(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.
Newsletter
Spillover effects of the Ukraine crisis: political risk insurance in times of brinkmanship
(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.
World’s largest car theft and the Swedish ECA
(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.
Saudi Arabia Courts African Leaders to keep the world hooked on oil
(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.
ExxonMobil and ECAs make moves on lithium
(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?
Where are the Cop26 finance pledges now?
(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.
OECD oil and gas export credit fossil fuel ban postponed to next year
(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.
Banks urge OECD to resurrect 5% down-payment rule
(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.
Environmental groups urge funding halt for TotalEnergies’ Mozambique project
(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).
Over 250 organizations back groundbreaking efforts by OECD countries to end $41 billion a year in fossil fuel finance
(Price of Oil, Washington, 30 October 2023) As Organisation for Economic Co-operation and Development (OECD) delegates prepare to meet in Paris from November 6-10, over 250 civil society organizations (CSOs) from 30 countries published an open letter calling on negotiators to support an end to OECD export finance for fossil fuels. Signatories include Amnesty International, Greenpeace International, and Friends of the Earth International. The Financial Times (FT) has revealed that the UK and the EU will put forward proposals for doing so, with Canada planning to back the UK’s proposal. These efforts can end the USD 41 billion per year flowing to fossil fuel projects from government-run OECD export credit agencies (ECAs). The OECD Arrangement on Officially Supported Export Credits sets rules that all OECD country ECAs must follow.
