(Oil Change International, Washington, 15 March 2023) Promise Breakers, a report released today by Oil Change International, reveals that the Glasgow Statement, a joint commitment forged at the 2021 UN climate summit (COP26), is already shifting an estimated USD 5.7 billion per year out of fossil fuels and into clean energy, with the potential of a further 13.7 billion per year if all Glasgow Statement signatories fulfill their commitments. At COP26 in Glasgow, 39 countries and institutions pledged to end international public finance for fossil fuels by the end of 2022 and shift this money to clean energy. This report is the first international assessment of signatories’ implementation of the commitment since the passing of the end of 2022 deadline. The report reveals that while some high-income countries have kept their Glasgow commitment, a group of major providers of international public finance have broken their promise, including Germany, Italy, and the United States. The report contains a detailed report card on each signatories’ policies, with recommendations for improvement.
Newsletter
OECD Arrangement participants fail to clinch modernisation deals
(Global Trade Review, London, 15 March 2023) A meeting of the OECD Arrangement on export credits ended last week without an announcement of a breakthrough on any key planks in its modernisation agenda. The arrangement was created to avoid like-minded countries from undercutting each other on pricing but has been undermined by the fact that major export credit providers such as China and India are not members. Commercial banks, export credit agencies (ECAs), the European Union and governments who host export credit-supported projects have called for changes to minimum pricing, tenors and clear rules on sustainable financing to ensure that OECD ECAs remain competitive and can support a broad range of projects. Oil Change International, an NGO that campaigns for an end to public finance for fossil fuels, says it is disappointed that there was no apparent agreement on the Climate Change Sector Understanding (CCSU) aspect of the arrangement in order to boost incentives for green projects. OCI further notes that “OECD countries failed to conclude negotiations on climate friendly incentives to align Export Credit Agencies, the world’s largest international financiers of fossil fuels, with international climate goals”, adding “the world cannot afford another wasted minute” and reminding them that 175 civil society institutions have called on the arrangement members to end support for fossil fuel projects by their ECAs.
Pandemic, disasters, war: Michal Ron looks back on Berne Union Presidency
(Global Trade Review, London, 30 January 2023) Michal Ron was elected president of the Berne Union, the international association for the export credit insurance industry, at a particularly unstable time for global trade. In an exclusive interview with GTR, she looks back on her two-year term, which included major shocks to the trade credit insurance sector, beginning with a global pandemic and ending in war in Europe. “Starting with a global pandemic, it was already in one of the worst moments, during lockdown. Then we had a very high number of natural disasters… all a consequence of climate change. And then as if that wasn’t enough, we had the war in Ukraine, at the very heart of Europe. One of my objectives when I began was definitely inclusivity and giving a voice to the lesser-known emerging markets, that multilateralism approach… Another was climate. Climate for me was one of the biggest pillars of my presidency. We created a working group task force on climate that included not just members of the Berne Union, but also the banking sector, development finance institutions and multilaterals. So that has been extremely effective and helpful for those of us who are, to an extent, lagging behind in terms of transformation towards greener, renewable energy, the circular economy… I also opted for a geographical region as an area of focus, because of its potential, which is the Sub-Saharan Africa region. Not everyone exports to, or is active in, that continent. But this is still the area where the largest growth, both trade and GDP, per annum is forecast. It is a very complex, and we could say also a particularly challenging region to operate in… My biggest regret for this period was also on the multilateralism front. As a result of the Ukraine war, we had to suspend the membership of the Union for two countries, Russia and Belarus. It went against all my past ideology, in terms of professional conduct on export credit and because it goes against the apolitical nature of the Berne Union. It was the first time ever that members were suspended on a geopolitical basis. It was petitioned by many of the Berne Union members, and it became inevitable when the UN came out with a resolution last March, condemning both countries on the international front, and sanctions were introduced. GTR: The war has also caused major energy price hikes; do you think export credit agencies (ECAs) are going to play a bigger role in helping secure imports, like the recent deals Euler Hermes has guaranteed with Trafigura for German gas and strategic commodities imports? Ron: We call it a strategic import. It might have different names in different countries, but that’s what we’re looking at. It has become part of many ECAs’ portfolios and we are seeing the number increasing day by day… GTR: Does ECA support for gas potentially contradict some climate goals, especially for members of the Export Finance for Future, who have committed to phasing out support for fossil fuels? Ron: There is no one-size-fits-all solution to this issue. You have countries that are very adventurous in terms of climate change. Very few, but still some, have already declared a net-zero strategy already commencing on the first of January [2023]. But let’s not forget that so far we are talking about four ECAs… But then you have countries such as Germany, such as Italy, that have been very dependent on gas. This is clearly an issue that has internal contradictions in terms of what to do about public support for fossil fuels. We obviously have a situation where we need to take into account a gradual phasing out, rather than an abrupt one point in time. At the Berne Union we’re doing a lot of information-sharing seminars in order to learn from more adventurous and greener export credit agencies and companies, insurers: how they do it, how they got there, how are they using scientific criteria to monitor progress? We are, in parallel, grappling with the complexity of ensuring additional sources of energy. I think most of us will not go back to the worst offenders such as coal-based plants.
Lessors & ECAs lead rhuge Air India jet order while Kenya Airways defaults on EXIM
(Reuters, Bengaluru, 15 February 2023) As global aerospace savours a record Air India 500-plane deal cheered by world leaders, it is the turn of leasing companies to line up for a piece of the action. “The large majority of these aircraft are likely to be financed through sale-and-leasebacks with perhaps 20% of the financing come from the (Western) export credit agencies,” said aviation adviser Bertrand Grabowski. Experts say the mainly Dublin-based lessors, who rent jets out for a monthly fee, could play a significant role in financing the Tata-owned airline’s Airbus and Boeing spree. In other news, the Export-Import Bank of the United States issued Kenya a default notice for delayed payment of a $454 million loan that the government borrowed to fund Kenya Airways. The flag carrier defaulted on the part of its $525 million loan from Exim, which the Kenyan government guaranteed. The Kenya National Treasury plans to reduce Kenya Airways’ state funding by $79.8 million, taking it from $239.5 million to $159 million, according to its 2022-23 supplementary budget. The treasury is reducing its support for the flag carrier in line with the government’s strategy to lessen the airline’s dependency on state funds by the end of 2023, although the airline will receive $283 million in financial aid from the state to continue operations.
Finnvera Group 2022 Financial Statements
(Yahoo Finance, Helsinki, 16 February 2023) “Despite the impacts of the coronavirus pandemic, the war launched by Russia and the uncertain operating environment as well as inflation, Finnish companies were very active in 2022, and the demand for Finnvera’s financing remained at a high level. Finnvera granted domestic loans and guarantees amounting to EUR 1.0 billion (1.5). More than 90% of the financing was allocated to Finnvera’s strategic priorities, that are start-ups, companies aiming for growth and internationalisation and, for example, transfers of ownership. Finnvera granted EUR 5.9 billion (4.6) in export credit guarantees and special guarantees, and EUR 0.9 billion (0.7) in export credits. The largest individual financing projects concerned forest sector deliveries to Brazil and telecommunications sector deliveries to the United States and Japan. Finnvera has paid a total of EUR 100 million in compensation for liabilities at the beginning of February 2023. The final amount of Finnvera’s losses will be determined later. The loss provisions for exposure in Russia remained unchanged, the loss provisions made in the cruise shipping sector were reduced and the loss provisions for the domestic financing increased in the last quarter of the year. Due to the war and arrangements necessitated by sanctions, Finnvera’s exposure relating to Russia more than halved to EUR 422 million during the year,
The French Mistral: The Case of the Russian Sale and Its Aftermath
(SLD Info, Paris, 16 February 2023) France took a financial hit of €409 million ($440 million) as a result of its 2015 cancellation of the sale of two helicopter carriers to Russia, the national audit office said in its report on French arms exports. “In total, taking into account the result of negotiations with Russia, cancellation of payments, payments to Naval Group, modifications and the sale of the ships to Egypt, this transaction cost France €409 million,” the independent office said in its report, Support for Export of Military Matériel. The then French president, François Hollande, cancelled in August 2015 a controversial sale of the Mistral class warships, under pressure from the U.S., central European and Baltic nations, after Russia seized in 2014 the Crimean peninsula from Ukraine. France paid Russia total reimbursement of €949.75 million for cancelling the order for the Mistrals, comprising a core payment of €892.9 million, and a further €56.8 million, the Sept. 15 2015 National Assembly report said. Egypt’s purchase of the two Mistrals followed Cairo’s 2015 order for French weapons worth €5.2 billion for 24 Rafale fighter jets, a FREMM multimission frigate, and air-to-air and naval missiles. Coface consistently made money between 2010-2021, with premiums exceeding claims, the report said, with only 2015 showing a net loss of €82 million due to the claims made on cancellation of the Mistral deal with Russia. The sale to Egypt limited the amount of claim, the report said.
WFW advises HSBC on US$300m SACE Facility for Bahrain’s nogaholding
(WFW, London, 9 February 2023) Watson Farley & Williams (“WFW”) advised HSBC Bank Middle East Limited, acting as Export Credit Agency (ECA) Co-ordinator and Sole Structuring Bank, and HSBC Bank plc (jointly “HSBC”) as Agent and Sustainability Co-ordinator, on a US$300m Push Facility guaranteed by the Italian Export Credit Agency (“SACE”) to the Oil and Gas Holding Company B.S.C. (“nogaholding”) for financial support for key energy projects in the Kingdom of Bahrain. Under this financing, nogaholding commits to pre-agreed sustainability objectives. The 10-year financing structured as a sustainability-linked loan is part of SACE’s Push Strategy programme and aims to increase business opportunities for Italian exporters, strengthening SACE’s positioning in a strategic region for Italian exports. The Push Strategy primarily targets local counterparts of Italian exporters – selected and leading foreign buyers and provides access to medium to long-term financing guaranteed by SACE to support their investment and growth plans.
Progress within export finance on sustainability, but changes sorely needed on OECD Arrangement
(TXF, London, 10 February 2023) The International Chamber of Commerce (ICC) White Paper update of its 2021 report shows that ECAs and banks have made good progress on the sustainability front, but lack of change to the OECD Arrangement is holding the sector back. The original White Paper (produced by ICC, Acre Impact Capital, The Rockefeller Foundation, and International Financial Consulting) provided policy and product recommendations designed to align the industry with the United Nations SDGs. The White Paper not only offers a roadmap towards a more sustainable export finance industry, but also provides suggestions from industry participants as to how the sector can change to ensure there are better terms for financing particularly for social projects and transactions. Launched at an ICC workshop on 8 February in Paris, discussions took place around the policy aspect, the framework alignment, the positive steps already witnessed and the route ahead for the sector including the roadblocks that are getting in the way of further improvements. Speaking to TXF about the Whiter Paper update, Chris Mitman, co-chair of the ICC Sustainability Working Group (ICC SWG) said: “It’s clear from this White Paper update that the vast majority of export finance participants – banks and ECAs – have individually made step changes in their response to the SDG delivery challenge. It’s also clear at an industry level there are encouraging signals from the EU and the majority of the Berne Union membership that a fundamental reform of the regulatory framework – most notably the OECD consensus – is required.” He added: “It’s critical therefore, that those few who are fortunate enough and have the privilege of holding seats at these unprecedented OECD modernisation discussions, take this once in a lifetime opportunity to put the export finance industry in a fundamentally stronger position to contribute meaningfully to the delivery of the SDGs.”
Environmentalists continue to challenge UKEF funding for gas in Mozambique
(Mediarun Search, London?, 13 February 2023) In January, an appeals court rejected the request, but Friends of the Earth wants the arguments to be heard again by the Supreme Court (Portugal’s equivalent of the Constitutional Court). “The funding decision was made without taking into account the impressive emissions from flaring the gas, and without considering how these emissions align with globally agreed climate targets,” they said in a statement. Before passing a judgment, the Supreme Court will first assess the appeal and determine whether it has merit and whether an issue of greater constitutional importance is at stake. British export credit agency UK Export Finance (UKEF) has committed US$1,150 million (€1,077 million) in funding in 2020 to develop an offshore liquefied natural gas (LNG) project in the Rovuma Basin in Cabo Delgado, northern Mozambique. But Friends of the Earth say the environmental impact has not been properly assessed, contrary to the UK’s commitment to comply with the 2015 Paris Climate Change Agreement to limit global warming. The organization estimates that over the years of operation, the project will generate up to 4,500 million tons of greenhouse gases. The project in question, promoted by a consortium led by French oil major Total Energies in the Rovuma basin, was suspended in 2021 after attacks by armed groups in Cabo Delgado province. Worth between 20,000 and 25,000 million euros, the gas extraction megaproject is one of the largest private investments planned for Africa and is supported by several international financial institutions.
Public Financing as a Critical Path Forward to a Just Energy Transition in Africa
(Creamer Media’s Engineering News, Pretoria?, 13 February 2023) With the world population recently crossing the 8 billion mark and Africa expected to contribute more than half of the projected increase in the global population up to 2050, now more than ever, access to reliable, sustainable, and affordable energy is critical for the continent. Given the historical strain between developed economies (which modernized with fossil fuels) and developing economies (now being asked to forgo this route) [while developed country ECAs urge them to expand fossil fuel production!], it is evident that sustainable, long-term global cooperation and energy security will be required to address the need for Africans to have access to sustainable, reliable, and affordable energy… Electricity generation in South Africa and Nigeria accounts for more than 80% of GHG emissions on the continent. In South Africa, coal-fired generation currently accounts for more than 70% of installed capacity and is expected to remain the primary power generation source through 2030… South Africa’s Integrated Resource Plan aims to install 3GW and 9.6GW of solar and wind capacity respectively between 2023 and 2028 as well as 3GW of gas by 2030. In contrast, Nigeria, on the hand has about 13 GW of installed generation capacity, largely dependent on hydropower (12.5%) and thermal power (87.5%). Of this, only 3.5 GW to 5 GW are typically available for onward transmission to the final consumer. Self-generation installed capacity via diesel generator units is estimated to be about 25 GW… Public capital plays an essential role in accelerating energy infrastructure projects in both developed and developing markets. Developing markets especially need continued government-supported financing for renewables and gas power generation to enable an equitable energy transition… To meet global decarbonization goals while continuing to drive electrification and raise the standard of living in developing markets, ECAs and DFIs should strive to become even more engaged to support a broad range of decarbonization technologies. [We ask, what balance is necessary, support of new natural gas power generation projects to replace existing or planned coal assets, or African renewable sources which do not put the onus on Africans to save the planet while sustaining northern consumption excess?]
