nations Development Program  commissioned a regional environmental assessment of the region in 2009  that considered cumulative impacts, the analysis was qualitative and only  provided general guidelines for future studies. OPIC stated in its  environmental and social clearances for the two projects we reviewed that  it would hire an independent consultant to conduct a cumulative impact  analysis. However, OPIC committed to these two wind power projects in  2013 and another two in the same region in 2014 before the completion  of the OPIC-contracted cumulative impact assessment.
According to OPIC officials, they approved the four wind power projects  because they did not believe that the projects would result in significant  cumulative impacts. OPIC officials told us that the three cumulative  impact issues typically associated with wind power projects are threats to  biodiversity, increased noise levels, and shadow flicker. OPIC made a  determination that the projects posed no significant impact to birds based  on an analysis conducted by the World Wildlife Foundation. OPIC officials  said that noise and shadow flicker could be more easily mitigated and,  because the area is not heavily populated, potential noise and shadow  flicker impacts would not impact a significant number of people. Based on  this information, OPIC issued the final environmental and social  clearances with conditions that were incorporated into the contracts for  the four wind power projects.
OPIC adopted the IFC handbook for conducting cumulative impact  assessments and plans to provide the guidelines to potential clients.  OPIC required the contractor that conducted the 2015 cumulative impact  assessment of wind power projects in Pakistan to follow these guidelines  when conducting the assessment. According to officials, they did not have  adequate information from the government of Pakistan or other  organizations about the design of other planned wind farms to conduct an  analytical assessment of the potential impact on noise levels and shadow  flicker until 2015. OPIC officials said they plan to provide clients with the  IFC handbook to support their environmental and social assessments.  However, OPIC officials noted that they will not be able to require clients  to use the IFC handbook because it may be too difficult for clients to  collect all the necessary information for conducting such a cumulative  impact assessment.
section_title: OPIC Monitors Projects, but Site Visit Reports Are Not Always Timely, and Use of Client- Reported Data Involves Risks OPIC Uses Several Tools to Monitor Policy Compliance and Development Impacts of Its Projects
paragraphs: OPIC is required to monitor ongoing projects’ compliance with  environmental, social, labor, and human rights requirements, and  assesses U.S. economic impact and host-country development impact.  OPIC uses several tools to monitor policy compliance and development  impacts: (1) annual self-monitoring questionnaires (SMQs), (2) site visits  by OPIC staff, and (3) other independent and client-provided reports,  such as reports from independent engineers or third-party audits or  project-specific environmental or labor reports. On the basis of our  document review, we found that three sections of OIP—the  Environmental and Social Group, the Labor and Human Rights Group,  and the Economic Impact Analysis Group—participate in OPIC’s  integrated monitoring and assessment process in accordance with OPIC  policy. The Environmental and Social Group and Labor and Human  Rights Group conduct compliance monitoring while the Economic Impact  Analysis Group assesses U.S. economic and host-country development  impacts. According to OPIC policy, these groups may conduct site visits  separately or concurrently. Other groups within OPIC are also required to  monitor projects. For example, according to OPIC officials, its Department  of Financial and Portfolio Management and Investment Funds  Department monitor the financial performance of OPIC projects at least  annually.
subsections: section_title: Site Visit Reports Were Not Always Prepared in a Timely Manner
paragraphs: OPIC did not document the results of the 3 project site visits in our  sample in a timely manner, which may limit their usefulness. Two of the 3  site visit reports we reviewed were written several years after the site  visits occurred. According to OPIC officials, staff who made the site visit  orally present findings in internal meetings shortly after each visit. OPIC  policy does not require that site visit reports be completed and submitted  to management in a designated period of time. According to OPIC  officials, OIP staff document and submit site visit monitoring reports when  time permits. However, federal internal control standards dictate that  agencies develop controls that ensure that actions are taken to address  risk, such as the accurate and timely recording of events. In addition to  using site visits for project monitoring, OPIC uses information collected  during site visits when reviewing similar projects for clearance to help  predict potential development impacts and refine development indicators,  according to OPIC officials. Thus, the lack of timely documentation of site  visits may limit the value of this information for reviewing and estimating  the impact of potential future projects. OPIC officials told us that they are  in the process of creating a standardized process for documenting site  visits, which they expect will make it faster for teams to complete trip  reports.
section_title: OPIC May Not Have Adequate Information on Some Projects’ Status
paragraphs: OPIC’s use of client-reported data from SMQs, combined with limited site  visits, may not provide OPIC adequate information on project’s policy  compliance and development impact status in some cases. OPIC is  required by law to monitor and report on the economic and social  development impacts of its projects. Federal internal control standards  call for management to obtain relevant and accurate data and to identify  risks related to meeting defined objectives. According to OPIC officials,  OPIC reviews and uses data that are submitted by the client in SMQs for  monitoring the majority of its projects on an annual basis; however, the  data are not validated by OPIC’s staff or an independent reviewer. OPIC  officials noted that the client is responsible for ensuring that the data it  provides in the SMQs are accurate and clients must attest to the accuracy  of the data they provide. In our analysis of 21 OPIC projects from  Honduras, Kenya, Pakistan, and Peru, clients for 14 of the projects were  required to complete SMQs because the projects had been active and  operational. Of these 14 projects, all but one of the clients submitted the  required annual SMQ. In addition, clients for 11 of these 14 projects fully  completed the SMQs they submitted. The clients for the remaining 3  projects left sections of the SMQs unanswered. Specifically, we found  that one client did not report employment numbers; a second client did  not report the date that a project became operational; and a third client  did not report remittances and revenue amounts.
In fulfilling its requirement to report on social and economic development  impacts, OPIC faces risks related to the accuracy of client-reported data  because self-reported statements may not reflect actual project  conditions. OPIC officials told us that limited staff resources constrain its  ability to verify the accuracy of data in the SMQs and that they rely on a  contractor to conduct a high-level review of SMQs to identify blank,  incomplete, or obviously incorrect responses.
Further, because OIP officials only visit a small number of projects each  year, OIP largely relies on the SMQs for updated annual information  about some projects’ compliance with project requirements. OPIC’s 2013  Annual Report on Development Impact, submitted to Congress, omitted  data for 34 out of 315 SMQs because, according to the report, the data  did not meet the agency’s data quality standards. Also, as previously  discussed, we found several noncompliance issues in the site visit reports  we reviewed, which clients had not identified or described in detail in the  SMQs. During the 291 site visits conducted by OPIC in fiscal years 2008  through 2014, it identified 49 project sites with environmental and social  noncompliance issues and 9 project sites with labor and human rights  noncompliance issues. Of these, clients had reported noncompliance  issues for only 18 projects in SMQs. Common issues identified by OPIC  included late or missing required quarterly and annual reports, safety  issues such as cluttered hallways, and missing documentation such as  company human resource policies. However, more serious environmental  and social risks were identified during a 2013 monitoring visit, where  corrective actions for meeting environmental and social compliance  requirements were needed that the client did not have sufficient  resources to implement. As a result, OPIC terminated its support of the  project.
A 2014 OPIC Office of Accountability Report stated that during the  selection process, when the agency is considering whether to support a  project that may have high development risks, OPIC should confirm that  its staff capacity and other resources are sufficient for needed client  engagement and monitoring. In addition, the report found that OPIC  needs “monitoring systems…which are proportionate to the risks that  could adversely affect the achievement of desired development  outcomes.” In response to these findings, OPIC said it has taken steps to  ensure that it has sufficient capacity and resources to review and monitor  projects. Without analyzing the risk to information quality inherent in its  project monitoring process, OPIC cannot be assured that risk from using  client-reported data is within an appropriate risk tolerance to achieve  OPIC’s monitoring objectives.
According to officials, OPIC, in some cases, also uses independent and  client-provided reports to verify some projects’ compliance with policies.  For example, according to OPIC officials, OPIC requires certain large  projects to allow an independent engineer to conduct environmental  compliance site visits on a quarterly or semi-annual basis. In addition, all  Category A projects and those categorized as Special Consideration are  required to undergo a third party audit within 3 years of becoming  operational. Further, officials said OPIC includes a condition in some  clients’ contracts that requires them to provide annual reports concerning,  for example, pollutant level measurements and worker safety information  (e.g., number of accidents). Officials stated that these reports provide  additional information on policy compliance.
Although IFC, like OPIC, relies on client-reported data for some  monitoring, unlike OPIC, IFC conducts site visits to all projects in its  portfolio on a regular basis. IFC officials told us that using client-reported  data for monitoring projects is a standard practice, but they underlined the  difficulty in validating such data. According to IFC officials, its  Environmental and Social team visits all projects once every 2 years. IFC  also undertakes a limited number of post-completion evaluations to  assess project impact. However, IFC employs a significantly larger staff  than OPIC, including some in overseas field offices. For example, in  2012, IFC employed 3,763 people and managed a portfolio worth $45.8  billion, using about 17 times more human resources than OPIC to  manage a portfolio that is about three times the size of OPIC’s.
section_title: Conclusions
paragraphs: Given the difficult business climates in which many OPIC-supported  projects operate, it is important that OPIC establish and follow robust  selection and monitoring policies to ensure that it appropriately addresses  project risks and can continue financing higher risk projects. OPIC has  established policies and processes for reviewing, selecting, and  monitoring projects, and in our review of a sample of projects we found  that OPIC generally followed these policies. However, we found that in  some cases project selection policies for human rights reviews needed to  be accompanied by clearer guidance to ensure that decision makers had  adequate information. With respect to its review of human rights issues,  OPIC has recently issued guidance to clarify review responsibilities within  OPIC, developed enhanced human rights due diligence processes, and  hired additional specialized staff. In addition, OPIC has recently sought to  enhance its process for assessing cumulative environmental and social  impacts by adopting new guidelines that may support more systematic  analyses.
Project monitoring is central to OPIC fulfilling its goals, particularly in  difficult environments. OPIC’s lack of requirements for timely  documentation of site monitoring visits by OIP staff has resulted in site  visit reports written several years after the visits occur. This can limit the  usefulness of site visit findings for informing development impact  projections and other decisions regarding ongoing and potential future  projects. OPIC largely relies on client-reported data for annual updates for  some projects, due in part to resource limitations that limit policy  compliance site visits. This increases the potential that OPIC is relying on  inaccurate or incomplete data. Thus, OPIC’s current monitoring  processes may not provide adequate information on projects’ annual  policy compliance and development impact status to support program  goals.
section_title: Recommendations for Executive Action
paragraphs: To further improve OPIC’s monitoring processes, we recommend that the  President and CEO of OPIC take the following actions:
Establish specific time frames, deadlines, or both for submission of  site visit reports to OPIC’s Executive Committee.
Assess the current monitoring processes to ensure that the risk  associated with the use of client-reported data and limited site visits  for monitoring is acceptable for meeting OPIC’s program goals.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to OPIC, State, Treasury, USTR, and  USAID for comment. State, Treasury, USTR, and USAID did not provide  any comments. In its written comments, reproduced in appendix V, OPIC  stated that it concurred with our two recommendations. With respect to  our recommendation on ensuring timely completion of site visit reports,  OPIC noted that its staff make presentations following site visits but that  OPIC will incorporate our recommendation and the presentations into its  monitoring policies. Regarding our recommendation on assessing its  processes to ensure that current monitoring processes are acceptable for  managing risks, OPIC stated that it has revised its development impact  assessment process during the past year, and that it will use the input  from this GAO audit in reviewing its monitoring process more generally  over the coming year. In addition, OPIC provided technical comments on  the draft report, and also provided us with additional information on how it  conducts assessments of potential cumulative environmental and social  impacts. Based on this information, we made revisions to the report as  appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the President and CEO of OPIC, the  Secretary of State, the Secretary of the Treasury, the Administrator of  USAID, the U.S. Trade Representative, and other interested parties. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-8612 or gianopoulosk@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix VI.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) the amounts and types of Overseas Private  Investment Corporation’s (OPIC) global financing support from fiscal year  2008 through fiscal year 2014, (2) how OPIC selects projects, and (3)  how OPIC monitors projects.
To analyze the amounts and types of OPIC’s global financing support, we  reviewed data provided by OPIC about its new commitments for fiscal  years 2008 through 2014 to reflect recent activity. We used these data to  characterize OPIC’s new commitments for the period by financial  instrument type, sector, and region, among other characteristics, for both  the total value of and number of commitments. In addition to analyzing  information about OPIC’s overall new commitments for the period, we  characterized and compared the projects committed during the fiscal year  2008 through 2014 period in four countries chosen for more in-depth  analysis—Honduras, Kenya, Pakistan, and Peru. (For a description of our  method for selecting these four countries, see below.) We also reviewed  OPIC annual reports, developmental impact reports, and congressional  budget justifications to obtain details about the agency’s outstanding  commitments, as well as information about its strategic priorities and  actions during the period of analysis. To verify the accuracy of the OPIC- provided data and to better understand the classifications and sources  used in its compilation we interviewed OPIC officials to discuss the  collection and maintenance of these data. We also performed electronic  data testing. Based on these activities, we determined that the data were  reliable for our purpose of using them to analyze OPIC’s new  commitments for background and context, without impact on material  findings in this report.
We also compiled data from World Bank sources to generate graphics  and statements concerning OPIC commitment levels to countries based  on the host countries’ gross national per capita income and the ease of  doing business ranking. We used the World Bank’s per capita income  data from the World Development Indicators database to categorize  OPIC’s commitments in fiscal years 2008 through 2014 to low, middle, or  high income countries based on the World Bank’s gross national income  per capita for the project’s host country in the year the OPIC commitment  was made. To verify the reliability of these data, we reviewed publicly  available documents regarding their collection, computation, and use. We  determined the data were sufficiently reliable for the purpose described  above.
We also used the World Bank’s ease of doing business index rankings to  determine the extent to which OPIC supported projects in countries with  difficult business environments. This index is an annual ranking of the  relative distance of countries from a best practices frontier score. The  index is formed from observable components such as value added tax,  gross domestic product deflators, and the number of procedures required  to obtain permits or start a business. Because the index is a relative  ranking, movements in the index must be interpreted in a relative context;  we avoid interpretation errors by only using the index from a single year  (2014). We also performed electronic data testing. We determined the  data were sufficiently reliable for the purpose described above.
We selected a nongeneralizable sample of 21 projects that obtained  OPIC financing support in four focus countries between fiscal years 2008  through 2014 to assess whether OPIC followed its policies and  procedures for project selection and monitoring efforts. To select the four  focus countries we limited ourselves to the 30 countries that are not  members of the Organisation for Economic Co-operation and  Development, whose total OPIC commitments were greater than $100  million. We further cut the list of countries to exclude two countries where  either OPIC or the U.S. Agency for International Development (USAID)  Inspector General had recently conducted audits. We cut an additional 14  countries from the list because they received a relatively small amount of  OPIC funding or had a relatively high gross per capita income. Finally, we  selected the four countries from the remaining list based on geographical  dispersion, risk—including security risks, country governance and  development indicators, and characteristics of the projects such as  sector, development impact, and type of OPIC financial instrument. To  select the 21 projects for our review, we considered several factors,  including the project’s (1) size relative to the total OPIC commitments in  the country, (2) sector, (3) type of financing instrument, (4) age of the  commitment, and (5) whether any disbursements had been made. In  addition, in order to assure broad coverage of each country’s committed  projects, the team sought to achieve 40 percent coverage of both the  number of projects in each selected country and the overall committed  dollars.
To examine how OPIC selects projects for financing support, we met with  officials from OPIC, Department of State (State), Department of the  Treasury (Treasury), the Office of the U.S. Trade Representative (USTR),  and USAID in Washington D.C.; the USAID Office of Inspector General,  responsible for auditing OPIC; the former Director of OPIC’s Office of  Accountability; and nongovernmental organizations, including Friends of  the Earth and the Accountability Counsel. In addition we obtained and  reviewed OPIC policy documents, such as the finance policies and  procedures and policies guiding the U.S. economic and host-country  development impact, environmental and social, human rights, and worker  rights clearances processes. We interviewed OPIC staff to discuss how  they administer OPIC selection policies and procedures, including internal  controls. We also interviewed State, Treasury, USTR, and USAID officials  to discuss each agency’s role on OPIC’s Board of Directors, which is  required to approve projects that exceed $50 million.
For our review of OPIC’s project selection process, we developed a data  collection instrument based on OPIC’s project selection policies and  conducted a review of the 21 projects based on OPIC-provided project  documentation, such as project applications and policy clearance  documents. Based on the questions in the data collection instrument we  developed a method for analyzing the data against OPIC policies to  develop our findings. Specifically, with the use of the data collection  instrument, we reviewed how each project met eligibility requirements,  including U.S. connections and additionality requirements; verified that  OPIC finalized the four policy clearances for each project and reviewed  the clearances for content; and reviewed applicable credit due diligence  and character risk due diligence documentation. We did not review the  sufficiency of OPIC’s credit and legal due diligence processes while  reviewing project documentation as this was outside the scope of our  review.
We also visited two of the four focus countries, Honduras and Pakistan, to  augment information we obtained from OPIC and other sources. In each  country, we met with U.S. embassy and host-government officials,  recipients of OPIC loans and loan guarantees, and officials from other  development finance institutions. In addition, we visited some project  sites.
To examine how OPIC monitors active projects’ compliance with  environmental and social, worker rights, and human rights policies and  the U.S. economic and host-country development impact of these  projects, we met with OPIC’s Office of Investment Policy (OIP) to discuss  its procedures for monitoring projects, collecting data, and validating data  provided by its clients. As part of this review, we also discussed the  procedures OPIC follows in case of missing or incomplete self-monitoring  questionnaires (SMQs), which is the source for client-reported monitoring  data. In addition, we met with OPIC officials to discuss OIP’s monitoring  site visit policies and methodology for selecting projects for site visits. We  also examined the development impact profiles that OPIC develops prior  to approving projects, which aim to assess each project’s anticipated  contribution to the development of the host country. We obtained OPICs  development impact profile guidelines for scoring projects as  developmental, highly developmental, or indeterminate. We interviewed  the USAID Office of Inspector General and OPIC’s Office of  Accountability to discuss OPIC monitoring methodology and reports both  offices had issued on specific audits of OPIC projects in Turkey, Jordan,  and Liberia. In addition we interviewed World Bank and International  Finance Corporation officials about their monitoring procedures for similar  activities, their indicators for assessing development outcomes, and the  new harmonized indicators that several development finance institutions,  including OPIC, are developing to standardize development impact  information collection from clients.
We also developed a data collection instrument to review OPIC’s  compliance and impact monitoring efforts for the selected 21 projects. We  focused on the following monitoring related issues:  the presence of SMQs in project files, date of submission, and  completeness of responses, including client responses regarding  compliance with OPIC covenants and local laws and regulations; the presence of site visit reports and trip notes in project files, and the  extent to which corrective actions or risks were identified during the  course of site visits; and pre-selection development impact scores that project development  impact outcomes for OPIC projects, and the re-scoring analyses  conducted during a site visit, which measure the extent to which these  projections have been achieved.
We used the data collection instrument to analyze changes in  development impact scores for OPIC projects from initial to final  estimates following site visits, if any, as well as to classify qualitative  findings from OPIC clients’ SMQs and site visit reports into broad  categories. We did not review OPIC’s processes for monitoring projects’  financial performance.
The documentation we obtained for the 21 projects we reviewed  supported our work for the second and third reporting objectives. These  documents covered the topics and issues listed above, including OPIC’s  project selection and monitoring processes. To ensure completeness of  our document files, we met with OPIC officials to discuss documentation  for selected case study projects and changes to OPIC’s requirements for  project screening and monitoring documentation over time. When  necessary we followed up with OPIC when the project files did not contain  expected or required documents.
section_title: Appendix II: Overseas Private Investment Corporation (OPIC) Project Commitments in Selected Countries for Fiscal Years 2008 through 2014
paragraphs: To provide detailed information on all OPIC projects for our selected  focus countries, the tables below list the commitments OPIC made in  fiscal years 2008 through 2014 in Honduras, Kenya, Pakistan, and Peru.  For more information about our country selection methodology, see  appendix I.
section_title: Appendix III: Descriptions of Select Overseas Private Investment Corporation (OPIC) Commitments in Four Countries, Fiscal Years 2008 through 2014
paragraphs: Below are summaries for 21 OPIC projects from 4 selected countries— Honduras, Kenya, Pakistan, and Peru—based on information we  obtained from OPIC, as well as from our fieldwork.
subsections: section_title: Honduras
paragraphs: 1.  Project: CCA2 Digicel Honduras  Purpose/Description: Loan guarantee through OPIC’s Framework  Guarantee Facility Agreement with Citibank to establish a cellular  telecommunications network, with 990 cell tower sites and the  capacity to service 1.4 million subscribers.
Fiscal Year of Commitment: 2009  Commitment Amount: $15 million  Environmental Risk Category: B  Expected Development Impact: Expand telecommunications  infrastructure, create local jobs, and lower prices for cellular service,  as well as support primary schools and mobile health clinics.
U.S. Connection: Citibank N.A.
Status: Not active. The borrower paid off the loan in 2011.  2.  Project: Banco del Pais  Purpose/Description: Loan and loan guarantee through OPIC’s  Framework Guarantee Facility Agreement with Citibank to expand the  facilities’ small and medium sized enterprises lending portfolio,  primarily in the areas of commercial, retail, real estate, services, and  manufacturing.
Fiscal Year of Commitment: 2013  Commitment Amount: $30 million  Environmental Risk Category: C  Expected Development Impact: Support the provision of loans to  small and medium sized enterprises for overlooked sectors and  support charitable activities in the host country including scholarships,  clinics, orphanages, and schools.
U.S. Connection: Citibank N.A.
Sector: Financial services  3.  Project: Inter-Mac International Inc.
Purpose/Description: Support development of affordable housing and  an affordable lease purchase payment program for low-income  families.
Fiscal Year of Commitment: 2008  Commitment Amount: $70 million  Environmental Risk Category: B  Expected Development Impact: Provide affordable housing to an  underserved portion of the Honduran population by encouraging the  development of planned communities.
U.S. Connection: Clark Enterprises, Inc. a U.S.-based realty  company.
Status: Active. As of April 2015, the project had built housing units  inhabited by 500 residents, as well as schools and playgrounds.  Delays in a planned government subsidy program have limited credit  availability, slowing progress.  4.  Project: Groupo Jaremar   Purpose/Description: Loan guarantee through OPIC’s South America  Framework Facility Agreement with Citibank to refinance existing  indebtedness and undertake capital expenditures related to  expanding a palm oil plantation area, replacing boilers at two  manufacturing facilities, and adding a bean processing production line  along with other actions.
Fiscal Year of Commitment: 2010  Commitment Amount: $15 million  Environmental Risk Category: B  Expected Development Impact: Support the creation of local jobs with  training and benefits, and the use of renewable fuels through the  project company’s production of biogas and biodiesel. In addition,  generate foreign exchange earnings through exports to countries in  Central and North America.
U.S. Connection: Citibank N.A.
Sector: Manufacturing  5.  Project: Groupo Jaremar   Purpose/Description: Two loans under OPIC’s Global Framework  Guarantee Facility Agreement with Citibank to expand the company’s  existing operations in the country, including production of soap, oils,  shortening, and margarine.
Fiscal Year of Commitment: 2014  Commitment Amount: $20.6 million  Environmental Risk Category: B  Expected Development Impact: Contribute to improved food security  by increasing production and sale of a number of staple items.
U.S. Connection: Citibank N.A.
section_title: Kenya
paragraphs: 6.  Project: International School of Kenya Limited  Purpose/Description: A campus expansion of the International School  of Kenya, involving construction of a new elementary school, library,  dining facility, faculty housing units, and infrastructure improvements.
Fiscal Year of Commitment: 2013  Commitment Amount: $12 million  Environmental Risk Category: B  Expected Development Impact: Support improvements in education  infrastructure.
U.S. Connection: U.S. directors and governors of The International  School of Kenya Limited and the International School of Kenya  Foundation.  7.  Project: Citibank Global Microfinance Framework Facility–K-Rep Bank  Purpose/Description: Loan guarantee through OPIC’s Global  Framework Guarantee Facility Agreement with Citibank to raise the  visibility of the microfinance sector among mainstream investors and  encourage the use of best practices and more sophisticated financing  techniques in microfinance more widely.
Fiscal year of Commitment: 2008  Commitment Amount: $7.2 million  Environmental Risk Category: C  Expected Development Impact: Provide capital to microfinance  institutions, benefitting income and quality of life for micro- entrepreneurs and their families.
U.S. Connection: Citibank N.A.  8.  Project: Bridge International Academies Limited  Purpose/Description: A loan for the development and operation of 237  low-cost private schools, expanding facilities at 133 Bridge  International Academies schools already operating in the country.
Fiscal Year of Commitment: 2013  Commitment Amount: $10 million  Environmental Risk Category: B  Expected Development Impact: Expand low cost preprimary and  primary education, utilizing new technologies and management  techniques.
U.S. Connection: New Globe School Inc.  9.  Project: Orpower 4 Geothermal  Purpose/Description: A loan to add up to 52 megawatts of additional  generating capacity to an existing geothermal facility, through the  installation of additional turbine units.
Fiscal Year of Commitment: 2011  Commitment Amount: $310 million  Environmental Risk Category: B  Expected Development Impact: Bring new capacity for supplying  electricity through the national grid and provide newly hired staff with  specialized training.
U.S. Connection: Ormat Technologies Inc.
section_title: Pakistan
paragraphs: 10. Project: Aga Khan Hospital and Medical College Foundation  Purpose/Description: A loan to expand and renovate existing spaces  at the Aga Khan medical health care facilities in Karachi by building  an ambulatory care building, center for innovation in medical  education, child care center, and a new private wing.
Fiscal Year of Commitment: 2012  Commitment Amount: $30 million  Environmental Risk Category: B  Expected Development Impact: Provide multiple health services under  one roof, and bring free health care to poor patients by using the  health service revenues from wealthier paying customers.
U.S. Connection: Aga Khan Foundation U.S.A.  11. Project: Dewan Energy Limited  Purpose/Description: To operate a 50 megawatt wind power project in  Pakistan’s Jhimpir wind corridor.
Fiscal Year of Commitment: 2013  Commitment Amount: $101.5 million  Environmental Risk Category: B  Expected Development Impact: Help alleviate an acute shortage of  electricity in Pakistan and increase the diversification of power away  from high-priced imported fuel oil.
U.S. Connection: General Electric International Inc.
Status: Active. The project was originally expected to be operational in  2015 but was delayed by a lengthy approval process with the  government of Pakistan. The project’s requests to extend the period  for government approval of tariff conditions were denied by the  government, as were subsequent appeals. According to OPIC, the  project sponsor must evaluate whether it wishes to move ahead and  whether it wishes to pursue further financing with OPIC; if so, OPIC  would need to underwrite the project again.  12. Project: Pakistan Mobil Communications Ltd.
Purpose/Description: Loan guarantee to Citibank under the Citibank  Global Framework Agreement for its loan to Pakistan Mobil  Communications Ltd., to maintain and expand telecommunications  coverage in Pakistan and install 3G equipment at existing cell towers.
Fiscal Year of Commitment: 2012  Commitment Amount: $33.3 million  Environmental Risk Category: B  Expected Development Impact: Support an expansion of  telecommunications networks, with benefits including employment,  training, local procurement and human capacity building.
U.S. Connection: Citibank N.A.  13. Project: Tameer Microfinance Bank  Purpose/Description: Loan to reimburse Citibank supporting Tameer’s  loan portfolio growth plans and improving its asset liability. In addition,  the loan is to extend Tameer’s microfinance lending to support people  affected by flooding in 2010.
Fiscal Year of Commitment: 2011  Commitment Amount: $21.5 million  Environmental Risk Category: C  Expected Development Impact: Support extension of microfinance  loans to clients in the country, with a specific program for those  affected by 2010 floods.
U.S. Connection: Cooperative Housing Foundation  14. Project: Sapphire Wind Power Company Ltd.
Purpose/Description: Loan guarantee to finance a 50 megawatt wind  power project in Pakistan’s Jhimpir wind corridor.
Commitment Fiscal Year: 2013  Commitment Amount: $95 million  Environmental Risk Category: B  Expected Development Impact: Expand renewable energy to the  country’s national grid, supporting the government’s goal of  diversifying power away from fuel oil, increase electricity supply, and  bring advanced wind turbine equipment into the country.
U.S. Connection: General Electric Inc.  15. Project: TPL Properties, Ltd.
Purpose/Description: Loan to complete construction of an office tower  building in Karachi.
Fiscal Year of Commitment: 2011  Commitment Amount: $20 million  Environmental Risk Category: B  Expected Development Impact: Introduce higher building standards  and more sophisticated technology into Karachi’s real estate market  and attract national and international businesses as tenants.
U.S. Connection: A private U.S. citizen  Status: Active. According to OPIC, the borrower intends to prepay the  loan and has applied for required approvals.
section_title: Peru
paragraphs: 16. Project: Banco Financiero del Peru  Purpose/Description: Loan guarantee through OPIC’s Global  Framework Facilities Agreement with Wachovia Bank to expand small  and medium enterprise lending throughout the country.
FY of Commitment: 2008  Commitment Amount: $10 million  Environmental Risk Category: C  Expected Development Impact: Expand lending to small and medium  enterprises throughout the country.
U.S. Connection: Wachovia Bank  17. Project: Small Enterprise Assistance Fund SME Debt Facility LLC  (Sunshine Exports)
Purpose/Description: Loan to help company finance working capital  needs; complete the acquisition and lease repayment of recently  added dehydration, freezing, and power equipment; and refinance the  company’s existing short-term debt.
Fiscal Year of Commitment: 2010  Commitment Amount: $3 million  Environmental Risk Category: B  Expected Development Impact: Provide employment opportunities in  rural, high poverty areas in the north of the country and introduce new  production technologies to the local industry that will increase product  lines and increase foreign exchange earnings through exports.
U.S. Connection: Small Enterprise Assistance Fund  Status: Active  18. Project: Small Enterprise Assistance Fund SME Debt Facility LLC  (Outsourcing Peru S.A.C.)
Purpose/Description: Loan to purchase the land and support the  reconfiguration of space in an existing warehouse in Lima, including  purchase of new racks, roofs, and office equipment. Proceeds will  also be used to purchase a small fleet of trucks and special trailers to  handle increased business volume.
Fiscal year of Commitment: 2010  Commitment Amount: $3 million  Environment Risk Category: B  Expected Development Impact: Provide warehouse and storage  facilities for processing, distribution, and logistics services for freight  and cargo.
U.S. Connection: Small Enterprise Assistance Fund  19. Project: Tacna Solar S.A.C. and Panamericana Solar S.A.C.
Purpose/Description: Loan guarantee to support Conduit Capital  Partners’ investment to build two solar electricity generation plants in  Peru. Electricity generated to be sold to Peru’s national grid and  support diversification of electrical generation in a poor rural area of  Peru.
Fiscal Year of Commitment: 2012  Commitment Amount: $185 million  Environmental Risk Category: B  Expected Development Impact: Improve local capacity by providing  worker training and by expanding logistics services for local  companies.
U.S. Connection: Conduit Capital Partners LLC  20. Project: GTS Majes S.A.C. and GTS Reparticion S.A.C.
Purpose/Description: Loan guarantee to support the development,  construction and operation of two 20-megawatt solar power projects in  the country.
Fiscal Year of Commitment: 2011  Commitment Amount: $123 million  Environmental Risk Category: B  Expected Development Impact: Expand capacity of the national grid  through the generation of two new solar electric plants. In addition,  expand employment and human capacity through the installation of  advanced solar panel equipment in rural areas.
U.S. Connection: Assured Guaranty Municipal Corp.  21. Project: Gamma Knife Peru  Purpose/Description: Operation of a Gamma Knife center at the  Peruvian Air Force Hospital in Lima that will provide detection and  treatment of tumors in military personnel and the general public.
Commitment Amount: $2.1 million  Environmental Risk Category: B  Expected Development Impact: Transfer technology by utilizing new  medical technologies and offering new services in the host country,  and promote private sector development through local procurement.
section_title: Appendix IV: Overseas Private Investment Corporation (OPIC) Development Impact Scoring
paragraphs: OPIC officials score projects using applicant-provided data, which include  both quantitative information (e.g., expected number of jobs) and  qualitative information (e.g., new technique introduced). OPIC currently  characterizes projects’ development impact as indeterminate (1-24),  developmental (25-59), and highly developmental (60-100). Table 9  illustrates the development impact scoring for a wind power project in  Pakistan that was scored as highly developmental.
section_title: Appendix V: Comments from the Overseas Private Investment Corporation
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Kimberly M. Gianopoulos, (202) 512-8612 or gianopoulosk@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Celia Thomas (Assistant  Director), Tom Zingale (Analyst-in-Charge), Amanda Bartine, Benjamin L.  Sponholtz, John O’Trakoun, Seyda Wentworth, Jeff Isaacs, Maia Draper,  Karen Deans, Brandon Hunt, Sushmita Srikanth, and Tina Cheng made  key contributions to this report. Ashley Alley, David Dornisch, and Ernie  Jackson provided technical assistance.