Indian Lines of Credit: An Instrument to Enhance India-Africa Partnership November 22, 2011 New Delhi
2 Exim Bank of India SETUPBYANACTOFPARLIAMENTINSEPTEMBER1981 WHOLLY OWNED BY GOVERNMENT OF INDIA COMMENCED OPERATIONS IN MARCH 1982 APEX FINANCIAL INSTITUTION OBJECTIVES: for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country s international trade shall act on business principles with due regard to public interest (Export-Import Bank of India Act, 1981)
3 Export-Import Bank of India Partner in Africa s Economic Development Countries in the African region constitute a focus region for Exim Bank of India - a critical component of the Bank s strategy is to promote and support two-way trade and investment flows. As a partner institution to promote economic development in Africa, the commitment towards building relationships with the African region is reflected in thediverse range ofactivities andprogrammes which EximBankofIndiahas setin place. Representative Offices in Johannesburg (South Africa) / Dakar (Senegal) / Addis Ababa(Ethiopia)
4 Lines of Credit Programme Exim Bank extends LOCs Exim Bank s Assistance under LOCs. to regional development banks and economically strong developing countries on commercial terms; and at behest of Govt. of India on concessional terms to developing countries in Africa/Asia/Latin America with a longterm perspective. As on October 31, 2011 Existing GOI- Supported LOCs NO. OF LOCS 126 NO. OF COUNTRIES 55 TOTAL AMOUNT USD 7054 mn
5 Lines of Credit Extended to Africa Promoting Economic Development in the Region 87 LOCs currently in operation in Africa amounting to US$ 3.78 billion; 39 Countries covered: 1. Angola 2. Benin 3. Burkina Faso 4. Burundi 5. Cameroon 6. Central African Republic 7. Chad 8. Cote d Ivoire 9. D.R. Congo 10. Djibouti 11. Eq. Guinea 12. Eritrea 13. Ethiopia 14. Gabon 15. Gambia 15. Guinea Bissau 16. Guinea 17. Ghana 18. Kenya 19. Lesotho 20. Liberia 21. Madagascar 22. Malawi 24. Mali 25. Mauritania 26. Mauritius 27. Mozambique 28. Niger 29. Nigeria 30. Rwanda 31. Senegal 32. Seychelles 33. Sierra Leone 34. Sudan 35. Swaziland 36. Tanzania 37. Togo 38. Tunisia 39. Zambia 13 LOCs in pipeline amounting to USD 503.9 million, covering an additional 2 countries in Africa 1. Comoros 2. Republic of Congo Institutions include: ECOWAS Bank for Investment & Development
6 Regional Distribution of GOI-supported LOCs October 31, 2011 Total LOCs = USD 7054 MN Latin America and Caribbean 1% Oceania 1% CIS 1% LOCs to AFRICA= USD 3781 MN Asia 43% Central 10% North 15% East 35% Africa 54% West 35% South 5% AFRICAN COUNTRIES ARE MAJOR BENEFICIARIES OF LINES OF CREDIT
7 Broad Terms for LOCs Recipient countries have been classified into three categories: (a) Heavily Indebted Poor Countries (HIPCs), (b) Low Income Countries (LICs) and Least Developed Countries (LDCs - Other than those included in (a) above) and (c) Middle Income Countries (MICs). INTEREST RATE (% p.a.) CREDIT PERIOD (in years) HIPCs LICs / LDCs MICs 1.75 2.00 LIBOR + 0.50% 20 10 8 MORATORIUM (in years) 5 3 2 Built- in grant element (%)* 56.4 37.3 34.4 * The grant element (difference between Net Present Value of the loan repayments and the actual amount of loan) is in-built into the terms of credit.
Initiation of LOC Proposal 8 PARTNER COUNTRY MINISTRY OF FOREIGN AFFAAIRS 1. The partner country discusses development priorities with the Indian Mission and a feasible project is identified / developed. 2. The partner country requests for an LOC accompanied with a pre-feasibility or a detailed project report, which would include, amongst others, the basis of estimated costs and justification of the project. 3. Such a report may be developed in coordination with the Indian Mission, if required. INDIAN MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS INDIAN MISSION IN THE PARTNER COUNTRY Forwards proposal with their recommendations / comments INDIAN MINISTRY OF EXTERNAL AFFAIRS Examines; if acceptable from finance/budget angle, conveys approval INDIAN MINISTRY OF EXTERNAL AFFAIRS Conveys offer Recommends the proposal, if considered acceptable EXIM BANK Conveys terms (interest rate & credit period) & sends draft LOC Agreement INDIAN MISSION IN THE LOC-RECIPIENT COUNTRY Conveys offer of LOC LOC-RECIPIENT COUNTRY MINISTRY OF FOREIGN AFFAIRS Forwards terms & draft LOC Agreement
9 Signing of LOC Agreement EXIM BANK 1. Sends draft LOC Agreement through Indian Mission 2. Exim Bank Resident Representative could visit LOC-recipient country to familiarize government with operational aspects GOVERNMENT OF LOC-RECIPIENT COUNTRY Conveys acceptance Comments / Suggestions EXIM BANK Agreement finalized Concurs Consultation GOVERNMENT OF LOC-RECIPIENT COUNTRY AGREEMENT IS SIGNED
10 Broad Guidelines for GOI-LOCs There shall be automatic annulment of an LOC which does not get signed for a period of 18 months from the date of its approval by GOI. For justifiable reasons, this period could be extended by a maximum 6 months. All LOCs will have terminal disbursement date, i.e., the date falling on expiration of a period of 48 months after the scheduled completion date for project exports and 72 months of execution of LOC Agreement for supply contracts. Goods and services for minimum 75% value of the contracts covered under these LOCs must be sourced from India. A suitable relaxation not exceeding 10% may be considered on a case to case basis for exceptional reasons, especially in case of projects having civil construction. Consultancy services under the project will be sourced from India.
11 DISSEMINATION OF LOC AVAILABILITY After the LOC Agreement is signed, the information on the LOC is disseminated through various channels such as: Press Release Exim Bank s Website Copies of Press Release sent for dissemination of information among their members to : Industry Associations: CII/FICCI/ASSOCHAM/FIEO/EEPC Projects Export Promotion Council All India Association of Industries Reserve Bank of India issues A.P. (DIR Series) Circular All Category - I Authorised Dealer Banks
12 Operationalizing the LOC GOVERNMENT OF LOC-RECIPIENT COUNTRY Forwards 1. Legal opinion from legal counsel of government of LOC-recipient country 2. List of Authorized Signatories 3. Guarantee of government of LOCrecipient country if borrower is an agency nominated by Government EXIM BANK Scrutinizes the documents and if found in order LOC AGREEMENT MADE EFFECTIVE BY EXIM BANK Conveys effectiveness GOVERNMENT OF LOC-RECIPIENT COUNTRY
13 Broad Guidelines for GOI-LOCs Government of LOC-recipient country must provide sovereign guarantee for repayment and servicing of the loan in case the loan is taken by its agency. Liability of the Borrower/Recipient of the LOC, for repayment of principal instalments and payment of interest and other dues under the LOCs, to Exim Bank, is absolute and irrevocable, and is, in no way, linked to repayment/payment by sub-borrowers or to the completion of the projects/contracts covered under the LOCs, or subsequent operation thereof.
14 Contract Approval GOVERNMENT OF LOC-RECIPIENT COUNTRY 1. Competitive bidding process is mandatory. 2. Government of LOCrecipient country is expected to conduct fair and transparent selection with wide participation of Indian companies. Requests for coverage of a contract under LOC accompanied by an evaluation report of a transparent and competitive bidding process & reasons for recommendation for selection of Indian company GOVERNMENT OF LOC- RECIPIENT COUNTRY EXIM BANK 1. Examines the proposals 2. Seeks information/clarification from the Government of LOC-recipient country/indian Supplier/Contractor 3. Examines the projects in the light of provisions of the LOC 4. If found OK, conveys approval of specific INDIAN contracts/projects SUPPLIER / to CONTRACTOR
15 Broad Guidelines for GOI-LOCs Transparent competitive bidding process by LOC-recipient Government is mandatory. Only in very exceptional circumstances, intimated to Exim Bank and approved in advance by GOI, will exceptions be considered. Eligibility of participation is limited to Indian companies registered in India and/or incorporated/established under any law in force in India. Information about tenders floated should be widely circulated in India on websites of Exim Bank, industry associations, export promotion councils, MEA-GOI, etc. in the interest of greater transparency and cost competitiveness.
16 Broad Guidelines for GOI-LOCs Selection of Indian company as per the above process is the complete prerogative & responsibility of the government of LOC-recipient country. Contract is between the borrower of LOC-recipient country and the Indian company. Transparency in the award of contract is extremely critical. Government of LOC-recipient country to advise Exim Bank about the procedure followed for selection of Indian companies and the names of other Indian bidders. In case of any deviation from this procedure, the government of LOC-recipient country must provide detailed justification to Exim Bank. Goods and services covered under the LOCs will be free from all kinds of taxes and duties of any nature whatsoever levied in the LOC-recipient country including all corporate/personal/value added taxes, import/custom duties, special levies and social security contributions for temporary employees deputed by Indian exporters in relation to the project execution in the Recipient countries.
17 Disbursements & Repayments under LOCs INDIAN EXPORTER / CONTRACTOR EXECUTES CONTRACTS Claims disbursements from EXIM BANK Opens Letter of Credit (LC) in favour of 1. Supplies equipment/goods 2. Provides services 1. Payment against conforming documents including Bill of Lading for supplies. 2. Payment against Payment Authorization Certificate from Borrower Government in respect of services rendered BUYER / EXECUTING AGENCY BUYER / EXECUTING AGENCY INDIAN EXPORTER / CONTRACTOR EXIM BANK EXIM BANK EXIM BANK 1. Advises Disbursement 2. Advises Repayment schedule as per the provision of the Agreement Provides monthly statement on status of GOI-supported LOCs to 1. Repayment of Principal Installments 2. Payment of Interest / Commitment Fee/Management Fee GOVERNMENT OF LOC-RECIPIENT COUNTRY INDIAN MINISTRY OF FINANCE INDIAN MINISTRY OF EXTERNAL AFFAIRS GOVERNMENT OF LOC-RECIPIENT COUNTRY
18 Broad Guidelines for GOI-LOCs Pre-shipment inspection of equipment/ goods is mandatory. Government of LOC-recipient country / executing agency are required to set up suitable monitoring mechanism Half-yearly status reports by executing authorities Comprehensive project completion reports along with visual documentation giving benefits derived from the project and its socioeconomic impact.
19 Wide Range of Projects Financed: Examples PROJECTS/SECTORS FINANCED Agricultural Projects Construction Projects Irrigation LOC RECIPIENT COUNTRIES : Burkina Faso, Cameroon, Chad, Cote d Ivoire, Gambia, Ghana, Madagascar, Mali, Senegal, Sierra Leone, Sudan, Tanzania : Gabon, Gambia, Ghana : Lesotho, Malawi, Mozambique, Senegal Power Generation Power Transmission & Distribution, Rural Electrification Railway Rehabilitation Road Transportation : D.R. Congo,Equatorial Guinea, Ethiopia, Mali, Mozambique, Niger, Sudan : Burkina Faso, Ghana, Mali, Mozambique, Senegal : Angola, Benin, Ghana, Mali, Senegal : Central African Republic, Cote d Ivoire, Ghana, Niger, Senegal Technology (Parks & Training) : Cote d Ivoire, D.R. Congo, Mozambique, Senegal Sugar Industry Rehabilitation : Ethiopia, Sudan
Success Story: Angola 20 Modernization and upgradation of workshop, supply of 41 coaches, 3 locomotives, 2 Diesel Multiple Units and pick-up vehicles and buses. Coaches are operating between Namibe and Matala (434 km) carrying, both passenger and freight traffic. Indian company also imparted training to technical professionals of Mocamedes Railways. Provides cheaper mode of transportation as compared to road Locomotives and coaches were supplied for rehabilitation of Railway in Angola under the LOC of US$ 40 mn Facilitated exploration of Kassinga Mines deposit bed (iron ore) in the municipality of Jamba Huila Province. Farmers using railway to transport their agricultural products to interior regions at reasonable price.
Success Story: Senegal 21 Coverage area under irrigation has increased morethantwofoldfrom24,500hain2006-07 to65,000hain2008-09. Rice production in the region has also gone up by 177% from 130,000 tonnes in 2006-07 to 360,000 tonnes in 2008-09. Now, around 40% of the rice demand of Northern Senegal could be met by local production, as compared to the earlier 19% of local demand. Reduced the import bill of food products as also generated employment as field workers Under the LOC of US$ 27 mn to the Govt. of Senegal, Indian company manufactured, supplied and installed 2394 diesel engine pumpsets in rice producing zones of Senegal (particularly women farmers) and servicing staff of equipment.
22 Case Study: Ethiopia Revamping Sugar Sector Rehabilitation of existing facilities (Finchaa and WonjiShoa). Creating a new green field project (Tendaho) with total capacity to produce 26,000 tons per day of raw/refined sugar. Phase I to be commissioned in mid-2012, followed by Phase II in 2013. Central to the progress of Ethiopia's Agriculture sector Contracts for Sugar Development Projects under the LOCs of USD 640 mn to Government of Ethiopia
23 Lessons Learned Importance of a high-quality Detailed Project Report (DPR). Involvement of a highly qualified consultant as Lenders Engineer or Project Management Consultant. Key prerequisites to avoid delays and disruptions include: Financial Closure Site Availability, allocation and handover Availability of power, water Completion of local erection and commissioning Wide dissemination of tender notices under LOCs including advertising in Indian newspapers, placement on Exim Bank website, circulation to chambers of commerce and industry bodies in India.
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