(Reuters, Washington, 10 December 2021) The Biden administration has ordered U.S. government agencies to immediately stop financing new carbon-intensive fossil fuel projects overseas and prioritize global collaborations to deploy clean energy technology, according to U.S. diplomatic cables seen by Reuters. However, “This policy is full of exemptions and loopholes that lack clarity, and could render these restrictions on fossil fuel financing completely meaningless,” said Kate DeAngelis, a climate finance expert at Friends of the Earth. FOEUS notees that while the policy states that “infrastructure directly related to the production, transportation, or use of fossil fuels, including oil and natural gas, are considered ‘carbon-intensive international energy engagements,’” it then defines “carbon-intensive” using metrics (i.e., kWh) that appear to only apply to electrical generation (i.e., power plants), not production, transportation, or mid-stream like LNG.
Newsletter
Friends of the Earth sues Britain over Mozambique LNG project
(Reuters, London, 7 December 2021) – A legal challenge by Friends of the Earth against the British government will be heard on Tuesday in the High Court seeking to block a $1.15 billion financing for a Liquefied Natural Gas (LNG) project in Mozambique, the environmental activist group said on Tuesday. Britain’s export credit agency UK Export Finance (UKEF) has committed to provide up to $1.15 billion of direct loans and guarantees to banks to support the design, build and operation of the $20 billion LNG project led by French energy company TotalEnergies. Friends of the Earth said in a statement the project was incorrectly judged to be compatible with the Paris climate agreement, without proper assessment of the development’s climate impacts. A recent report by Friends of the Earth estimated that the project could emit up to 4.5 billion tonnes of greenhouse gases over its lifetime. That is more than the combined annual emissions of all 27 EU countries, according to the authors of the report. The money – a combination of loans and guarantees – comes from the government’s export credit agency, UK Export Finance (UKEF). At an advanced point in the negotiations, UKEF “felt that not agreeing to the loan would be embarrassing to the United Kingdom given its role in the African Development Bank”, FOEUK lawyer Simor told the court. The African Development Bank is co-financing the project, which is led by oil company Total. Mozambique is not only one of the poorest countries in the world, but also one of the most affected by the climate crisis and most vulnerable to its impacts. It is also in the middle of a violent Islamic State-led insurgency.
ESA adopts revised state ECA/corporate aid guidelines
(ECA Watch, Ottawa, 31 December 2021) The EFTA Surveillance Authority (ESA) which monitors non-EU European Free Trade Association States (Iceland, Liechtenstein and Norway) has adopted two sets of revised guidelines in the field of state aid: one on the promotion of risk finance investments and another on short-term export credit insurance. Both guidelines correspond to guidelines adopted by the European Commission and aim to ensure [the fiction of] a level playing field for businesses across the EEA. State aid for export credits monitored by the EU [and the OECD] enable foreign buyers of goods and services to defer payment. This entails a credit risk for sellers, for which they can insure themselves. This is known as export credit insurance. The guidelines will [supposedly] help ensure that state aid does not distort competition in the EEA among private and public – or publicly supported – export credit insurers, and create a level playing field among exporters.
EXIM supports Lithuania in political dispute with China
(Epoch Times, Washington, 22 December 2021) Lithuania’s regional and economic stability is facing challenges from the Chinese regime for allowing self-ruled Taiwan, which Beijing claims as a runaway province, to open a de facto embassy in its capital Vilnius. In response, China recalled its ambassador in August before downgrading the diplomatic relations and expelled Lithuania’s top representative to China in November. Beijing has imposed a trade embargo over Lithuanian exports and imports, and has threatened multinationals to sever ties with Lithuania or face being shut out of the Chinese market. Chinese customs authorities have refused to import or clear goods from the Baltic nation. The US is supporting Lithuania in this dispute. [It is interesting to note that it was the right-wing Falun Gong owned Epoch Times which flagged the EXIM approval of a $600 million export credit agreement with Lithuania on Nov. 24, in a bid to boost economic cooperation between the two nations and withstand increased pressure from the Chinese regime.]
EKF issues ‘biggest ever’ loan for Turkey railway project
(Global Trade Review, London, 8 December 2021) Danish export credit agency EKF has signed its largest ever export loan for the construction of a high-speed railway project in Turkey. The agency is lending €576mn to the Turkish finance ministry for the project. The loan is classified as green because the electric railway is categorised as sustainable under the EU’s sustainable financing taxonomy. The total value of the financing is €1.1bn, which includes contributions from Swedish public finance and export credit bodies EKN and SEK. Standard Chartered and several other commercial lenders are also involved in the deal, but their exact roles have not yet been disclosed.
Charting a new course: The future of UK exports and export finance
(Global Trade Review, London, 13 December 2021) [Barclays sponsored GTR article] Having been profoundly shaken by the combined impact of the pandemic and Brexit, UK exporters continue to face significant trade challenges. As companies rethink and recalibrate their export strategies and supply chains, there is an increased focus on ESG performance and an opportunity to build back not only better, but cleaner and greener. In mid-November, GTR and Barclays gathered top trade experts for a virtual roundtable discussion to address the crucial issues impacting the export and export finance market, the route to export recovery and growth in a more sustainable environment, and the role of the financial sector in keeping trade flowing.
Facing debt repayment issues China shifts Africa financing focus from infrastructure to trade
(Global Trade Review, London, 15 December 2021) China’s commitments to financing in Africa are shifting away from giant infrastructure developments and towards developing stronger trade flows and commercial investments, analysts say. At the Forum on China-Africa Cooperation (Focac) in late November, the country unveiled an action plan that included around US$40bn of commitments in the form of trade finance, commercial investments and a share of China’s Special Drawing Rights (SDR). Although a hefty headline figure, it is significantly less than the US$60bn promised at the two most recent forums in 2015 and 2018. It also includes little in the way of concessional loans, which has been China’s primary tool for financing a swathe of infrastructure across the continent, including railways, airports, roads and energy projects. GTR reported in September that European export credit agencies and commercial lenders have been approached by Chinese contractors working on projects in Africa who have been unable to secure financing from Chinese sources. The Atlantic Monthly calls this “China’s real ‘debt trap’ threat, claiming it “is part of a deepening debt crisis affecting countries that have borrowed hundreds of billions of dollars from China for infrastructure development… It’s not just low-income countries that are hard-pressed to repay China. Middle-income nations also are seeking to renegotiate their Chinese debts as the pandemic-induced global economic slowdown nears the two-year mark. But Chinese lenders are digging in their heels as governments ask for relief, especially with countries that don’t receive media attention. And those countries are feeling the pain. For example, Suriname’s inability to access IMF funds means less money for social programs at a time when the pandemic has increased demand for health care and other programs focused on the poor.
Shipowners see growing benefits of Chinese leasing and trade finance
(Lloyd’s List, London, 23 November 2021) The shipping industry is going to rely more on Chinese financing as those vessels that fall short of environmental standards become less attractive for traditional lenders, executives say. Shipowners say China is important for finance when it comes to renewing and expanding fleets, and would play an instrumental role for those vessels that will soon become unfinanceable by traditional banks.
The push to net zero – Can project finance fuel investment in the Hydrogen market?
(Lexology, London, 18 November 2021) Discussion of hydrogen fuel has become increasingly prevalent over the past few years. The increased push to reach net zero targets, as highlighted in the Government’s newly published ‘Net Zero Strategy: Build Back Greener’, has brought hydrogen back into popular discussion. New technological innovations look to be making hydrogen energy cleaner, cheaper and more accessible for industry. This may be opening new doors for the element. How will this unprecedented scale of energy innovation investment be funded? Historically, groundbreaking energy technologies have relied upon significant government subsidies, supported by bankable project financing. Can hydrogen replicate the project finance model? If not, where will the money come from? The current funding for investments into hydrogen technologies is found largely in government or university research and development grants and corporate venture equity. There is very little hydrogen being funded through debt finance. Hydrogen, however, is an energy source that still requires significant investment; both in production (for example, developing effective and cost-viable carbon capture and storage facilities to accompany blue hydrogen production) and in delivery and use (for example, in getting gas infrastructure and networks, consumer products and energy storage ready to facilitate a hydrogen market).
Lithuania to get U.S. EXIM trade support as it faces China fury over Taiwan
(Reuters, Vilnius, 19 November 2021) Lithuania will sign a $600 million export credit agreement with the U.S. Export-Import Bank next week, Economy Minister Ausrine Armonaite told Reuters, days after China warned it would “take all necessary measures” after Lithuania allowed Taiwan to open a de facto embassy. China demanded in August that the Baltic state withdraw its ambassador to Beijing and said it would recall China’s envoy in Vilnius after Taiwan announced its office would be called the Taiwanese Representative Office in Lithuania.
