the exporter or the exporter’s bank rather than the Project Company, although
Sponsors of major projects usually have their own direct discussions with ECAs.
ECA ﬁnancial support for exports (i.e., offering ﬁnance at low rates) is pro-
vided in two different ways:
Direct loans. Some countries, such as the United States, Canada, and Japan,
have Export–Import Banks that can lend directly to the Project Company in a
similar wayto a private-sector commercial bank, but at lowﬁxed interest rates.
Interest rate subsidies. Other countries, such as France (COFACE), Italy
(SACE), and the United Kingdom (ECGD), rely on the commercial banking
market to fund export credits, but provide an interest rate subsidy. In effect,
the ECA enters into an interest rate swap agreement with the commercial
banks (cf. §9.2.1), enabling them to provide the Project Company with a low
ﬁxed rate of interest. (In some countries the interest rate support is provided
by a different body than the provider of the export credit insurance—
Similarly, ECA credit support for exports (i.e., assumption of political and
other risks) is also provided in two different ways:
Direct loans. If the ECA provides a direct loan it takes the whole credit risk of
the project on to its own books, although in some cases a commercial bank
guarantee is needed (e.g., for the completion risk).
Credit insurance. Other ECAs insure or guarantee loans made by private-
sector banks (i.e., provide full cover) or speciﬁc risks under the loans, such
as political risks (i.e., provide political risk cover). ECA-covered loans are
attractive to commercial banks because their banking regulatory authorities
normally allow them to allocate less of their own capital to support such
In most cases where the ECAs insure loans, an insurance payment is trig-
gered only if the covered risks lead to a default in payment by the Project
Company (i.e., these are payment guarantees not performance guarantees).
Many ECAs do not then repay the commercial banks’ loan immediately, but
only according to its original repayment schedule (with interest).
Some countries, such as the United Kingdom, are now advocating abolition of
ﬁnancial support (i.e., low-rate loans or subsidized interest rates) for exports, with
the aim of restricting ECAs to providing “pure cover” (i.e., credit insurance for ex-
ports, but with ﬁnance at market interest rates).
220 Chapter 11 Political Risk Guarantees, Insurance, and Finance