(Friends of the Earth US, Washington, 24 October 2022) Friends of the Earth US has produced a 16 page backgrounder on U.S. international energy finance ahead of the COP27 Deadline to Stop Funding Fossils. From 2010 to 2021, the United States’ major trade and development finance institutions, the U.S. Export Import Bank (EXIM) and U.S. International Development Finance Corporation (DFC), provided almost five times as much support to fossil fuels as to renewables – USD 51.6 billion compared to USD 10.9 billion. Since taking office, the Biden-Harris Administration have made a series of commitments, executive orders, and guidances towards ending this international public finance for fossil fuels. Unfortunately, the administration’s actions have yet not matched their promises on ending these influential financial flows that prolong the fossil fuel era. In this briefing, Friends of the Earth USA review what is known about the current U.S. policy guidance, unpack trends in recent energy finance from EXIM and DFC, identify specific fossil fuel projects and loopholes that appear to be under consideration, and make recommendations for how the U.S. can still implement their commitments with integrity and on time. Most critically, Biden’s interim guidance detailing how these promises will be implemented has not been made publicly available since it was put in place in December 2021, and it appears to leave substantial loopholes open for continued support for gas and oil. The Biden-Harris Administration can avoid undermining international progress on this issue by releasing a publicly available policy that fully ends international public finance for fossil fuels by COP27 in November.
ECAWatch Newsletter 10
South Korean ECAs challenged during National Assembly session about Barossa Project
(Friends of the Earch US, Washington, 24 October 2022) During the annual National Assembly audit this month, Korea Export-Import Bank (KEXIM) and Korea Trade Insurance Corporation (K-SURE) were questioned by assembly members on their decision to finance the Barossa gas project in Australia. The Barossa project, spearheaded by Australia’s Santos and Korea’s SK E&S, was recently ordered to halt drilling after the Australian Federal Court decided Traditional Owners had not been properly consulted. While both KEXIM and K-SURE have approved a total of USD 660 million (KRW 800 billion) of additional financing for the project, the financial deal has not been closed yet. During this year’s National Assembly audit session, K-SURE was reprimanded for violating international environmental regulations and was questioned on the Ministry of Environment’s greenwashing ruling around SK E&S’ advertisements about Barossa gas. K-SURE stated that it screened the project in accordance with international guidelines and Australian law. It also claimed that if Santos loses its Barossa drilling appeal heard at the Australian Federal Court, it will likely decide whether to proceed with its financing. A hearing from a National Assembly member revealed that K-SURE was aware of the lack of Indigenous consultation but relied on the words of project owners and commercial banks supporting the gas project, showing a passive review process in deciding to provide billions of wons’ worth of taxpayer money. With continued criticism from assembly members, the Chairman of K-SURE stated that the agency will comprehensively review various risks associated with the project before deciding whether to extend the expiration date of its financing approval, which is January 2023. Environmental activists have continued to demand the cancellation of public financing toward the Barossa gas project.
Cesce and Alstom sign a strategic agreement to promote green exports
(WebWire, Atlanta, 12 October 2022) Cesce, the Spanish Export Credit Agency, will support France’s Alstom Group’s export activities focused on green projects with a dedicated amount of €500 million. -The agreement seeks to strengthen and consolidate the Spanish railway industrial footprint, in which Alstom is a key player with more than 3,000 employees in Spain and a volume of local purchases close to 700 million euros in the last year. The agreement provides for an overall annual maximum of €500 million and will be reviewed on a yearly basis, depending on the evolution of employment levels, investment and exports of Alstom Group companies in Spain. The agreement’s scope focuses on green operations, in line with Cesce’s climate change policy, the importance of promoting sustainable mobility initiatives and the need to boost digitalisation and sector transformation for a decarbonised future.
Saudi Electricity Company lands Swedish ECA backed finance for Egypt electricity interconnection
(Global Trade Review, London, 28 September 2022) Saudi Electricity Company has signed a US$566.4mn export ECA backed facility agreement with Standard Chartered Bank and Sumitomo Mitsui Banking Corporation to support a Saudi Arabia-Egypt electricity interconnection project. The 14-year financing is guaranteed by the Swedish Export Credit Agency (EKN) and funded by the Swedish Export Credit Corporation (SEK). The landmark facility is structured on the concept of commodity murabaha – a cost-plus-profit arrangement which complies with Islamic finance standards. Coming after the two countries signed US$1.8bn worth of contracts in Cairo last year to build transmission plants and connect power grids, the electricity interconnection project is the first large-scale, high-voltage direct current interconnection between the Middle East and North Africa. Once completed, the project will allow Saudi Arabia and Egypt to exchange up to 3,000 MW of power.
German ECA supported defense system for Egypt diverted to Ukraine
(Military Africa, Nigeria, 13 October 2022) Germany has sent a consignment of IRIS-T surface-to-air defence system initially meant for Egypt to Ukraine to protect critical assets following the Russian invasion of the country. Egypt paid for the IRIS-T air defence system in 2019 after Germany’s Bundestag’s Budget Committee gave its approval for an export credit guarantee for six A-200 vessels, thereby clearing a path for the frigate deal to go ahead. The export credit provides guarantees of up to 2.3 billion euros for the transaction.
Loss of ECA finance harms lower impact deep water oil and gas says offshore chief
(UpStream Online, Oslo, 3 October 2022) The world needs to put the right emphasis onto the security aspect of energy policy, with deep-water oil and gas developments playing a key role in this reset, Bruno Chabas, head of Dutch floating production giant SBM Offshore told an audience at the Rio Oil & Gas event on Tuesday. Deep-water developments are one of the segments that can best respond to the global demand for hydrocarbons with lower break-even, lower environmental impact and lower carbon intensity, he argued. Investment levels for oil and gas are recovering somewhat after declining drastically, Chabas said, but he warned that financing will continue to face constraints such as the decision by the European Union and other key countries to end any access to export credit agency (ECA) financing for fossil fuels. “If ECAs are unable to finance oil and gas projects, this just leaves the commercial banks, but they too want to be on the side of decarbonisation,” Chabas said. Deep-water oil production currently runs at about 8.3 million barrels per day, representing 8% of global output, with Brazil representing about 36% of that. [The relative dangers and advantages of offshore vs onshore drilling is a controversial subject.]
Ukraine calls on banks to support exports through new ECA mechanisms
(GMK Center, 30 September 2022) The Ministry of Economy calls on banks to support Ukrainian exports of goods, works and services during the war, using the products of the Export Credit Agency (ECA). The Ministry, together with the National Bank, developed a mechanism that allows issuing affordable loans for the implementation of export contracts without collateral under ECA insurance coverage. The agency launched the portfolio insurance mechanism for loans issued for the export contracts execution in June 2022. Today, financial support for export-oriented businesses is provided by Oschadbank, Ukrgasbank and Ukreximbank. As the first deputy prime minister – Minister of Economy Yulia Sviridenko noted, they have already financed the insurance of 24 loan contracts for UAH 70 million (US$1.9 m), which made it possible to export UAH 323.5 million (US$8.76 m). As GMK Center reported earlier, Ukraine expects to receive an additional $12.3 billion in financial support from the United States.
Russia may start providing ECA finance to importers of its grain
(Reuters, Moscow, 3 October 2022) Russia may start providing trade finance to importers of its grain as sanctions imposed on Moscow since it sent troops to Ukraine affect this financial instrument, Agriculture Minister Dmitry Patrushev said. Russia, the world’s largest wheat exporter, is working with Russia’s Eximbank and the Russian agency for export credit and investment insurance “to provide financing to foreign companies for the purchase of our products”, Patrushev told the RBC business daily. Speaking about farmers being among those drafted into the military in Russia’s partial mobilisation at a busy time in the sowing season, Patrushev said his ministry would make efforts to ensure the smooth running of the farming industry.
Brazilian ECA to fund Embraer aircraft exports to SkyWest
Brazilian state development bank BNDES and planemaker Embraer SA (EMBR3.SA) have entered a deal for the lender to fund exports of six E-175 jets to U.S.-based carrier SkyWest Inc (SKYW.O), the bank’s managing director told Reuters. Bruno Aranha said in an interview that the loan was modeled as a post-shipment export credit, through which BNDES will fund the exports and SkyWest assume the debt. Aranha said the bank could also help funding exports of Embraer’s KC-390 military aircraft ahead, though noting that such deals could take longer to be completed as they would involve foreign nations and their public sectors.
Trade unions call for a just net-zero aviation transition including ECA support for aviation finance
(IndustriALL, Geneva, 14 October 2022) International and European trade unions welcome a new global agreement for net-zero carbon aviation emissions by 2050, but call for stronger commitments at country level, including on social criteria. No worker or region should be left behind, we need a Just Transition for all! In the run up to the September 2022 41st General Assembly of ICAO, unions worked together to draft joint trade union demands. The working paper submitted to ICAO by trade unions called for a Just Transition for a zero-carbon future which emphasised the need for the decarbonisation of the aviation industry to be managed in a socially responsible way. It called for quality social dialogue, investment into training and the creation of sectoral action plans by social partners with the relevant authorities. In March 2021, unions pointed out that airline passenger demand fell 65% in 2020 compared to the previous year and the demand for commercial aerospace products had also fallen dramatically, resulting in hundreds of thousands of workers in the sectors beening laid off and noting that export credit agency support was critical for restoring employment levels.
