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Document 52022PC0456
Proposal for a COUNCIL DECISION establishing the position to be adopted on the Union's behalf by the Participants to the Arrangement on Officially Supported Export Credits (“Arrangement”) with regard to the modernisation of the Arrangement
Proposal for a COUNCIL DECISION establishing the position to be adopted on the Union's behalf by the Participants to the Arrangement on Officially Supported Export Credits (“Arrangement”) with regard to the modernisation of the Arrangement
Proposal for a COUNCIL DECISION establishing the position to be adopted on the Union's behalf by the Participants to the Arrangement on Officially Supported Export Credits (“Arrangement”) with regard to the modernisation of the Arrangement
COM/2022/456 final
EUROPEAN COMMISSION
Brussels, 15.9.2022
COM(2022) 456 final
2022/0275(NLE)
Proposal for a
COUNCIL DECISION
establishing the position to be adopted on the Union's behalf by the Participants to the Arrangement on Officially Supported Export Credits (“Arrangement”) with regard to the modernisation of the Arrangement
EXPLANATORY MEMORANDUM
1.Subject matter of the proposal
This proposal concerns a decision according to Article 218(9) of the Treaty on the Functioning of the European Union (‘TFEU’), establishing the position to be taken on the Union's behalf regarding the modernisation of the Arrangement on Officially Supported Export Credits (‘Arrangement’).
2.Context of the proposal
2.1.The Arrangement
The Arrangement on Officially Supported Export Credits entered into force in April 1978 as a gentlemen’s, i.e. non-binding, agreement. The Arrangement is administratively embedded in the OECD and receives support from the OECD Export Credit Secretariat, although it is not, in fact, an OECD Act. 1
The purpose of the Arrangement is to provide a framework for the orderly use of officially supported export credits (‘official support’), and to foster a level playing field for official support, in order to encourage competition among exporters based on quality and price of goods and services exported rather than on the most favourable officially supported financial terms and conditions. The WTO Agreement on Subsidies and Countervailing Measures (‘ASCM’) recognises the role of the Arrangement in preventing trade distortions and creates an exemption from its general prohibition of government export credit support. This so-called ‘WTO safe haven’ is granted to practices of WTO Members who are Arrangement Participants, but also to practices of the non-Participants, provided that they are in conformity with the rules of the Arrangement (Annex I item k) of the ASCM).
The European Union is a Participant to the Arrangement which is transposed into the acquis communautaire by virtue of Regulation (EU) No 1233/2011 of the European Parliament and of the Council of 16 November 2011. 2 Hence the Arrangement is legally binding as a matter of Union law.
2.2.The Participants
There are currently eleven Participants to the Arrangement (‘Participants’): Australia, Canada, the European Union, Japan, Korea, New Zealand, Norway, Switzerland, Turkey, the United Kingdom and the United States. The Participants take decisions on amendments to the Arrangement by consensus.
The European Commission represents the Union in the meetings of the Participants, including when the Participants take decisions.
2.3.The envisaged act of the Participants
The envisaged decision is the outcome of negotiations between the Participants to the Arrangement on modernization of its rules, as set out in the annex to the present draft decision.
The Arrangement has seen regular updates to individual terms and conditions since its adoption in 1978, but there has never been a comprehensive review of the overall adequacy of the rules for present day conditions. This has left the Arrangement in need of modification for a number of reasons.
First, the rise in aggressive export finance from large emerging economies, which are not Participants to the Arrangement. Second, the Arrangement terms are disproportionately rigid relative to their objectives of securing a level playing field between the Participants and avoiding crowding out of the private sector. In the same vein, the lack of a comprehensive review over decades has resulted in an overly complex patchwork of modifications. Finally, it should be noted that an overhaul of the Arrangement is also needed in terms of its relationship to EU priorities on sustainability, not least in relation to climate change. This issue is tackled in the separate proposal for the Council decision according to Art. 218(9) TFEU concerning Sector Understanding on Export Credits for Renewable Energy, Climate Change Mitigation and Adaptation and Water Projects (‘CCSU’) (COM(2022) 455).
Against this backdrop, informal reflections among EU Member States on a possible streamlining of the Arrangement’s rules began in 2018, and discussions began at the OECD in 2019, leading to agreement on a “common framework” for the modernisation in 2020, setting out the scope and key principles of the reform, and kicking off technical work. The main objectives of the modernisation are:
(1)to ensure that the level playing field for official support for export finance reflects sound market practices and is built on a foundation of appropriate pricing rules, in order to enable the export credit agencies (‘ECAs’) to better address market failures and fill financing gaps,
(2)to address competitive issues with non-Participants in global trade finance, and
(3)to streamline and simplify the Arrangement rules and ensure that they are necessary and proportional in order to avoid unnecessary administrative burdens for users.
In June of this year, Participants agreed on the parameters of an agreement on a package of issues for adoption at their meeting in November 2022. Negotiations to finalise the details are ongoing. The package includes the following elements:
·Maximum repayment terms (MRT): The maximum times allowed for a buyer to make all repayments under the financing package, would be extended and simplified, moving from 8-14 years depending on the product to a longer duration with fewer exceptions, 20 years in the EU view. Notably excluded from the extension, for sustainability reasons, is the 12-year MRT for non-nuclear power plants.
·Repayment profile: The general rule for repayments would no longer require these to be in equal instalments every six months. Instead, the requirement would be that more than half of the principal is repaid once 60% of the time period for repayment has elapsed.
·Adjustment to the premium for longer repayment terms: ECAs must charge a premium to buyers when they provide official insurance cover for transactions. With longer repayment periods, the current formula for the premium leads to prohibitive prices. The moderate adjustment envisaged will facilitate e.g. the renewable energy projects which only become financially viable over longer periods.
·Floating interest rates: the introduction of a possibility to apply market-reflective minimum floating interest rates in export credit transactions under the Arrangement. Currently, regulated minimum fixed rates are the norm.
While these rules will make it possible to offer buyers and borrowers of goods and services in third countries financing terms that are responsive to sound markets practices, they safeguard against a “race to the bottom”, including with the non-adherents to the Arrangement. This will help ensure a more level playing field for the EU export industry, particularly in key strategic infrastructure sectors.
Changes in the Arrangement rules will impact on the “sector understandings” that deviate from the standard rules to offer sector-specific terms and conditions. This is reflected in the Annex to this proposal which contains consequent amendments to relevant provisions of the the sector understandings. Most notably, two sector understandings, on project finance and rail, only existed to provide longer repayment terms than the current standard of 8-10 years and therefore become redundant as a result of the 20 year terms envisaged, and are therefore deleted. In the negotiations, some Participants wish to extend MRT also under the Arrangement’s nuclear sector understanding, which currently offers 18 years, while the EU is opposed to it. As noted above, a separate decision making process is envisaged for the CCSU.
Detailed proposals for the reform of the Arrangement are in the Annex of the proposed Decision. As noted, negotiations may lead to some further modifications of the text but there is consensus on the core principles of the outcome. These changes would be reflected in the Annex before the adoption of the present decision by the Council by way of the procedure pursuant to Article 2 of the draft decision.
It is appropriate to establish the Union’s proposal as the position to be taken on the Union's behalf in a body set up by an agreement, because the decision to amend the Arrangement will have legal effects in the EU as a matter of Union law (see in 2.1 above).
3.Position to be taken on the Union's behalf
The proposed modernisation of the Arrangement rules would allow export credit agencies from the Participants’ countries, including the European Union, to offer buyers and borrowers of exported goods and services in third countries financing terms and conditions that are aligned with sound market practices, thus enabling to address market failures and fill financing gaps without crowding out of commercial finance operators. By doing so, the modernized rules of the Arrangement would strengthen the global competitiveness of EU exporters, and therefore make a significant contribution to the economic growth and jobs in the Union.
Taken into account the purpose and expected positive effects of the modernised Arrangement on the export industry and economy of the Union, the position to be taken on the Union's behalf should be to support the draft proposal in Annex to this decision.
4.Legal basis
4.1.Procedural legal basis
4.1.1.Principles
Article 218(9) of the Treaty on the Functioning of the European Union (TFEU) provides for decisions establishing ‘the positions to be adopted on the Union’s behalf in a body set up by an agreement, when that body is called upon to adopt acts having legal effects, with the exception of acts supplementing or amending the institutional framework of the agreement.’
The concept of ‘acts having legal effects’ includes acts that have legal effects by virtue of the rules of international law governing the body in question. It also includes instruments that do not have a binding effect under international law, but that are ‘capable of decisively influencing the content of the legislation adopted by the EU legislature’ 3 .
4.1.2.Application to the present case
The act, which the Participants will be called upon to adopt, constitutes an act having legal effects. The envisaged act has legal effects by virtue of Article 1 of Regulation (EU) No 1233/2011 of the European Parliament and of the Council of 16 November 2011 on the application of certain guidelines in the field of officially supported export credits and repealing Council Decisions 2001/76/EC and 2001/77/EC, which states that "The guidelines contained in the Arrangement on Officially Supported Export Credits (‘the Arrangement’) shall apply in the Union. The text of the Arrangement is annexed to this Regulation."
Therefore, the procedural legal basis for the proposed decision is Article 218(9) TFEU.
4.2.Substantive legal basis
4.2.1.Principles
The substantive legal basis for a decision under Article 218(9) TFEU depends primarily on the objective and content of the envisaged act in respect of which a position is taken on the Union's behalf.
4.2.2.Application to the present case
The main objective and content of the envisaged act relate to the common commercial policy. Therefore, the substantive legal basis of the proposed decision is Article 207.
4.3.Conclusion
The legal basis of the proposed decision should be the first subparagraph of Article 207(4) TFEU in conjunction with Article 218(9).
5.Publication of the envisaged act
As the act of the Participants will amend the Arrangement on Officially Supported Export Credits, it is appropriate to publish it in the Official Journal of the European Union after its adoption.
2022/0275 (NLE)
Proposal for a
COUNCIL DECISION
establishing the position to be adopted on the Union's behalf by the Participants to the Arrangement on Officially Supported Export Credits (“Arrangement”) with regard to the modernisation of the Arrangement
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 207(4) in conjunction with Article 218(9) thereof,
Having regard to the proposal from the European Commission,
Whereas:
(1)The Arrangement on Officially Supported Export Credits (‘Arrangement’) has been transposed, and hence made legally binding in the European Union by Regulation (EU) No 1233/2011 of the European Parliament and of the Council. 4
(2)The Participants to the Arrangement (‘Participants’) are to decide on modernising the rules of the Arrangement, in particular in respect to provisions governing maximum repayment terms, repayment profile, minimum premium rates and introduction of a possibility to apply floating interest rates in export credit support transactions.
(3)It is appropriate to establish the position to be taken on the Union's behalf, because the decision to amend the Arrangement by the Participants will have legal effects in the Union as a matter of Union law by virtue of Regulation (EU) No 1233/2011 of the European Parliament and of the Council of 16 November 2011 on the application of certain guidelines in the field of officially supported export credits and repealing Council Decisions 2001/76/EC and 2001/77/EC.
(4)The proposed amendments to the Arrangement would allow export credit agencies of the Participants’ countries, including the European Union, to offer buyers and borrowers of exported goods and services in third countries financing terms and conditions that are aligned with sound market practices, thus enabling to address market failures and fill financing gaps without crowding out of commercial finance operators. By doing so, the modernised Arrangement would strengthen the global competitiveness of EU exporters, and therefore make a significant contribution to the economic growth and jobs in the Union.
HAS ADOPTED THIS DECISION:
Article 1
The position to be taken on the Union’s behalf regarding the adoption by the Participants to the Arrangement on Officially Supported Export Credits (‘Arrangement’) of a decision to modernise the rules of the Arrangement shall be based on the Annex to this decision.
Article 2
Where new proposals regarding the subject matter in Annex to this decision are made at, or before, a meeting of the Participants, on which there is not yet a Union position, the Union position shall be specified by means of Union coordination before the Participants are called to adopt an amendment to the Arrangement. In such cases, the Union position shall be in line with existing policies and legislation.
Article 3
This Decision is addressed to the Commission.
Done at Brussels,
For the Council
The President
EUROPEAN COMMISSION
Brussels, 15.9.2022
COM(2022) 456 final
ANNEX
to the
Proposal for a Council Decision
establishing the position to be adopted on the Union's behalf by the Participants to the Arrangement on Officially Supported Export Credits (“Arrangement”) with regard to the modernisation of the Arrangement
ANNEX
PROPOSAL
The position of the European Union is to support the changes in the Arrangement on Officially Supported Export Credits (‘Arrangement’) set out in Parts 1-4 of this Annex. References below are made to Articles and Annexes of the Arrangement. Additions are in bold underline. Deletions are in strikethrough.
Part 1
Maximum repayment terms
The sector understanding on export credits for civil aircraft (ASU) and the sector understanding on export credits for ships (SSU) remain unchanged.
Annex V and VI will be completely deleted as the future “standard” terms and conditions on repayment term and repayment profile will be more “attractive” than the ones currently under these two annexes.
[…]
13. MAXIMUM REPAYMENT TERMS
Without prejudice to Article 14, the maximum repayment term is 20 years. In any case, the maximum repayment terms shall not exceed the useful life of goods being exported. varies according to the classification of the country of destination determined by the criteria in Article 11.
a)For Category I countries, the maximum repayment term is eight-and-a-half years.
b)For Category II countries, the maximum repayment term is ten years.
c)In the event of a contract involving more than one country of destination the Participants should seek to establish a Common Line in accordance with the procedures in Articles 56 to 61 to reach agreement on appropriate terms.
[…]
ANNEX V: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR RAIL INFRASTRUCTURE
The Participants to this Sector Understanding agree that the financial terms and conditions of the Sector Understanding, which complements the Arrangement, shall be implemented in a way that is consistent with the Purpose of the Arrangement.
CHAPTER I: SCOPE OF THE SECTOR UNDERSTANDING
1. SCOPE OF APPLICATION
a)This Sector Understanding sets out the financial terms and conditions that apply to officially supported export credits relating to contracts for rail and other specified track-bound transportation infrastructure assets essential to operating trains, including control (e.g. signalling and other IT) systems, electrification, tracks, overhead wires and cables, pylons, rolling stock, cable cars, trolley buses, and related construction work.
b)The specific types of track-bound transportation systems that are eligible for support according to the terms and conditions of this Annex are: 1) Any type of rail transportation system. 2) Trolleybus transportation systems. 3) Cable car transportation systems 1 .
CHAPTER II: PROVISIONS FOR EXPORT CREDITS
2. MAXIMUM REPAYMENT TERMS
a)For officially supported export credits relating to contracts included within the scope of application of this Sector Understanding, the maximum repayment term is set out as follows: 1) For contracts in Category I countries (as defined in Article 10 of the Arrangement): 12 years. 2) For contacts in Category II countries (as defined in Article 10 of the Arrangement): 14 years.
b)To qualify for the repayment terms set out in paragraph a) above, the following conditions shall apply:
1)The transaction shall involve an overall contract value of more than SDR 10 million; and
2)The repayment terms shall not exceed the useful life of the track-bound transportation infrastructure asset financed; and
3)For transactions in Category I countries, the transaction involves/is characterised by:
Participation in a loan syndication with private financial institutions that do not benefit from Official Export Credit Support, whereby:
i) The Participant is a minority partner with pari passu status throughout the life of the loan; and
ii) Official export credit support provided by the Participants comprises less than 50% of the syndication.
Premium rates for any official support that do not undercut available private market financing and that are commensurate with the corresponding rates being charged by other private financial institutions that are participating in the syndication.
c)A Participant may request a waiver of the condition set out in paragraph b) 3) above, through use of a Common Line, in accordance with Articles 56 to 61 of the Arrangement. In such cases, the Participant proposing the Common Line shall provide, either in the proposed Common Line or in each individual transaction thereafter notified, a comprehensive explanation for the support, including specific data on pricing, and a rationale for the need to waive the provisions of paragraph b) 3) above.
3. REPAYMENT OF PRINCIPAL AND INTEREST
The repayment of principal and interest shall be provided according to Article 15 of the Arrangement except that the maximum weighted average life of the repayment period under paragraph d) 4) of that Article shall be: a) For transaction in a Category I countries, six-and-a-quarter years; and b) For transaction in a Category II countries, seven-and-a-quarter years.
CHAPTER III: PROCEDURES
4. PRIOR NOTIFICATION
a)A Participant shall give prior notification in accordance with Article 45 of the Arrangement at least ten calendar days before issuing any commitment if it intends to provide support for a transaction in a Category I country. Such notifications shall include a comprehensive explanation for the official support, including specific data on pricing.
b)A Participant shall give prior notification in accordance with Article 46 of the Arrangement at least ten calendar days before issuing any commitment if it intends to provide support for: 1) A transaction in a Category II country; or 2) A transaction supported pursuant to a Common Line set out in accordance with Article 2 c) of this Sector Understanding. Such prior notification may be made concurrently with, and subject to the approval of, the Common Line proposal.
5. VALIDITY OF COMMON LINES
Notwithstanding the provisions of Article 61 a) of the Arrangement, all agreed Common Lines shall cease to be valid on 31 December 2023, unless the Participants agree to the extension of this Sector Understanding in accordance with Article 6 d) of this Sector Understanding.
CHAPTER IV: MONITORING AND REVIEW
6. MONITORING AND REVIEW
a)The Secretariat shall report annually on the implementation of this Sector Understanding.
b)After 31 December 2023, and subject to paragraph c) below, the less than 50% syndication requirement set out in sub-paragraph ii) of the first tiret of Article 2 b) 3) of this Sector Understanding shall be replaced by a maximum 35% syndication requirement unless the Participants agree otherwise.
c)The Participants shall undertake a review of this Sector Understanding by the end of 2023 with a view to assessing the market conditions and other factors to determine whether the terms and conditions should be continued and or amended.
d)After 31 December 2023, the terms and conditions of this Sector Understanding shall be discontinued unless the Participants agree otherwise.
[…]
ANNEX VI: TERMS AND CONDITIONS APPLICABLE TO PROJECT FINANCE TRANSACTIONS
CHAPTER I: GENERAL PROVISIONS
1. SCOPE OF APPLICATION
a)This Annex sets out terms and conditions that Participants may support for project finance transactions that meet the eligibility criteria set out in Appendix 1.
b)Where no corresponding provision exists in this Annex, the terms of the Arrangement shall apply.
CHAPTER II: FINANCIAL TERMS AND CONDITIONS
2. MAXIMUM REPAYMENT TERMS The maximum repayment term is 14 years, except when official export credit support provided by the Participants comprises more than 35% of the syndication for a project in a High Income OECD country, the maximum repayment term is ten years.
3. REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST The principal sum of an export credit may be repaid in unequal instalments, and principal and interest may be paid in less frequent than semi-annual instalments, as long as the following conditions are met: a) No single repayment of principal or series of principal payments within a six-month period shall exceed 25% of the principal sum of the credit. b) The first repayment of principal shall be made no later than 24 months after the starting point of credit and no less than 2% of the principal sum of the credit shall have been repaid 24 months after the starting point of credit. c) Interest shall be paid no less frequently than every 12 months and the first interest payment shall be made no later than six months after the starting point of credit. d) The weighted average life of the repayment period shall not exceed seven-and-a-quarter years, except when official export credit support provided by the Participants comprises more than 35% of the syndication for a project in a High Income OECD country, the weighted average life of the repayment period shall not exceed five-and-a-quarter years. e) The Participant shall give prior notification according to Article 4 of this Annex.
CHAPTER III: PROCEDURES
4. PRIOR NOTIFICATION FOR PROJECT FINANCE TRANSACTIONS
A Participant shall notify all Participants of the intent to provide support according to the terms and conditions of this Annex at least ten calendar days before issuing any commitment. The notification shall be provided in accordance with Annex VII of the Arrangement. If any Participant requests an explanation in respect of the terms and conditions being supported during this period, the notifying Participant shall wait an additional ten calendar days before issuing any commitment.
APPENDIX 1: ELIGIBILITY CRITERIA FOR PROJECT FINANCE TRANSACTIONS
I. BASIC CRITERIA
The transaction involves/is characterised by: a) The financing of a particular economic unit in which a lender is satisfied to consider the cash flows and earnings of that economic unit as the source of funds from which a loan will be repaid and to the assets of the economic unit as collateral for the loan. b) Financing of export transactions with an independent (legally and economically) project company, e.g. special purpose company, in respect of investment projects generating their own revenues. c) Appropriate risk-sharing among the partners of the project, e.g. private or creditworthy public shareholders, exporters, creditors, off-takers, including adequate equity. d) Project cash flow sufficient during the entire repayment period to cover operating costs and debt service for outside funds. e) Priority deduction from project revenues of operating costs and debt service. f) A non-sovereign buyer/borrower with no sovereign repayment guarantee (not including performance guarantees, e.g. off-take arrangements). g) Asset-based securities for proceeds/assets of the project, e.g. assignments, pledges, proceed accounts; h) Limited or no recourse to the sponsors of the private sector shareholders/sponsors of the project after completion.
II. ADDITIONAL CRITERIA FOR PROJECT FINANCE TRANSACTIONS IN HIGH INCOME OECD COUNTRIES
The transaction involves/is characterised by: a) Participation in a loan syndication with private financial institutions that do not benefit from Official Export Credit Support, whereby:
·The Participant is a minority partner with pari passu status throughout the life of the loan and;
·Official export credit support provided by the Participants comprises less than 50% of the syndication. b) Premium rates for any official support that do not undercut available private market financing and that are commensurate with the corresponding rates being charged by other private financial institutions that are participating in the syndication.
Part 2
Repayment profile
15. REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST
a) The repayment of the principal sum of an export credit shall be justified based on the timing of the funds available to the obligor and shall comply with the following criteria:
1)Interest shall be paid no less frequently than every 12 months and the first interest payment shall be made no later than 12 months after the starting point of credit.
2)The maximum weighted average life of the repayment period shall not exceed 12 years, equalling 60% of the maximum repayment period and, for transactions involving support for non-nuclear power plants according to Article 14, six and a quarter years, equalling 60% of the maximum repayment period.
3)The Participant shall give prior notification in accordance with Article 46 in case the repayment of principal is not in equal and regular instalments.
b) Interest due after the starting point of credit shall not be capitalised.
a)The principal sum of an export credit shall normally be repaid in equal instalments or, when appropriate (e.g. when support is provided for lease transactions or for the export of stand-alone machinery or equipment), equal repayments of principal and interest combined.
b)Principal shall be repaid and interest shall be paid no less frequently than every six months and the first instalment of principal and interest shall be made no later than six months after the starting point of credit.
c)On an exceptional and duly justified basis, export credits may be provided on terms other than those set out in paragraphs a) and b) above. The provision of such support shall be explained by an imbalance in the timing of the funds available to the obligor and the debt service profile available under an equal, semi-annual repayment schedule, and shall comply with the following criteria:
1) No single repayment of principal or series of principal payments within a six-month period shall exceed 25% of the principal sum of the credit.
2) Principal shall be repaid no less frequently than every 12 months. The first repayment of principal shall be made no later than 12 months after the starting point of credit and no less than 2% of the principal sum of the credit shall have been repaid 12 months after the starting point of credit.
3) Interest shall be paid no less frequently than every 12 months and the first interest payment shall be made no later than six months after the starting point of credit.
4) The maximum weighted average life of the repayment period shall not exceed:
‒ For transactions with sovereign buyers (or with a sovereign repayment guarantee), four and-a-half years for transactions in Category I Countries and five-and-a-quarter years for Category II Countries.
‒ For transactions with non-sovereign buyers (and with no sovereign repayment guarantee), five years for Category I Countries and six years for Category II Countries.
‒ Notwithstanding the provisions set out in the two previous tirets, for transactions involving support for non-nuclear power plants according to Article 14, six and a quarter years.
5) The Participant shall give prior notification in accordance with Article 46 that explains the reason for not providing support according to paragraphs a) through b) above.
d)Interest due after the starting point of credit shall not be capitalised
[…]
ANNEX II: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR NUCLEAR POWER PLANTS
3. REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST
The repayment of principal and interest shall be provided according to Article 15 of the Arrangement, except that the weighted average life of the repayment period shall not exceed 15 years, equalling 60% of the maximum repayment period for this sector understanding.
a)The Participants shall apply a profile of repayment of principal and payment of interest as specified in sub-paragraph 1) or 2) below:
1)Repayment of principal shall be made in equal instalments.
2)Repayment of principal and payment of interest combined shall be made in equal instalments.
b)Principal shall be repaid and interest shall be paid no less frequently than every six months and the first instalment of principal and interest shall be made no later than six months after the starting point of credit.
c)On an exceptional and duly justified basis, official support for goods and services mentioned in Articles 1) a) 1) and 2) of this Understanding may be provided on terms other than those set out in paragraphs a) and b) above. The provision of such support shall be explained by an imbalance in the timing of the funds available to the obligor and the debt service profile available under an equal, semi-annual repayment schedule, and shall comply with the following criteria:
1)The maximum repayment term shall be 15 years.
2)No single repayment of principal or series of principal payments within a six-month period shall exceed 25% of the principal sum of the credit.
3)Principal shall be repaid no less frequently than every 12 months. The first repayment of principal shall be made no later than 12 months after the starting point of credit and no less than 2% of the principal sum of the credit shall have been repaid 12 months after the starting point of credit.
4)Interest shall be paid no less frequently than every 12 months and the first interest payment shall be made no later than six months after the starting point of credit.
5)The maximum weighted average life of the repayment period shall not exceed nine years.
d)Interest due after the starting point of credit shall not be capitalised.
ANNEX IV: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR RENEWABLE ENERGY, CLIMATE CHANGE MITIGATION AND ADAPTATION, AND WATER PROJECTS
6. REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST
The repayment of principal and interest shall be provided according to Article 15 of the Arrangement, except that the weighted average life of the repayment period shall not exceed 15 years, equalling 60% of the maximum repayment period for this sector understanding.
a)The Participants shall apply a profile of repayment of principal and payment of interest as specified in sub-paragraph 1) or 2) below:
1)Repayment of principal shall be made in equal instalments.
2)Repayment of principal and payment of interest combined shall be made in equal instalments.
b)Principal shall be repaid and interest shall be paid no less frequently than every six months and the first instalment of principal and interest shall be made no later than six months after the starting point of credit.
c)On an exceptional and duly justified basis, official support may be provided on terms other than those set out in paragraphs a) and b) above. The provision of such support shall be explained by an imbalance in the timing of the funds available to the obligor and the debt service profile available under an equal, semi-annual repayment schedule, and shall comply with the following criteria:
1)No single repayment of principal or series of principal payments within a six-month period shall exceed 25% of the principal sum of the credit.
2)Principal shall be repaid no less frequently than every 12 months. The first repayment of principal shall be made no later than 18 months after the starting point of credit and no less than 2% of the principal sum of the credit shall have been repaid 18 months after the starting point of credit.
3)Interest shall be paid no less frequently than every 12 months and the first interest payment shall be made no later than six months after the starting point of credit.
4)The maximum weighted average life of the repayment period shall not exceed 60% of the maximum available tenor.
d)Interest due after the starting point of credit shall not be capitalised.
Part 3
Floating Interest Rates
New Article 22 shall be inserted in the Arrangement:
22. MINIMUM FLOATING INTEREST RATES UNDER OFFICIAL FINANCING SUPPORT
a) The Participants providing official financing support for floating rate loans shall apply minimum floating interest rates comprising:
1)a market-accepted floating rate benchmark for the currency and applicable interest payment period, and
2)a positive funding margin.
b) The minimum floating interest rates on official financing support applied by the Participants shall:
1)foster the level playing field for official support as outlined in Article 1.2 by ignoring the impact of Participants’ competitive advantage in financing on the funding margin,
2)refer to commercial market data for the obligor or relevant comparable market sources and should not provide a subsidy,
3)apply to all sectors, including the sector understandings (except the Aircraft Sector Understanding),
4)be disclosed in a transparent manner as will assist verification.
c) The provision of official financing support shall not offset or compensate, in part or in full, for the appropriate credit risk premium to be charged for the risk of non-repayment pursuant to the provisions of Article 23.
Part 4
Minimum premium rate
ANNEX VIII: CALCULATION OF THE MINIMUM PREMIUM RATES FOR COUNTRY RISK CATEGORY 1-7 TRANSACTIONS
MPR Formula
The formula for calculating the applicable MPR for an export credit involving an obligor/guarantor in a country classified in Country Risk Categories 1-7 is:
MPR = { [ (ai * HOR + bi) * max (PCC, PCP) / 0.95 ] * (1-LCF) + [cin * PCC / 0.95 * HOR * (1- CEF) ] }* QPFi * PCFi *BTSF where:
• ai = country risk coefficient in country risk category i (i = 1-7)
• cin = buyer risk coefficient for buyer category n (n = SOV+, SOV/CCO, CC1-CC5) in country risk category i (i = 1-7)
• bi = constant for country category risk category i (i = 1-7)
• HOR = horizon of risk
• PCC = commercial (buyer) risk percentage of cover
• PCP = political (country) risk percentage of cover
• CEF = credit enhancements factor
• QPFi = quality of product factor in country risk category i (i = 1-7)
• PCFi = percentage of cover factor in country risk category i (i = 1-7)
• BTSF = better than sovereign factor
• LCF = local currency factor Applicable Country Risk Classification
Formula for term-adjusted MPR (MPRta)
For risk with a value of BB+ and higher the MPR formula for country risk category 1-7 is:
MPR𝐭𝐚 = MPR×(1 − Y ∙ 𝑇 )
• Y = 1,70
• T is the HoR beyond the Inception Point t0 at 12 years.