Index for November 2023

Volume 22, Issue 11

  • (Times Live, Johannesberg, 17 November 2023) Banks and other financiers should withdraw their support of TotalEnergies' $20 billion liquefied natural gas (LNG) terminal in Mozambique, environmental lobby groups urged in a letter sent to more than two dozen project funders on Friday. The letter, seen by Reuters, comes at a crucial juncture for the French energy company as it prepares to relaunch Africa's largest foreign direct investment project. Activists warn the project may worsen climate change and fuel human rights abuses in the impoverished southern African nation. “As a critical financial supporter of the project, you bear a direct and important responsibility in its dreadful impacts,” the letter, supported by more than 100 organisations, including ActionAid International and Greenpeace France, said. Last month, lawmakers in the Netherlands said they would insist on being consulted on safety and human rights concerns before they can approve a 1 billion euro ($1.06 billion) loan guarantee for the project, stalled since April 2021. TotalEnergies said before Friday's letter that arrangements for project finance remain in place despite a 'force majeure' halt in 2021 when Islamist militants threatened the project site. Financing agreements for the project were struck in 2020 with direct and covered loans from eight export credit agencies, 19 commercial banks and the African Development Bank (AfDB).

  • Joint letter from 125 international CSOs to global leaders at COP28 calling for transformative public finance for a globally just energy transition

    (ECA-Watch, 1 December 2023) As climate disasters intensify and as more people than ever are forced to choose between heating and eating, or transport and shelter, we called on the leaders of our governments and public finance institutions to work together at COP28 to end the fossil fuel era and build in its place a 100% renewable economy that works for everyone. There is no shortage of public money available to do this, it is just poorly distributed, flowing to fossil fuels and the super-rich instead of shared priorities. Some ECAs and insurers have dialled back their involvement in traditional energy sector projects in recent years, but renewable energy still only accounts for about 5% of total new longer-tenor commitments. Such support is less than the US$12bn provided to the natural resources industry – which includes the exploration and extraction of hydrocarbons – and the US$18bn supplied to traditional energy projects. This is because a handful of Global North governments and corporations hold outsized control over global monetary, trade, tax, and debt rules as well as our international financial institutions (IFIs). At COP28, public finance finds itself at a crossroads. IFIs and the Global North governments who largely control them must stop their over reliance on the private sector as the vehicle to fund climate solutions — an approach that has consistently under delivered and often caused great harm. We urgently need public finance policy, priorities, and governance to push instead towards a 1.5C-aligned just energy transition rooted in collective wellbeing and global and local equity. To do this, we will need to transform public finance institutions to be equitable, democratic, rights-upholding, feminist, sustainable, and transparent. We will also need to write new financial architecture rules that will ensure Global North governments and corporations pay their fair share for the crises we face, and also prioritize channeling finance for a just transition though institutions which are democratically accountable to Global South countries and peoples. We have enough money to have a full, fast, fair, and funded fossil fuel phase out and build a fair and 100% renewable economy in its place, what is lacking is political courage. For the sake of people and planet, COP28 must mark a turning point in your approach to public finance. Organizations wishing to add their support for this call may add their signatures to the letter after release through this link

  • (Price of Oil, Washington, 8 November 2023) This week in Paris, some of the world’s wealthiest countries met at the Organisation for Economic Co-operation & Development (OECD) headquarters to discuss how Export Credit Agencies (ECAs) – the world’s largest public financiers for fossil fuels – can be aligned with climate goals. The UK, Canada and the EU put forward proposals to extend coal restrictions to oil and gas. The United States – a key influencer in the OECD process – did not take position on the proposal yet, despite President Biden’s multiple promises at the G7 and at the 2021 COP26 UN climate talks to end public finance for fossil fuels. Japan and South Korea, two of the world’s biggest financiers of international fossil fuel projects, also failed to come out in support of the proposal, despite both countries signing of the Paris climate agreement and Japan’s G7 commitment to end its international public finance for fossil fuels.

  • (Global Trade Review, London, 15 November 2023) A proposal to end export finance for oil and gas supported by the UK, EU and Canada will remain under discussion at next year’s OECD meetings after being tabled last week during negotiations in Paris. If agreed, the proposal would see a ban on export credits for new oil and gas projects, following the approach taken to prevent export credit agencies (ECAs) from financing unabated coal-fired power plants. The current proposal calls for a similar prohibition on oil and gas, a move that would bypass the transition stage seen in the approach to coal of an emission threshold coming before an overall ban. “The EU and UK position expands that coal-fired power prohibition to include all fossil fuels and all parts of the fossil fuel value chain, with some exceptions,” says Nina Pušić, OECD export finance climate strategist at Oil Change International (OCI), speaking to GTR from the negotiations. This could be a stumbling block in securing the agreement of the remaining eight countries in the Arrangement on Officially Supported Export Credits: Australia, Japan, Korea, New Zealand, Norway, Switzerland, Turkey and the US. According to OCI, Japan and Korea together provide on average more than US$16bn in oil and gas financing, based on 2018-2020 levels, while OECD ECAs provided an average of US$41bn per year in export support to fossil fuels between 2018 and 2020. The OECD is set to meet again in Q2 next year.

  • (Climate Change News, Broadstairs UK, 3 November 2023) At Cop26 in Glasgow, hundreds of governments and private institutions joined forces in a series of pledges promising ambitious goals on methane reduction, forest protection and the shift of finance away from fossil fuels. End new direct public support for the international unabated fossil fuel energy sector by the end of 2022, except in limited and clearly defined circumstances that are consistent with a 1.5°C warming limit and the goals of the Paris Agreement. 34 countries and five development banks – predominantly from wealthy cuontries – signed up to the pledge at Cop26. These included the G7 nations – with the exception of Japan – and most EU member states. HOW IT IS GOING: Among the signatories that give lots of money to the energy sector, the vast majority have introduced policies in line with the promise made in Glasgow. The United Kingdom, France, Denmark, New Zealand, Canada, Finland and Sweden have stopped providing loans and guarantees for oil and gas extraction and processing overseas through their export credit agencies. Their actions have shifted at least $5.7 billion per year in public finance out of fossil fuels and into clean energy, according to analysis by Oil Change International and E3G. On the other hand, however, the USA, Italy and Germany have continued funding international fossil fuel projects in 2023 in breach of the pledge. They were supposed to stop funding foreign fossil fuels by December 2022. But since then, they collectively approved over $3 billion in financial support to oil and gas overseas programmes. Most of the funding comes in the form of state-backed guarantees provided by export credit agencies. These products limit the risk taken by companies selling services and goods in other countries, influencing investment.

  • (Foreign Policy, Washington, 15 November 2023) Riyadh hosted African leaders last Friday at the first Saudi-Africa summit on fostering trade ties. Among other measures, Saudi Crown Prince Mohammed bin Salman proposed $10 billion to finance and insure Saudi exports through 2030 and an additional $5 billion in development financing for African nations. A New York Times article on Saudi efforts notes that the kingdom is working to keep fossil fuels at the center of the world economy for decades to come by lobbying, funding research and using its diplomatic muscle to obstruct climate action. The Arab Africa Trade Bridges Program, a multi-donor, inter-regional program, has signed two agreements aimed at fostering sustainable growth and development on the sidelines of the Intra Africa Trade Fair 2023 in Cairo with support from the International Islamic Trade Finance Corporation. In addition,  Africa’s Global Bank, United Bank for Africa, UBA, Plc, and the Saudi Export-Import Bank, Saudi EXIM have entered into a partnership aimed at strengthening business growth and enhancing economic cooperation between their economies.

  • (Global Trade Review, London, 15 November 2023) Oil supermajor ExxonMobil has unveiled plans to become a “leading producer” of lithium ahead of an expected leap in demand for battery metals – but for pure commodity traders, big moves remain a more distant prospect. Export credit agencies (ECAs) are also upping involvement in lithium production. In August, ECAs from Australia, South Korea and the US revealed they were considering providing a US$195mn package of support for a lithium mine in the Australian outback, which is expected to produce 15,000 tonnes of lithium carbonate equivalent per year. A new report from Both ENDs and FARN explores the case of lithium mining in Argentina and provides recommendations for making a just transition to sustainable energy systems. It explores the extraction of these minerals which requires investments, and how export credit agencies (ECAs) are increasingly looking for ways to support businesses that do what they call "green projects" abroad, projects which are promoted under a market logic, but with rhetoric linked to the climate crisis and energy transition. This raises the question: should they? And, moreover, is mining for critical minerals a green investment? And are export credit agencies the right agent to help promote a just energy transition?

  • (Global Trade Review, London, 22 November 2023) Export finance banks are urging members of the OECD Arrangement on Officially Supported Export Credits to reinstate the rule reducing the down-payment threshold for emerging market borrowers to 5% amid escalating debt risks. On November 4, a temporary common line which had allowed export credit agencies (ECAs) to cover up to 95% of the total export contract value on sovereign transactions – involving category II (non high income) nations – came to an end. The common line was first introduced in late 2021 to counter reported constraints in the private insurance market, and was renewed last November for a further 12 months. The temporary rule has now been formally wound down and any new ECA deals involving sovereign borrowers must revert to financing 15% of the contract on commercial terms. In another development, negotiators secured a modernisation of the OECD Arrangement on Officially Supported Export Credits in March which saw maximum repayment terms for export credit agency (ECA)-supported, climate-friendly projects extended to 22 years, while the maximum tenor for all projects was upped from 10 to 15 years. Revised repayment terms under the OECD framework on export credits could be challenging for banks, prompting increased demand for alternative means of funding, according to industry experts. It will be challenging for certain banks, especially in the current macroeconomic climate. All the banks are struggling with much higher funding costs compared to two or three years ago,” said Nazli Konac Edgu, director of export and agency finance at Citi.

  • (Global Trade Review, London, 7 September 2023) The export credit insurance market saw claims jump by more than 700% in Russia last year, as the industry grappled with the fallout of the Ukraine crisis and western sanctions, Berne Union research shows. Short-term export credit claims involving obligors in Russia and the Commonwealth of Independent States (CIS) region increased by US$229mn from a year earlier, the union’s State of the Industry report for 2022 finds. Payouts in Europe also rose by US$118mn year-on-year as businesses felt the indirect impact of Russia’s full-scale invasion, which disrupted supply chains for critical inputs and drove up commodities prices. The data reveals how export credit agencies (ECAs) and trade credit insurers were stung by the Ukraine war, despite efforts to swiftly cut cover for Russian firms in the early weeks of the crisis due to financial and reputational risks. The analysis by the Berne Union, a global association representing ECAs and private insurers, shows new short-term export credit business in Russia and CIS fell from US$34bn to US$16bn – by more than 70% – as insurers pulled back. Arrears – or overdue payments by borrowers in the medium to long-term segment – rose by 11% or nearly US$8bn. On a brighter note for the industry, overall claims paid out by ECAs and insurers on their policies fell to US$7.7bn – a decline of about US$1bn – following a 33% drop in claims in the transportation sector, the data shows.

  •  (Globe & Mail, Toronto, 3 November 2023) Canada’s export financing agency applies its own flagship environmental and social review process in less than 1% of the transactions it supports, the Auditor-General of Canada’s office has found. An audit report released to Parliament Thursday determined that of nearly 7,800 loans EDC supported between May, 2019, and March, 2023, just 33 (or 0.4%) were reviewed under EDC’s Environmental and Social Review Directive. The report recommended that EDC apply the directive more broadly and warned that when it does not, it’s at elevated risk of financing projects that increase greenhouse gas emissions, harm biodiversity and violate human rights, and operating at cross-purposes to the federal government’s own commitments.

  • (Berne Union, London, 7 September 2023) A Berne Union report investigates how political risk insurance can be approached amid the ongoing effects of the pandemic, geopolitics and the evolving Russia/Ukraine crisis. The search for new, diversified suppliers of strategic materials to support the energy and technological transition may result in fresh investment flows for countries with both limited stability and little capacity in order to handle the amount of investment and operations required. Apart from China and Russia, several of the sovereigns that are likely to emerge as incremental suppliers were rated B or lower, even before the current crisis, and/or possess a country risk category that could make the cost of financing excessive or further complicate their fiscal position in the short- to medium-term.

  • (The Times of India, Delhi, 9 November 2023) According to the Swedish Export Credit Agency, the interest and unpaid penalties on 1,000 Volvo cars, have racked up a breathtaking USD 322 million still owed. The 1974 order for the batch of 1000 Volvo 144 sedans to be used as taxis was given by Kim Jong Un’s grandfather, Kim Il Sung. Later, the Swedish government paid Volvo in full from public funds but is still waiting to retrieve the money from North Korea. The batch of vehicles, a significant component of a 1974 agreement, is now at the centre of what is considered to be the 'biggest car heist' in history.

  • (Insider, Glascow, 16 November 2023) UK Export Finance (UKEF) has issued a loan guarantee so that Seaway7 can access a £370m funding package under its Export Development Guarantee so that the offshore wind company can invest in its UK operations. The guarantee covers 80% of the total loan, which has been coordinated by HSBC, with Citibank, Credit Agricole Corporate and Investment Bank, DNB and ING as mandated lead arrangers. UKEF’s backing is expected to help the firm win and service engineering, procurement construction and installation contracts for fixed offshore wind projects which will generate UK export revenue. Zero offshore wind projects were secured by the UK Government in the country’s latest clean power auction early today - dealing “a major blow” to Scotland and the UK’s renewable energy ambitions.

  • (Friends of the Earth Japan, 13 November 2023) NuScale Power, a U.S.-based company, has announced the cancellation of its plan to build a small nuclear reactor in Idaho, U.S. The Japan Bank for International Cooperation (JBIC), had invested in NuScale in April last year, together with JGC Holdings Corp. and IHI Corporation. JBIC’s investment in NuScale was $110 million. At the time of JBIC’s investment, we pointed out that even under their new guise of “small modular reactors,” SMRs are no different from conventional nuclear power plants in that they have problems such as radioactive contamination over their life cycle, nuclear waste, accident risk, and the risk of becoming targets of terrorism and war. We also pointed out that SMRs, which are touted for their economic efficiency, actually increase the cost per unit of electricity generated, and argued that investors should not invest in high-risk SMRs.

  • (SDG/IISD, Winnipeg, 8 November 2023) 2022 was a milestone in global power energy markets. For the first time, total investment in renewable power generation and related products matched or slightly exceeded investment in fossil fuel production. By some estimates, global investment in clean energy could reach USD 1.7 trillion in 2023, led by solar, wind, and electric vehicles (EVs). But the projected growth in low-carbon technologies remains concentrated in a handful of countries or regions – mainly those with the size and fiscal space to promote the green industrial policies that are re-shaping global trade in low-carbon technologies. Overall investment in renewable energy in the majority of emerging market and developing economies (EMDEs) remains low. We need to ensure trade finance plays a bigger role in renewable energy trade. Although estimates vary, roughly 85 national export credit agencies (ECAs) together provide over USD 200 billion, most by offering export credit guarantees, insurance, hedging, and other instruments that together leverage as much as USD 1.5 trillion. The OECD Common Approaches, first adopted a decade ago and revised in 2021, are now lagging behind widening targets and practices, and need to be updated to align with the Paris Agreement.

  • Global Trade Review, London, 22 November 2023) Premiums for trade credit insurance hit US$13.9bn in 2022, a small proportion [0.19%] of the US$7tn in insured shipments where trade credit insurance could have been used, the International Credit Insurance and Surety Association (ICISA) says. Only 13.2% of covered shipments worldwide were protected by trade credit insurance, with the private sector providing more than two-thirds of the cover [vs one-third from official OECD ECAs which supposedly monitor the environmental and ethical elements of international trade?], ICISA says. It estimates world trade to have totalled US$100.6tn last year. In a report released last month, global reinsurer Swiss Re says it expects trade credit insurance premiums to grow to US$14.8bn in 2024 [i.e. .015% of the value of goods traded] despite a slowdown in global trade, which it puts down to rate increases.