INTERNATIONAL FINANCIAL CONSULTING EGTT Workshop, September 27 -29, 2004 Montreal, Canada Are Export Credit Agencies and Other Traditional Sources of Infrastructure Financing Still Relative?
INTERNATIONAL FINANCIAL CONSULTING l Based in Ottawa, Canada l Clients in Over 30 Countries l l l Export Credit Agencies Government Departments Major Multilateral Development Banks UNEP Project Developers and Sponsors Global Expertise in l l l include Export credit insurance and finance International trade arrangements Structured Finance
Traditional Players in Developing Country Infrastructure Projects l Host Country Governments l Multilateral lending institutions l Private Sector financial and insurance institutions l Project Developers and Equity Investors l Export Credit Agencies
Export Credit Agencies Mandate l To facilitate trade through risk taking l To be Self Sustaining l To not displace the Private Sector ECAs work closely with the Private Sector Banks and with Multilateral Institutions, with the Private Sector and Multilteral Insurers and Re-Insurers,
ECA Products Support Basic Products are: l Export Credit Guarantees or insurance l Political and/or commercial risk Investment Insurance l Direct Lending l ECAs may have the same basic mandate but different delivery structures can add complexity for RE developers and Host Countries seeking ECA support
ECAs are Significant Players l Higher Risk Capacity l l Leader in assessing Political and Economic Country Risk Longer exposure terms than Private Sector Berne Union - US$455 Billion on 2001 l US$395 in Short Term support l US$ 60 billion in Long Term support However, ECAs have less than 1 % of their exposure in support of RE and EE Technology and Projects l
The OECD Arrangement for ECAs Agreement between most OECD member countries setting out terms and conditions for official export credit support l 30 year evolution l Objective of arrangement is to minimize trade distortion and “level the playing field” l Guidelines for minimum interest rates, minimum premium levels for countries, maximum repayment terms, first repayment start date, maximum amount of financing, local cost limits, “tied aid” environmental impact assessments, and a special scheme for project financing l Special Sector Understandings extended repayment for aircraft, ships, and nuclear power, l Extended repayment term for conventional power to 12 years repay, may include RE Change to the OECD Arrangement can be a long, slow process and requires government direction and case evidence l
Traditional ECA Risk Review and Mitigation Technology Risks l Commercial Risks l Political Risks l Legal and Documentation Risks l Financial Risks ECAs have over 50 years of experience in dealing with these risks Therefore, why are RE and EE Technology Projects difficult for the ECAs to support? l
Barriers to ECA Growth in RET Support l Cognitive Barriers l l Political Barriers l l l Regulatory and Policy issues Government Leadership Analytical Barriers l l Low Level of Awareness and understanding Availability of Quality Project Information Market Barriers l Financial, legal and institutional frameworks ECAs are reactive, not proactive and respond best to demonstrated needs of their exporters and instructions from their shareholders
Can ECAs be Relevant and Innovative? UNEP ECA Annual Environmental Workshops l 3 Categories of ECA Response to RE Identified l Collective Change to International Agreements l l New ECA Products and Processes l l l Longer Repayment Term More Flexible Local Cost Cover Relaxed Tied Aid Rules Bundling of RE Projects Support for CDM and JI Emissions Trading Shareholder and Government Direction l l Local Currency Cover Repayment Flexibility UNEP ECA Annual Workshop This Week in Rome
Can ECA Support Help Fill “Gaps” in RE Financing? Possible new ECA product areas to support RET l Bundling of RE Projects l l l To reduce transaction costs To Fast Track Small Scale CDM and JI Projects l l To Support CER and ERU Trading To Monetize CERs and ERUs ECA Risk Appetite is not clear…. yet
Bundling of RE and EE Projects Foreign Local Investors Foreign Lenders Project 2 Bundle is < or >15 MW Local Project. . Project 1 Offtaker Local currency Host Country EPC Supplier CER Buyer $ Local Supply Foreign Projects are All RET Project x or mixed Lawyers, Financial Advisors Environmental and Insurance Advisors CDM Specialists, Fees and Agreements EVERYWHERE
ECAs Can Support Bundling Same Sponsor(s) Same Technology Same EPC Projects Bundling Manager CDM Approvals EI Assessments ER Verification, Certification and Monitoring Project 1 Project 2 Project. . ECAs Same Investors Same Lenders Special Purpose Company Borrower O, O, M Projects Project x Same Offtaker >or < 15 MW Host Country Same CER Buyer
Can ECAs Support CDM/JI CERs? ECA Cover Investors Lenders Project Offtaker Local currency Host Country ECA Cover EPC Supplier ECA Cover CER Buyer $ ECA Role? ? ?
International Financial Consulting THANK YOU
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