CONCLUSIONES Y RECOMENDACIONES

9.1

Introduction

The Communication does not apply to MLT credit facilities. This is the subject of a Directive. This partly reflects the fact that the activities of OECD Governments and OECD ECAs in the MLT area are subject to the OECD Arrangement which applies not only to maximum lengths of credit but also minimum premium rates.

The “Rules” set out in the OECD Arrangement are not, however, rules pertaining to State Aid. They were designed to apply to competition on the terms of credit with the aim of providing a level playing field for competition between exporters and banks in OECD countries.

The OECD Arrangement on Officially Supported Export Credits was put in place in the 1970s to prevent a “subsidy war” amongst official ECAs. The Arrangement was intended to establish a level playing field so that exports would be won on the basis of price, quality and service and not on the costs and conditions of financing.

The Arrangement (known also as the “Consensus”) covers credit with repayment terms of 2 years and more. It sets limits on the repayment terms which are generally 10 years for most countries and sectors, but are shorter for higher income countries and can be as long as 12 years for power plants and 15 years for nuclear power plants and longer terms for aircraft.

The Arrangement also sets a strict limit on the length of the grace period (i.e. the period between the completion or delivery date and the date of the first repayment) of six months. Principal must be repaid in equal semi-annual instalments and so annuity structures or bullet payments are generally not allowed. Special provision for Project Finance structures were put in place in 1998 which allow for a limited degree of flexibility to reflect better the cash flow of limited recourse project financings.

A system of minimum interest rates applies where official financing at fixed interest rates is provided (i.e. the ECA lends, or provides an interest make-up to the bank to lend). There is also a comprehensive agreement on minimum premium benchmarks

9.2

Involvement of Private Market in the MLT Area

It has almost certainly never been the case that the private market – embracing banks, private insurers and capital market products of various types – has been able to meet all the needs and requirements of exporters in respect of projects and capital goods exports attracting MLT credit. This reflects both risk and funding factors. The position in both the risk and funding contexts was emphasised during the GFC and resulted in serious gaps in the finance and insurance facilities available from the private sector. This negative impact was partly mitigated by a reduction in demand for projects and large capital goods sales due to the effect of the GFC on buyers and project sponsors, including governments.

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There are no statistics available on the size of the private market in this area. The MLT committee of the Berne Union is only open to members with a government link and ICISA does not keep this data. However, as MLT business would be written as a single-risk business and as single-risk business constitutes less than 5% of ICISA members’ business, it is fair to say that the amount of MLT export credit business being undertaken by the private insurers is relatively small.

9.3

Conclusions

There are many examples of successful co-operation between ECAs and the private sector in the MLT area. In addition, ECAs increasingly co-operate effectively with each other in respect of multi-source projects.

Both of these factors are of growing importance in a global trading world where supply chains become larger, longer and more complex involving companies in a growing number of countries.

There is no evidence of competition between private and public insurers. In our discussions with the insurers, brokers, exporters and ECAs, no one complained to us about the activities of ECAs in the MLT area, other than suggesting in fact that they were not doing enough. There are therefore no grounds to suggest that there needs to be any rules preventing ECAs from operating in the MLT market. Thus, we do not recommend any extension of the Communication into the area of MLT business.

Recommendation #6: MLT Business

Against this background, we can see no reason or benefit to any party of the Commission extending its operations or controls in the MLT area or in adding any new provisions or requirements to the Communications in relation to MLT business.The reasons for our recommendation are: 1) there is strong evidence of co-operation in the MLT area between private insurers and ECAs; 2) there were no complaints raised about the activities of ECAs in this area; and 3) there seems no basis or good reason to seek to include MLT facilities, not least given the existence of the OECD Arrangement.

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