#  FACT SHEET

EX-IM BANK\'S APPROACH TO THE POLITICAL RISK ONLY (PRO) PROCESS

**[FOR PROJECT FINANCE]{.smallcaps}**

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Project finance lenders have grown more comfortable in many emerging
markets with the commercial aspects of limited recourse project
financing. There has been an increase in demand for Ex-Im Bank political
risk only (PRO) coverage for the term of the debt. In order to meet
market demand and arrive at a transparent and cost effective process,
Ex-Im Bank has created a streamlined process for its PRO coverage.

The PRO process permits Ex-Im Bank to support eligible limited recourse
projects and reduces the overall time, cost and administrative burden of
the review and approval process. The limited scope of PRO coverage,
however, does not remove the need for due diligence. Ex-Im Bank is
concerned about the credit quality of all projects, regardless of cover.
In the event that a claim is paid under the PRO coverage, Ex-Im Bank\'s
recovery prospects will depend upon the viability of the project
company. The goal of the PRO process is to balance the intensive project
finance due diligence requirements with the limited Ex-Im Bank role as a
PRO guarantor.

The framework for the analysis and processing of project finance
applications for PRO coverage is outlined below: ( Please note that this
fact sheet applies to those cases that are initially presented to the
Project Finance Division as political risk only.)

**[FRAMEWORK FOR ANALYSIS]{.smallcaps}**

Ex-Im Bank will consider the following questions:

> 1\. Are there aspects to the proposed project arrangements that could
> influence, precipitate or cause an event to occur which could result
> in a claim being made under the PRO Guarantee?
>
> 2\. Are there industry specific issues that could result in greater
> political risk?
>
> 3\. If a claim is made on the PRO Guarantee, is the project capable of
> repaying the debt?
>
> 4\. Is the host country a party to an international convention or is
> there a project specific agreement providing some other form of
> government support? This could mitigate the risk of a claim being paid
> under Ex-Im Bank\'s PRO coverage or increase the likelihood of
> recovery after a claim is made.

EBD-P-04 May 2001

In offering PRO cover, Ex-Im Bank will consider matters (referred to as
AEx-Im Bank Issues@) which affect (a) stakeholder (notably the sponsors
and Government) risk sharing, (b) identity of the sponsors (owners) and
their retention of equity interest in the project, (c) financial and
technical capability of all project participants, and (d) the overall
structure of the commercial financing including collateral security
package.

In addition, the project must comply with OECD guidelines, the
requirements of Ex-Im Bank\'s Engineering and Environment Division, and
Ex-Im Bank\'s policies and procedures regarding utilization.

In order to make a determination based on the Ex-Im Bank Issues listed
above, the initial review and analysis will be comprehensive. Ex-Im Bank
will, therefore, require complete information and documentation on all
aspects relating to a project prior to the commencement of the
Preliminary Project Letter (PPL) analysis.

**[PROCESS FOR THE PRO APPLICATION]{.smallcaps}**

The application process and information requirements for PRO coverage
are identical to those outlined in the fact sheet \"Ex-Im Bank\'s
Approach to Project Finance\" with the following clarifications:

> **Project Status:** The project is to be substantially developed when
> the application is submitted. Ex-Im Bank will expect that all major
> project participants be identified, the major offtake agreements and
> fuel supply/feedstock agreements be substantially finalized, the
> commercial banks be selected and their term sheets be [substantially
> executed and committed]{.underline}. The role of the host government
> and the scope of the host government support, if any, should be
> substantially developed.
>
> This expedited process means that the projects seeking PRO coverage
> should be at a more advanced stage of development since Ex-Im Bank
> does not plan to be actively engaged in the day-to-day negotiations
> after the resolution of Ex-Im Bank=s issues. By requiring the project
> structure to be substantially developed at the time of the initial
> review, Ex-Im Bank is seeking to assure that changes made by other
> parties to the project structure during subsequent negotiations **be
> minimal** so that continuous reviews are not necessary. The commercial
> structure may be different than a structure that Ex-Im Bank would
> expect to see if it were offering comprehensive cover, however, the
> project team will not seek to make commercial changes unless they
> impact the Ex-Im Issues.
>
> Ex-Im Bank strongly recommends that applicants discuss their projects
> with the Business Development Group in order to assure that all
> required information is supplied.
>
> It may not always be possible to wait until the project structure is
> substantially developed before submitting an application for Ex-Im
> Bank support, e.g., in competitive bid situations where U.S. exporters
> are competing against officially supported foreign competition. At the
> applicant=s specific request, Ex-Im Bank may consider deviating from
> this approach; therefore, this requirement will be reviewed on a
> case-by-case basis. The time and cost for reviewing and approving a
> project will most likely be greater when an application is submitted
> to Ex-Im Bank before the project structure is substantially developed.
>
> **Financial and Legal Advisors:** Both the financial advisors and
> outside legal (both U.S. and local) should be engaged from the start
> of the PPL phase. The role of Ex-Im Bank\'s outside counsel is
> expected to be more limited with PRO coverage than it traditionally
> has been in the transactions in which Ex-Im Bank is taking commercial
> risk. However; early involvement of outside counsel, should compress
> the evaluation time and provide a more efficient identification of
> Ex-Im Bank issues.

**[THE PPL]{.smallcaps}**

The initial 45 day review under the PRO coverage will be comprehensive,
including a review of the project documents and structure. The review
will focus primarily on the Ex-Im Issues as stated above. At the end of
this 45 day period, Ex-Im Bank will issue its PPL with a focus on the
Ex-Im Issues.

**[POST PPL]{.smallcaps}**

It is Ex-Im Bank\'s goal [not]{.underline} to be involved in the
day-to-day negotiation of the project to financial close, with the
exception of the Ex-Im Issues. The applicant should be in contact with
the loan officer and/or the financial advisors on a regular basis to
discuss questions regarding the Ex-Im Issues. Ex-Im Bank=s Office of
General Counsel and the outside counsel will also monitor the progress
of the transaction through periodic reviews of drafts of the major loan
documents. They will also prepare Ex-Im Bank=s political risk agreement
and review other loan documents.

Ex-Im Bank does not intend to participate in on-going negotiating
sessions to financial close except to ensure that the overall project
structure satisfactorily addresses the Ex-Im Issues. The need for Ex-Im
Bank, its financial advisor and/or its outside counsel to attend the
financial closing to monitor any last minute changes to the documents
will be determined by Ex-Im Bank

on a case-by-case basis.

[**INFORMATION REQUIREMENTS**:]{.smallcaps}

The information requirements for final consideration are:

> 1\. An executed EPC Contract, with all appendices and attachments;
>
> 2\. A substantially final Acquisition List and other required
> \"eligibility\" documentation;
>
> 3\. A substantially final breakdown of all project costs, including
> those costs associated with other financing tranches such as an
> Overseas Private Investment Corporation tranche, another export credit
> agency tranche, a multilateral tranche, etc.;
>
> 4\. An updated financial model reflecting current information and
> assumptions, including the breakdown of project costs and the amounts
> reflected in the Acquisition List;
>
> 5\. Substantially final forms of all project documents, blacklined
> against the drafts reviewed during the PPL phase; and

6.  Substantially final drafts of the technical consultants\' reports
    (engineering, environmental, fuel, insurance, etc.).