The Need: Quickly, consistently and cost-effectively delivery health commodities

The Pledge Guarantee for Health (PGH): A New Platform to Improve Efficiency and Impact of Donor Financing for Health Commodities

The Need: Quickly, consistently and cost-effectively delivery health commodities

The Opportunity: The Pledge Guarantee for Health – what it is, and how it works

Example PGH deals

Q&A

• The PGH is a financial product that enables grant recipients to access short-term credit for health commodity procurement

• PGH enables health commodities to reach recipients more quickly, consistently and cost-effectively

• Several principles guide the design and use of the PGH:

– Increase efficiency of existing resources for health commodities

– Leverage existing financing mechanisms and institutions

– Enhance country ownership of procurement and local capacity building

– Promote aid transparency

• Opportunity for leaders to demonstrate innovation, action and impact -- PGH creates win-win for country grant recipients, funders, and an opportunity for bank partners to catalyze a market

The Pledge Guarantee for Health (PGH)

Contra-ceptives and

RHequipment

STIDrugs

EssentialDrugs

Vaccinesand

Vitamin ATB/Leprosy

BloodSafety

Reagents(inc. HIV

tests)

DFID

KfW

UNICEF

JICA

GOK, WB/IDA

Source offunds for

commodities

CommodityType

(colour coded) MOHEquip-ment

Point of firstwarehousing KEMSA Central Warehouse

KEMSARegionalDepots

Organizationresponsible

for delivery todistrict levels

KEMSA and KEMSA Regional Depots (essential drugs, malaria drugs,

consumable supplies)

ProcurementAgent/Body

CrownAgents

Governmentof Kenya

GOK

GTZ(procurement

implementationunit)

JSI/DELIVER/KEMSA LogisticsManagement Unit (contraceptives,

condoms, STI kits, HIV test kits, TBdrugs, RH equipment etc)

EU

KfW

UNICEF

KEPI ColdStore

KEPI(vaccines

andvitamin A)

Malaria

USAID

USAID

UNFPA

EUROPA

Condomsfor STI/

HIV/AIDSprevention

CIDA

UNFPA

USGov

CDC

NPHLS store

MEDS(to Missionfacilities)

PrivateDrug

Source

GDF

Government

NGO/Private

Bilateral Donor

Multilateral Donor

World Bank Loan

Organization Key

JapanesePrivate

Company

WHO

GAVI

SIDA

NLTP(TB/

Leprosydrugs

Commodity Logistics System in Kenya (as of July 2006) Constructed and produced by Steve Kinzett, JSI/Kenya - please communicateany inaccuracies to [email protected] or telephone 2727210

Anti-RetroVirals

(ARVs)

Labor-atorysupp-lies

GlobalFund forAIDS, TB

and Malaria

PSCMC(CrownAgents,GTZ, JSI

and KEMSA)

BTC

MEDS

DANIDA

Mainly District level staff: DPHO, DPHN, DTLP, DASCO, DPHO, etc or staff from the Health Centres,Dispensaries come up and collect from the District level

MEDS

Provincial andDistrictHospital

LaboratoryStaff

Organizationresponsible fordelivery to sub-district levels

KNCV

MSF

MSF

JSI/DELIVER

KEMSA

JSI

WHO

Complex systems for commodity financing, procurement and distribution

Country owned procurement approaches are recognized as critical to long term sustainability

As a result [of weak systems], externally funded programmes often institute their own purchasing and distributions systems;

while these provide an immediate solution specific to the programme, they cause major difficulties in standardisation and management for the system as a whole, as well as ignoring the long-term issue of reform.

In many cases they do not address the underlying capacities constraints on ministries’ and private sector’s ability to forecast, plan, manage and distribute within the context of a national system for drugs and supplies.

Taskforce on Innovative International Financing for Health Systems, Working Group 1 Report

Funding for health has increased, however…

…Value destruction due to aid volatility1

Funding volatility creates adverse impacts on systems and users

(1) Source: P. 4, Brookings Institution. August 2008. “Smooth and Predictable Aid for Health – A Role for Innovative Financing?”; Dalberg analysis.

Aid value

ODA, past 15 years

$1.00

$0.72

7-28% of value lost

• Lack of access

• Loss of patient confidence

• Extra commodity cost

• Impaired supply chain management

Adverse impact on systems and

users

$1.00

$0.72

Donor volatility within annual funding cycle makes it difficult to effectively plan commodity purchases

Dec Jan Feb Mar

1.8

April May June

0.5

July Aug Sept Oct

1.3

Nov

8.0

Dec Jan Feb

9.8

Mar

2.1

4.5

April May June July Aug

0.5

Sept Oct

1.4

Nov

12.7

Dec Jan Feb Mar

4.0

April

Funding flows to one recipient of donor funding from multiple sources, December 2005 – May 2008 ($M)

Source: Dalberg analysis with sanitized data from recipient of donor funding (per recipient’s request)

2006 2007 20082005

Donor A

Donor BDonor C

Donor D

Donor EDonor F

Donor GDonor H

Illustrative donor grant process

Board or legislative authority approves grant application/budget approval

Time

First grant disbursement to recipient

Grant agreement Signed/Confirmed

Source: The Global Fund database available on its website. Dalberg analysis of >250 grant applications.

Unpredictability of timing of first disbursement is more a reality than a problemUnpredictability of timing of first disbursement is more a reality than a problem

6 – 12 months 1 – 5 months

Broad range of development areas

(E.g., micro, agriculture, water, SMEs, education)

Reproductive Health: ~$277M1

Health commodities: ~ $6.8B2

Includes Global Fund and PEPFAR

Demand for financial products to manage procurement and finances across $6.8B in health commodities purchases – and potentially beyond

(1) RHI 2007 data and UNFPA 2007 3rd party procurement data; does not include USAID or IPPF funded procurement as both organizations have indicated they would not be a part of PGH; Government funding from McKinsey’s 2006 analysis; donor-funded procurement is defined as funding that has been transferred from donors to entities that procure RH commodities i.e. NGOs or MoHs; government-funded procurement is government revenue-funded or SWAp/non-RH budget line funded procurement

(2) The health commodity market is estimated based on Global Fund and PEPFAR disbursements in 2007, with 47% of funding being used for procurementSources: RHInterchange, www.globalfund.org, www.pepfar.gov; UNFPA interviews; Dalberg team analysis

http://www.globalfund.org/

http://www.pepfar.gov/



Example PGH deals

Q&A

How it works

BankGrant

recipient

Supplier

DonorUNF /

guarantee

2

3

65

1

Legend:CommitmentFund

Commodity

UN Foundation plays a catalytic role in facilitating recipients’ access to credit

1 Donor has existing commitment to recipient for health commodities

Bank extends credit line for commodity purchase and issues L/C to supplier

2

Supplier ships health commodities after PGH customer procures through existing channels

3

Bank pays for commodity based on invoice

4

Donor disburses funding to bank to pay back principal

5

UNF provides backing through full / partial guarantee

6

4

6 – 12 months

Board or legislative authority approves grant application

1 – 5 months

First grant disbursement to recipient made

Grant agreement signed

Source: Global Fund database available on its website. Dalberg analysis of >250 grant applications.

Letter of Credit (9-month)

Begins procurement (bidding) process

Access to a Letter of Credit through PGH helps advance procurement ahead of grant disbursement

Speeds up procurement process and results in cost

savings

time

Benefits of PGH

6%

5%

26%

5%

10%

Expedited production

Potential additional premium for uncertain payment timing

Emergency shipment

Uncertain payment timing

Cost savings by addressing premiums on commodity purchase

Optimize supply chain and procurement

• Avoid stockout and effect on distribution and inventory downstream

• Avoid overstocking and its cost implications on storage

• Reduce wastage/leakage and expiry of essential health products

• Optimize drugs’ shelf life

Source: Studies commissioned by Gates (July 2006) and Dalberg analysis. Excludes premium on sub-scale orders

Estimated premiums

Illustrative example: 18% savings potential in ARVs could enable large volumes for the same price

1. Pricing per ARV (Lamivudine - 3TC), Zidovudine – ZDV or AZT) pack based on Global Fund Price Reporting Mechanism Full Purchase Price Report. 2. Based on 15% commodity price reduction based on studies commissioned by Gates (July 2006) and Dalberg analysis. Excludes premium on sub-scale order. Note: Benefits captured here do not include time value of money and measure of additional lives saved or stock-out avoided. Source: Global Fund PRM, Gates Foundation analysis, Dalberg analysis.

Quantity of ARV packs

Commodity procurement without

PGH

330

Commodity procurement with

PGH

390+18%

Illustrative example for ARV procurement for $5M transaction Illustrative example for ARV procurement for $5M transaction

• Customer-driven tool that supports country ownership of procurement and supply chains management in line with Paris Declaration

• Deliver essential health commodities when they are needed, bolstering confidence in the health system

• Reduce premiums (expedited production, emergency shipment, and payment risk) on commodity costs by 10-30%

• Avoid stock-out and its cascading effect on distribution, planning and inventory downstream

• Avoid overstocking that includes storage cost and waste/leakage

PGH benefits players throughout value chain

• Enables and rewards countries/NGOs with a good track record to further manage and optimize health procurement and supply chains

• Improves overall efficiency, effectiveness and transparency of aid utilization


• Opportunity for new business opportunities in emerging markets for credit within the philanthropic and international development sectors

• Lowered credit risk by partial guarantee on the collateral


• Customer-driven tool that supports country ownership of procurement and supply chains management in line with Paris Declaration

• Deliver essential health commodities when they are needed, bolstering confidence in the health system

• Reduce premiums (expedited production, emergency shipment, and payment risk) on commodity costs by 10-30%

• Avoid stock-out and its cascading effect on distribution, planning and inventory downstream

• Avoid overstocking that includes storage cost and waste/leakage

• Opportunity for new business opportunities in emerging markets for credit within the philanthropic and international development sectors

• Lowered credit risk by partial guarantee on the collateral

• Improved payment certainty and/or terms

• Plan manufacturing in advance and transfer cost savings downstream

• Catalyze a commercial solution with minimum new resources

• Enables and rewards countries/NGOs with a good track record to further manage and optimize health procurement and supply chains

• Improves overall efficiency, effectiveness and transparency of aid utilization




Example PGH deals

Q&A

Senegal: With low expected default risk of donor funding and the backing of a guarantee, Senegal is able to utilize a Letter of Credit

Expected risks

• Global Fund rating of Senegal1: A

• Risks:

Default

Length of delay

Grant disbursement reduction

Basic terms and parties

• Product type (maturity): Term L/C (9-month)

• PGH user: Pharmacie Nationale D'approvisionnement (PNA), Ministry of Health, Senegal

• Donor: Global Fund (GF)

• Bank: Ecobank Senegal (Its parent company: 600 branches in 31 African countries, $6,550M in assets in 2007, $100M covertible loan invested by the IFC in 2009)

(1) Alliance Nationale Contre le SIDA: Rated A, A, A1 and then A1 in last four disbursement periods from 12/1/2007 – 5/31/2009; The National AIDS Council of Senegal: Rated A, A2, A1 and then B1 in last four disbursement periods from 3/1/2008 – 5/31/2009.

Documents

The Need: Quickly, consistently and cost-effectively delivery health commodities