(Global Finance, New York, 3 January 2023) According to the World Bank, Ukraine’s GDP over 2022 will have contracted by some 35%. Further decline is expected for 2023, as the full economic implications of Russia’s war become clear. The huge drop-off in trade has of course severely impacted trade finance. Many of the correspondent banks that used to do regular business pulled away, while long-term financing projects have been pretty much shelved across the board. ECA coverage is scarce in the extreme. In many cross-border transactions, cash is king. The international media has rightly focused on the huge disruptions to supply lines, including shipments of Ukrainian grain from Black Sea ports, and Russian targeting of Ukraine’s energy infrastructure has cast much of the population into freezing darkness and has massively disrupted business. With foreign banks and customers understandably jittery, the role of international financial institutions like the International Finance Corporation in guaranteeing transactions has been key. The European Bank for Reconstruction and Development (EBRD) has firmly committed to supporting Ukraine. Ukrexim’s Shchur echoes this, “At such a fateful time, we really want to encourage prominent foreign banks and ECAs to become more actively involved in trade finance operations here.
Newsletter
Heads of G7 Export Credit Agencies Express Support for Ukraine
(UKEF, London, 22 January 2023) Acknowledging the G7 Leaders’ Statement on Support for Ukraine, as heads of the official export credit agency (ECA) schemes of the G7 nations – Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States of America – we wish to express our ongoing support for Ukraine and for its reconstruction efforts and our unwavering solidarity with the Ukrainian people for as long as it takes. Since Russia’s full-scale invasion of Ukraine, the G7 ECAs have remained open for underwriting Ukrainian business opportunities in solidarity with Ukraine during this difficult time. We also continue to participate in the wider dialogue with other ECAs and multilateral institutions, including within international fora such as the Berne Union, to find ways to enhance cooperation, share information and leverage our collective platforms to bring visibility to and stimulate support for Ukraine.
Spain’s CESCE restricts fossil fuel finance, but leaves major gas loopholes
(Price of Oil, Washington, 23 January 2023) Spain has released a new policy for CESCE, the Spanish government export credit agency, restricting public finance for oil and gas. Spain is a major public financier of international fossil fuel projects, providing USD 2.1 billion a year between 2018-20 to fossil fuels, and USD 47 million per year to clean energy, or 97.8% to fossil fuels and just 2.2% to clean energy. Loopholes include support for Liquefied Natural Gas (LNG) processing, transportation and storage, as well as a widely-defined loophole for gas power that could mean gas power plants could be approved in most developing countries. This policy falls short of a major pledge Spain made at the 2021 COP26 UN climate summit to stop financing fossil fuel projects.
Dutch climate expenditure audit reveals inconsistencies
(Argus Media, Amsterdam, 30 January 2023) The Dutch government does not provide a “clear and complete” overview about the state’s climate expenditure, while certain fossil fuel subsidies are “at odds” with domestic climate goals, according to a report by the Dutch court of audit. The court of audit presented its findings to the Dutch parliament on 25 January, noting that the three ministries — economic affairs and climate policy, finance, and climate and energy policy — involved in reporting the state’s climate expenditure did not provide consistent information. Dutch export credit agency Atradius — in charge of the country’s public financing for foreign fossil fuel projects — ended all financing for export credit insurance as of this year in line with the Glasgow pledge made during the UN climate conference Cop 26 in 2021, while certain exemptions for oil and gas projects remain in place. Projects that ensure European energy supply security by reducing “unwanted” dependencies on Russian oil and gas are among those exemptions granted
“Green” Hydrogen: What role for ECAs?
(ECA Watch, Ottawa, 30 January 2023) A series of articles appearing in our Google Alert searches for “export Credit” point to a number of interesting pieces on ECAs and hydrogen. The IEA has forecasted the global green hydrogen market to grow from almost zero in 2021 to 9-14 metric tons per annum (mtpa) in 2030 and 125-300 mtpa by 2050. Exports are expected to account for 12 mtpa of low-carbon hydrogen by 2030, of which approximately 90% is expected to be “green” hydrogen. Today, less than one percent of current hydrogen production is low-carbon. This means most of the hydrogen we make comes from fossil fuel plants that release carbon into the atmosphere. Development of the green hydrogen industry will require substantial capital and the financing for such projects will have to borrow more from the precedents of offshore wind and LNG undertakings, an Oxford Institute for Energy Studies said in its latest study. That study is based on the project financing cost of what it called an ‘archetype’ project wherein 1 GW of solar power is used to make green hydrogen, which is converted to 250,000 tons per annum green ammonia for export with a capital cost of $2 billion. Last month’s second Green Hydrogen Summit in Muscat brought together leaders in every aspect of the hydrogen value chain from production and transportation to applications and storage. Spearheaded by the Omani government, the Summit demonstrated the Sultanate’s ambition to be a global leader in green hydrogen.
EU adopts new package of sanctions against Russia
(Brussels Times, Brussels, 17 December 2022) The Council of the European Union (Council of Ministers) adopted on Friday a package of new measures intended to step up pressure on Russia in response to its ‘continuing war of aggression against Ukraine and the gravity of the current escalation against civilians and civilian infrastructure’. The EU will reinforce the sanctioning of investments by additionally prohibiting new investments in the Russian mining sector, with the exception of mining and quarrying activities involving certain critical raw materials. Export credit guarantees for investments in Russia have already been covered by previous sanction packages.
Blocking a Carbon Bomb: Tiwi Islanders prevent $4.7 billion Barossa offshore gas project in Australia
(Oil Change International, Washington, 14 December 2022) In a landmark decision in September, the Federal Court of Australia ruled that Santos Ltd, one of the world’s top 20 largest oil and gas companies, would not be allowed to drill in the Barossa gas fields off the coast of northern Australia. The Court ruled that Santos had failed to consult Tiwi Traditional Owners. Santos appealed the decision, but this was in vain. Two weeks ago, the appeal was rejected, further solidifying legal victory for the Tiwi Islander Plaintiffs. The Barossa project alone included over $1 billion USD in public finance support from the Japanese and Korean governments’ export credit agencies (ECAs), Japan Bank for International Cooperation (JBIC), Export-Import Bank of Korea (KEXIM) and Korea Trade Insurance Corporation (K-Sure). Santos and the Australian Government assured these ECAs that the project approvals were solid, even after Tiwi Island people had warned them about lack of free, prior and informed consent, and despite the fact that extraction from these wells would be completely at odds with Australia’s climate obligations.
Poseidon Principles: [Only] 7 of 28 banks in line with IMO’s GHG reduction target
(Offshore Energy Biz, Schiedam, 15 December 2022) Out of the 28 financial institutions reporting their emissions data in the third edition of the Poseidon Principles Annual Disclosure Report 2022, seven banks are aligned with the IMO’s ambition of halving shipping’s GHG emissions by 2050. The Poseidon Principles are a global framework for assessing and disclosing the climate alignment of financial institutions’ shipping portfolios pioneered in 2019 by Citi, Societe Generale, and DNB with the support of the Global Maritime Forum. The voluntary regulatory framework aims to accelerate the implementation of the sector’s green agenda while charting a path forward for banks to decarbonize their own portfolios as well.
Are French ECAs ready to join early reconstruction of Ukraine?
(Odessa Journal, Odessa, 13 December 2022) French business is interested in investing in Ukraine and is ready to participate in its early reconstruction announced First Vice Prime Minister – Minister of Economy of Ukraine, Yuliya Svyridenko, during a live broadcast from Paris on the air of the National Telethon. “We discussed what tools we, as the Government, can use to ensure that French business enters the Ukrainian market and develops Ukraine even before our victory… We offer export credit agencies that provide insurance services for export operations to expand their services to insurance of investment activities and to insure their companies entering Ukraine. We have a list of investment projects and an understanding of their prioritization, and from their side, we have financing and companies ready to invest in Ukraine. And for us, the issue of military risk insurance is important. To help attract investments without waiting for the end of the war. War is not an obstacle to investment. This is a difficult period for us, but we will get through it,” Yulia Svyridenko assured.
Who watches Czech state’s ECA obligations to big businesses?
(Paradise News, Calabar Nigeria, 10 December 2022) Czech state-owned ECA EGAP has obtained a CZK 2 billion (US$88.6M) loan from the Czech Republic’s COVID aid program for Czech steelmaker Liberty Ostrava, which is closely linked to Greensil, a company embroiled in corruption scandal. The Czech government’s COVID-19 aid to large polluters like Liberty Steel Ostrava, which is on the verge of bankruptcy, continues to be a cause for concern.The case is another illustration of the shortage of transparency and accountability in export credit agencies (ECAs). The COVID Plus program in the Czech Republic will provide hundreds of billions of dollars to large exporters, but there is no oversight or regulation. It is the job of the state to explain which projects it backs and give reasons for doing so, but EGAP remains mum on its questionable investments.
