(Business Standard, New Delhi, 17 June 2016) A US-based think tank today said the Bangladesh-India Maitree project could effectively end up in a financial mess. The coal-based power plant proposed to be built near the city of Khulna, close to the Sundarbans mangrove forest, is a joint venture between India and Bangladesh’s state-owned entities. The Institute for Energy Economics and Financial Analysis (IEEFA) said electricity produced from the project would cost 32 per cent more than the average electricity in Bangladesh, assuming an average plant load factor (PLF) of 80 per cent. This despite the project being heavily subsidized, "exposing investors, taxpayers and consumers to high risk and is a potential stranded asset in the making". A senior executive associated with the project, however, said the Indian government was not subsidising the project in any form. “It was only providing loan through Exim Bank to promote Indian investment in Bangladesh,” he said.
Index for June 2016
Volume 15, Issue 6
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(Financial Times, Tokyo, 14 June 2016) Japanese investment in Asean infrastructure is set to rise. The Japan Bank for International Cooperation (JBIC) has changed its lending rules to allow higher risk investment through a special account... Power and transport infrastructure projects are likely to be the main targets for Japanese firms. JBIC currently has ¥1.6tn ($15bn) in outstanding commitments to Asean countries, with much of the investment in power plants and other power-related infrastructure. The rule change will allow Japanese companies to better compete for contracts with Chinese competitors, as the two rivals vie for influence across Asean. Many projects in Asean previously fell foul of stringent [ECA] credit standards, but now Japanese firms investing in the region with the support of the government - a cohort referred to as Japan Inc - will be able to compete more aggressively with rivals from China. [Questions as to whether these rules comply with OECD and WTO rules on ECA state subsidies to exports seem inevitable, and if not, why not?]
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(Bloomberg, 20 June 2016) Iran has paid off outstanding export-credit debt to Germany, paving the way to open renewed trade ties between the two countries after last year’s nuclear agreement scaled back sanctions on Iran. “This is a further important step to revive our economic relations,” Sigmar Gabriel, German economy minister and vice chancellor, said in a statement on Monday. Gabriel said the payment will allow Germany to re-establish credit guarantees that support exports to Iran. The Iranian government had declined to fulfill all its credit obligations while it was subject to sanctions, some of which were lifted in January, the ministry said.
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(Korea Federation for Environmental Movements, Seoel, 27 June 2016) There have been big concerns over Korea Exim bank’s involvement in the Green Climate Fund (GCF) as the bank has a long record of providing financing support for coal projects. The objective of GCF is “to promote the paradigm shift towards low emission and climate-resilient development pathways by providing support to developing countries.” Korea has been praised internationally as a model on climate change and green growth as it announced the ‘low carbon and green growth’ as a national vision in 2008 and hosted GCF headquarter in Songdo.
In addition to our concerns with KEXIM's application, in general we do not believe that export credit agencies are appropriate entities to be accredited by the Green Climate Fund. Export credit agencies are created by governments with the narrow mission of promoting exports and job creation in the agency's home country. This limited mission is inconsistent with, and may be in direct conflict with, the mission and core principles of the GCF, including promoting country ownership, local sustainable development benefits, the efficient use of GCF resources, and the Fund's international competitive bidding requirements. -
(ECCJ, Brussels, 20 June 2016) European NGOs, while welcoming the EU Foreign Affairs Council's Conclusions on business and human rights, have called for their rapid translation into practice. They note too that the Conclusions reflect the Dutch presidency and EU Members States’ acknowledgement that the measures taken so far to ensure that companies respect human rights and are accountable for violations, remain insufficient. In particular, Article 11 notes that " The Council encourages EU Institutions and Member States to address their responsibilities as commercial actors (e.g. in public procurement) and when supporting or partnering with businesses (e.g. through export credit, trade promotion, or subsidies for the private sector).
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(Global Trade Magazine, Newport Beach, 27 June 2016) GE has announced an agreement under which COFACE, the French export credit agency, will provide an additional line of credit for gas turbine combined cycle projects that require export financing in countries such as Saudi Arabia, Mexico, and Brazil. As a result, GE will invest $40 million to develop 60 hertz heavy duty gas turbine manufacturing capabilities in Belfort, France. The announcement came at a time when the Export-Import Bank of the United States is prevented from funding large projects because of funding issues involving the U.S. Congress.
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(Morning Consult, Washington, 9 June 2016) The Obama administration’s nominee for the Export-Import Bank’s board of directors became the latest pawn in the ongoing floor fight between Senate Democrats and Republicans over executive nominations. On Thursday, Senate Banking Committee Chairman Richard Shelby (R-Ala.) blocked an an attempt by Sen. Heidi Heitkamp (D-N.D.) to call a vote on the nomination of J. Mark McWatters to serve on the export credit agency’s board. Heitkamp’s request marked the latest effort by Senate Democrats to bring stalled nominations out of committee and directly to the floor — all of those attempts have been blocked by Republicans. GE also announced on June 1st that Welland, Ontario, would be the new home of its Waukesha, Wis., facility, following Congress’s failure last summer to reauthorize the Export-Import Bank, and that they intend to use Canada’s export-financing entity to pursue new business.
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(Gulf News, Dubai, 27 June 2016) Italy’s export credit agency SACE plans to move into Islamic finance, becoming one of the first Western trade finance bodies to do so, in order to support expansion of its business in the Middle East and North Africa. SACE insured €40.7 billion ($46.4 billion; Dh169.8 billion) of international risk at the end of last year, up 11.6 per cent from a year earlier. The Middle East and North Africa accounted for 14 per cent of the total, the largest fraction outside Italy. Around a quarter of banking business in the six-nation Gulf Cooperation Council is Sharia-compliant. Italy is also keen to develop business with Iran, where the entire banking system is designated Islamic, after the lifting of international sanctions on that country last January.
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(Trend News Agency, Baku, 18 June 2016) Gazprombank, the Italian export credit agency, the Russian export credit agency EXIAR and Azerbaijani company SOCAR have signed a Memorandum of Understanding (MoU) on the financing and construction of a gas chemical complex in Azerbaijan. The new large-scale petrochemical project envisages the construction in Azerbaijan processing and gas chemical plants with participation of Russian and Italian partners. According to preliminary estimates, total investment budget of the project is 3.5 billion USD. The potential volume of deliveries of Russian equipment and materials and the cost of construction and installation services to Russian contractors for the project will amount to 20% of the investment budget.
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(Belarus News, Minsk, 17 June 2016) The National Center for Marketing and Price Studies of the Belarusian Ministry of Foreign Affairs and the Russian Agency for Export Credit and Investment Insurance (EXIAR) have reached an agreement on sharing information and working together to arrange visits and economic forums abroad, including in distant-arc countries. The sides agreed to share information about forthcoming foreign events, including expos, conferences, business visits for the sake of involving representatives of the Belarusian and Russian private sectors in them. “The agreement is important for diversifying export and for exporting more Belarusian products particularly to the countries, which are not traditional trade and economic partners of Belarus.
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(European Commission, Brussels, 20 June 2016) The European Commission has found that the Estonian short-term export-credit scheme was in line with EU state aid rules, and in particular with the 2012 Short-term export-credit Communication. The Commission concluded in particular that the kind of insurance cover provided by the scheme to exporters established in Estonia is currently unavailable in the private market. There is a lack of insurance coverage for small and medium-sized companies (SMEs) with a small export turnover or for single export transactions (i.e. on a transaction-by-transaction basis as compared to insuring the entire export portfolio of a company). This is because private insurers are less interested in this type of transaction. In this context, the Estonian scheme allows the State to cover risks of single export transactions and risks incurred by SMEs with a small export turnover. The scheme is authorised until 31 December 2023.
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(Reuters, Lagos, 16 June 2016) Nigeria's central bank is setting aside 500 billion naira ($2.5 billion) through a debenture to be issued by Nigerian Export-Import Bank (NEXIM), for loans to non-oil exporters, after a slump in oil revenues led to the worst crisis in Africa's biggest economy in decades. The OPEC member, whose economy shrank 0.4 percent in the first quarter, has been hit hard by a slump in global oil prices. It relies on sales of crude for around 70 percent of national income and 90 percent of foreign exchange earnings.