Welcome to ECA Watch

No proper benchmark for checking European ECAs' compliance with EU objectives

(Bankwatch, Prague, 4 September 2020) Despite being the biggest class of public finance institutions operating internationally, export credit agencies (ECAs) are rarely subject to any public scrutiny. European ECAs self-declare compliance with the non-binding OECD Common Approaches standards, but it’s an insufficient benchmark for evaluating compliance with the EU’s External Action obligations as stated by the relevant EU Regulation.

ECAs back $9.5 billion financing for Russia's Arctic LNG 2

(Reuters, London, 18 September 2020) International lenders have lined up about $9.5 billion in financial support for a Russian Arctic liquefied natural gas (LNG) project, a document seen by Reuters showed, even as such projects come under greater scrutiny over climate concerns. The $21 billion project, which received final investment approval a year ago, is expected to be launched in 2023 and to reach its full capacity of almost 20 million tonnes per year in 2026. Among the lenders is France's Bpifrance, with an offer of $700 million in credit finance, the China Development Bank, expected to offer a facility worth $5 billion and Germany's Euler Hermes, with a covered facility of $300 million. Japan's JBIC is offering $2.5 billion, Italy's SACE plans to put $1 billion into the project, while an unnamed Russian bank is reportedly considering a $1.5-billion investment. While the energy industry touts natural gas as a cleaner alternative to coal or crude, it is a source of carbon emissions and critics say LNG projects are hard to reconcile with the transition to low-carbon economy envisaged in the Paris climate agreement and the European Union's Green Deal economic plan.

New report calls for end to export credits to coal

(Swedwatch, Stockholm, 25 September 2020) The coal industry is well-known for its serious climate implications and effects on local communities. Still, European export credits have contributed to expand the coal industry in countries already dependent on coal, including South Africa, a new Swedwatch report finds. In the last decade, ECAs from Germany, Sweden and France have provided significant export credits to South Africa’s coal sector. The country derives 90% of its electricity from coal and is currently constructing two new, large-scale coal-fired powerplants while establishing several new coal mines. Through their export support, the ECAs have contributed to the expansion of the country’s coal industry, which has a well-documented history of adverse environmental and human rights impacts. As European ECAs generally adhere to export guidelines from the OECD, which do not prohibit support for coal-related exports, the report urges France, Sweden and Germany – who have taken vital steps in this direction – to actively push for other OECD member countries to follow suit. The report makes it clear that there is an extensive lack of transparency in relation to export credits, guarantees, insurances and other means of export support.

IFC adopts Urgewald’s Global Coal Exit List

(Urgewald, Sassenberg, 21 September 2020) In its recently released report on Greening Equity Investments in Financial Institutions the International Finance Corporation (IFC), the private sector arm of the World Bank Group, announced it has adopted Urgewald’s Global Coal Exit List. Furthermore, the IFC recommends the Global Coal Exit List to its clients and urges them to screen their exposure against the list. [2] Urgewald’s Global Coal Exit List provides comprehensive data on the world’s coal industry. Talks about cooperating with Urgewald to adopt the Global Coal Exit List had started after an IFC announcement in April 2019. Since then the NGO has been able to convince the IFC to amend their coal exit criteria in two important ways:

• to exclude the companies responsible for coal expansion as opposed to only coal projects
• include a definition of the coal share of revenue that not only refers to coal sales but different coal-related business activities

While urging clients to screen their portfolios against the Global Coal Exit List is an important first step, the next step for the IFC has to invariably be a detailed follow-up to verify that clients actually implement the new criteria.

EXIM's program to undercut Chinese export subsidies

(EXIM, Washington, 9 September 2020) EXIM announced today the appointment of 17 members to its Advisory Committee, and establishment of a new EXIM Advisory Committee Subcommittee on Strategic Competition with the People’s Republic of China. The Program’s purpose is to support the extension of loans, guarantees, and insurance, at rates and on terms and other conditions, to the extent practicable, that are fully competitive with [i.e. undercut] rates, terms, and other conditions established by the People’s Republic of China or by other covered countries (as designated by the Secretary of the Treasury). From 2015 to 2019, China’s official medium- and long-term (MLT) export credit activity alone was at least equal to 90% of that provided by all G7 countries combined. China’s official MLT export and trade-related financing totaled at least $76 billion in 2019. EXIM seeks to reserve at least 20% of our financing authority, or at least $27 billion of our $135 billion in financing, to ‘neutralize’ Beijing’s export subsidies, advance the comparative leadership of the United States with respect to the PRC, and support U.S. innovation, employment, and technological standards through direct exports in 10 industries key to America’s prosperity and security.

G12 ECA Group Issues First-Ever Joint Statement

(Global Trading Magazine, Dallas, 25 September 2020) At the Sept. 9 end of the two-day 2020 G12 Heads of Export Credit Agencies (ECAs) meeting, which EXIM Bank hosted virtually from its Washington, D.C. headquarters, the 12 Heads of ECAs issued its first-ever G12 joint statement. ECAs involved included: EXIM USA (Host), Brazil, Canada, China, France, Germany, India, Italy, Japan, Russia, the Republic of Korea and the United Kingdom. The 2020 G12 Heads of Export Credit Agencies (ECA) Meeting was a productive and open exchange that highlighted efforts aimed at stabilizing the availability of working capital and export credit in a volatile international market environment. The transparent discussion brought forth the important work each ECA is undertaking to mitigate the economic impacts of the COVID-19 pandemic. The ECA leaders reiterated their steadfast commitment to supporting their global supply chains—domestically and internationally—as well as promoting exports, job security, and financial investment, all of which underpin prosperity at home and abroad. In the wake of the COVID-19 pandemic, this is an important time for Export Credit Agency leaders from around the world to find common ground on key initiatives, especially those that foster greater transparency,

Trade credit insurance claims expected to surge

(Asia Insurance Review, Singapore, 23 September 2020) A Berne Union report notes that the expected spike in trade credit claims resulting from the COVID-19 pandemic has not yet been realised, according to a preliminary report on the business activity of Berne Union members in the first half of 2020. Export credit claims paid in the 1st half of 2020 were 16% lower overall than for the first half of 2019. The fall can be partially attributed to a decline in new commitments during the same time which has been largely caused by a general decline in exports. A 23% drop in new medium and long-term commitments (MLT) was reported and there was also a 4% decrease in aggregate credit limits issued under short-term (ST) export credit insurance policies. In the MLT business, both public and private insurers’ new commitments declined. Meanwhile, for the short-term, private insurers’ commitments fell by 8%, whereas those of public insurers rose by the same percentage according to The Berne Union.

Are we seeing the end of the UKEF's (& other ECA) fossil fuel empire(s)?

(Prospect, London, 10 September 2020) Boris Johnson has pledged to end Britain's support for global gas and oil projects. But will the government really make good on its promise? Investors across the world are growing increasingly wary of financing fossil fuels—and for good reason. In an era of climate protest, carbon neutrality pledges and cheap renewable energy, oil refineries and gas fields look like risky bets. Until recently, ECAs had sunk serious sums of money into fossil fuels without facing much backlash. Figures compiled by the research and advocacy group Oil Change International show that the world’s ECAs provided over $40bn annually to support fossil fuel projects between 2016 and 2018—compared to $2.9bn for clean energy. UK Export Finance (UKEF) was no outlier among its peers. Last year, a report from Parliament’s Environmental Audit Committee revealed that 96% (£2.5bn) of UKEF’s of energy investments between 2013 and 2017 went to polluting projects. Of this total, £2.4bn was funneled into fossil fuel projects in low and middle-income countries. If the legislation is free of loopholes, it will divert several billion pounds of public money away from extractive industries and, ideally, towards renewable alternatives. Most importantly, it will signal to the private sector that the end of the oil age is fast approaching. Since the 2015 Paris Agreement, the world’s largest investment banks have provided more than $700bn for fossil fuel projects. In January, a joint investigation by Newsnight and Greenpeace’s Unearthed revealed that UKEF has helped to finance oil and gas projects which, when complete, will emit 69 million tonnes of greenhouse gases a year. The agency found itself in hot water again in July when it was discovered that it was helping to fund a massive new gas extraction project in Mozambique, along with seven other ECAs.

Project Finance, human rights and climate change: Updated Equator Principles

(Lexology, London, 25 September 2020) The Equator Principles have been one of the principal frameworks for managing sustainability and ESG risk in projects by financial institutions since 2003. The latest update – known as EP4 – renews the focus on human rights and climate change with effect from October 1, 2020. EP4 is the latest update for EP assessment and management of environmental and social risk in international project finance. There are now 110 EPFIs which include banks and [some] export credit agencies. Key differences from the June 2013 version (EP3) relate to the scope of transactions covered by the Equator Principles, and new requirements in relation to projects in high-income Organization for Economic Cooperation and Development (OECD) nations, human rights, impacts on indigenous peoples and climate change

US EXIM notifies Congress of potential support for Pemex

EXIM, Washington, 27 August 2020) The Export-Import Bank of the United States (EXIM) Board of Directors today unanimously voted to notify the U.S. Congress, pursuant to the law, of its consideration of two transactions that would facilitate the authorization of a $350 million general facility and $50 million small business facility (SBF) for Petroleos Mexicanos (Pemex). If approved, the combined $400 million financing facilities would support an estimated 1,700 jobs in California, Colorado, Connecticut, Georgia, Illinois, Iowa, Louisiana, Minnesota, Oklahoma, Pennsylvania, and Texas in the oilfield services industry, which has faced difficulties as a result of the COVID-19 pandemic. EXIM received the applications from PEMEX for the facilities in March 2020.

NYT Opinion: EXIM and Corporate Welfare Cronyism

(New York Times, Fairfax, 4 September 2020) In 1971 at the urging of banking lobbyists, the U.S. Export-Import Bank created the Private Export Funding Corporation (PEFCO), a private entity owned by over two dozen banks and a handful of big corporations. It has operated under consecutive 25-year mandates with an exclusive arrangement, under special terms, to acquire EXIM loans from commercial lenders. Because these loans are fully backed by taxpayers, they impart no risk for the banks that issue them. PEFCO’s current authorization expires at the end of December, but its cozy dealings with big banks and corporations deserve far greater scrutiny. Consider this hypothetical scenario: Boeing wants to sell airplanes to China Air. Boeing asks EXIM to guarantee a loan to China Air so it can purchase the aircraft. JPMorgan Chase originates what becomes a loan from EXIM -  guaranteed by taxpayers -  for China Air. (The bank earns interest at no risk because, even if the borrower defaults, taxpayers will cover it.) Then JP Morgan Chase turns around and sells the loan to PEFCO, which buys the loan using debt raised from investors that is separately guaranteed by EXIM (again, American taxpayers). JPMorgan Chase is also a major shareholder of PEFCO, and PEFCO can pay its shareholders dividends. PEFCO’s shareholders include the same large corporate exporters that account for a large portion of EXIM financing, like Boeing and General Electric. The extensive dealings between Boeing and EXIM - in 2014, for instance, Boeing benefited from 40% of the bank’s activities - explains why critics refer to “the Bank of Boeing.” PEFCO takes that cronyism to a new level. Of EXIM's guaranteed loans that PEFCO acquires, 86% are in the aircraft sector. What’s more, Boeing’s senior vice president for finance and treasurer is on PEFCO’s board of directors.  Nearly every proponent claims that PEFCO plays a crucial role in supporting loans to small businesses. Yet as that unit’s own public reporting shows, less than 4% of the portfolio involves small-business lending — a far cry from the current 25% mandated by EXIM's charter (that will rise to 30% in 2021).

Emirates Global Aluminium PJSC (EGA) comes online in Guinea with ECA loans

(Aluminum Insider, Paris, 30 August 2020) With full production at its alumina refinery in Abu Dhabi, coupled with the beginning of production at GAC, EGA says it has completed its strategic upstream expansion. GAC is one of the biggest greenfield investments in Guinea in over four decades, made possible by an investment of US$1.4 billion. About half of that funding was provided in the form of a loan from development finance institutions, export credit agencies, and international commercial banks.

Gensource Potash awaits Hermes approval of ECA support

(Business Wire, Saskatoon, 31 August 2020) Gensource Potash Corporation, a Canadian fertilizer development company focused on sustainable potash production, announces the successful completion of the next major milestone for its Tugaske Project. Gensource has now received approval of its Development Permit Application for a potash mine from the Rural Municipality of Huron No. 223, whose offices are in the Village of Tugaske, Saskatchewan. A significant portion of the Facility is to have ECA coverage from Hermes, with procurement managed by MAVEG Industrieausrüstungen GmbH using a Debt Facility of approximately US$180 million, with due diligence to be overseen and managed by KfW IPEX-Bank.