Index for October 2017

Volume 16, Issue 10

  • (FOE US, Washington, 16 October 2017) Although at least seven major countries — including Canada, France, and Germany — have made commitments to phase out coal power domestically, their export credit agencies, or ECAs, have poured money into coal plants and other fossil fuel projects in other countries. According to a new report by Friends of the Earth U.S. and Oil Change International, ECAs annually fund $32 billion worth of projects in the oil and gas sector alone. That is 11 times more than what ECAs provide to clean energy projects. The OECD Export Credit Group has implemented restrictions on financing of some coal plants but unfortunately, these restrictions are not enough to stem the destructive financing of ECAs. Key findings of the report include: From 2013 to 2015, G20 ECAs provided 12 times as much support to fossil fuels as clean energy; ECAs provided over $32 billion annually to support oil and gas projects; Japan is the worst offender, providing over $13 billion annually to fossil fuels, followed by Korea and the United States supporting almost $8 and almost $6 billion annually, respectively. An end to ECA’s support of fossil fuels would probably stop many dangerous projects from going forward. One is a coal plant in Vietnam — Long Phu 1 — that would produce at least 6.3 million tonnes of carbon dioxide each year. Another project is the development of liquefied natural gas in northern Mozambique, which has already destroyed the land of local communities and endangers unique ecosystems such as mangroves and coral reefs. The president of the World Bank recently noted that plans to build more coal-fired power plants in Asia would be a “disaster for the planet” and overwhelm the deal forged at Paris to fight climate change. The report recommends that all ECAs disclose the amount and nature of all fossil fuel-related transactions, as well as information on their decision making process, and formulate policies to phase out all support for fossil fuels. The report follows an NGO coalition's July 2017 report showing G20 nations provide four times more public financing to fossil fuels than to renewable energy.

  • (ECA Watch, Ottawa, 30 October 2017) French ECA BPI has announced a €350 million guarantee contract with TechnipFMC for the development of the controversial $27 billion Yamal LNG project in Russia's far north. German Japanese, Swedish, Italian and Chinese ECAs have also supported the project. Experts from the Rivers Without Borders Coalition, after studying the Environmental and social impact assessment (ESIA), which was conducted in accordance with Russian law, concluded that the current ESIA does not provide sufficient information, analysis or a comprehensive management plan for addressing the project’s significant impacts on biodiversity, fishing, indigenous peoples, and accidents, a conclusion also reached by WWW Russia in 2015. It is interesting to note that Arnaud Caudoux, Deputy Chief Executive Officer of Bpifrance, is also a member of the Board of TechnipFMC. TechnipFMC hs also requested BPI support for its participation in the $7 billion Coral LNG project in Mozambique.

  • (Lexology, London, 24 October 2017) An intergovernmental working group mandated to draft a new international legal instrument to regulate the activities of transnational corporations in relation to human rights is holding its third meeting in Geneva this week. Negotiations for a business and human rights treaty have been ongoing since 2014 when the Human Rights Council established an open-ended mandate (discussed in further detail here) to revoke business licences and subsidies, if and to the extent necessary, from offenders; and revise relevant tax codes, public procurement contracts, export credit and other forms of State support, privileges and advantages in case of human rights violations,

  • (Devex, Washington, 27 October 2017) This summer, the British Conservative Party, through their manifesto and the pages of the Daily Mail, issued the OECD DAC — a multilateral group of donors that sets the definition of aid — an ultimatum: allow us to widen the definition [of aid] to include more private equity, more military spending, and more domestic spending, [and more ECA support?] or Britain will pull out. Pulling out of the OECD DAC would mark a dangerous precedent. Can any donor country chalk up anything it wants as aid? Export credit? How about concessional arms sales? And what would pulling out of this multilateral group do for the international norms and standards for the delivery of aid that Britain has helped shape over decades?

  • (Specialist Banking, London, 29 October 2017) UK Export Finance (UKEF) – the UK’s export credit agency – has launched a new partnership with five major high street banks,  Barclays, HSBC, Lloyds, RBS/NatWest & Santander, enabling smaller businesses to access millions of pounds in government-backed trade finance directly from their banks in seconds. Companies which supply exporters can now access UKEF-backed finance for the first time, helping them become part of major export contracts. [It is not clear how or if the OECD Common Approaches will apply to this support.]

  • (Reinsurance News, Brighton, 5 October 2017) The agreement supports a framework for reinsurance underwriting between NEXI and UKEF, and enables cooperation between the pair in relation to the export of Japanese products via a reinsurance transaction that also involves UK exporters. "When a Japanese company joins a project in a third country in conjunction with a foreign company, One-Stop-Shop Reinsurance agreements make it possible for NEXl to undertake the risk portion of exports made from Japan,” explains the announcement. Adding; “Suppose a Japanese company exports to a third country with a foreign company under a consortium, and the foreign company obtains insurance from its own ECA for the entire contract amount including the portion exported by Japanese company; NEXl will provide reinsurance to the foreign ECA for the portion exported from Japan.”

  • (Mining Technology, London, 3 October 2017) GoviEx Uranium has received expressions of interest from export credit agencies and project finance banks to arrange $220m of senior debt financing for the construction of the Madaouela uranium project in Niger. Conditions for the debt financing include long-term off-take contracts to be signed with nuclear utility counterparties, as well as export credit agency insurance cover being in-place, depending on the nationality of either the off-take and/or procurement counterparties. [Niger exports enough uranium to France to generate 50 per cent of the latter’s electricity supply, but ordinary Nigeriens reap little benefit from France’s control of their country’s uranium resources, with over three-fifths of the population living below the poverty line and reports of radioactive contamination of water, air and soil by multinational mining operations. Recent US press reports ask if  US troops died in Niger protecting French and Chinese uranium?]

  • (ARKA, Yerevan, 12 October 2017) At its regular Thursday meeting, the Armenian government okayed a proposal to sign a $100-million loan agreement with Russia to purchase defense armaments. In accordance with the agreement, Russia will provide an export credit loan to Armenia for financing supplies of Russia-made ammunition for Armenia’s army. The loan will be extended for 15 years (from 2023 to 2037) at a 3% annual interest rate, and Armenia has to use these financial resources at a period between 2018 and 2022. In June 2015, Armenia signed a $200-million an export credit loan agreement with Russia for acquiring Russia-made military industry products. The loan was provided for 13 years with a three-year grace period at a 3% annual interest rate. Under this agreement, Armenia buys from Russia Smerch multiple rocket launchers, Igla surface-to-air missile, TOS-1 A multiple rocket launchers, Tigr armored vehicles and 9М113М wire-guided anti-tank missiles as well as sniper riffles, engineering and communications devices.

  • (Global Trade Review, London, 11 October 2017) Italian engineering, procurement and construction (EPC) contractor Sicilsaldo has secured an €80mn contract for a gas pipeline project in Mexico, with the backing of Italian export credit agency Sace. “Sace has backed 80% of the €80mn”, a spokesperson for Sace tells GTR. The contract is part of a 560km gas pipeline project that will cross the states of Chihuahua and Sonora. Price tagged at US$560mn, the pipe will have capacity of over 550 million cubic feet.

  • (Quartz Media, New York, 11 October 2017) US president Donald Trump’s plans to slash the American government’s overseas spending has led to a rash of speculation that China could emerge as a new “global leader” on everything from free trade to the world’s fight to combat climate change, including reports that suggest China could become the world’s most generous country as well. The suggestion however is based on a study (pdf) which does not suggest China is in “pole position” to be the world’s biggest aid donor. It breaks down China’s overseas finance by destination and type from 2000 to 2014, and shows that Beijing is sending much more money abroad, but most of that money can’t be described as aid. China contributed over $350 billion in “official finance” to 140 countries and territories over that time, the study says. But much of that official finance wasn’t “official development assistance,” or aid, as defined by the OECD, which is finance specifically for local economic development or to improve welfare in the recipient country; it can’t profit the donor country; and at least 25% of the amount must be provided to the recipient as a grant. Beijing’s loans often come with some very serious strings attached. Often, the money must be used by the recipient country to buy materials or contracts from China’s state-owned companies, which would boost production and profits at home. In other words, the loans are more like a company extending export credit to an overseas customer who buys its goods

  • (Banking Technology, London, 19 October 2017) Amid the hype around distributed ledger technology and blockchain it can seem they are technologies looking for solutions. Trade finance is a complex, paper-based activity. It encompasses lending, issuing letters of credit, factoring, export credit and insurance. Companies involved with a trade finance transaction include importers and exporters, banks and financiers, insurers and export credit agencies, and other service providers, such as customs organisations. Documentation is an important aspect of trade finance, but it isn’t standardised and invoices, letters of credit and bills of lading can differ greatly from country to country. Japanese bank Mizuho recently completed a trade finance transaction between Australia and Japan, digitising all necessary documentation and sharing the data with multiple participants across a distributed ledger. A consortium of seven European banks have formed the Digital Trade Chain (DTC) initiative, a blockchain-based digital platform for managing and tracking domestic and cross-border open account trade transactions. The members of the consortium are KBC, Unicredit, HSBC, Rabobank, Societe Generale, Deutsche Bank and Natixis. The distributed nature of the data could significantly reduce cycle times – for example, by making data simultaneously available to all parties in a transaction, each could perform their respective checks in parallel, reaping immediate benefits over today’s slower, linear approach. [There should be concerns however that this is a brand-new technology that is not defined by regulators, raising concerns about transparency if access to trade data is limited only to corporate interests, which may wish to protect the economic, social and environmental impacts of their trade activities from public scrutiny.]