OECD publishes revised version of Arrangement on Officially Supported Export Credits

On 17 July, the OECD published a modernised version of the Arrangement on Officially Supported Export Credits (the Arrangement). The revised terms permit the export credit agencies (ECAs) of the Participants to offer more flexible terms for their supported credits. The looser rules represent a further step to encourage climate friendly investments and a response to increased competition from non-OECD members. It is to be hoped that these measures will see an increase in the number of projects supported by ECA covered financing.

The support of an ECA can play a central role in cross border project financings. The support will often take the form of cover for financing of the acquisition of essential components sourced from exporters in the ECA’s country. Such support can substantially improve the investment case for a project, particularly in developing markets.

The Arrangement is a gentleman’s agreement between the Participants (being Australia, Canada, the European Union, Japan, Korea, New Zealand, Norway, Switzerland, Türkiye, the United Kingdom and the United States). It sets out the terms that the Participants can offer for the credits that they support. The Arrangement is intended “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”.¹

The key changes affecting project financings include:

1. Expansion of the scope of green or climate friendly projects eligible for cover over longer repayment terms. The Climate Change Sector Understanding (CCSU)² continues to cover the previously supported categories (with some adjustments to the details of the criteria in some instances) of:

• environmentally sustainable energy production;
• remediation projects in fossil fuel plants and fossil fuel substitution;
• energy efficiency;
• supply of water for human use and wastewater treatment; and
• climate change adaptation,

and in addition:

• expands the extent of eligible carbon capture, utilisation and storage (CCUS) projects (but with a tightening of the applicable emission reduction criteria); and

includes new categories for:

• transmission, distribution and storage of energy;
• clean hydrogen and ammonia;
• low emissions manufacturing;
• zero and low emissions transport; and
• clean energy minerals and ores,

significantly expanding the scope of projects that are eligible under the CCSU.

2. Increase of the maximum repayment terms for supported credits. These increases apply across a number of sectors, particularly under the CCSU and Sector Understanding on Export Credits for Nuclear Power Plants³ (NPPSU) (under each of which, some projects have a maximum of up to 22 years), but also a general increase for most projects (other than fossil fuel power stations without CCUS), where the maximum repayment term has increased to 15 years. A table summarising the changes to the maximum repayment term for different eligible project types is attached at Appendix 1 (Summary of changes to maximum term).

3. More flexible rules to structuring the amortisation profile to the covered credit. The arrangement generally provides that repayments should be made in equal six-monthly instalments. However, it permits sculpted repayment profiles where there is an imbalance in the timing of project cashflows that would prevent such a structure. There are different rules applicable to different types of projects, but in general all have been relaxed when compared with the requirements under the previous version of the Arrangement, permitting more flexibility for structuring of transactions. A table setting out the requirements for different types of projects is attached at Appendix 2 (Changes to amortisation profile requirements).

4. Removal of the former Annex VI (Terms and Conditions Applicable to Project Finance Transactions). Annex VI to the previous version of the Arrangement set out the conditions as to repayment profile and term that applied to project finance transactions. Except where the credit is subject to the CCSU or NPPSU, the general provisions of the Arrangement will now apply. However, this change can be seen as beneficial as the general provisions in respect of tenor and amortisation profile have been relaxed and are now more favourable than those that previously applied to project finance transactions, and do not require the transaction to demonstrate that it meets the criteria that previously applied under Annex VI.

5. Introduction of a term adjustment factor to the calculation of the premium. This adjustment can be applied to the calculation of the premium on credits of over 10 years to speculative grade buyers in higher risk countries. This adjustment has the potential to make such credits more affordable to buyers.

You can read a summary of changes to maximum term (Appendix 1) and changes to amortisation profile requirements (Appendix 2) in the PDF provided herein.