Index for August 2020

Volume 8, Issue 19

• ECAs, COVID-19 and Climate: Recommendations to Ensure that Economic Support Protects People and the Planet

  (ECA Watch members, 10 August 2020) This 9 page report finds that while ECA responses to COVID-19 are still quickly evolving, it’s now clear that these institutions are:

  •  Providing more favorable financing terms;
  •  Expanding the geographic scope of the projects and companies they are supporting, including new domestic coverage that was very rare for ECAs prior to COVID-19;
  •  Failing to ensure proper transparency and oversight of who is getting this support and how it is being used;
  •  Increasing risks of corruption, human rights abuses, and environmental destruction;
  •  Potentially increasing support for megaprojects like Mozambique LNG that has already received billions from ECAs; and
  •  Potentially supporting many oil and gas companies that were already financially unviable even before the COVID-19 crisis.

  The report’s recommendations include that ECAs must:

  • Ensure that their COVID-19 responses are in line with the Paris Agreement’s 1.5 degree Celsius target and the Sustainable Development Goals;
  • Continue progress on climate policies and protections, including explicitly excluding support for fossil fuel related projects;
  • Promote transparency by providing detailed, public information on all support provided at the time the support is provided; and
  • Uphold all standards on social and environmental due diligence

• Johnson poised to stop UKEF funding overseas fossil fuel projects

  (MSN News, London, 12 August 2020) Boris Johnson is poised to sign off new rules barring the UK government’s chief foreign lender from offering financial support to foreign fossil fuel projects. The new policy, which could come as soon as this week, will rule out future loans and financial guarantees for polluting projects overseas through the UK’s export credit agency, UK Export Finance, just weeks after it agreed to a £1bn financial package to support work on a gas project in Mozambique. Under the new rules no support may be offered to fossil fuel extraction or oil refining projects from 2021, apart from limited funding for gas-fired power plants “in exceptional circumstances”. The funding plan raised hackles within the prime minister’s office earlier this summer, according to sources, because aides were told that Africa’s biggest ever financing deal in Mozambique was too far advanced for UKEF to abandon. Green campaigners have described UKEF policies as “rank hypocrisy”, falling foul of OECD guidelines.

• Afreximbank Commits US$400 M To Mozambique's LNG Project

  (AllAfrica, Cairo, 6 August 2020) The African Export-Import Bank (Afreximbank) is supporting the advancement of Mozambique’s energy industry and economy by committing up to US$400 million in guarantees and direct lending to the Area 1 LNG Project. The Total Project is estimated to cost about US$24 billion and  is set to be the largest private foreign direct investment in Africa, and one of the largest LNG projects in the world. Last month's ECA Watch What's New highlighted the climate change implications of ECA involvement, now critics say donor countries and international organizations are propping up a corrupt government that's leaving millions of Mozambicans mired in poverty.

• EC approves €2bn scheme to support Italian trade credit insurance

  (Market Screener, Annecy, 13 August 2020) Under EU state aid rules, the European Commission (EC) has approved a €2bn ($2.37bn) Italian scheme to support the trade credit insurance market in the context of the coronavirus outbreak. Italy notified the Commission of a State guarantee scheme for the reinsurance of trade credit risks to support companies affected by the coronavirus outbreak. The scheme will be administered by SACE, the Italian Export Credit Agency. On 19 March 2020, the Commission adopted a State aid Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework, as amended on 3 April 2020 and 8 May and 29 June 2020, provides for the types of aid which can be granted by Member States.

• China slow to curb coal financing as Japan, South Korea ‘accept new reality’ on phasing out fossil fuels

  (South China Morning Post, Hong Kong, 15 August 2020) China risks being left behind as South Korea and Japan signal a shift away from financing overseas coal power in response to growing criticism over their support for the dirty fossil fuel. The three countries are the top global lenders for coal energy infrastructure, bankrolling projects beyond their borders through export credit agencies and developing new markets to export coal plant technology. But there are signs that Japan and South Korea may be preparing to scale back official support amid mounting pressure from the public and investors on environmental grounds. Environmental campaigners hope the moves by Japan and South Korea will put pressure on China, but whether the world’s largest financier of coal energy will take similar steps remains to be seen. China has an outsize impact on development financing for coal. From 2000-2019, its two global policy banks – the China Development Bank and the Export-Import Bank of China – issued loans totalling US$51.8 billion for coal energy projects around the world, according to the Global Development Policy Centre at Boston University. In comparison Japan spent US$26 billion financing 36 overseas coal-fired power plants between January 2003 and April 2019 and South Korean public financial institutions, meanwhile, supported 24 overseas coal projects with US$10 billion from 2008 to 2018.

• Ford secures UKEF loan guarantee to build on engine exports

  (Automotive Logistics, London, 10 August 2020) Ford has received a £500m ($648m) guarantee from UK Export Finance (UKEF) to help it maintain exports of engines and transmissions from the UK. The guarantee, which was given in July, is part of a planned £625m loan facility from commercial banks using its Export Development Guarantee. Last year the carmaker announced it was closing its engine factory in Bridgend, South Wales, which makes the 1.5-litre, three-cylinder engine because of declining demand.

• Airbus to be sued by investors for bribery and export control violations

  (Pomerantz LLP, New York, 29 August 2020) New York law firm Pomerantz has initiated a class action on behalf of Airbus investors who acquired Airbus securities in the U.S. between February 24, 2016, and July 30, 2020, On January 31, 2020, media outlets reported that Airbus had agreed to a deal with U.S., U.K. and French prosecutors to settle bribery and export-control violations against the Company for €3.6 billion ($4 billion).  Airbus misled UK export credit agency UKEF over the identity of an intermediary receiving millions in commissions.

• US Firms Announce Power Agreements Worth Billions With Iraq

  (New York Times/Reuters, New York, 19 August 2020) General Electric Co said it had signed two new agreements valued at over $1.2 billion with the Iraqi Ministry of Electricity, to undertake maintenance programs across key power plants in the country and bolster its transmission network. The U.S. conglomerate was also working with multiple export credit agencies to facilitate financing of more than $1 billion for the projects, it said in a statement on Wednesday.  Oil company Chevron Corp, Honeywell International Inc and Stellar Energy are also expected to unveil progress shortly on agreements with Iraq to develop one of the country's large oil fields.

• Exim backs exports to Argentina’s YPF

  (Global Trade review, London, 12 August 2020) The Export-Import Bank of the United States (US Exim) has penned a US$75mn credit guarantee facility (CGF) with state-backed Argentinian energy company YPF. US Exim will cover a loan from Bank of America as part of the deal, with YPF – the biggest oil and gas producer in the South American country. As the oil sector reeled from a price war between major producers Russia and Saudi Arabia in March, together with the impact of Covid-19 containment measures – which saw demand and storage space for the commodity dry up – the US oil benchmark was briefly plunged into negative territory for the first time ever.

• Ghana commissions University of Environment and Sustainable Development

  (Business Ghana, Accra, 6 August 2020) The new university, funded through the Italian Export Credit Agency, SACE, and the German bank, Deutsche Bank, will providing holistic training for environmental and sustainable development professionals in Ghana. It will offer general and specialized degree programmes and research in climate change, water resources development, energy sustainability, energy economics and policy, urban architecture, natural resources and environmental economics, environmental policy and environmental science.

• Bangladesh's Prime Bank approved by USDA export credit guarantee programme

  (The Independent, Dhaka, 23 August 2020) The Commodity Credit Corporation (CCC) of the United Stated has approved Bangladesh's Prime Bank to participate in the Export Credit Guarantee Program (GSM-102) of United States Department of Agriculture (USDA) for the smooth import of US agricultural commodities. Prime Bank is one of the first two banks in Bangladesh which have been approved as GSM-102 Approved Foreign Financial Institutions from Asia Region, said a press release. As an approved foreign financial institution, Prime Bank would be able to support its customers to import food and agricultural commodities from the US like cotton, soybeans, grains, cereals, woods, nuts, fruits among others under the guarantee coverage of GSM-102 Export Credit Guarantee Program administered by USDA, the statement said.

• Nigeria: Appraising 3 Years of Reform At Nexim Bank

  (AllAfrica, Lagos, 25 August 2020) Since 1986, Nigeria has pursued an export-led strategy. This includes an emphasis on non-oil exports such as cocoa, groundnut, cotton, palm produce, rubber, and grains owing to perennial fluctuations in the prices of oil in the international market. One component of this strategy was the establishment of the Nigerian Export-Import Bank (NEXIM) in 1991. Owing to the twin shock of the COVID-19 pandemic and the sudden fall in international oil price, the Nigerian economy is experiencing a fall in exchange earning, a fall in Gross Domestic Product (with latest figures showing a contraction of over 6 percent), depletion of external reserve, currently at $34 billion, scarcity of foreign exchange, and high cost of goods. Public policy analyst, Terhemen Ikyaave noted a boost in collaboration between NEXIM and the Central Bank of Nigeria to fund the non-oil export sector. A notable result he said is the disbursement of loans totaling over N39bn (US$100.6M) to 27 export companies under the Non-Oil Export Stimulation Facility.

• Canadian Football League tackles EDC backed loan

  (Globe and Mail, Toronto, 31 July 2020) The Canadian Football League (CFL), facing Corona virus slashed ticket sales, is seeking Canadian government assistance via a bank loan under the Business Credit Availability Program (BCAP), after the Business Development Bank of Canada and the CFL couldn’t agree on loan terms. The loan could be guaranteed (up to 80%) by Export Development Canada (EDC), another crown corporation.