Proposal for a Council Decision on the application of certain guidelines in the field of officially supported export credits
Date: 2004-04-22
Institutions: European Commission
Subjects: OECD, State aid, aid system, export credit, export financing

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 22.4.2004 
COM(2004) 287 final 

2004/0101 (ACC) 

Proposal for a 

COUNCIL DECISION 

on the application of certain guidelines in the field of officially supported export credits 

(presented by the Commission) 

EN 

   EN 

 
 
 
  
1. 

2. 

3. 

4. 

5. 

6. 

EXPLANATORY MEMORANDUM 

The  Community  is  a  Participant1  in  the  Arrangement  on  Guidelines  for  Officially 
Supported  Export  Credits  ("the  Arrangement")  concluded  in  the  framework  of  the 
OECD. The Arrangement has always been incorporated into Community law by way 
of  Council  Decision.  The  current  version  of  the  Arrangement  applicable  in  the 
Community  is  the  Decision  (2001/76/EC)  of  22  December  2000,  which  was 
amended by Council Decision of 22 July 2002 with respect of export credits for ships 
(2002/634/EC). Decision 2001/76/EC is supplemented by the Decision (2001/77/EC) 
of 22 December 2000 setting forth specific rules on export credits for project finance.  

The proposed draft Decision is the redrafted and consolidated Arrangement text. The 
revision was undertaken in order to amend and streamline the text following the three 
broad  objectives,  namely  to  enhance  user-friendliness,  to  improve  consistency  with 
regard  to  relevant  WTO  obligations  and  to  insert  more  transparency  vis-à-vis  non-
Participants.  

The  most  important  changes  which  have  been  made  are  as  follows:  first,  a  new 
article was inserted stating that the Participants undertake to share information with 
non-Participants,  in  particular  in  a  competitive  situation.  Second,  the  scope  of  the 
application of the Arrangement has been ring-fenced by giving a clearer definition of 
official  support.  Third,  a  clause  was 
the  offset  or 
compensation  of  credit  risk  premiums  by  other  means  of  financial  support.  Fourth, 
all  articles  on  the  minimum  premium  rate  for  credit  risk  have  been  revamped  with 
the  clarification  that  the  premium  for  credit  risk  shall  be  charged  in  addition  to 
interest.  Fifth,  on  matching  a  minimum  formal  procedure  was  introduced  to  avoid 
pure  unilateral  action.  And  last  but  not  least,  a  new  annex  lists  definitions  of  key 
concepts and technical terms. 

introduced  preventing 

Moreover, the specific rules on export credits for project finance and export credits 
for ships have been integrated in the revised Arrangement text.  

The main objective of the Arrangement on guidelines for officially supported export 
credits  is  to  regulate  governments’  role  in  export  credits,  so  that  exports  reflect 
quality  and  prices  rather  than  the  most  favourable  officially  supported  terms,  and 
hence to establish equal conditions of competition among exporters.  

The  Arrangement  is  the  international  reference  framework  which  governs  official 
support  for  export  credits  with  a  repayment  term  of  two  years  or  more,  relating  to 
exports  of  goods  and/or  services  or  to  financial  leases.  It  also  addresses  the 
circumstances in which official support in the form of tied aid may be given and/or 
mixed with officially supported export credits. 

1 

The  Participants  in  the  Arrangement  are:  Australia,  Canada,  the  Czech  Republic,  the  European 
Community, Japan, New Zealand, Norway, South Korea, Switzerland and the United States. 

2 

 
 
  
 
                                                 
7. 

8. 

9. 

The Arrangement places limitations on the terms and conditions of export credits that 
benefit from official support. Such limitations include minimum premium rates, the 
minimum  cash  payment  to  be  made  at  or  before  the  starting  point  of  credit, 
maximum  repayment  terms  and  minimum  interest  rates  which  benefit  from  official 
financing  support.  There  are  also  restrictions  on  the  provisions  of  tied  aid  and 
transparency  obligations  for  trade-related  untied  aid.  Finally,  the  Arrangement 
includes procedures for prompt and prior notification, consultation, and exchange of 
information and review.  

The  Commission  considers 
introduced  an  effective 
international discipline which obviously exerts downward pressure on subsidies. The 
Arrangement has helped to prevent distortions of competition linked with officially 
supported export credits.  

the  Arrangement 

that 

The Commission therefore requests the Council to adopt the draft decision approving 
the revised Arrangement text and ensuring its application in Community law. 

3 

 
 
  
 
2004/0101 (ACC) 

Proposal for a 

COUNCIL DECISION 

on the application of certain guidelines in the field of officially supported export credits 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 133 thereof, 

Having regard to the proposal from the Commission, 

Whereas: 

(1) 

(2) 

(3) 

The  Community  is  party  to  the  Arrangement  on  guidelines  for  officially  supported 
export  credits  concluded  within  the  OECD,  hereinafter  referred  to  as  "the 
Arrangement". 

By  virtue  of  Council  Decision  2001/76/EC  of  22  December  2000  replacing  the 
Decision  of  4  April  1978  on  the  application  of  certain  guidelines  in  the  field  of 
officially  supported  export  credits2  and  of  Council  Decision  2001/77/EC  of  22 
December 2000 on the application of principles of a framework agreement on project 
finance  in  the  field  of  officially  supported  export  credits,3  the  guidelines  to  the 
Arrangement and the specific rules for project finance apply to the Community. 

The  Participants  in  the  Arrangement  decided  to  amend  and  rationalise  the 
Arrangement. Changes approved by them cover the enhancement of user-friendliness, 
the  improvement  of  consistency  in  the  relevant  international  obligations  and  the 
achievement  of  greater  transparency,  in  particular  with  regard  to  non-Participants. 
Moreover, the Participants in the Arrangement also decided to incorporate in the text 
of  the  Arrangement  the  rules  on  project  finance  which  were  introduced  by  Decision 
2001/77/EC,  and  the  rules  for  export  credits  for  ships,  which  were  introduced  by 
Council Decision 2002/634/EC4. 

(4) 

Decision  2001/76/EC  should  therefore  be  replaced  by  this  Decision  with  the 
consolidated  and  revised  text  of  the  Arrangement  in  its  Annex,  and  Decision 
2001/77/EC should be repealed. 

2 
3 
4 

OJ L 32, 2.2.2001, p. 1. Decision as last amended by the Act of Accession of 2003 
OJ L 32, 2.2.2001, p. 55 
OJ L 206, 3.8.2002, p.16 

4 

 
 
  
 
                                                 
HAS ADOPTED THIS DECISION: 

Article 1 

The  guidelines  contained  in  the  Arrangement  annexed  to  this  Decision  shall  apply  in  the 
Community. 

Decision 2001/76/EC and the Annex thereto are replaced by this Decision and its Annex. 

Article 2 

Decision 2001/77/EC is repealed. 

Article 3 

This Decision is addressed to the Member States. 

Done at Brussels, […] 

For the Council 
The President 

5 

 
 
  
 
 
 
ANNEX 

ARRANGEMENT FOR OFFICIALLY SUPPORTED EXPORT CREDITS 

TABLE OF CONTENTS 

CHAPTER I: GENERAL PROVISIONS.................................................................................14 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

PURPOSE ...................................................................................................................14 

STATUS .....................................................................................................................14 

PARTICIPATION ......................................................................................................14 

INFORMATION AVAILABLE TO NON-PARTICIPANTS ...................................14 

SCOPE OF APPLICATION.......................................................................................15 

SPECIFIC SECTORAL PROVISIONS .....................................................................15 

WITHDRAWAL.........................................................................................................16 

MONITORING...........................................................................................................16 

CHAPTER II: FINANCIAL TERMS AND CONDITIONS FOR EXPORT CREDITS.........16 

9. 

10. 

11. 

12. 

13. 

14. 

15. 

16. 

17. 

18. 

19. 

20. 

21. 

22. 

DOWN PAYMENT, MAXIMUM OFFICIAL SUPPORT AND LOCAL COSTS ..16 

CLASSIFICATION OF COUNTRIES FOR MAXIMUM REPAYMENT TERMS 17 

MAXIMUM REPAYMENT TERMS ........................................................................18 

REPAYMENT TERMS FOR NON-NUCLEAR POWER PLANT ..........................18 

REPAYMENT OF PRINCIPAL ................................................................................19 

PAYMENT OF INTEREST .......................................................................................19 

VALIDITY PERIOD FOR EXPORT CREDITS .......................................................19 

ACTION TO AVOID OR MINIMISE LOSSES .......................................................20 

MATCHING ...............................................................................................................20 

MINIMUM FIXED INTEREST RATES UNDER OFFICIAL FINANCING SUPPORT
....................................................................................................................................20 

CONSTRUCTION OF CIRRs....................................................................................20 

VALIDITY OF CIRRs ...............................................................................................21 

APPLICATION OF CIRRs ........................................................................................21 

PREMIUM FOR CREDIT RISK................................................................................21 

6 

 
 
  
 
23. 

24. 

25. 

26. 

27. 

28. 

MINIMUM PREMIUM RATES FOR COUNTRY AND SOVEREIGN CREDIT RISK
....................................................................................................................................22 

COUNTRY RISK CLASSIFICATION......................................................................23 

CLASSIFICATION OF MULTILATERAL AND REGIONAL INSTITUTIONS...25 

PERCENTAGE AND QUALITY OF OFFICIAL EXPORT CREDIT COVER ......25 

EXCLUSION OF SELECTED COUNTRY RISK ELEMENTS AND COUNTRY RISK 
MITIGATION TECHNIQUES ..................................................................................25 

REVIEW OF THE VALIDITY OF THE MINIMUM PREMIUM RATES FOR 
COUNTRY AND SOVEREIGN CREDIT RISK ......................................................27 

CHAPTER III: PROVISIONS FOR TIED AID.......................................................................27 

29. 

30. 

31. 

32. 

33. 

34. 

35. 

36. 

37. 

38. 

GENERAL PRINCIPLES ..........................................................................................27 

FORMS OF TIED AID...............................................................................................27 

ASSOCIATED FINANCING.....................................................................................28 

COUNTRY ELIGIBILITY FOR TIED AID..............................................................29 

PROJECT ELIGIBILITY ...........................................................................................30 

MINIMUM CONCESSIONALITY LEVEL..............................................................31 

EXEMPTIONS FROM COUNTRY OR PROJECT ELIGIBILITY FOR TIED AID31 

CALCULATION OF CONCESSIONALITY LEVEL OF TIED AID......................31 

VALIDITY PERIOD FOR TIED AID .......................................................................33 

MATCHING ...............................................................................................................34 

CHAPTER IV: PROCEDURES ...............................................................................................34 

SECTION 1: COMMON PROCEDURES FOR EXPORT CREDITS AND TRADE-RELATED AID
...................................................................................................................................................34 

39. 

40. 

41. 

42. 

STANDARD FORM FOR ALL NOTIFICATIONS .................................................34 

INFORMATION ON OFFICIAL SUPPORT ............................................................34 

PROCEDURES FOR MATCHING ...........................................................................34 

SPECIAL CONSULTATIONS ..................................................................................35 

SECTION 2: PROCEDURES FOR EXPORT CREDITS..........................................................35 

43. 

PRIOR NOTIFICATION WITH DISCUSSION .......................................................35 

7 

 
 
  
 
44. 

PRIOR NOTIFICATION WITHOUT DISCUSSION ...............................................36 

SECTION 3: PROCEDURES FOR TRADE-RELATED AID ...................................................36 

45. 

46. 

PRIOR NOTIFICATION ...........................................................................................36 

PROMPT NOTIFICATION .......................................................................................37 

SECTION 4: CONSULTATION PROCEDURES FOR TIED AID ...........................................37 

47. 

48. 

49. 

PURPOSE OF CONSULTATIONS...........................................................................37 

SCOPE AND TIMING OF CONSULTATIONS.......................................................38 

OUTCOME OF CONSULTATIONS ........................................................................38 

SECTION 5: INFORMATION EXCHANGE FOR EXPORT CREDITS AND TRADE-RELATED 
AID ............................................................................................................................................39 

50. 

51. 

52. 

53. 

54. 

55. 

56. 

57. 

58. 

59. 

CONTACT POINTS...................................................................................................39 

SCOPE OF ENQUIRIES............................................................................................39 

SCOPE OF RESPONSES...........................................................................................39 

FACE-TO-FACE CONSULTATIONS ......................................................................40 

PROCEDURES AND FORMAT OF COMMON LINES .........................................40 

RESPONSES TO COMMON LINE PROPOSALS...................................................41 

ACCEPTANCE OF COMMON LINES ....................................................................41 

DISAGREEMENT ON COMMON LINES...............................................................41 

EFFECTIVE DATE OF COMMON LINE ................................................................42 

VALIDITY OF COMMON LINES............................................................................42 

SECTION 6: OPERATIONAL PROVISIONS FOR THE COMMUNICATION OF MINIMUM 
INTEREST RATES (CIRRs) ......................................................................................................42 

60. 

61. 

62. 

63. 

64. 

COMMUNICATION OF MINIMUM INTEREST RATES......................................42 

EFFECTIVE DATE FOR APPLICATION OF INTEREST RATES ........................43 

IMMEDIATE CHANGES IN INTEREST RATES ...................................................43 

REGULAR REVIEW OF THE ARRANGEMENT...................................................43 

REVIEW OF MINIMUM INTEREST RATES .........................................................43 

8 

 
 
  
 
65. 

REVIEW OF MINIMUM PREMIUM RATES AND RELATED ISSUES ..............43 

ANNEX I: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR SHIPS ................45 

CHAPTER I: SCOPE OF THE SECTOR UNDERSTANDING .............................................45 

1. 

2. 

PARTICIPATION ......................................................................................................45 

SCOPE OF APPLICATION.......................................................................................45 

CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND TIED AID ............................46 

3. 

4. 

5. 

6. 

7. 

MAXIMUM REPAYMENT TERM ..........................................................................46 

CASH PAYMENT .....................................................................................................46 

REPAYMENT OF PRINCIPAL ................................................................................46 

MINIMUM PREMIUM..............................................................................................46 

AID .............................................................................................................................46 

CHAPTER III: PROCEDURES ...............................................................................................46 

8. 

9. 

NOTIFICATION ........................................................................................................46 

REVIEW .....................................................................................................................47 

ATTACHMENT: COMMITMENTS FOR FUTURE WORK ................................................48 

ANNEX II: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR NUCLEAR POWER 
PLANT......................................................................................................................................49 

CHAPTER I: SCOPE OF THE SECTOR UNDERSTANDING .............................................49 

1. 

2. 

SCOPE OF APPLICATION.......................................................................................49 

REVIEW .....................................................................................................................49 

CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND TIED AID ............................50 

3. 

4. 

5. 

6. 

7. 

MAXIMUM REPAYMENT TERM ..........................................................................50 

MINIMUM INTEREST RATES................................................................................50 

CONSTRUCTION OF SCIRRS.................................................................................50 

LOCAL COSTS AND CAPITALISATION OF INTEREST ....................................50 

OFFICIAL SUPPORT FOR NUCLEAR FUEL ........................................................50 

9 

 
 
  
 
8. 

AID .............................................................................................................................51 

CHAPTER III: PROCEDURES ...............................................................................................51 

9. 

10. 

PRIOR CONSULTATION.........................................................................................51 

PRIOR NOTIFICATION ...........................................................................................51 

ANNEX III: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR CIVIL AIRCRAFT
...................................................................................................................................................53 

PART 1. NEW LARGE AIRCRAFT AND ENGINES FOR SUCH AIRCRAFT ..................53 

CHAPTER I: SCOPE................................................................................................................53 

1. 

2. 

FORM AND SCOPE OF APPLICATION.................................................................53 

OBJECTIVE ...............................................................................................................53 

CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND AID ......................................54 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

10. 

11. 

12. 

13. 

14. 

15. 

DOWN PAYMENT....................................................................................................54 

MAXIMUM REPAYMENT TERM ..........................................................................54 

ELIGIBLE CURRENCIES.........................................................................................54 

MINIMUM INTEREST RATES................................................................................54 

INTEREST RATE ADJUSTMENTS.........................................................................55 

VALIDITY PERIOD FOR EXPORT CREDITS/INTEREST RATE OFFERS........55 

DETERMINATION OF INTEREST RATE OFFERS AND SELECTION OF 
INTEREST RATES ....................................................................................................56 

PURE COVER SUPPORT .........................................................................................56 

COMPETITION REFERENCE POINT.....................................................................56 

SECURITY FOR THE REPAYMENT RISK............................................................56 

MODEL CHANGES ..................................................................................................56 

LEASES......................................................................................................................56 

AID .............................................................................................................................57 

CHAPTER III: PROCEDURES ...............................................................................................57 

16. 

PRIOR NOTIFICATION, MATCHING AND INFORMATION EXCHANGE ......57 

10 

 
 
  
 
17. 

REVIEW .....................................................................................................................57 

CHAPTER IV: SCOPE.............................................................................................................57 

18. 

19. 

20. 

FORM AND SCOPE OF APPLICATION.................................................................57 

BEST ENDEAVOURS...............................................................................................57 

CATEGORIES OF AIRCRAFT.................................................................................58 

CHAPTER V: PROVISIONS FOR EXPORT CREDITS AND AID ......................................58 

21. 

22. 

23. 

24. 

MAXIMUM REPAYMENT TERM ..........................................................................58 

MINIMUM INTEREST RATES................................................................................58 

INSURANCE PREMIUM AND GUARANTEE FEES ............................................58 

AID .............................................................................................................................58 

CHAPTER VI: PROCEDURES ...............................................................................................59 

25. 

26. 

PRIOR NOTIFICATION, MATCHING AND INFORMATION EXCHANGE ......59 

REVIEW .....................................................................................................................59 

PART 3: USED AIRCRAFT, SPARE ENGINES, SPARE PARTS, MAINTENANCE AND 
SERVICE CONTRACTS .........................................................................................................59 

CHAPTER VII: SCOPE ...........................................................................................................59 

27. 

28. 

29. 

30. 

FORM AND SCOPE OF APPLICATION.................................................................59 

USED AIRCRAFT .....................................................................................................59 

SPARE ENGINES AND SPARE PARTS .................................................................60 

MAINTENANCE AND SERVICE CONTRACTS ...................................................61 

CHAPTER VIII: PROCEDURES ............................................................................................61 

31. 

32. 

PRIOR NOTIFICATION, MATCHING AND INFORMATION EXCHANGE ......61 

REVIEW .....................................................................................................................61 

APPENDIX I: Illustrative List..................................................................................................61 

LARGE CIVIL AIRCRAFT.....................................................................................................61 

CATEGORY A AIRCRAFT ....................................................................................................63 

CATEGORY B AIRCRAFT ....................................................................................................64 

11 

 
 
  
 
ANNEX IV: STANDARD FORM FOR NOTIFICATIONS ...................................................66 

ANNEX V: CALCULATION OF THE MINIMUM PREMIUM RATES..............................68 

ANNEX VI: CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF 
COUNTRY RISK CLASSIFICATION REFLECTING A THIRD COUNTRY GUARANTOR 
OR A MULTILATERAL OR REGIONAL INSTITUTION ...................................................70 

PURPOSE .................................................................................................................................70 

APPLICATION ........................................................................................................................71 

ANNEX VII: CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF 
COUNTRY RISK MITIGATION/EXCLUSION IN CALCULATING THE MINIMUM 
PREMIUM RATES ..................................................................................................................73 

PURPOSE .................................................................................................................................73 

GENERAL APPLICATION.....................................................................................................73 

SPECIFIC APPLICATION ......................................................................................................74 

ANNEX VIII: INFORMATION TO BE PROVIDED FOR PREMIUM-RELATED 
NOTIFICATIONS ....................................................................................................................82 

BASIC INFORMATION..........................................................................................................83 

ADDITIONAL INFORMATION FOR ALL NOTIFICATIONS MADE UNDER ARTICLE 27
...................................................................................................................................................84 

ADDITIONAL INFORMATION FOR ALL NOTIFICATIONS MADE UNDER THE FIRST 
TIRET OF ARTICLE 23 e) ......................................................................................................84 

ADDITIONAL INFORMATION FOR ALL NOTIFICATIONS MADE UNDER THE SECOND 
TIRET OF ARTICLE 23 e) ......................................................................................................85 

ANNEX IX : CHECKLIST OF DEVELOPMENTAL QUALITY..........................................85 

CHECKLIST OF DEVELOPMENTAL QUALITY OF AID-FINANCED PROJECTS ........85 

CONSISTENCY OF THE PROJECT WITH THE RECIPIENT COUNTRY'S OVERALL 
INVESTMENT PRIORITIES (PROJECT SELECTION) .......................................................85 

PROJECT PREPARATION AND APPRAISAL.....................................................................86 

PROCUREMENT PROCEDURES..........................................................................................86 

ANNEX X: UNDERSTANDING ON THE APPLICATION OF FLEXIBILITY TO THE 
TERMS AND CONDITIONS OF THE ARRANGEMENT ON GUIDELINES FOR 

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OFFICIALLY SUPPORTED EXPORT CREDITS IN RESPECT OF PROJECT FINANCE 
TRANSACTIONS FOR A TRIAL PERIOD (UNTIL 31 DECEMBER 2004).......................87 

CHAPTER I: SCOPE................................................................................................................87 

1. 

FORM AND SCOPE OF APPLICATION.................................................................87 

CHAPTER II: PROVISIONS FOR EXPORT CREDITS ........................................................87 

2. 

3. 

4. 

REPAYMENT OF PRINCIPAL AND MAXIMUM REPAYMENT TERMS .........87 

PAYMENT OF INTEREST .......................................................................................88 

MINIMUM INTEREST RATES................................................................................88 

CHAPTER III: PROCEDURES ...............................................................................................88 

5. 

PERMITTED EXCEPTIONS: PRIOR NOTIFICATION WITH EXPLANATION.88 

CHAPTER IV: REVIEW..........................................................................................................89 

6. 

TRIAL PERIOD AND MONITORING.....................................................................89 

APPENDIX 1: DESCRIPTION AND CRITERIA...................................................................89 

GENERAL DESCRIPTION .....................................................................................................90 

ESSENTIAL CRITERIA..........................................................................................................90 

ILLUSTRATIVE CRITERION................................................................................................90 

APPENDIX 2: ADDITIONAL INFORMATION FOR NOTIFICATIONS............................91 

ANNEX XI: LIST OF DEFINITIONS.....................................................................................91 

13 

 
 
  
 
CHAPTER I: GENERAL PROVISIONS 

1. 

a) 

b) 

PURPOSE 

The main purpose of the Arrangement on Officially Supported Export Credits, referred to 
throughout this document as the Arrangement, is to provide a framework for the orderly 
use of officially supported export credits. 

The Arrangement seeks to foster a level playing field for official support, as defined in 
Article 5  a),  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. 

2. 

STATUS 

The  Arrangement,  developed  within  the  OECD  framework,  initially  came  into  effect  in  April 
1978  and  is  of  indefinite  duration.  The  Arrangement  is  a  Gentlemen’s  Agreement  among  the 
Participants; it is not an OECD Act5, although it receives the administrative support of the OECD 
Secretariat (hereafter: “the Secretariat”). 

3. 

PARTICIPATION 

The  Participants  to  the  Arrangement  currently  are:  Australia,  Canada,  the  Czech  Republic,  the 
European Community, Japan, Korea, New Zealand, Norway, Switzerland and the United States. 
Other OECD Members and non-Members may be invited to become Participants by the current 
Participants. 

4. 

a) 

b) 

INFORMATION AVAILABLE TO NON-PARTICIPANTS 

The  Participants  undertake  to  share  information  with  non-Participants  on  notifications 
related to official support as set out in Article 5 a). 

A Participant shall, on the basis of reciprocity, reply to a request from a non-Participant 
in  a  competitive  situation  on  the  financial  terms  and  conditions  offered  for  its  official 
support, as it would reply to a request from a Participant. 

5 

As defined in Article 5 of the OECD Convention 

14 

 
 
  
 
                                                 
5. 

SCOPE OF APPLICATION 

The Arrangement shall apply to all official support provided by or on behalf of a government for 
export of goods and/or services, including financial leases, which have a repayment term of two 
years or more.  

a) 

Official support may be provided in different forms: 

1) 

Export credit guarantee or insurance (pure cover) 

2)  Official financing support:  

- 

- 

direct credit/financing and refinancing or 

interest rate support. 

3)  Any combination of the above; 

b) 

c) 

d) 

The Arrangement shall apply to tied aid; the procedures set out in Chapter IV shall also 
apply to trade-related untied aid. 

The  Arrangement  does  not  apply  to  exports  of  Military  Equipment  and  Agricultural 
Commodities. 

Official support shall not be provided if there is clear evidence that the contract has been 
structured with a purchaser in a country which is not the final destination of  the  goods 
primarily with the aim of obtaining more favourable repayment term.  

6. 

SPECIFIC SECTORAL PROVISIONS 

The Participants shall apply specific provisions to the following sectors: 

a) 

Ships 

The Arrangement shall apply to ships not covered by the Sector Understanding on Export Credits 
for  Ships,  which  has  been  adopted  by  all  Participants  to  the  Arrangement  as  an  annex  to  the 
Arrangement (Annex I). For the Participants to the Sector Understanding, the Arrangement shall 
apply to ships covered by that Understanding, except that where a corresponding provision exists 
in  the  Sector  Understanding,  which  complements  the  Arrangement,  the  Sector  Understanding 
shall prevail. 

b) 

Nuclear Power Plant 

The  Arrangement  shall  apply  except  that  where  a  corresponding  provision  exists  in  the  Sector 
Understanding  on  Export  Credits  for  Nuclear  Power  Plant  (Annex  II),  which  complements  the 
Arrangement,  the  Sector  Understanding  shall  prevail.  The  Arrangement  shall  apply  to  official 

15 

 
 
  
 
support  provided  for  the  decommissioning  of  nuclear  power  plant,  i.e.  the  closing  down  or 
dismantling of a nuclear power plant. 

c) 

Civil Aircraft 

The  Arrangement  shall  apply  except  that  where  a  corresponding  provision  exists  in  the  Sector 
Understanding  on  Export  Credits  for  Civil  Aircraft  (Annex  III),  which  complements  the 
Arrangement, the Sector Understanding shall prevail. 

7. 

WITHDRAWAL 

A  Participant  may  withdraw  by  notifying  the  Secretariat  in  writing  by  means  of  instant 
communication, e.g. the OECD On-line Information System (OLIS). The withdrawal takes effect 
180 calendar days after receipt of the notification by the Secretariat. 

8. 

MONITORING 

The Secretariat shall monitor the implementation of the Arrangement. 

CHAPTER II: FINANCIAL TERMS AND CONDITIONS FOR EXPORT CREDITS 

Financial  terms  and  conditions  for  export  credits  encompass  all  the  provisions  set  out  in  this 
Chapter which shall be read in conjunction one with the other.  

The  Arrangement  sets  out  limitations  on  terms  and  conditions  that  may  be  officially  supported. 
The Participants recognise that more restrictive financial terms and conditions than those provided 
for by the Arrangement traditionally apply to certain trade or industrial sectors. The Participants 
shall continue to respect such customary financial terms and conditions, in particular the principle 
by which repayment terms do not exceed the useful life of the goods. 

9. 

DOWN PAYMENT, MAXIMUM OFFICIAL SUPPORT AND LOCAL COSTS 

a) 

The  Participants  shall  require  purchasers  of  goods  and  services  which  are  the 
subject of official support to make down payments of a minimum of 15 per cent of 
the  export  contract  value  at  or  before  the  starting  point  of  credit  as  defined  in 
Annex XI. For the assessment of down payments, the export contract value may be 
reduced proportionally if the transaction includes goods and services from a third 
country  which  are  not  officially  supported.  Retention  payments  made  after  the 
starting point of credit are not regarded as down payment in this context. 

b)  Official support for such down payments shall only take the form of insurance or 

guarantee against the usual pre-credit risks. 

16 

 
 
  
 
c) 

Except as provided for in paragraphs (b) and (d), the Participants shall not provide 
official support in excess of 85 per cent of the export contract value, including third 
country supply but excluding local costs.  

d) 

The Participants may provide official support for local costs, provided that: 

1) 

2) 

3) 

The total combined official support provided pursuant to paragraphs (c) 
and  (d)  shall  not  exceed  100  per  cent  of  the  export  contract  value.  In 
consequence, the amount of local costs supported shall not exceed the 
amount of the down payment. 

It shall not be provided on terms  more favourable/less restrictive than 
those agreed for the related exports.  

For Category I countries as defined in Article 10 a), it shall be limited 
to pure cover. 

10. 

CLASSIFICATION OF COUNTRIES FOR MAXIMUM REPAYMENT TERMS 

a) 

Category I countries are those which are on the World Bank's graduation list6. All 
other countries are in Category II. The World Bank graduation level is recalculated 
on  an  annual  basis.  A  country  will  change  category  only  after  its  World  Bank 
category has remained unchanged for two consecutive years. 

b) 

The following operational criteria and procedures apply when classifying countries: 

1)  Classification for Arrangement purposes is determined by per capita GNI as 
calculated  by  the  World  Bank  for  the  purposes  of  the  World  Bank 
classification of borrowing countries. 

2) 

3) 

In cases where the World Bank does not have enough information to publish 
per capita GNI data, the World Bank shall be asked to estimate whether the 
country in question has per capita GNI above or below the current threshold. 
The  country  shall  be  classified  according  to  the  estimate  unless  the 
Participants decide to act otherwise. 

If  a  country  is  reclassified  in  accordance  with  Article  10  a),  the 
reclassification will take effect two weeks after the conclusions drawn from 
the above-mentioned data from the World Bank have been communicated to 
all Participants by the Secretariat. 

4) 

In  cases  where  the  World  Bank  revises  figures,  such  revisions  shall  be 
disregarded in relation to the Arrangement. Nevertheless, the classification of 

6 

Based  on  the  annual  review  by  the  World  Bank  of  its  country  classification,  a  per  capita  Gross  National 
Income (GNI) threshold will be used for the purpose of classification of country category; such threshold is 
available on the OECD website (www.oecd.org/ech/xcred) 

17 

 
 
  
 
                                                 
a country may be changed by way of a common line and Participants would 
favourably  consider  a  change  due  to  errors  and  omissions  in  the  figures 
subsequently recognised in the same calendar year in which the figures were 
first distributed by the Secretariat. 

11. 

MAXIMUM REPAYMENT TERMS 

Without  prejudice  to  Article  12,  the  maximum  repayment  term  varies  according  to  the 
classification of the country of destination determined by the criteria in Article 10. 

a) 

b) 

c) 

For Category I countries, the maximum repayment term is five years, with the possibility 
of agreeing up to eight-and-a-half years when the procedures for prior notification set out 
in Article 44 are followed. 

For Category II countries, the maximum repayment term is 10 years. 

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 54 
to 59 to reach agreement on appropriate terms. 

12. 

REPAYMENT TERMS FOR NON-NUCLEAR POWER PLANT 

a) 

b) 

For  non-nuclear  power  plant,  the  maximum  repayment  term  shall  be  12  years.  If  a 
Participant intends to support a repayment term longer than that provided for in Article 
11,  the  Participant  shall  give  prior  notification  in  accordance  with  the  procedure  in 
Article 44. 

Non-nuclear  power  plant  are  complete  power  stations,  or  parts  thereof,  not  fuelled  by 
nuclear  power;  they  include  all  components,  equipment,  materials,  and  services 
(including  the  training  of  personnel)  directly  required  for  the  construction  and 
commissioning  of  such  non-nuclear  power  stations.  This  does  not  include  items  for 
which  the  buyer  is  usually  responsible,  e.g.  costs  associated  with  land  development, 
roads,  construction  villages,  power  lines,  and  switchyard  and  water  supply;  as  well  as 
costs arising from official approval procedures (e.g. site permits, fuel loading permits) in 
the buyer’s country, except: 

1) 

2) 

in cases where the buyer of the switchyard is the same as the buyer of the power 
plant, the maximum repayment term for the original switchyard shall be the same 
as that for the non-nuclear power plant (i.e. 12 years); and 

the maximum repayment term for sub-stations, transformers and transmission lines 
with a minimum voltage threshold of 100 kv shall be the same as that for the non-
nuclear power plant. 

18 

 
 
  
 
13. 

REPAYMENT OF PRINCIPAL 

a) 

b) 

The  principal  sum  of  an  export  credit  shall  normally  be  repaid  in  equal  and  regular 
instalments not less frequently than every six months and with the first instalment to be 
made no later than six months after the starting point of credit. In the case of leases, such 
profile  of  repayment  may  be  applied  either  for  the  amount  of  principal  only  or  for  the 
principal and interest combined.  

A Participant intending to support a repayment of principal on different terms than those 
set in paragraph a) shall comply with the following: 

1)  No  single  repayment  or  series  of  repayments  within  a  six  month  period  shall 
exceed 25 per cent of the principal sum repayable during the repayment term. 

2) 

The Participant shall give prior notification in accordance with Article 44. 

14. 

PAYMENT OF INTEREST 

a) 

b) 

c) 

Interest shall not normally be capitalised during the repayment period. 

Interest  shall  be  payable  not  less  frequently  than  every  six  months  and  with  the  first 
payment to be made no later than six months after the starting point of credit. 

A Participant intending to support a payment of interest on different terms than those set 
in paragraph a) and b) shall give prior notification in accordance with Article 44. 

d) 

Interest excludes: 

1)  Any  payment  by  way  of  premium  or  other  charge  for  insuring  or  guaranteeing 
supplier credits or financial credits. Where official support is provided by means of 
direct credits/financing or refinancing, the premium either may be added to the face 
value of the interest rate or may be a separate charge; both components are to be 
specified separately to the Participants; 

2)  Any other payment by way of banking fees or commissions relating to the export 
credit  other  than  annual  or  semi-annual  bank  charges  that  are  payable  throughout 
the repayment period; and 

3)  Withholding taxes imposed by the importing country. 

15. 

VALIDITY PERIOD FOR EXPORT CREDITS 

Financial  terms  and  conditions  for  an  individual  export  credit  or  line  of  credit,  other  than  the 
validity period for Commercial Interest Reference Rates (CIRRs) set out in Article 20, shall not be 
fixed for a period exceeding six months prior to final commitment. 

19 

 
 
  
 
16. 

ACTION TO AVOID OR MINIMISE LOSSES 

The Arrangement does not prevent export credit authorities or financing institutions from agreeing 
to less restrictive  financial terms  and  conditions than those provided  for by the Arrangement, if 
such  action  is  taken  after  the  contract  award  (when  the  export  credit  agreement  and  ancillary 
documents have already become effective) and is intended solely to avoid or minimise losses from 
events which could give rise to non-payment or claims. 

17. 

MATCHING 

Taking into account a Participant’s international obligations and consistent with the purpose of the 
Arrangement, a Participant may match, according to the procedures set out in Article 41, financial 
terms and conditions offered by a Participant or a non-Participant. Financial terms and conditions 
provided in accordance with this Article are considered to be in conformity with the provisions of 
Chapter I, II and, when applicable, Annexes I, II and III.  

18. 

a) 

MINIMUM  FIXED  INTEREST  RATES  UNDER  OFFICIAL  FINANCING 
SUPPORT 

The Participants providing official financing support for fixed rate loans shall apply the 
relevant Commercial Interest Reference Rates (CIRRs) as minimum interest rates. CIRRs 
are interest rates established according to the following principles: 

1)  CIRRs  should  represent  final  commercial  lending  interest  rates  in  the  domestic 

market of the currency concerned; 

2)  CIRRs should closely correspond to the rate for first-class domestic borrowers; 

3)  CIRRs should be based on the funding cost of fixed interest-rate finance; 

4)  CIRRs should not distort domestic competitive conditions; and 

5)  CIRRs  should  closely  correspond  to  a  rate  available  to  first-class  foreign 

borrowers. 

b) 

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 22. 

19. 

CONSTRUCTION OF CIRRS 

a) 

Each  Participant  wishing  to  establish  a  CIRR  shall  initially  select  one  of  the  following 
two base rate systems for its national currency: 

1) 

three-year  government  bond  yields  for  a  repayment  term  of  up  to  and  including 
five-years; five-year government bond yields for over five and up to and including 

20 

 
 
  
 
eight-and-a half years; and seven-year government bond yields for over eight-and-
a-half years; or 

2) 

five-year government bond yields for all maturities. 

Exceptions to the base rate system shall be agreed by the Participants. 

b) 

c) 

d) 

e) 

CIRRs  shall  be  set  at  a  fixed  margin  of  100  basis  points  above  each  Participant’s  base 
rate unless Participants have agreed otherwise. 

Other Participants shall use the CIRR set for a particular currency should they decide to 
finance in that currency. 

A  Participant  may  change  its  base  rate  system  after  giving  six  months’  advance  notice 
and with the counsel of the Participants. 

A  Participant  or  a  non-Participant  may  request  that  a  CIRR  be  established  for  the 
currency  of  a  non-Participant.  In  consultation  with  the  interested  non-Participant,  a 
Participant or the Secretariat on behalf of that non-Participant may make a proposal for 
the  construction  of  the  CIRR  in  that  currency  using  common  line  procedures  in 
accordance with Articles 54 to 59. 

20. 

VALIDITY OF CIRRS 

The interest rate applying to a transaction shall not be fixed for a period longer than 120 days. A 
margin of 20 basis points shall be added to the CIRR if the terms and conditions of the official 
financing support are fixed before the contract date.  

21. 

APPLICATION OF CIRRS 

a) 

b) 

Where  official  financing  support  is  provided  for  floating  rate  loans,  banks  and  other 
financing institutions shall not be allowed to offer the option of the lower of either the 
CIRR (at time of the original contract) or the short-term market rate throughout the life of 
the loan. 

In  the  event  of  a  voluntary,  early  repayment  of  a  loan  of  or  any  portion  thereof,  the 
borrower  shall  compensate  the  government  institution  providing  official  financing 
support for all costs and losses incurred as a result of such early repayment, including the 
cost  to  the  government  institution  of  replacing  the  part  of  the  fixed  rate  cash  inflow 
interrupted by the early repayment. 

22. 

PREMIUM FOR CREDIT RISK 

The  Participants  shall  charge  premium,  in  addition  to  interest  charges,  to  cover  the  risk  of  non-
repayment of export  credits.  The premium rates charged  by the Participants shall be risk based, 
shall converge and shall not be inadequate to cover long-term operating costs and losses. 

21 

 
 
  
 
23. 

MINIMUM  PREMIUM  RATES  FOR  COUNTRY  AND  SOVEREIGN  CREDIT 
RISK 

The  Participants  shall  charge  no  less  than  the  applicable  Minimum  Premium  Rate  (MPR)  for 
Country  and  Sovereign  Credit  Risk,  irrespective  of  whether  the  buyer/borrower  is  a  private  or 
public entity. 

a) 

The applicable MPR is determined according to the following factors: 

b) 

c) 

d) 

e) 

- 

- 

- 

- 

- 

the applicable country risk classification as set out in Article 24; 

whether official export credit cover is strictly limited to country risk as defined in 
Article 24 a); 

the time at risk (i.e. the Horizon of Risk or HOR); 

the percentage of cover and quality of official export credit product provided as set 
out in Article 26, and 

any country risk mitigation/exclusion technique applied as set out in Article 27. 

MPRs  are  expressed  in  percentages  of  the  principal  value  of  the  credit  as  if  premium 
were collected in full at the date of the first drawdown of the credit. An explanation of 
the mathematical formula used to calculate the MPRs is provided in Annex V. 

For  countries  classified  in  Category  0  as  set  out  in  Article  24,  no  MPRs  have  been 
established but the Participants shall not charge premium rates which undercut available 
private market pricing. 

The “highest risk” countries in Category 7 shall, in principle, be subject to premium rates 
in  excess  of  the  MPRs  established  for  that  Category;  these  premium  rates  shall  be 
determined by the Participant providing official support. 

In calculating the MPR for a transaction, the applicable country risk classification to be 
applied shall be the classification of the buyer's country, unless: 

- 

- 

Security in the form of an irrevocable, unconditional, on-demand, legally valid and 
enforceable guarantee of the total debt repayment obligation for the entire duration 
of  the  credit  is  provided  by  an  entity,  creditworthy  in  relation  to  the  size  of  the 
guaranteed  debt,  in  a  third  country,  in  which  case  the  applicable  Country  Risk 
Classification may be that of the country in which the guarantor is located; or 

A  Multilateral  or  Regional  Institution  as  set  out  in  Article  25  is  acting  either  as 
borrower  or  guarantor  for  the  transaction,  in  which  case  the  applicable  Country 
Risk Classification may be that of the specific Multilateral or Regional Institution 
involved. 

22 

 
 
  
 
f) 

g) 

h) 

i) 

The  criteria  and  conditions  relating  to  the  application  of  a  country  risk  classification 
according to the situations described in the first and second tirets of Article 23 e) are set 
out in Annex VI. 

If official support is strictly limited to country risk as defined in Article 24 a), i.e. cover 
of buyer/borrower risk is completely excluded, the MPR is reduced by 10 per cent; this is 
captured by the mathematical formula used to calculate the MPRs in Annex V. 

The HOR convention used in the calculation of an MPR is one half of the disbursement 
period  plus  the  entire  repayment  period  and  assumes  a  regular  export  credit  repayment 
profile, i.e. repayment in equal semi-annual instalments of principal plus accrued interest 
beginning  six  months  after  the  starting  point  of  credit.  For  export  credits  with  non-
standard  repayment  profiles,  the  equivalent  repayment  period  (expressed  in  terms  of 
equal,  semi-annual  instalments)  is  calculated  using  the  following  formula:  equivalent 
repayment period = (average weighted life of the repayment period -0.25) / 0.5. 

The Participant applying the MPR in the case referred to in the first tiret of paragraph e) 
above that leads to a premium rate below the MPR applicable to the buyer’s country shall 
give  prior  notification  according  to  Article  43  a).  The  Participant  applying  the  MPR  in 
the case referred to in the second tiret of Article 23 e) or in Article 23 g) shall give prior 
notification in accordance with Article 44 a). 

24. 

COUNTRY RISK CLASSIFICATION 

Countries shall be classified according to the likelihood of whether they will service their external 
debts (i.e. country credit risk). 

a) 

The five elements of country credit risk are: 

- 

- 

- 

- 

general  moratorium  on  repayments  decreed  by  the  buyer's/borrower's/guarantor's 
government or by that agency of a country through which repayment is effected; 

political  events  and/or  economic  difficulties  arising  outside  the  country  of  the 
notifying  Participant  or  legislative/administrative  measures  taken  outside  the 
country  of  the  notifying  Participant  which  prevent  or  delay  the  transfer  of  funds 
paid in respect of the credit; 

legal  provisions  adopted  in  the  buyer's/borrower's  country  declaring  repayments 
made in local currency to be a valid discharge of the debt, notwithstanding that, as 
a result of fluctuations in exchange rates, such repayments, when converted into the 
currency  of  the  credit,  no  longer  cover  the  amount  of  the  debt  at  the  date  of  the 
transfer of funds; 

any  other  measure  or  decision  of  the  government  of  a  foreign  country  which 
prevents repayment under a credit; and 

23 

 
 
  
 
- 

cases  of  force  majeure  occurring  outside  the  country  of  the  notifying  Participant, 
i.e.  war  (including  civil  war),  expropriation,  revolution,  riot,  civil  disturbances, 
cyclones, floods, earthquakes, eruptions, tidal waves and nuclear accidents. 

Countries are classified into one of eight Country Risk Categories (0-7). MPRs have been 
established for Categories 1 through 7, but not for Category 0, as the level of country risk 
is considered to be negligible for countries in this Category. 

High  Income  OECD  Countries,  as  defined  by  the  World  Bank  on  an  annual  basis 
according to per capita GNI, are classified in Category 0. 

b) 

c) 

- 

- 

- 

For  the  purposes  of  the  MPRs,  any  OECD  country  classified  in  Category  0  by 
virtue of its High Income status shall remain classified in Category 0 until it falls 
below the High Income GNI threshold for two consecutive years, at which time the 
country's classification should be reviewed according to Article 24 d) to f). 

Any  OECD  country  above  the  High  Income  threshold  for  two  consecutive  years 
shall be classified, by definition, in Category 0. Such classification shall take effect 
immediately  after  the  Secretariat  has  communicated  a  country's  status  as 
determined by the World Bank. 

Other  countries  deemed  to  be  of  a  similar  risk  level  may  also  be  classified  in 
Category 0. 

d) 

All  countries  other  than  High  Income  OECD  Countries7  are  classified  through  the 
Country Risk Classification Methodology, which is comprised of: 

- 

- 

The  Country  Risk  Assessment  Model  (the  Model),  which  produces  a  quantitative 
assessment of country credit risk which is based, for each country, on three groups 
of risk indicators: the payment experience of the Participants, the financial situation 
and  the  economic  situation.  The  methodology  of  the  Model  consists  of  different 
steps  including  the  assessment  of  the  three  groups  of  risk  indicators,  and  the 
combination and flexible weighting of the risk indicator groups. 

The qualitative assessment of the Model results, considered country-by-country to 
integrate the political risk and/or other risk factors not taken into account in full or 
in  part  by  the  Model.  If  appropriate,  this  may  lead  to  an  adjustment  to  the 
quantitative Model assessment to reflect the final assessment of the country credit 
risk. 

Country  Risk  Classifications  shall  be  monitored  on  an  ongoing  basis  and  reviewed  at 
least annually and changes resulting from the Country Risk Classification Methodology 
shall be immediately communicated by the Secretariat. When a country is re-classified in 
a  lower  or  higher  Country  Risk  Category,  the  Participants  shall,  no  later  than  five 

For administrative purposes, some countries that do not generally receive officially supported export credits 
may not be classified 

24 

e) 

7 

 
 
  
 
                                                 
working days after the re-classification has been communicated by the Secretariat, charge 
premium rates at or above the MPRs associated with the new Country Risk Category. 

f) 

The applicable country risk classifications shall be made public by the Secretariat. 

25. 

CLASSIFICATION OF MULTILATERAL AND REGIONAL INSTITUTIONS 

Multilateral  and  Regional  Institutions  shall  be  classified  and  reviewed  as  appropriate;  such 
applicable classifications shall be made public by the Secretariat. 

26. 

PERCENTAGE AND QUALITY OF OFFICIAL EXPORT CREDIT COVER 

The MPRs are differentiated to take account of the differing quality of export credit products and 
percentage  of  cover  provided  by  the  Participants  as  set  out  in  Annex  V.  The  differentiation  is 
based  on  the  exporter’s  perspective  (i.e.  to  neutralise  the  competitive  effect  arising  from  the 
differing qualities of product provided to the exporter/financial institution). 

a) 

b) 

The quality of an export credit product is a function of whether the product is insurance, 
guarantee or direct credit/financing, and for insurance products whether cover of interest 
during the claims waiting period (i.e. the period between the due date of payment by the 
buyer/borrower and the date that the insurer is liable to reimburse the exporter/financial 
institution) is provided without a surcharge. 

All existing export credit products offered by the Participants shall be classified into one 
of the three product categories which are: 

- 

- 

- 

below  standard  product,  i.e.  insurance without  cover of interest during the claims 
waiting  period  and  insurance  with  cover  of  interest  during  the  claims  waiting 
period with an appropriate premium surcharge; 

standard  product,  i.e.  insurance  with  cover  of  interest  during  the  claims  waiting 
period without an appropriate premium surcharge and direct credit/financing; and 

above standard product, i.e. guarantees. 

27. 

EXCLUSION  OF  SELECTED  COUNTRY  RISK  ELEMENTS  AND  COUNTRY 
RISK MITIGATION TECHNIQUES 

The Participants may, in accordance with the specific criteria and conditions set out in Annex VII, 
exclude certain elements of country risk or use defined country risk mitigation techniques listed in 
Article  27  b)  resulting  in  lower  applicable  MPRs  through  the  application  of  a  Country  Risk 
Mitigation/Exclusion Factor (MEF) in the MPR formula. The MEF is determined as follows: 

a) 

With respect to the exclusion of selected country credit risk elements from official export 
credit cover: 

25 

 
 
  
 
- 

- 

In situations where only the first three country credit risk elements, as set forth in 
Article 24  a),  are  excluded  in  their  totality  from  cover,  a  MEF  of  0.5  may  be 
applied. 

In  situations  where  only  the  fourth  and  fifth  country  credit  risk  elements,  as  set 
forth in Article 24 a), are excluded in their totality from cover, a MEF of 0.2 may 
be applied. 

b) 

With respect to the following country risk mitigation techniques, the applicable MPR as 
well  as  the  criteria  and  conditions  under  which  the  MEF  may  be  applied  are  set  out  in 
Annex VII: 

- 

- 

- 

- 

- 

- 

- 

- 

Offshore Future Flow Structure Combined with Offshore Escrow Account 

Offshore Hard Security 

Offshore Asset-Based Security 

Offshore Asset-Secured and Asset-Based Financing 

Co-financing with International Financial Institutions (IFIs) 

Local Currency Financing 

Third Country Insurance or Conditional Guarantee 

Debtor Representing a Better Risk Than the Sovereign 

c) 

d) 

e) 

The application of more than one of the country risk mitigation techniques described in 
Article 27 b)  shall  not  have  a  direct  cumulative  impact  on  the  applicable  MEF.  The 
selection  of  an  appropriate  MEF  to  reflect  the  combination  of  country  risk  mitigation 
techniques  shall  take  into  account  the  possible  overlapping  impact  of  two  or  more 
techniques  on  identical  country  credit  risks.  In  the  case  of  overlapping,  only  the  best 
quality security shall normally be considered in determining the appropriate, applicable 
MEF. 

The Participant applying the MPR in the cases referred to in Article 27 a) to c) shall give 
prior notification according to Article 43 a). 

The  list  of  country  risk  mitigation  techniques  in  Article  27  b)  is  not  intended  to  be  a 
closed list; in accordance with Article 65, the Participants shall monitor and review the 
body  of  experience  with  the  use  of  these  techniques  including  the  applicable  criteria, 
conditions, circumstances and MEFs set forth in Annex VII. 

26 

 
 
  
 
28. 

REVIEW  OF  THE  VALIDITY  OF  THE  MINIMUM  PREMIUM  RATES  FOR 
COUNTRY AND SOVEREIGN CREDIT RISK 

a) 

b) 

c) 

To  assess  the  adequacy  of  MPRs  and  to  allow,  if  necessary,  for  adjustments,  either 
upwards or downwards, three Premium Feedback Tools (PFTs), shall be used in parallel 
to monitor and adjust the MPRs. 

The  Cash  Flow  PFT  and  the  Accruals  PFT  are  accounting  approaches  that  assess  the 
validity of the MPRs on an aggregate, Country Risk Category and Horizon of Risk basis 
according to the Participants' actual results in relation to the country and sovereign credit 
risk of export credits subject to the MPRs. 

The  third  PFT  is  comprised  of  four  sets  of  Private  Market  Indicators8  which  provide 
information on market's pricing of country and sovereign credit risk. 

CHAPTER III: PROVISIONS FOR TIED AID 

29. 

GENERAL PRINCIPLES 

a) 

b) 

c) 

d) 

The Participants have agreed to have complementary policies for export credits and tied 
aid.  Export  credit  policies  should  be  based  on  open  competition  and  the  free  play  of 
market  forces.  Tied  aid  policies  should  provide  needed  external  resources  to  countries, 
sectors or projects with little or no access to market financing. Tied aid policies should 
ensure  best  value 
to 
developmentally effective use of these resources. 

trade  distortion,  and  contribute 

for  money,  minimise 

The  tied  aid  provisions  of  the  Arrangement  do  not  apply  to  the  aid  programmes  of 
multilateral or regional institutions. 

These  principles  do  not  prejudge  the  views  of  the  Development  Assistance  Committee 
(DAC) on the quality of tied and untied aid.  

A Participant may request additional information relevant to the tying status of any form 
of  aid.  If  there  is  uncertainty  as  to  whether  a  certain  financing  practice  falls  within  the 
scope  of  the  definition  of  tied  aid  set  out  in  Annex  XI,  the  donor  country  shall  furnish 
evidence in support of any claim to the effect that the aid is in fact “untied” in accordance 
with the definition in Annex XI. 

30. 

FORMS OF TIED AID 

Tied aid can take the form of: 

8 

The Private Market Indicators are: sovereign bonds, read-across method, forfeit market and syndicated loan. 

27 

 
 
  
 
                                                 
a) 

b) 

c) 

d) 

Official  Development  Assistance  (ODA)  loans  as  defined  in  the  “DAC  Guiding 
Principles for Associated Financing and Tied and Partially Untied Official Development 
Assistance (1987)”; 

ODA  grants  as  defined  in  the  “DAC  Guiding  Principles  for  Associated  Financing  and 
Tied and Partially Untied Official Development Assistance (1987)”; and 

Other  Official  Flows  (OOF),  which  includes  grants  and  loans  but  excludes  officially 
supported export credits that are in conformity with the Arrangement; or 

Any association, e.g. mixture, in law or in fact, within the control of the donor, the lender 
or the borrower involving two or more of the preceding, and/or the following financing 
components: 

1) 

an  export  credit  that  is  officially  supported  by  way  of  direct  credit/financing,
 refinancing, interest rate support, guarantee or insurance to which the Arrangement 
applies; and 

2) 

other funds at or near market terms, or down payment from the purchaser. 

31. 

ASSOCIATED FINANCING 

a) 

Associated financing may take various forms including mixed credits, mixed financing, 
transactions.  The  main 
joint  financing,  parallel  financing  or  single 
characteristics are that they all feature : 

integrated 

- 

- 

- 

a  concessional  component  that  is  linked in  law  or  in  fact  to  the  non-concessional 
component; 

either a single part or all of the financing package that is, in effect, tied aid; and 

concessional  funds  those  are  available  only  if  the  linked  non-concessional 
component is accepted by the recipient. 

b) 

Association or linkage “in fact” is determined by such factors as: 

- 

- 

- 

- 

the  existence  of  informal  understandings  between  the  recipient  and  the  donor 
authorities; 

the  intention  by  the  donor  to  facilitate  the  acceptability  of  a  financing  package 
through the use of ODA; 

the  effective  tying  of  the  whole  financing  package  to  procurement  in  the  donor 
country; 

the  tying  status  of  ODA  and  the  means  of  tendering  for  or  contracting  of  each 
financing transaction; or 

28 

 
 
  
 
- 

any  other  practice,  identified  by  the  DAC  or  the  Participants  in  which  a  de  facto 
liaison exists between two or more financing components. 

c) 

The following practices shall not prevent the determination of an association or linkage 
“in fact”: 

- 

- 

- 

- 

contract  splitting  through  the  separate  notification  of  the  component  parts  of  one 
contract; 

splitting of contracts financed in several stages; 

non-notification of interdependent parts of a contract; and/or 

non-notification because part of the financing package is untied. 

32. 

COUNTRY ELIGIBILITY FOR TIED AID 

a) 

There  shall  be  no  tied  aid  to  countries  which,  according  to  their  per  capita  GNI,  are 
ineligible  for  17-year  loans  from  the  World  Bank.  The  World  Bank  recalculates  the 
threshold for this category on an annual basis9. A country will be reclassified only after 
its World Bank category has been unchanged for two consecutive years. 

b) 

The following operational criteria and procedures apply when classifying countries. 

1)  Classification  for  Arrangement  purposes  is  determined  by  per  capita  GNI  as 
calculated by the World Bank for the purposes of the World Bank classification of 
borrowing countries; this classification shall be made public by the Secretariat.  

2) 

3) 

In  cases  where  the  World  Bank  does  not  have  enough  information  to  publish  per 
capita GNI data, the World Bank shall be asked to estimate whether the country in 
question  has  per  capita  GNI  above  or  below  the  current  threshold.  The  country 
shall  be  classified  according  to  the  estimate  unless  the  Participants  decide  to  act 
otherwise. 

If a country’s eligibility for tied aid does change in accordance with Article 32 a), 
the reclassification shall take effect two weeks after the conclusions drawn from the 
above mentioned World Bank data have been communicated to all Participants by 
the Secretariat. Before the effective date of reclassification no tied aid financing for 
a newly eligible country may be notified; after that date, no tied aid financing for a 
newly  promoted  country  may  be  notified,  except  that  individual  transactions 
covered under a prior committed credit line may be notified until the expiry of the 
credit line (which shall be no more than one year from the effective date). 

9 

Based  on  the  annual  review  by  the  World  Bank  of  its  country  classification,  a  per  capita  Gross  National 
Income (GNI) threshold will be used for the purpose of tied aid eligibility; such threshold is available on the 
OECD website (www.oecd.org/ech/xcred). 

29 

 
 
  
 
                                                 
4) 

In cases where the World Bank revises figures such revisions shall be disregarded 
in relation to the Arrangement. Nevertheless, the classification of a country may be 
changed by way of a common line, in accordance with the appropriate procedures 
in Articles 54 to 59, and the Participants would favourably consider a change due 
to errors and omissions in the figures subsequently recognised in the same calendar 
year as the figures were first distributed by the Secretariat. 

5)  Notwithstanding the classifications of countries ineligible or eligible to receive tied 
aid, the Participants should avoid providing any tied aid credit, other than outright 
grants, food and humanitarian aid as well as aid designed to mitigate the effects of 
nuclear  or  major  industrial  accidents  or  to  prevent  their  occurrence,  for  Belarus, 
Bulgaria, Latvia, Lithuania, Romania, the Russian Federation and Ukraine. Should 
the per capita GNI of any of these countries exceed, for three consecutive years, the 
World  Bank’s  threshold  for  ineligibility  for  17-year  loans,  country  eligibility  for 
such credits would be subject to Articles 32 a) and b) 1) to 4) above, as well as all 
other tied aid provisions of the Arrangement10. 

33. 

PROJECT ELIGIBILITY 

a) 

Tied  aid  shall  not  be  extended  to  public  or  private  projects  that  normally  should  be 
commercially viable if financed on market or Arrangement terms. 

b) 

The key tests for such aid eligibility are: 

- 

- 

whether the project is financially non-viable, i.e. does the project lack capacity with 
appropriate  pricing  determined  on  market  principles,  to  generate  cash  flow 
sufficient to cover the project's operating costs and to service the capital employed, 
i.e. the first key test, or 

whether  it  is  reasonable  to  conclude,  based  on  communication  with  other 
Participants,  which  it  is  unlikely  that  the  project  can  be  financed  on  market  or 
Arrangement  terms,  i.e.  the  second  key  test.  In  respect  of  projects  larger  than  50 
million SDRs special weight shall be given to the expected availability of financing 
at market or Arrangement terms when considering the appropriateness of such aid. 

The key tests under sub-paragraph b) above are intended to describe how a project should 
be  evaluated  to  determine  whether  it  should  be  financed  with  such  aid  or  with  export 
credits on market or Arrangement terms. Through the consultation process described in 
Articles 47 to 49, a body of experience is expected to develop over time that will more 

For  the  purpose  of  Article  32  b)  5),  the  de-commissioning  of  nuclear  power  plant  can  be  regarded  as 
humanitarian aid. 
In  case  of  nuclear  or  major  industrial  accident  that  causes  serious  transfrontier  pollution,  any  affected 
Participant may provide tied aid to eliminate or mitigate its effects. In case of significant risk that such an 
accident  may  occur,  any  potentially  affected  Participant  intending  to  provide  aid  to  prevent  its  occurrence 
shall  give  prior  notification  in  accordance  with  Article  45.  Other  Participants  shall  give  favourable 
consideration to an acceleration of tied aid procedures in line with the specific circumstances. 

30 

c) 

10 

 
 
  
 
                                                 
 
precisely define, for both export credit and aid agencies, ex ante guidance as to the line 
between the two categories of projects. 

34. 

MINIMUM CONCESSIONALITY LEVEL 

The Participants shall not provide tied aid that has a concessionality level of less than 35 per cent, 
or 50 per cent if the beneficiary country is a Least Developed Country (LDC), except for the cases 
set out below, which are also exempt from the notification procedures set out in Article 46 a): 

a) 

b) 

technical  assistance:  tied  aid  where  the  official  development  aid  component  consists 
solely of technical co-operation that is less than either three per cent of the total value of 
the transaction or one million Special Drawing Rights (SDRs), whichever is lower; and 

small projects: capital projects of less than one million SDRs that are funded entirely by 
development assistance grants. 

35. 

EXEMPTIONS FROM COUNTRY OR PROJECT ELIGIBILITY FOR TIED AID 

a) 

b) 

c) 

d) 

The provisions of Articles 32 and 33 do not apply to tied aid where the concessionality 
level is 80 per cent or more except for tied aid that forms part of an associated financing 
package, described in Article 31. 

The provisions of Article 33 do not apply to tied aid with a value of less than two million 
SDRs except for tied aid that forms part of an associated financing package, described in 
Article 31. 

Tied aid for LDCs as defined by the United  Nations is not subject to the provisions of 
Articles 32 and 33. 

Notwithstanding Articles 32 and 33, a Participant may, exceptionally, provide support by 
one of the following means: 

- 

- 

- 

the common line procedure as defined in Annex XI and described in Articles 54 to 
59; or 

justification  on  aid  grounds  through  support  by  a  substantial  body  of  the 
Participants as described in Articles 47 and 48; or 

a  letter  to  the  OECD  Secretary-General,  in  accordance  with  the  procedures  in 
Article 49, which the Participants expect will be unusual and infrequent. 

36. 

CALCULATION OF CONCESSIONALITY LEVEL OF TIED AID 

The concessionality level of tied aid is calculated using the same method as for the grant element 
used by the DAC, except that: 

31 

 
 
  
 
a) 

the discount rate used to calculate the concessionality level of a loan in a given currency, 
i.e. the Differentiated Discount Rate (DDR), is subject to annual change on 15 January 
and is calculated as follows: 

- 

The average of the CIRR + Margin 

Margin (M) depends on the repayment term (R) as follows: 

R 

less than 15 years 

from 15 years up to, but not including 20 years 

from 20 years up to but not including 30 years 

from 30 years and above 

M 

0.75 

1.00 

1.15 

1.25 

- 

For  all  currencies  the  average  of  the  CIRR  is  calculated  taking  an  average  of  the 
monthly  CIRRs  valid  during  the  six-month  period  between  15  August  of  the 
previous  year  and  14 February  of  the  current  year.  The  calculated  rate,  including 
the  Margin,  is  rounded  to  the  nearest  ten  basis  points.  If  there  is  more  than  one 
CIRR for the currency, the CIRR for the longest maturity as set out in Article 19 a), 
shall be used for this calculation. 

b) 

c) 

The base date for the calculation of the concessionality level is the starting point of credit 
as set out in Annex XI. 

For the purpose of calculating the overall concessionality level of an associated financing 
package,  the  concessionality  levels  of  the  following  credits,  funds  and  payments  are 
considered to be zero: 

- 

- 

- 

- 

export credits that are in conformity with the Arrangement; 

other funds at or near market rates; 

other official funds with a concessionality level of less than the minimum permitted 
under Article 34 except in cases of matching; and 

down payment from the purchaser. 

Payments on or before the starting point of credit that are not considered down payment shall be 

included in the calculation of the concessionality level. 

d) 

The discount rate in matching: in matching aid, identical matching means matching with 
an identical concessionality level that is recalculated with the discount rate in force at the 
time of matching. 

32 

 
 
  
 
e) 

f) 

g) 

h) 

i) 

Local  costs  and  third  country  procurement  shall  be  included  in  the  calculation  of 
concessionality level only if they are financed by the donor country. 

The overall concessionality level of a package is determined by multiplying the nominal 
value of each component of the package by the respective concessionality level of each 
component, adding the results, and dividing this total by the aggregate nominal value of 
the components. 

The  discount  rate  for  a  given  aid  loan  is  the  rate  in  effect  at  the  time  of  notification. 
However, in cases of prompt notification, the discount rate is the one in effect at the time 
when the terms and conditions of the aid loan were fixed. A change in the discount rate 
during the life of a loan does not change its concessionality level. 

If a change of currency is made before the contract is concluded, the notification shall be 
revised.  The  discount  rate  used  to  calculate  the  concessionality  level  will  be  the  one 
applicable at the date of revision. A revision is not necessary if the alternative currency 
and all the necessary information for calculation of the concessionality level are indicated 
in the original notification. 

Notwithstanding sub-paragraph g), the discount rate used to calculate the concessionality 
level of individual transactions initiated under an aid credit line shall be the rate that was 
originally notified for the credit line. 

37. 

VALIDITY PERIOD FOR TIED AID 

a) 

b) 

c) 

The Participants shall not fix terms and conditions for tied aid, whether this relates to the 
financing of individual transactions or to an aid protocol, an aid credit line or to a similar 
agreement, for more than two years. In the case of an aid protocol, an aid credit line or 
similar agreement, the validity period shall commence at the date of its signature, to be 
notified in accordance with Article 46; the extension of a credit line shall be notified as if 
it  were  a  new  transaction  with  a  note  explaining  that  it  is  an  extension  and  that  it  is 
renewed at terms allowed at the time of the notification of the extension. In the case of 
individual transactions, including those notified under an aid protocol, an aid credit line 
or similar agreement, the validity period shall commence at the date of notification of the 
commitment in accordance with Article 45 or 46, as appropriate. 

When a country has become ineligible for 17-year World Bank Loans for the first time, 
the validity period of existing and new tied aid protocols and credit lines notified shall be 
restricted  to  one  year  after  the  date  of  the  potential  reclassification  in  accordance  with 
procedures in Article 32 b). 

Renewal  of  such  protocols  and  credit  lines  is  possible  only  on  terms  which  are  in 
accordance with the provisions of Articles 32 and 33 of the Arrangement following: 

- 

- 

reclassification of countries; and 

a change in the provisions of the Arrangement. 

33 

 
 
  
 
In  these  circumstances,  the  existing  terms  and  conditions  can  be  maintained  notwithstanding  a 
change in the discount rate set out in Article 36. 

38. 

MATCHING 

Taking into account a Participant’s international obligations and consistent with the purpose of the 
Arrangement, a Participant may match, according to the procedures set out in Article 41, financial 
terms and conditions offered by a Participant or a non-Participant. 

CHAPTER IV: PROCEDURES 

SECTION 1: COMMON PROCEDURES FOR EXPORT CREDITS AND TRADE-RELATED 
AID 

39. 

STANDARD FORM FOR ALL NOTIFICATIONS 

The notifications set out by the procedures in the Arrangement shall be made in accordance with, 
and  include  the  information  contained  in  the  Standard  Form  in  Annexes  IV  and  VIII  as 
appropriate, and shall be copied to the Secretariat. 

40. 

INFORMATION ON OFFICIAL SUPPORT 

a) 

b) 

As soon as a Participant commits the official support which it has notified in accordance 
with the procedures in Articles 43 to 46, it shall inform all other Participants accordingly 
by including the notification reference number on the relevant Creditor Reporting System 
(CRS) Form 1C. 

In an exchange of information in accordance with Articles 51 to 53, a Participant shall 
inform  the  other  Participants  of  the  credit  terms  and  conditions  that  it  envisages 
supporting for a particular transaction and may request similar information from the other 
Participants. 

41. 

PROCEDURES FOR MATCHING 

a) 

Before matching financial terms and conditions assumed to be offered by a Participant or 
a  non-Participant  pursuant  to  Articles  17  and  38,  a  Participant  shall  make  every 
reasonable  effort,  including  as  appropriate  by  use  of  the  face-to-face  consultations 
described in Article 53 to verify that these terms and conditions are officially supported 
and shall comply with the following: 

1) 

The  Participant  shall  notify  all  other  Participants  of  the  terms  and  conditions  it 
intends  to  support  following  the  same  notification  procedures  required  for  the 
matched  terms  and  conditions.  In  the  case  of  matching  a  non-Participant,  the 

34 

 
 
  
 
matching Participant shall follow the same notification procedures that would have 
been required had the matched terms been offered by a Participant. 

2)  Notwithstanding  1)  above,  if  the  applicable  notification  procedure  would  require 
the matching Participant to withhold its commitment beyond the final bid closing 
date,  then  the  matching  Participant  shall  give  notice  of  its  intention  to  match  as 
early as possible. 

3) 

If  the  initiating  Participant  moderates  or  withdraws  its  intention  to  support  the 
notified  terms  and  conditions,  it  shall  immediately  inform  all  other  Participants 
accordingly. 

b) 

A Participant intending to offer identical financial terms and conditions to those notified 
according to Articlesp 43 and 44 may do so once the waiting period stipulated therein has 
expired. This Participant shall give notification of its intention as early as possible 

42. 

SPECIAL CONSULTATIONS 

a) 

b) 

c) 

d) 

A Participant that has reasonable grounds to believe that financial terms and conditions 
offered  by  another  Participant  (the  initiating  Participant)  are  more  generous  than  those 
provided  for  in  the  Arrangement  shall  inform  the  Secretariat;  the  Secretariat  shall 
immediately make available such information. 

The  initiating  Participant  shall  clarify  the  financial  terms  and  conditions  of  its  offer 
within two working days following the issue of the information from the Secretariat 

Following  clarification  by  the  initiating  Participant,  any  Participant  may  request  that  a 
special  consultation  meeting  of  the  Participants  be  organised  by  the  Secretariat  within 
five working days to discuss the issue. 

Pending  the  outcome  of  the  special  consultation  meeting  of  the  Participants,  financial 
terms and conditions benefiting from official support shall not become effective. 

SECTION 2: PROCEDURES FOR EXPORT CREDITS 

43. 

PRIOR NOTIFICATION WITH DISCUSSION 

a) 

A Participant shall notify all other Participants at least ten calendar days before issuing 
any commitment if the Minimum Premium Rate applied has been determined according 
to  the  first  tiret  of  Article  23  e)  or  Article  27.  The  notification  shall  be  provided  in 
accordance  with  Annex VIII.  If  any  other  Participant  requests  a  discussion  during  this 
period,  the  initiating  Participant  shall  wait  an  additional  ten  calendar  days.  If  the 
applicable MPR after risk mitigation/exclusion is less than or equal to 75 per cent of the 
MPR  which  would  result  from  the  application  of  the  buyer  country's  country  risk 

35 

 
 
  
 
classification  without  any  risk  mitigation  or  exclusion,  the  notifying  Participant  shall 
notify all other Participants at least 20 calendar days before issuing any commitment. 

b) 

A  Participant  shall  inform  all  other  Participants  of  its  final  decision  following  a 
discussion to facilitate the review of the body of experience in Accordance with Article 
65.  The  Participants  shall  maintain  records  of  their  experience  with  regard  to  premium 
rates notified in accordance with paragraph a) above. 

44. 

PRIOR NOTIFICATION WITHOUT DISCUSSION 

a) 

A  Participant  shall  notify  all  other  Participants  at  least  10  calendar  days  before  issuing 
any commitment if it intends: 

1) 

2) 

3) 

4) 

5) 

to support a repayment term of more than five but not exceeding eight-and-a-half 
years to a Category I country; 

to follow payment practices with respect to the principal or interest other than those 
referred to in Articles 13 and 14; 

to provide support for a non-nuclear power plant with a repayment term longer than 
the  relevant  maximum  in  Article  11,  but  not  exceeding  12  years  as  stipulated  in 
Article 12 a); 

to apply a premium rate in accordance with the second tiret of Article 23 e). Such 
notification shall be provided in accordance with Annex VIII. 

to apply a premium rate in accordance with Article 23 g). Such notification shall be 
provided in accordance with Annex VIII. 

b) 

If  the  initiating  Participant  moderates  or  withdraws  its  intention  to  provide  support  for 
such transaction, it shall immediately inform all other Participants. 

SECTION 3: PROCEDURES FOR TRADE-RELATED AID 

45. 

PRIOR NOTIFICATION 

a) 

A Participant shall give prior notification if it intends to provide official support for: 

- 

- 

- 

trade-related  untied  aid  with  a  value  of  two  million  SDRs  or  more,  and  a 
concessionality level of less than 80 per cent; 

trade-related  untied  aid  with  a  value  of  less  than  two  million  SDRs  and  a  grant 
element (as defined by the DAC) of less than 50 per cent; 

trade-related  tied  aid  with  a  value  of  two  million  SDRs  or  more  and  a 
concessionality level of less than 80 per cent; or 

36 

 
 
  
 
- 

trade-related  tied  aid  with  a  value  of  less  than  two  million  SDRs  and  a 
concessionality level of less than 50 per cent, except for the cases set out in Article 
34 a) and b). 

b) 

c) 

d) 

Prior  notification  shall  be  made  at  the  latest  30  working  days  before  the  bid  closing  or 
commitment date, whichever is the earlier. 

If  the  initiating  Participant  moderates  or  withdraws  its  intention  to  support  the  notified 
terms and conditions, it shall immediately inform all other Participants accordingly. 

The  provision  of  this  Article  shall  apply  to  tied  aid  that  forms  part  of  an  associated 
financing package, as described in Article 31. 

46. 

PROMPT NOTIFICATION 

a) 

A Participant shall promptly notify all other Participants, i.e. within two working days of 
the commitment, if it provides official support for tied aid with a value of either:  

- 

- 

two million SDRs or more and a concessionality level of 80 per cent or more; or 

less  than  two  million  SDRs  and  a  concessionality  level  of  50 per  cent  or  more 
except for the cases set out in Article 34 a) and b). 

b) 

c) 

A Participant shall also promptly notify all other Participants when an aid protocol, credit 
line or similar agreement is signed. 

Prior notification need not be given if a Participant intends to match financial terms and 
conditions that were subject to a prompt notification. 

SECTION 4: CONSULTATION PROCEDURES FOR TIED AID 

47. 

PURPOSE OF CONSULTATIONS 

a) 

b) 

A  Participant  seeking  clarification  about  possible  trade  motivation  for  tied  aid  may 
request that a full Aid Quality Assessment (detailed in Annex IX) be supplied. 

Furthermore,  a  Participant  may  request  consultations  with  other  Participants,  in 
accordance  with  Article  48.  These  include  face-to-face  consultations  as  outlined  in 
Article 53 in order to discuss: 

- 

- 

first, whether an aid offer meets the requirements of Articles 32 and 33 and 

if necessary, whether an aid offer is justified even if the requirements of Articles 32 
and 33 are not met. 

37 

 
 
  
 
48. 

SCOPE AND TIMING OF CONSULTATIONS 

a) 

During  consultations,  a  Participant  may  request,  among  other  items,  the  following 
information: 

- 

- 

- 

- 

- 

- 

- 

whether there is a competing offer with non-concessional or aid financing; 

the expectation of the project generating or saving foreign currency; 

whether  there  is  co-operation  with  multilateral  organisations  such  as  the  World 
Bank; 

the presence of International Competitive Bidding (ICB), in particular if the donor 
country's supplier is the lowest evaluated bid; 

the environmental implications; 

any private sector participation; and  

the timing of the notifications (e.g. six months prior to bid closing or commitment 
date) of concessional or aid credits. 

b) 

The  consultation  shall  be  completed  and  the  findings  on  both  questions  in  Article  47 
notified  by  the  Secretariat  to  all  Participants  at  least  ten  working  days  before  the  bid 
closing date or commitment date, whichever comes first. If there is disagreement among 
the consulting parties, the Secretariat shall invite other Participants to express their views 
within five working days. It shall report these views to the notifying Participant, which 
should reconsider going forward if there appears to be no substantial support for an aid 
offer. 

49. 

OUTCOME OF CONSULTATIONS 

a) 

b) 

A donor which wishes  to proceed with a project despite the lack  of  substantial  support 
shall  provide  prior  notification  of  its  intentions  to  other  Participants,  no  later  than  60 
calendar days after the completion of the Consultation, i.e. acceptance of the Chairman’s 
conclusion.  The  donor  shall  also  write  a  letter  to  the  Secretary-General  of  the  OECD 
outlining the results of the consultations and explaining the overriding non-trade related 
national interest that forces this action. The Participants expect that such an occurrence 
will be unusual and infrequent. 

The  donor  shall  immediately  notify  the  Participants  that  it  has  sent  a  letter  to  the 
Secretary-General of the OECD, a copy of which shall be included with the notification. 
Neither the donor nor any other Participant shall make a tied aid commitment until ten 
working  days  after  this  notification  to  Participants  has  been  issued.  For  projects  for 
which competing commercial offers were identified during the consultation process, the 
aforementioned ten working day period shall be extended to 15 days. 

38 

 
 
  
 
c) 

The Secretariat shall monitor the progress and results of consultations. 

SECTION 5: INFORMATION EXCHANGE FOR EXPORT CREDITS AND 
TRADE-RELATED AID 

50. 

CONTACT POINTS 

All  communications  shall  be  made  between  the  designated  contact  points  in  each  country  by 
means of instant communication, e.g. OLIS, and shall be treated in confidence. 

51. 

SCOPE OF ENQUIRIES 

a) 

b) 

c) 

d) 

A  Participant  may  ask  another  Participant  about  the  attitude  it  takes  with  respect  to  a 
third country, an institution in a third country or a particular method of doing business. 

A  Participant  which  has  received  an  application  for  official  support  may  address  an 
enquiry  to  another  Participant,  giving  the  most  favourable  credit  terms  and  conditions 
that the enquiring Participant would be willing to support. 

If an enquiry is made to more than one Participant, it shall contain a list of addressees.  

A copy of all enquiries shall be sent to the Secretariat. 

52. 

SCOPE OF RESPONSES 

a) 

b) 

The  Participant  to  which  an  enquiry  is  addressed  shall  respond  within  seven  calendar 
days  and  provide  as  much  information  as  possible.  The  reply  shall  include  the  best 
indication that the Participant can give of the decision it is likely to take. If necessary, the 
full reply shall follow as soon as possible. Copies shall be sent to the other addressees of 
the enquiry and to the Secretariat. 

If  an  answer  to  an  enquiry  subsequently  becomes  invalid  for  any  reason,  because  for 
example: 

- 

- 

an application has been made, changed or withdrawn, or 

other terms are being considered,  

a reply shall be made without delay and copied to all other addressees of the enquiry and 
to the Secretariat. 

39 

 
 
  
 
53. 

FACE-TO-FACE CONSULTATIONS 

a) 

b) 

c) 

A  Participant  shall  agree  within  ten  working  days  to  requests  for  face-to-face 
consultations. 

A request for face-to-face consultations shall be made available to Participants and non- 
Participants. The consultations shall take place as soon as possible after the expiry of the 
ten working day period. 

The Chairman of the Participants shall co-ordinate with the Secretariat on any necessary 
follow-up action, e.g. a common line. The Secretariat shall promptly make available the 
outcome of the consultation. 

54. 

PROCEDURES AND FORMAT OF COMMON LINES 

a) 

Common line proposals are addressed only to the Secretariat. A proposal for a common 
line  shall  be  sent  to  all  Participants  and,  where  tied  aid  is  involved,  all  DAC  contact 
points by the Secretariat. The identity of the initiator is not revealed on the Common Line 
Register on the Bulletin Board of the OLIS. However, the Secretariat may orally reveal 
the identity of the initiator to a Participant or DAC member on demand. The Secretariat 
shall keep a record of such requests. 

b) 

The common line proposal shall be dated and shall be in the following format: 

- 

- 

- 

- 

- 

- 

- 

- 

reference number, followed by “Common Line”; 

name of the importing country and buyer; 

name  or  description  of  the  project  as  precise  as  possible  to  clearly  identify  the 
project; 

terms and conditions foreseen by the initiating country; 

common line proposal; 

nationality and names of known competing bidders; 

commercial  and  financial  bid  closing  date  and  tender  number  to  the  extent  it  is 
known; and 

other  relevant  information,  including  reasons  for  proposing  the  common  line, 
availability of studies of the project and/or special circumstances. 

c) 

A  common  line  proposal  put  forward  in  accordance  with  Article  32  b)  4  shall  be 
addressed to the Secretariat and copied to other Participants. The Participant making the 
common  line  proposal  shall  provide  a  full  explanation  of  the  reasons  why  it  considers 
that the classification of a country should differ from the procedure set out in Article 32 
b).  

40 

 
 
  
 
d) 

The Secretariat shall make publicly available the agreed common lines. 

55. 

RESPONSES TO COMMON LINE PROPOSALS 

a) 

b) 

c) 

Responses  shall  be  made  within  20  calendar  days,  although  the  Participants  are 
encouraged to respond to a common line proposal as quickly as possible. 

A  response  may  be  a  request  for  additional  information,  acceptance,  and  rejection,  a 
proposal for modification of the common line or an alternative common line proposal. 

A Participant which advises that it has no position because it has not been approached by 
an exporter, or  by the authorities in the recipient country in case  of aid for the project, 
shall be deemed to have accepted the common line proposal. 

56. 

ACCEPTANCE OF COMMON LINES 

a) 

b) 

c) 

d) 

After  a  period  of  20  calendar  days,  the  Secretariat  shall  inform  all  Participants  of  the 
status  of  the  common  line  proposal.  If  not  all  Participants  have  accepted  the  common 
line, but no Participant has rejected it, the proposal shall be left open for a further period 
of eight calendar days. 

After this further period, a Participant which has not explicitly rejected the common line 
proposal shall be deemed to have accepted the common line. Nevertheless, a Participant, 
including  the  initiating  Participant,  may  make  its  acceptance  of  the  common  line 
conditional on the explicit acceptance by one or more Participants. 

If  a  Participant  does  not  accept  one  or  more  elements  of  a  common  line  it  implicitly 
accepts  all  other  elements  of  the  common  line.  It  is  understood  that  such  a  partial 
acceptance  may  lead  other  Participants  to  change  their  attitude  towards  a  proposed 
common line. All Participants are free to offer or match terms and conditions not covered 
by a common line. 

A common line which has not been accepted may be reconsidered using the procedures 
in  Articles  54  and  55.  In  these  circumstances,  the  Participants  are  not  bound  by  their 
original decision. 

57. 

DISAGREEMENT ON COMMON LINES 

If  the  initiating  Participant  and  a  Participant  which  has  proposed  a  modification  or  alternative 
cannot agree on a common line within the additional eight-calendar day period, this period can be 
extended  by  their  mutual  consent.  The  Secretariat  shall  inform  all  Participants  of  any  such 
extension. 

41 

 
 
  
 
58. 

EFFECTIVE DATE OF COMMON LINE 

The Secretariat shall inform all Participants either that the common line will go into effect or that 
it has been rejected; the common line will take effect three calendar days after this announcement. 
The Secretariat shall make available on OLIS a permanently updated record of all common lines 
which have been agreed or are undecided. 

59. 

VALIDITY OF COMMON LINES 

a) 

b) 

A common line, once agreed, shall be valid for a period of two years from its effective 
date,  unless  the  Secretariat  is  informed  that  it  is  no  longer  of  interest,  and  that  this  is 
accepted  by  all  Participants.  A  common  line  shall  remain  valid  for  a  further  two-year 
period if a Participant seeks an extension within 14 calendar days of the original date of 
expiry.  Subsequent  extensions  may  be  agreed  through  the  same  procedure.  A  common 
line agreed in accordance with Article 32 b) 4) shall be valid until World Bank data for 
the following year is available. 

The Secretariat shall monitor the status of common lines and shall keep the Participants 
informed  accordingly,  through  the  maintenance  of  the  listing  “The  Status  of  Valid 
Common Lines” on OLIS. Accordingly, the Secretariat, inter alia, shall: 

- 

- 

- 

- 

add new common lines when these have been accepted by the Participants;  

update the expiry date when a Participant requests an extension; 

delete common lines which have expired; and 

issue,  on  a  quarterly  basis,  a  list  of  common  lines  due  to  expire  in  the  following 
quarter. 

SECTION 6: OPERATIONAL PROVISIONS FOR THE COMMUNICATION OF MINIMUM 
INTEREST RATES (CIRRS) 

60. 

COMMUNICATION OF MINIMUM INTEREST RATES 

a) 

b) 

CIRRs for currencies that are determined according to the provisions of Article 19 shall 
be  sent  by  means  of  instant  communication  at  least  monthly  to  the  Secretariat  for 
circulation to all Participants. 

Such notification shall reach the Secretariat no later than five days after the end of each 
month  covered  by  this  information.  The  Secretariat  shall  then  inform  immediately  all 
Participants of the applicable rates and make them publicly available. 

42 

 
 
  
 
61. 

EFFECTIVE DATE FOR APPLICATION OF INTEREST RATES 

Any changes in the CIRRs shall enter into effect on the fifteenth day after the end of each month. 

62. 

IMMEDIATE CHANGES IN INTEREST RATES 

When market developments require the notification of an amendment to a CIRR during the course 
of a month, the amended rate shall be implemented ten days after notification of this amendment 
has been received by the Secretariat. 

SECTION 7: REVIEWS 

63. 

REGULAR REVIEW OF THE ARRANGEMENT 

a) 

b) 

The  Participants  shall  review  regularly  the  functioning  of  the  Arrangement.  In  the 
review, the Participants shall examine, inter alia, notification procedures, implementation 
and  operation  of  the  DDR  system,  rules  and  procedures  on  tied  aid,  questions  of 
matching, prior commitments and possibilities of wider participation in the Arrangement. 

This  review  shall  be  based  on  information  of  the  Participants'  experience  and  on  their 
suggestions  for  improving  the  operation  and  efficacy  of  the  Arrangement.  The 
Participants shall take into account the objectives of the Arrangement and the prevailing 
economic and monetary situation. The information and suggestions that Participants wish 
to put forward for this review shall reach the Secretariat no later than 45 calendar days 
before the date of review. 

64. 

REVIEW OF MINIMUM INTEREST RATES 

a) 

b) 

The Participants shall periodically review the system for setting CIRRs in order to ensure 
that the notified rates reflect current market conditions and meet the aims underlying the 
establishment  of  the  rates  in  operation.  Such  reviews  shall  also  cover  the  margin  to  be 
added when these rates are applied. 

A Participant may submit to the Chairman of the Participants a substantiated request for 
an extraordinary review in case this Participant considers that the CIRR for one or more 
than one currency no longer reflect current market conditions. 

65. 

REVIEW OF MINIMUM PREMIUM RATES AND RELATED ISSUES 

The  Participants  shall  regularly  monitor  and  review  all  aspects  of  the  premium  rules  and 
procedures. This shall include: 

a) 

the  methodology  for  the  Country  Risk  Assessment  Model  to  review  its  validity  in  the 
light of experience; 

43 

 
 
  
 
b) 

c) 

d) 

the Minimum Premium Rates  for country  and  sovereign credit risk  to adjust them over 
time to ensure that they remain an accurate measure of risk, taking into account the three 
PFTs:  the  cash  flow  and  accruals  approaches  and,  where  appropriate,  private  market 
indicators; 

the  differentiations  in  the  MPRs  which  take  account  of  the  differing  quality  of  export 
credit products and percentage of cover provided; and 

the body of experience related to the use of risk mitigation and/or exclusion as set out in 
Article 27 and the continued validity and appropriateness of the specific allowable Risk 
Mitigation/Exclusion Factors. To assist the review the Secretariat shall provide reports of 
all notifications. 

44 

 
 
  
 
ANNEX I: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR SHIPS 

CHAPTER I: SCOPE OF THE SECTOR UNDERSTANDING 

1. 

PARTICIPATION 

The  Participants  to  the  Sector  Understanding  are:  Australia,  the  European  Community  (which 
includes the following countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, 
Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom), 
Japan, Korea, Norway, Poland and the Slovak Republic. 

2. 

SCOPE OF APPLICATION 

This Sector Understanding, which complements the Arrangement, sets out specific guidelines for 
officially supported export credits relating to export contracts of: 

a) 

b) 

c) 

Any  new  sea-going  vessel  of  100  gt  and  above  used  for  the  transportation  of  goods  or 
persons, or for the performance of a specialised service (for example, fishing vessels, fish 
factory  ships,  ice  breakers  and  as  dredgers,  that  present  in  a  permanent  way  by  their 
means of propulsion and direction (steering) all the characteristics of self-navigability in 
the high sea), tugs of 365 kw and over and to unfinished shells of ships that are afloat and 
mobile.  The  Sector  Understanding  does  not  cover  military  vessels.  Floating  docks  and 
mobile offshore units are not covered by the Sector Understanding, but should problems 
arise in connection with export credits for such structures, the Participants to the Sector 
Understanding  (hereinafter  the  “Participants”),  after  consideration  of  substantiated 
requests by any Participant, may decide that they shall be covered. 

Any conversion of a ship. Ship conversion means any conversion of sea-going vessels of 
more  than  1 000 gt  on  condition  that  conversion  operations  entail  radical  alterations  to 
the cargo plan, the hull or the propulsion system. 

1)  Although  hovercraft-type  vessels  are  not  included  in  the  Sector  Understanding, 
Participants  are  allowed  to  grant  export  credits  for  hovercraft  vessels  on  equivalent 
conditions to those prevailing in the Sector Understanding. They commit themselves to 
apply  this  possibility  moderately  and  not  to  grant  such  credit  conditions  to  hovercraft 
vessels in cases where it is established that no competition is offered under the conditions 
of the Sector Understanding. 

2)  In  the  Sector  Understanding,  the  term  "hovercraft"  is  defined  as  follows:  an 
amphibious vehicle of at least 100 tons designed to be supported wholly by air expelled 
from the vehicle forming a plenum contained within a flexible skirt around the periphery 
of the vehicle and the ground or water surface beneath the vehicle, and capable of being 
propelled and controlled by aircrews or ducted air from fans or similar devices. 

45 

 
 
  
 
 
3)  It  is  understood  that  the  granting  of  export  credits  at  conditions  equivalent  to  those 
prevailing in this Sector Understanding should be limited to those hovercraft vessels used 
on maritime routes and non land routes, except for reaching terminal facilities standing at 
a maximum distance of 1 kilometre from the water. 

CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND TIED AID 

3. 

MAXIMUM REPAYMENT TERM 

The maximum repayment term, irrespective of country classification, is 12 years after delivery. 

4. 

CASH PAYMENT 

The  Participants  shall  require  a  minimum  cash  payment  of  20  per  cent  of  the  contract  price  by 
delivery.  

5. 

REPAYMENT OF PRINCIPAL 

The principal sum of an export credit shall be repaid in equal installments at regular intervals of 
normally six months and a maximum of 12 months.  

6. 

MINIMUM PREMIUM 

The  provisions  of  the  Arrangement  in  relation  to  minimum  premium  benchmarks  shall  not  be 
applied  until  such  provisions  have  been  further  reviewed  by  the  Participants  to  this  Sector 
Understanding. 

7. 

AID 

Any  Participant  desiring  to  provide  aid  must,  in  addition  to  the  provisions  of  the  Arrangement, 
confirm that the ship is not operated under an open registry during the repayment term and that 
appropriate assurance has been obtained that the ultimate owner resides in the receiving country, 
is  not  a  non-operational  subsidiary  of  a  foreign  interest  and  has  undertaken  not  to  sell  the  ship 
without his government’s approval.  

CHAPTER III: PROCEDURES 

8. 

NOTIFICATION 

For  the  purpose  of  transparency  each  Participant  shall,  in  addition  to  the  provisions  of  the 
Arrangement  and  the  IBRD/Berne  Union/OECD  Creditor  Reporting  System,  provide  annually 

46 

 
 
  
 
 
information on its system for the provision of official support and of the means of implementation 
of this Sector Understanding, including the schemes in force. 

9. 

a) 

b) 

c) 

d) 

REVIEW 

The Sector Understanding shall be reviewed annually or upon request by any Participant 
within the context of the OECD Working Party on Shipbuilding, and a report made to the 
Participants to the Arrangement. 

To  facilitate  coherence  and  consistency  between  the  Arrangement  and  this  Sector 
Understanding  and  taking  into  account  the  nature  of  the  shipbuilding  industry,  the 
Participants  to  this  Sector  Understanding  and  to  the  Arrangement  will  consult  and  co-
ordinate as appropriate. 

Upon a decision by the Participants to the Arrangement to change the Arrangement, the 
Participants to this Sector Understanding (the Participants) will examine such a decision 
and  consider  its  relevance  to  this  Sector  Understanding.  ending  such  consideration  the 
amendments to the Arrangement will not apply to this Sector Understanding. In case the 
Participants  can  accept  the  amendments  to  the  Arrangement  they  shall  report  this  in 
writing to the Participants to the Arrangement. In case the Participants cannot accept the 
amendments to the Arrangement as far as their application to shipbuilding is concerned 
they  shall  inform  the  Participants  to  the  Arrangement  of  their  objections  and  enter  into 
consultations  with  them  with  a  view  to  seeking  a  resolution  of  the  issues.  In  case  no 
agreement  can  be  reached  between  the  two  groups,  the  views  of  the  Participants  as 
regards the application of the amendments to shipbuilding shall prevail. 

Upon entry into force of the "Agreement Respecting Normal Competitive Conditions in 
the Commercial Shipbuilding and Repair Industry" this Sector Understanding shall cease 
to apply for those Participants who are legally required to apply the 1994 Understanding 
on  Export  Credits  for  Ships  [C/WP6(94)6].  Such  Participants  shall  work  for  an 
immediate  review  to  bring  the  1994  Understanding  in  accordance  with  this  Sector 
Understanding. 

47 

 
 
  
 
ATTACHMENT: COMMITMENTS FOR FUTURE WORK 

In addition to the Future Work of the Arrangement, the Participants to this Sector Understanding 
agree: 

a) 

b) 

c) 

To  develop  an  illustrative  list  of  types  of  ships  which  are  generally  considered  non-
commercially  viable,  taking  into  account  the  disciplines  on  tied  aid  set  out  in  the 
Arrangement. 

To  review  the  provisions  of  the  Arrangement  in  relation  to  minimum  premium 
benchmarks with a view to incorporating them into this Sector Understanding. 

To  discuss,  subject  to  the  developments  in  relevant  international  negotiations,  the 
inclusion  of  other  disciplines  on  minimum  interest  rates  including  a  special  CIRR  and 
floating rates. 

d) 

To discuss the applicability of yearly installments of repayment of principal. 

48 

 
 
  
 
ANNEX II: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR 
NUCLEAR POWER PLANT 

CHAPTER I: SCOPE OF THE SECTOR UNDERSTANDING 

1. 

a) 

b) 

c) 

SCOPE OF APPLICATION 

This Sector Understanding, which complements the Arrangement: 

- 

- 

- 

sets  out  the  special  guidelines  which  apply  to  officially  supported  export  credits 
relating  to  contracts  for  the  export  of  complete  nuclear  power  stations  or  parts 
thereof,  comprising  all  components,  equipment,  materials  and  services,  including 
the training of personnel, directly required for the construction and commissioning 
of such nuclear power stations. It also sets out the terms which apply to support for 
nuclear fuel; 

does  not  apply  to  items  for  which  the  buyer  is  usually  responsible,  in  particular, 
costs  associated  with  land  development,  roads,  construction  village,  power  lines, 
switchyard  and  water  supply,  as  well  as  costs  arising  in  the  buyer's  country  from 
official  approval  procedures  (e.g.  site  permit,  construction  permit,  fuel  loading 
permit), except 

in cases where the buyer of the switchyard is the same as the buyer of the power 
plant  and  the  contract  is  concluded  in  relation  to  the  original  switchyard  for  that 
power plant, the maximum repayment term and the minimum interest rates for the 
original switchyard shall be the same as those for the nuclear power plant (i.e. 15 
years and the SCIRRs); 

- 

does not apply to sub-stations, transformers and transmission lines. 

This  Sector  Understanding  also  applies  to  the  modernisation  of  existing  nuclear  power 
plant in cases where both the overall value of the modernisation is at or above 80 million 
SDRs (Category X) and the economic life of the plant is likely to be extended by at least 
15 years. If either of these criteria is not met, the terms of the Arrangement apply. 

The terms of the Arrangement rather than the Sector Understanding shall apply to official 
support provided for the decommissioning of nuclear power plant. Decommissioning is 
defined as the closing down or dismantling of a nuclear power plant. The common line 
procedures  set  out  in  Articles  54  to  59  of  the  Arrangement  provide  the  possibility  to 
restrict or extend repayment terms. 

2. 

REVIEW 

The Participants shall review the provisions of the Sector Understanding regularly.  

49 

 
 
  
 
CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND TIED AID 

3. 

MAXIMUM REPAYMENT TERM 

The maximum repayment term, irrespective of the country classification, is 15 years. 

4. 

a) 

b) 

MINIMUM INTEREST RATES 

A Participant providing official financing support through direct financing, refinancing or 
interest  rate  support  shall  apply  minimum  interest  rates;  the  Participant  shall  apply  the 
relevant Special Commercial Interest Reference Rate (SCIRR). Where the fixed SCIRR 
commitment  is  limited  initially  to  a  maximum  period  which  does  not  exceed  15  years 
starting from the date of contract award, any official support for the remaining period of 
the loan shall also be limited to guarantees or interest rate support at the relevant SCIRR 
prevailing at the time of roll-over. 

Where  official  financing  support  is  provided  for  equipment  for  the  partial  supply  of 
nuclear power plant for which the supplier has no responsibility for commissioning, the 
minimum  interest  rate  shall  be  the  SCIRR  in  accordance  with  Article  5  of  this  Sector 
Understanding.  Alternatively,  a  Participant  may  offer  the  relevant  CIRR  in  accordance 
with Article 19 of the Arrangement, provided that the maximum period from the date of 
contract award to the date of final repayment does not exceed ten years. 

5. 

CONSTRUCTION OF SCIRRS 

SCIRRs  shall  be  set  at  a  fixed  margin  of  75  basis  points  above  the  CIRR  for  the  currency  in 
question,  except  that  for  the  Japanese  Yen,  the  margin  shall  be  40  basis  points.  For  those 
currencies which have more than one CIRR rate, in accordance with the first tiret of Article 19 a) 
of the Arrangement, the CIRR for the longest term shall be used for constructing the SCIRR. 

6. 

LOCAL COSTS AND CAPITALISATION OF INTEREST 

The provisions of Article 9 d) of the Arrangement do not apply where official financing support is 
provided  on  the  basis  of  the  SCIRR.  Official  financing  support  at  rates  other  than  SCIRRs  for 
both local costs and capitalisation of interest accruing before the starting point taken together shall 
not cover an amount exceeding 15 per cent of the export value. 

7. 

a) 

OFFICIAL SUPPORT FOR NUCLEAR FUEL 

The maximum repayment term for the initial fuel load shall not exceed four years from 
delivery. A Participant providing official financing support for the initial fuel load shall 
apply minimum interest rates; the Participant shall apply the relevant CIRR. The initial 

50 

 
 
  
 
fuel  load  shall  consist  of  no  more  than  the  initially  installed  nuclear  core,  plus  two 
subsequent reloads, together consisting of up to two-thirds of a nuclear core. 

The maximum repayment term for subsequent reloads of nuclear fuel is six months. If in 
exceptional  circumstances  longer  terms,  but  in  any  case  not  exceeding  two  years,  are 
considered  appropriate  the  procedures  set  out  in  Article  43  of  the  Arrangement  shall 
apply.  A  Participant  providing  official  financing  support  for  the  subsequent  reload  of 
nuclear  fuel shall  apply minimum interest  rates; the Participant shall apply the relevant 
CIRR. 

Official support for the separate provision of Uranium Enrichment Services shall not be 
provided on terms more favourable than those which apply to nuclear fuel. 

Reprocessing and spent fuel management (including waste disposal) shall be paid for on 
a cash basis. 

The Participants shall not provide free nuclear fuel or services. 

AID 

b) 

c) 

d) 

e) 

8. 

The Participants shall not provide aid support, unless this is in the form of an untied grant. 

CHAPTER III: PROCEDURES 

9. 

PRIOR CONSULTATION 

Recognising the advantages which can accrue if a common attitude towards terms can be achieved 
for nuclear power plant, the Participants agree to engage in prior consultation in all cases where 
there is an intention to provide official support. 

10. 

PRIOR NOTIFICATION 

a) 

The Participant initiating a prior consultation shall notify all other Participants at least ten 
working days before taking a final decision of the terms it intends to support specifying, 
inter alia, the following details: 

- 

- 

- 

- 

down payment; 

repayment term (including the starting point of credit, frequency of instalments for 
repaying principal, and whether these instalments will be equal in amount); 

currency and value rating of the contract, in accordance with paragraph 7 of Annex 
IV; 

interest rate; 

51 

 
 
  
 
- 

- 

- 

support  for  local  costs,  including  the  total  amount  of  local  costs  expressed  as  a 
percentage  of  the  export  contract  value,  the  terms  of  payment,  the  nature  of  the 
support to be given; 

the portion of the project to be financed, with separate information for initial fuel 
load, where appropriate; and 

any other relevant information including references to related cases. 

b) 

c) 

Other Participants shall not take a final decision on the terms it will support during the 
ten  working  day  period  specified  in  sub-paragraph  a)  above  but  shall  within  five  days 
exchange  information  with  all  other  Participants  in  the  consultation  on  the  appropriate 
credit  terms  for  the  transaction  with  the  objective  of  achieving  a  common  attitude  on 
such terms. 

If a common attitude is not achieved through these means within the ten-day period after 
receipt of the initial notification the final decision of each Participant in the consultation 
shall be delayed for an additional ten working days during which period further efforts to 
achieve a common attitude shall be made at face-to-face consultations. 

52 

 
 
  
 
ANNEX III: SECTOR UNDERSTANDING ON EXPORT CREDITS FOR CIVIL 
AIRCRAFT 

PART 1. NEW LARGE AIRCRAFT AND ENGINES FOR SUCH AIRCRAFT 

CHAPTER I: SCOPE 

1. 

a) 

FORM AND SCOPE OF APPLICATION 

Part  1  of  the  Sector  Understanding,  which  complements  the  Arrangement,  sets  out  the 
special guidelines which apply to officially supported export credits relating to the sale or 
lease  of  new  large  civil  aircraft,  listed  in  Appendix  I,  and  the  engines  installed  in  such 
aircraft.  A  new  aircraft  is  an  aircraft  owned  by  the  manufacturer,  i.e.  an  aircraft  which 
has  not  been  delivered  nor  previously  used  for  its  intended  purpose  of  carrying  fare-
paying  passengers  and/or  freight.  This  would  not  preclude  support  by  a  Participant  for 
terms appropriate to new aircraft for transactions where, with the prior knowledge of that 
Participant,  interim  commercial  financing  arrangements  had  been  put  in  place  because 
the  provision  of  official  support  had  been  delayed.  In  such  cases,  the  repayment  term, 
including the "starting point of the credit" and the "final repayment date", would be the 
same  as  they  would  have  been  had  the  sale  or  lease  of  the  aircraft  received  official 
support from the date the aircraft was originally delivered. 

b) 

The terms of Chapter I also apply to engines and spare parts when contemplated as part 
as part of the original aircraft order, subject to the provisions of Article 29 of Part 3 of 
this Sector Understanding. It does not apply to flight simulators, which are subject to the 
terms of the Arrangement. 

2. 

OBJECTIVE 

The objective of this Part of the Sector Understanding is to establish a balanced equilibrium that 
on all markets: 

- 

- 

- 

equalises competitive financial conditions between the Participants; 

neutralises  finance  among  the  Participants  as  a  factor  in  the  choice  among 
competing aircraft; and 

avoids distortions of competition. 

53 

 
 
  
 
CHAPTER II: PROVISIONS FOR EXPORT CREDITS AND AID 

3. 

a) 

b) 

DOWN PAYMENT 

The Participants shall require a minimum down payment of 15 per cent of the total price 
of  the  aircraft,  which  includes  the  price  of  the  airframe,  any  installed  engines  plus  the 
spare engines and spare parts to the extent referred to in Article 29 of Part 3 of this Sector 
Understanding. 

Official  support  for  such  down  payment  can  only  take  the  form  of  insurance  and 
guarantees, i.e. pure cover, against the usual pre-credit risks. 

4. 

MAXIMUM REPAYMENT TERM 

The maximum repayment term is 12 years. 

5. 

ELIGIBLE CURRENCIES 

The  currencies  which  are  eligible  for  official  financing  support  are  US  Dollars,  Euros  and  UK 
Pounds.  

6. 

a) 

b) 

MINIMUM INTEREST RATES 

The Participants providing official financing support, which shall not exceed 85 per cent 
of the total price of the aircraft referred to in sub-paragraph a) of Article 3 of this Sector 
Understanding, shall apply minimum interest rates up to a maximum of 62.5 per cent of 
the total price of the aircraft as follows: 

- 

- 

- 

on repayment terms up to and including ten years - TB10 + 120 basis points, 

on repayment terms of over ten to 12 years - TB10 + 175 basis points, 

where  TB10  means  the  ten-year  government  bond  yield  for  the  relevant  currency 
(except the Euro) at the constant maturity averaged over the previous two calendar 
weeks. In the case of the Euro, TB10 means the yield at the ten-year maturity of the 
Euro  yield  curve,  calculated  by  Eurostat  for  the  purpose  of  establishing  the  Euro 
CIRR, averaged over the previous two calendar weeks. For all currencies a margin 
as specified above shall be applied.  

The  maximum  percentage  of  the  aircraft  total  price  that  may  be  financed  at  the  fixed 
minimum interest rates specified in sub-paragraph a) above shall be limited to 62.5 per 
cent when repayment of the loan is spread over the entire life of the financing and 42.5 
per cent when repayment of the loan is spread over the later maturities. The Participants 
are free to use either repayment approach, subject to the ceiling applicable to that pattern. 

54 

 
 
  
 
A Participant offering such a tranche shall notify the other Participants of the amount, the 
interest rate, the date on which the interest rate is set, the validity period for the interest 
rate  and  the  pattern  of  repayment.  The  Participants  shall  review  the  two  ceilings  at  the 
time  of  each  review  in  accordance  with  Article  17  of  this  Sector  Understanding  to 
examine  whether  one  ceiling  provides  more  advantages  than  the  other  with  a  view  to 
adjusting the more advantageous so that a balance is more evenly struck. 

c) 

Subject to the 85 per cent threshold specified in sub-paragraph a) above, 

1) 

The  Participants  may  additionally  provide  official  financing  support  in  a  manner 
comparable  with  that  provided  by  the  Private  Export  Funding  Corporation 
(PEFCO).  Fortnightly  information  on  PEFCO's  borrowing  costs  and  applicable 
lending  rates,  exclusive  of  official  guarantee  fees,  on  fixed  rate  finance  for 
immediate  disbursements  over  a  series  of  dates,  for  contract  offers  and  for  bid 
offers,  shall  be  communicated  to  the  other  Participants  on  a  regular  basis.  A 
Participant offering such a tranche shall notify the other Participants of the amount, 
the interest rate, the date on which the interest rate is set, the validity period for the 
interest  rate  and  the  pattern  of  repayments.  Any  Participant  matching  such 
financing  offered  by  another  Participant  shall  match  it  in  all  of  its  terms  and 
conditions  other  than  the  validity  period  of  offers  of  commitment  as  set  out  in 
Article 8 of this Sector Understanding.  

2) 

These rates as notified shall be applied by all Participants as long as the 24-month 
disbursement  interest  rate  does  not  exceed  225  basis  points  above  TB10.  In  the 
event that the 24-month rate exceeds 225 basis points, the Participants are free to 
apply  the  rate  of  225 basis  points  for  the  24  months  disbursement  and  all  the 
corresponding  rates  and  shall  consult  immediately  with  a  view  to  finding  a 
permanent solution. 

d) 

The minimum interest rates are inclusive of credit insurance premium and guarantee fees. 
However, commitment and management fees are not included in the interest rate. 

7. 

INTEREST RATE ADJUSTMENTS 

The  minimum  interest  rates  set  out  in  Article  6  of  this  Sector  Understanding  shall  be  reviewed 
every  two  weeks.  If  the  average  of  the  government  bond  yield  for  the  relevant  currency  at 
constant  maturity  differs  by  10  basis  points  or  more  at  the  end  of  any  two  week  period,  such 
minimum interest rates will be adjusted by the same basis points difference noted above and the 
recalculated rate rounded to the nearest five basis points.  

8. 

VALIDITY PERIOD FOR EXPORT CREDITS/INTEREST RATE OFFERS 

The  duration  of  minimum  interest  rate  offers  set  in  accordance  with  Article  6  of  this  Sector 
Understanding shall not exceed three months. 

55 

 
 
  
 
9. 

a) 

b) 

DETERMINATION  OF  INTEREST  RATE  OFFERS  AND  SELECTION  OF 
INTEREST RATES 

The Participants may provide official financing support in accordance with Articles 6 and 
7  of  this  Sector  Understanding  at  an  interest  rate  applying  on  the  date  an  interest  rate 
offer  is  made  for  the  relevant  aircraft,  provided  that  the  offer  is  accepted  within  its 
validity period in accordance with Article 8 of this Sector Understanding. If the interest 
rate offer is not so accepted, further interest rate offers may be made up to, but no later 
than, the date of delivery of the relevant aircraft. 

An interest rate offer may be accepted and the interest rate selected at any time between 
contract signature and the date of delivery  of  the  relevant aircraft. The rate selected by 
the borrower shall be irrevocable. 

10. 

PURE COVER SUPPORT 

The  Participants  may  provide  official  support  by  way  of  guarantee  or  insurance  only,  i.e.  pure 
cover, subject to the 85 per cent threshold specified in Article 6 a) of this Sector Understanding. 
Any  Participant  providing  such  support  shall  notify  other  Participants  of  the  amount,  term, 
currency and pattern of repayments and interest rates. 

11. 

COMPETITION REFERENCE POINT 

In the event of officially supported competition, aircraft that are in the list of large civil aircraft in 
Appendix I to this Sector Understanding and that compete with other aircraft may benefit from the 
same credit terms and conditions. 

12. 

SECURITY FOR THE REPAYMENT RISK 

The  Participants  may  decide  upon  the  security  which  they  deem  acceptable  to  secure  the 
repayment risk without reference to other Participants. However, they agree to provide details of 
such security if requested by other Participants, or when deemed appropriate. 

13. 

MODEL CHANGES 

The Participants agree that when a fixed interest rate offer has been made or has been concluded 
on one type of aircraft, the terms contained therein cannot be transferred to another type bearing a 
different model designation. 

14. 

LEASES 

The Participants may, subject to the other terms of Part 1 of this Sector Understanding, provide 
support for a financial lease on the same basis as a contract of sale. 

56 

 
 
  
 
15. 

AID 

The  Participants  shall  not  provide  aid  support,  unless  this  is  in  the  form  of  an  untied  grant. 
However, Participants shall consider sympathetically any requests for a common line for tied aid 
for humanitarian purposes. 

CHAPTER III: PROCEDURES 

16. 

PRIOR NOTIFICATION, MATCHING AND INFORMATION EXCHANGE 

The  procedures  for  prior  notification,  matching  and  information  exchange  set  out  in  the 
Arrangement shall apply to this Part of this Sector Understanding. Furthermore, the Participants 
may request a consultation if there is any reason to believe that another Participant is offering an 
officially  supported  credit  on  terms  and  conditions  that  do  not  conform  to  the  Sector 
Understanding.  The  consultation  shall  be  held  within  ten  days,  but  otherwise  follow  the 
procedures set out in Article 53 of the Arrangement. 

17. 

REVIEW 

The Participants shall review the procedures and provisions of this Sector Understanding regularly 
to bring them closer to market conditions. However, if market conditions or customary financing 
practices change considerably, a review may be requested at any time. 

PART 2: 

ALL NEW AIRCRAFT EXCEPT LARGE AIRCRAFT 

CHAPTER IV: SCOPE 

18. 

FORM AND SCOPE OF APPLICATION 

Part  2  of  this  Sector  Understanding,  which  complements  the  Arrangement,  sets  out  the  special 
guidelines which apply to officially supported export credits for the sale or lease of new aircraft 
not  covered  by  Part  1  of  this  Sector  Understanding.  It  does  not  apply  to  hovercraft  or  to  flight 
simulators which are subject to the terms of the Arrangement. 

19. 

BEST ENDEAVOURS 

The provisions of this Chapter represent the most generous terms that Participants may offer when 
providing official support. The Participants shall, however, continue to respect customary market 
terms for different types of aircraft and shall do everything in their power to prevent these terms 
from being eroded. 

57 

 
 
  
 
20. 

CATEGORIES OF AIRCRAFT 

The Participants have agreed on the following categorisation of aircraft: 

- 

- 

- 

Category  A:  turbine  powered  aircraft,  including  helicopters,  (e.g.  turbo  jet,  turbo  prop 
and turbo fan aircraft) with generally between 30 and 70 seats. 

Category B: other turbine powered aircraft, including helicopters. 

Category C: other aircraft, including helicopters. 

An illustrative list of aircraft in Categories A and B is set out in Appendix I. 

CHAPTER V: PROVISIONS FOR EXPORT CREDITS AND AID 

21. 

MAXIMUM REPAYMENT TERM 

The  maximum  repayment  term  varies  according  to  the  aircraft  categorisation  which  shall  be 
determined by the criteria set out in Article 20 of this Sector Understanding. 

a) 

b) 

c) 

For category A aircraft the maximum repayment term is ten years. 

For category B aircraft the maximum repayment term is seven years. 

For category C aircraft the maximum repayment term is five years. 

22. 

MINIMUM INTEREST RATES 

The  Participants  providing  official  financing  support  shall  apply  minimum  interest  rates;  the 
Participants shall apply the relevant CIRR set out in Article 19 of the Arrangement. 

23. 

INSURANCE PREMIUM AND GUARANTEE FEES 

The Participants shall not waive in part or in total, insurance premium or guarantee fees. 

24. 

AID 

The  Participants  shall  not  provide  aid  support,  unless  this  is  in  the  form  of  an  untied  grant. 
However, the Participants shall consider sympathetically any requests for a common line for tied 
aid for humanitarian purposes. 

58 

 
 
  
 
CHAPTER VI: PROCEDURES 

25. 

PRIOR NOTIFICATION, MATCHING AND INFORMATION EXCHANGE 

In the event of officially supported competition for a sale or lease, aircraft competing with those 
from another category or with those covered by other Parts of the Sector Understanding shall, for 
that specific sale or lease, be able to benefit from the same terms and conditions as those other 
aircraft. The procedures for prior notification, matching and information exchange set out in the 
Arrangement  shall  apply  to  this  Part  of  the  Sector  Understanding.  Furthermore,  the  Participants 
may request a consultation if there is any reason to believe that another Participant is offering an 
officially  supported  credit  on  terms  that  do  not  conform  to  the  Sector  Understanding.  The 
consultation shall be held within ten days, but otherwise follow the procedures set out in Article 
53 of the Arrangement. 

26. 

REVIEW 

The Participants shall review the procedures and provisions of this Sector Understanding regularly 
in order to bring them closer to market conditions. However, if market conditions or customary 
financing practices change considerably, a review may be requested at any time. 

PART 3: USED AIRCRAFT, SPARE ENGINES, SPARE PARTS, MAINTENANCE AND 
SERVICE CONTRACTS 

CHAPTER VII: SCOPE 

27. 

FORM AND SCOPE OF APPLICATION 

Part  3  of  the  Sector  Understanding,  which  complements  the  Arrangement,  sets  out  the  special 
guidelines which apply to officially supported export credits relating to the sale or lease of used 
aircraft; and of spare engines, spare parts, maintenance and service contracts in conjunction with 
both  new  and  used  aircraft.  It  does  not  apply  to  hovercraft  or  to  flight  simulators,  which  are 
subject to the terms of the Arrangement. The relevant provisions of Parts 1 and 2 of this Sector 
Understanding apply except as follows. 

28. 

USED AIRCRAFT 

The  Participants  shall  not  support  credit  terms  more  favourable  than  those  set  out  in  the  Sector 
Understanding for new aircraft. The following rules apply specifically to used aircraft. 

59 

 
 
  
 
a) 

Age of Aircraft (years) 

Normal Maximum Repayment Terms 

Large 
Aircraft 

10 

9 

8 

7 

6 

5 

1 

2 

3 

4 

5 - 10 

Over 10 

Category A  Category B 

Category C 

8 

7 

6 

6 

6 

5 

6 

6 

5 

5 

5 

4 

5 

5 

4 

4 

4 

3 

These terms shall be reviewed if the maximum repayment term for new aircraft is changed. 

b) 

The Participants providing official financing support shall apply minimum interest rates; 
the Participants shall apply the relevant CIRR set out in Article 19 of the Arrangement. 

29. 

SPARE ENGINES AND SPARE PARTS 

a) 

b) 

c) 

The financing of these items when contemplated as part of the original aircraft order may 
be on the same terms as for the aircraft. However, in such cases the Participants shall also 
take  account  of  the  size  of  the  fleet  of  each  aircraft  type,  including  aircraft  being 
acquired, aircraft already the subject of a firm order or already owned, on the following 
basis: 

- 

- 

for the first five aircraft of the type in the fleet: 15 per cent of the aircraft price, i.e. 
the price of the airframe and installed engines; and 

for  the  sixth  and  subsequent  aircraft  of  that  type  in  the  fleet:  10  per  cent  of  the 
aircraft price, i.e. the price of the airframe and installed engines. 

When these items are not ordered with the aircraft, the maximum repayment term shall 
be five years for new spare engines and two years for other spare parts. 

Notwithstanding  sub-paragraph  b)  above  for  new  spare  engines  for  large  aircraft,  the 
Participants may exceed the maximum repayment term of five years by up to three years  

- 

- 

where the transaction has a minimum contract value of more than USD 20 million; 

or includes a minimum of four new spare engines.  

The  contract  value  shall  be  reviewed  every  two  years  and  adjusted  for  price  escalation 
accordingly.  

60 

 
 
  
 
 
 
 
d) 

The  Participants  reserve  the  right  to  change  their  practice  and  match  the  practices  of 
competing Participants in relation to the timing of the first repayment of principal with 
respect to spare engines and spare parts. 

30. 

MAINTENANCE AND SERVICE CONTRACTS 

The Participants may offer official financing support with a repayment term of up to two years for 
maintenance and service contracts.  

CHAPTER VIII: PROCEDURES 

31. 

PRIOR NOTIFICATION, MATCHING AND INFORMATION EXCHANGE 

The  procedures  for  prior  notification,  matching  and  information  exchange  set  out  in  the 
Arrangement  shall  apply  to  this  Part  of  the  Sector  Understanding.  Furthermore,  the  Participants 
may request a consultation if there is any reason to believe that another Participant is offering an 
officially  supported  credit  on  terms  that  do  not  conform  to  the  Sector  Understanding.  The 
consultation shall be held within ten days, but otherwise follow the procedures set out in Article 
53 of the Arrangement. 

32. 

REVIEW 

The Participants shall review the procedures and provisions of this Sector Understanding regularly 
in order to bring them closer to market conditions. However, if market conditions or customary 
financing practices change considerably, a review may be requested at any time. 

APPENDIX I: ILLUSTRATIVE LIST 

All  other  similar  aircraft  that  may  be  introduced  in  the  future  shall  be  covered  by  this  Sector 
Understanding  and  shall  be  added  to  the  appropriate  list  in  due  course.  These  lists  are  not 
exhaustive and serve only to indicate the type of aircraft to be included in the different categories 
where doubts could arise. 

LARGE CIVIL AIRCRAFT 

Manufacturer 

Designation 

A 300 

A 310 

A 318 

Airbus 

Airbus 

Airbus 

61 

 
 
  
 
Airbus 

Airbus 

Airbus 

Airbus 

Airbus 

Boeing 

Boeing 

Boeing 

Boeing 

Boeing 

Boeing 

British Aerospace 

British Aerospace 

British Aerospace 

British Aerospace 

British Aerospace 

Fairchild Dornier 

Fairchild Dornier 

Fokker 

Fokker 

Lockheed 

A 319 

A 320 

A 321 

A 330 

A 340 

B 737 

B 747 

B 757 

B 767 

B 777 

B 707, 727 

RJ70 

RJ85 

RJ100 

RJ115 

BAe146 

728 Jet 

928 Jet 

F 70 

F 100 

L-100 

McDonnell Douglas 

MD-80 series 

McDonnell Douglas 

MD-90 series 

McDonnell Douglas 

McDonnell Douglas 

MD-11 

DC-10 

62 

 
 
  
 
McDonnell Douglas 

Lockheed 

Ramaero 

DC-9 

L-1011 

1.11-495 

CATEGORY A AIRCRAFT 

Turbine-powered aircraft - including helicopters (e.g. turbo jet, turbo-prop and turbo-fan aircraft), 
with generally between 30 and 70 seats. In case a new large turbine-powered aircraft with over 
70 seats  is  being  developed,  immediate  consultations  shall  be  held  upon  request  with  a  view  to 
agreeing on the classification of such an aircraft in this category or in Part 1 of this Understanding 
in view of the competitive situation. 

Manufacturer 

Designation 

Aeritalia 

Aeritalia/Aerospatiale 

Aeritalia/Aerospatiale 

G 222 

ATR 42 

ATR 72 

Aerospatiale/MBB 

C160 Transall 

De Havilland 

De Havilland 

De Havilland 

De Havilland 

Boeing Vertol 

Broman (U.S.) 

British Aerospace 

British Aerospace 

Dash 8 

Dash 8 - 100 

Dash 8 - 200 

Dash 8 - 300 

234 Chinook 

BR 2000 

BAe ATP 

BAe 748 

British Aerospace 

BAe Jetstream 41  

British Aerospace 

BAe Jetstream 61  

Canadair 

Canadair 

CL 215T 

CL 415 

63 

 
 
  
 
Canadair 

Casa 

Dornier 

EH Industries 

Embraer 

Embraer 

Fairchild Dornier 

Fairchild Dornier 

Fokker 

Fokker 

Fokker 

RJ 

CN235 

DO 328 

EH-101 

EMB 120 Brasilia 

EMB 145 

528 Jet 

328 Jet 

F 50 

F 27 

F 28 

Gulfstream America 

Gulfstream I-4 

LET 

Saab 

Saab 

Short 

Short 

Short 

610 

SF 340 

2000 

SD 3-30 

SD 3-60 

Sherpa 

CATEGORY B AIRCRAFT 

Other turbine-powered aircraft, including helicopters. 

Manufacturer 
Aerospatiale 
Agusta 
Beech 
Beech 

Beech 

64 

Designation 
AS 332 
A 109, A 119 
1900 
Super King Air 300 
Starship 1 

 
 
  
 
Bell Helicopter 

Bell Helicopter 

Bell Helicopter 

Bell Helicopter 

Bell Helicopter 

Bell Helicopter 

Bell Helicopter 

Bombardier / Canadair

British Aerospace 

British Aerospace 

British Aerospace 

British Aerospace 

Beech Aircraft Corpn d/b/a Raytheon Aircraft 

Beech Aircraft Corpn d/b/a Raytheon Aircraft 

Beech Aircraft Corpn d/b/a Raytheon Aircraft 

206B 

206L 

212 

230 

412 

430 

214 

Global Express 

BAe Jetstream 31 

BAe 125 

BAe 1000 

BAe Jetstream Super 31 

Hawker 1000 

Hawker 800 

King Air 350 

Beech Aircraft Corpn d/b/a Raytheon Aircraft 

Beechjet 400 series 

Beech Aircraft Corpn d/b/a Raytheon Aircraft 

Starship 2000A 

Bell 

Canadair 

Canadair 

Canadair 

Casa 

Casa 

Cessna 

Cessna 

Claudius Dornier 

Dassault Breguet 
Dornier 
Embraer 
Embraer/FAMA 
Eurocopter 
Eurocopter 
Fairchild 
Fairchild 
Fairchild 

Fairchild 

B 407 

Challenger 601-3A 

Challenger 601-3R 

Challenger 604 

C 212-200 

C 212-300 

Citation 

441 Conquest III and Caravan 208 

CD2 

Falcon 
DO 228-200 
EMB 110 P2 
CBA 123 
AS 350, AS 355, EC 120, AS 365, EC 
B0105LS 
Merlin/300 
Metro 25 
Metro III V 

Metro III 

65 

 
 
  
 
Fairchild 

Fairchild 

Metro III A 

Merlin IVC-41 

Gulfstream America

Gulfstream II, III, IV and V 

IAI 

IAI 

Learjet 

MBB 

MBB 

Astra SP and SPX 

Arava 101 B 

31A, 35A, 45 and 60 series 

BK 117 C 

BO 105 CBS 

McDonnell Helicopter System

MD 902, MD 520, MD 600 

Mitsubishi 

Piaggio 

Pilatus Britten-Norman

Piper 

Piper 

Piper 

Piper 

Piper 

Reims 

SIAI-Marchetti 

Short 

Westland 

Mu2 Marquise 

P 180 

BN2T Islander 

400 LS 

T 1040 

PA-42-100 (Cheyenne 400) 

PA-42-720 (Cheyenne III A) 

Cheyenne II 

Cessna-Caravan II 

SF 600 Canguro 

Tucano 

W30 

ANNEX IV: STANDARD FORM FOR NOTIFICATIONS 

Information to be included in each and every notification: 

1. 

2. 

3. 

Name of authority/agency responsible under the Arrangement for making notifications. 

Reference number (country indication, serial number, year). 

The Arrangement Article under which the authority/agency is notifying: 

41  matching terms offered by a Participant or a non-Participant 

43 

a) 

MPR according to the first tiret of Article 23 e) or Article 27 

b) 

final decision according to Article 65 

44 

a) first tiret  maximum repayment term to a Category I country 

second tiret 

other payment practices than those set out in Articles 13 and 14 

66 

 
 
  
 
third tiret 

maximum repayment term for non-nuclear power plant 

fourth tiret 

premium rate according to the second tiret of Article 23 e 

fifth tiret 

premium rate according to Article 23 g) 

45 and 46 

aid financing, concessionality level/grant element less than 50/80per cent  

tied aid, concessionality level 50/80 per cent or more 

Annex II 
or 

under the Sector Understanding on Export Credits for NuclearPower Plant, 

Annex III 

under the Sector Understanding on Export Credits for CivilAircraft  

Country of buyer/borrower. 

Name, location and status (public/private) of buyer/borrower. 

Nature  of  project/goods  to  be  exported;  location  of  project;  closing  date  of  tender  if 
relevant; expiry date of credit line. 

Contract  value;  value  of  the  credit  or  credit  line;  value  of  exporter's  national  share; 
minimum contract value of credit line. 

These values shall be stated as follows: 

- 

- 

The exact amount in the denominated currency for a line of credit. 

The  value  of  an  individual  project  or  contract  in  terms  of  value  ratings  in 
accordance with the following scale in Special SDRs: 

4. 

5. 

6. 

7. 

Category 

I: 

up to 1 000 000 SDRs 

Category 

II: 

from 1 000 000 to 2 000 000 SDRs 

Category 

III: 

from 2 000 000 to 3 000 000 SDRs 

Category 

IV: 

from 3 000 000 to 5 000 000 SDRs 

Category  V: 

from 5 000 000 to 7 000 000 SDRs 

Category  VI: 

from 7 000 000 to 10 000 000 SDRs 

Category  VII: 

from 10 000 000 to 20 000 000 SDRs 

Category  VIII: 

from 20 000 000 to 40 000 000 SDRs 

Category 

IX: 

from 40 000 000 to 80 000 000 SDRs 

67 

 
 
  
 
 
Category  X: 

from 80 000 000 to 120 000 000 SDRs 

Category  XI: 

from 120 000 000 to 160 000 000 SDRs 

Category  XII: 

from 160 000 000 to 200 000 000 SDRs 

Category  XIII: 

from 200 000 000 to 240 000 000 SDRs 

Category  XIV: 

from 240 000 000 to 280 000 000 SDRs 

Category  XV: 

exceeding 280 000 000 SDRs* 

* Indicate actual level within multiples of 40 000 000 SDRs. 

When using this scale please indicate currency of the contract. 

8. 

Credit terms which reporting organisation intends to support (or has supported): 

- 

- 

- 

down payment; 

repayment term (including starting point of credit - indicating which sub-paragraph 
of Article 9 of this Annex applies, frequency of instalments for repaying principal 
amount of credit, and whether these instalments will be equal in amount); interest 
rate; 

support  for  local  costs  (including  the  total  amount  of  local  costs  expressed  as  a 
percentage  of  the  total  value  of  goods  and  services  exported,  the  terms  of 
repayment, and the nature of the support to be given). 

9. 

Any other relevant information including references to related cases and where relevant: 

- 

- 

- 

- 

- 

justification  for  matching  (specify  reference  number  of  notification  matched  or 
other  references)  or  granting  long  term  credits  for  Category  I  countries  or 
conventional power plant, etc.; 

the  overall  concessionality  level  of  the  tied  and  partially  untied  aid  financing 
calculated in accordance with Article 36 and the discount rate used to calculate that 
concessionality level; 

treatment of cash payments in the calculation of the concessionality level; 

development aid or premixed credit or associated finance; 

restrictions on use of credit lines.  

ANNEX V: CALCULATION OF THE MINIMUM PREMIUM RATES 

The formula for calculating the applicable MPR for an export credit is: 

68 

 
 
  
 
MPR = ( (a * HOR )+b) * (PC/0.95) * QPF * PCF * (1-MEF) * BRF 

where : 

- 

- 

- 

- 

- 

- 

- 

a and b are coefficients associated with the applicable Country Risk Category 

HOR is the horizon of risk 

PC is the percentage of cover 

QPF is the quality of product factor 

PCF is the percentage of cover factor 

MEF is the country risk mitigation/exclusion factor 

BRF is the buyer risk cover factor 

The values for coefficients a and b are obtained from the following table: 

Country Risk Category 

0 

n/a 

n/a 

a 

b 

1 

2 

3 

4 

5 

6 

7 

0.100  

0.225  

0.392  

0.585  

0.780  

0.950  

1.120  

0.350  

0.350  

0.400  

0.500  

0.800  

1.200  

1.800 

The Horizon of Risk (HOR) is calculated as follows: 

For standard repayment profiles (i.e. equal semi-annual repayments of principal): 

HOR  =  (length  of  the  disbursement  period  *  0.5)  +  the  length  of  the  repayment 
period  

For  non-standard  repayment  profiles,  the  equivalent  repayment  period  (expressed  in 
terms of equal, semi-annual instalments) is calculated using the following formula: 

HOR = (average weighted life of the repayment period -0.25) / 0.5 

The use of years or months in the formula has no impact on the calculation as long as the same 
unit is used for the disbursement and repayment periods.  

The Percentage of Cover (PC) expressed as a decimal value (i.e. 95% id expressed as 0.95) 

The Quality of Product Factor (QPF) is obtained from the following table: 

69 

 
 
  
 
 
 
 
 
 
Country Risk Category 

0 

1 

2 

3 

4 

5  

6 

7 

Product 
Quality 

below standard 

n/a 

0.9965  0.9935  0.9850  0.9825  0.9825  0.9800  0.9800 

standard 

n/a 

1.0000  1.0000  1.0000  1.0000  1.0000  1.0000  1.0000 

above standard 

n/a 

1.0035  1.0065  1.0150  1.0175  1.0175  1.0200   1.0200 

The Percentage of Cover Factor (PCF) is determined as follows: 

For PC <= 0.95, PCF = 1 

For PC > 0.95, PCF = 1 + ( (PC - 0.95) / 0.05 ) * percentage of cover coefficient ) 

Country Risk Category 

0 

n/a 

percentage of cover 
coefficient 

1 

2 

3 

4 

5 

6 

7 

0.00000   0.00337 

0.00489 

0.01639 

0.03657 

0.05878   0.08598 

The Country Risk Mitigation/Exclusion Factor (MEF) is determined as follows: 

For export credits with no country risk mitigation, MEF = 0 

For export credits with country risk mitigation, the MEF is determined according to the criteria set 
out in Annex VII. 

The Buyer Risk Cover Factor (BRF) is determined as follows: 

When cover for buyer risk is excluded completely, BRF = 0.90 

When cover for buyer risk is not excluded, BRF = 1 

ANNEX  VI:  CRITERIA  AND  CONDITIONS  GOVERNING  THE  APPLICATION  OF 
COUNTRY  RISK  CLASSIFICATION  REFLECTING  A  THIRD  COUNTRY 
GUARANTOR OR A MULTILATERAL OR REGIONAL INSTITUTION 

PURPOSE 

This  Annex  provides  the  criteria  and  conditions  that  govern  the  application  of  a  country  risk 
classification reflecting a third country guarantor or a multilateral or regional institution according 
to the situations described in the first and second tirets of Article 23 e) of the Arrangement. 

70 

 
 
  
 
 
 
 
 
 
APPLICATION 

Country Risk Classification Reflecting a Third Country Guarantor 

Case 1: Guarantee for the Total Amount at Risk 

When security in the form of a guarantee from an entity which is located outside of the country of 
the  buyer/borrower  is  provided  for  the  total  amount  at  risk  (i.e.  principal  and  interest),  the 
applicable  Country  Risk  Classification  may  be  that  of  the  country  in  which  the  guarantor  is 
located when the following criteria are met: 

- 

- 

- 

- 

- 

- 

- 

The guarantee covers the entire duration of the credit. 

The guarantee is irrevocable, unconditional and available on-demand. 

The guarantee  is  legally valid  and capable of being enforced in  the guarantor country's 
jurisdiction. 

The guarantee is for the five country credit risks on the buyer/borrower country. 

The guarantor is creditworthy in relation to the size of the guaranteed debt. 

The guarantor is subject to the monetary control and transfer regulations of the country in 
which it is located. 

If  the  guarantor  is  a  subsidiary/parent  of  the  guaranteed  entity,  Participants  shall,  on  a 
case-by-case  basis,  determine  whether:  (1)  in  consideration  of  the  relationship  between 
the  subsidiary/parent  and  the  degree  of  legal  commitment  of  the  parent,  the 
subsidiary/parent  is  legally  and  financially  independent  and  could  fulfil  its  payment 
obligations;  (2)  the  subsidiary/parent  could  be  affected  by  local  events/regulations  or 
sovereign  intervention;  and  (3)  the  Head  Office  would  in  the  event  of  a  default  regard 
itself as being liable.  

Case 2: Guarantee Limited in Amount 

When security in the form of a guarantee from an entity which is located outside of the country of 
the  buyer/borrower  is  provided  for  a  limited  amount  at  risk  (i.e.  principal  and  interest),  the 
applicable  Country  Risk  Classification  may  be  that  of  the  country  in  which  the  guarantor  is 
located for the portion of the credit subject to the guarantee. In addition to the criteria listed for 
Case  1,  the  guarantor's  country  classification  may  be  applied  only  when  either  the  guaranteed 
amount  (principal  amount  plus  the related  interest)  is  either:  (1)  greater  than  or  equal  to  10  per 
cent  of  the  principal  plus  the  related  interest;  or  (2) SDR  5  million  principal  plus  the  related 
interest if the transaction exceeds SDR 50 million. 

For  the  unguaranteed  portion,  the  applicable  Country  Risk  Classification  is  that  of  the  buyer 
country. 

71 

 
 
  
 
Country Risk Classification Reflecting a Multilateral or Regional Institution 

Case 1: Guarantee for the Total Amount at Risk 

When security in the form of a guarantee from a classified multilateral or regional institution is 
provided  for  the  total  amount  at  risk  (i.e.  principal  and  interest),  the  applicable  Country  Risk 
Classification may be that of the multilateral or regional institution when the following criteria are 
met: 

- 

- 

- 

- 

- 

The guarantee covers the entire duration of the credit. 

The guarantee is irrevocable, unconditional and available on-demand. 

The guarantee is for the five country credit risks on the buyer/borrower country. 

The guarantor is legally committed for the total amount of the credit. 

The repayments are made directly to the creditor. 

Case 2: Guarantee Limited in Amount 

When security in the form of a guarantee from a classified multilateral or regional institution is 
provided  for  a  limited  amount  at  risk  (i.e.  principal  and  interest),  the  applicable  Country  Risk 
Classification  may  be  that  of  the  multilateral  or  regional  institution  for  the  portion  of  the  credit 
subject to the guarantee. In addition to the criteria listed for Case 1, the multilateral or regional 
institution's  classification  may  be  applied  only  when  either  the  guaranteed  amount  (principal 
amount plus the related interest) is either: (1) greater than or equal to 10 per cent of the principal 
plus the related interest; or (2) SDR 5 million principal plus the related interest if the transaction 
exceeds SDR 50 million. 

For  the  unguaranteed  portion,  the  applicable  Country  Risk  Classification  is  that  of  the  buyer 
country. 

Case 3: Multilateral or Regional Institution as the Borrower 

When a classified multilateral or regional institution is the borrower, the applicable Country Risk 
Classification may be that of the multilateral or regional institution. 

Classification of Multilateral or Regional Institutions 

Multilateral  and  regional  institutions  shall  be  eligible  for  classification  if  the  institution  is 
generally exempt from the monetary control and transfer regulations of the country in which it is 
located. Such institutions shall be classified in Country Risk Categories 0 through 7 on a case-by-
case basis according to an assessment of the risk of each on its own merits and in consideration of 
whether: 

- 

- 

the institution has statutory and financial independence; 

all of the institution's assets are immune from nationalisation or confiscation; 

72 

 
 
  
 
- 

- 

- 

- 

the institution has full freedom of transfer and conversion of funds; 

the institution is not subject to government intervention in the country where it is located; 

the institution has tax immunity; and 

there is an obligation of all its Member countries to supply additional capital to meet the 
institution's obligations. 

The assessment should also take into consideration the historical payment record in situations of 
country  credit  risks  default  either  in  the  country  where  it  is  located  or  in  a  buyer/borrower 
country; and any other factors which may be deemed appropriate in the assessment process. 

The  list  of  classified  multilateral  and  regional  institutions  is  not  closed  and  a  Participant  may 
nominate an institution for review according to the above-listed considerations. The classifications 
of multilateral and regional institutions shall be made public by the Participants. 

ANNEX  VII:  CRITERIA  AND  CONDITIONS  GOVERNING  THE  APPLICATION  OF 
COUNTRY  RISK  MITIGATION/EXCLUSION  IN  CALCULATING  THE  MINIMUM 
PREMIUM RATES 

PURPOSE 

This Annex provides detail on the use of country credit risk mitigation/exclusion techniques listed 
in  Article  27  b)  of  the  Arrangement;  this  includes  the  criteria,  conditions  and  specific 
circumstances which apply to their use as well as the applicable MEFs. 

GENERAL APPLICATION 

For  all  country  credit  risk  mitigation/exclusion  techniques  listed  in  Article  27  b)  of  the 
Arrangement: 

- 

- 

- 

- 

The listed MEFs are the maximum that would be envisaged in the best circumstances and 
should be justified on a case-by-case basis. 

Participants shall ascertain whether the security arrangements can be validly enforced in 
their legal/judicial environment. 

The  MPR  resulting  from  the  use  of  country  credit  risk  mitigation/exclusion  techniques 
shall not undercut private market pricing under similar circumstances. 

In  the  case  where  a  transaction  is  financed  in  parallel  by  other  sources,  any  security 
retained  in  relation  to  the  official  export  credit  is  treated,  at  least,  pari  passu  with  the 
same security held by the other sources. 

73 

 
 
  
 
SPECIFIC APPLICATION 

1. 

Offshore Future Flow Structure Combined with Offshore Escrow Account 

Definition:  

A written document, such as a deed or a release or trustee arrangement, sealed and delivered to a 
third  panrty,  i.e.  a  person  not  party  to  the  instrument,  to  be  held  by  such  third  party  until  the 
fulfilment of certain conditions and then to be delivered by him to the other party to take effect. If 
the  following  criteria  are  satisfied  subject  to  consideration  of  the  additional  factors  listed,  this 
technique can reduce or eliminate the transfer risks, mainly in the higher risk country categories. 

Criteria: 

- 

- 

- 

- 

- 

- 

- 

- 

The  escrow  account  is  related  to  a  foreign exchange-earning  project  and  the  flows  into 
the  escrow  account  are  generated  by  the  project  itself  and/or  by  other  offshore  export 
receivables. 

The  escrow  account  is  held  offshore  i.e.  located  outside  the  buyer/borrower  country 
where there are very limited, transfer  or  other country risks (i.e. a country classified in 
Category 0). 

The  escrow  account  is  located  in  a  first  class  bank  which  is  not  directly  or  indirectly 
controlled by interests of the buyer/borrower or by the country of the buyer/borrower. 

The funding of the account is secured through long-term or other appropriate contracts. 

The combination of the sources of revenues (i.e. generated by the project itself and/or the 
other  sources)  of  the  buyer/borrower  flowing  through  the  account  are  in  hard  currency 
and can reasonably be expected to be collectively sufficient for the service of the debt for 
the  entire  duration  of  the  credit,  and  come  from  one  or  more  creditworthy  foreign 
customers  located  in  better  risk  countries  than  the  country  of  the  buyer/borrower  (i.e. 
normally countries classified in Category 0). 

The  buyer/borrower  irrevocably  instructs  the  foreign  customers  to  pay  directly  into  the 
account  (i.e. the  payments  are  not  forwarded  through  an  account  controlled  by  the 
buyer/borrower or through its country). 

The funds which have to be kept within the account are equal to at least six months of 
debt service. Where flexible repayment terms are being applied under a project finance 
structure, an amount equivalent to the actual six months debt service under such flexible 
terms are to be kept within the account; this amount may vary over time depending on 
the debt service profile. 

The  buyer/borrower  has  restricted  access  to  the  account  (i.e.  only  after  payment  of  the 
debt service under the credit). 

74 

 
 
  
 
- 

- 

- 

The revenues deposited in the account are assigned to the lender as direct beneficiary, for 
the entire life of the credit. 

The opening of the account has received all the necessary legal authorisations from the 
local and any other appropriate authorities. 

The  escrow  account  and  contractual  arrangements  may  not  be  conditional  and/or 
revocable and/or limited in duration. 

Additional Factors to be Taken into Consideration: 

The  technique  applies  subject  to  a  case-by-case  consideration  of  the  above  characteristics  and, 
inter alia, with regard to: 

- 

- 

- 

- 

- 

- 

- 

- 

- 

- 

the country, the buyer/borrower (i.e. either public or private), the sector, the vulnerability 
in  relation  to  the  commodities  or  services  involved,  including  their  availability  for  the 
entire duration of the credit, the customers; 

the  legal  structures  e.g.  whether  the  mechanism  is  sufficiently  immune  against  the 
influence of the buyer/borrower or its country; 

the degree to which the technique remains subject to government interference, renewal or 
withdrawal; 

whether the account would be sufficiently protected against project related risks; 

the amount which will flow into the account and the mechanism for the continuation of 
appropriate provision; 

the situation with regard to the Paris Club (e.g. possible exemption); 

the possible impact of country risks other than the transfer risk; 

the protection against the risks of the country where the account is located; 

the contracts with the customers, including their nature and duration; and 

the global amount of the expected foreign earnings in relation to the total amount of the 
credit. 

Applicable MEF 

The maximum applicable MEF is 0.20 unless: 

Specific Case 1: The maximum applicable MEF is 0.40 if all of the following additional criteria 
are met:  

- 

The creditor has a first priority interest in the escrow account and the long term contracts. 

75 

 
 
  
 
- 

- 

- 

The buyer/borrower is a private entity being more than 80 per cent private ownership. 

LLCR  averages  at  least  2.0:1  and  the  projected  Annual  Debt  Service  Coverage  Ratio 
(ADSCR) is not less than 1.0 at all times after the starting point of credit11. 

There  is  at  least  12  months  of  debt  service  pre-funding  in  escrow,  which  shall  be 
replenished after each call on the pre-funded amount. 

Specific Case 2: The maximum applicable MEF is 0.30 if all of the following additional criteria 
are met: 

- 

Either the LLCR averages at least 1.75:1, or there is at least 9 months of debt service pre-
funding in escrow, which shall be replenished after each call on the pre-funded amount. 

2. 

Offshore Hard Security 

Definition:  

Security in the form of offshore first or second priority pledges or assignments of securities held 
offshore  by  a  shareholder  of  the  buyer/borrower  or  by  the  buyer/borrower  itself,  or  cash  on 
deposit in an offshore account. 

Criteria: 

- 

- 

- 

- 

- 

- 

- 

11 

The securities are defined as publicly-listed stocks and bonds issued by entities located in 
a better risk country located outside the buyer/borrower country and traded on exchanges 
in countries classified in Category 0. 

The cash is defined as deposits in hard currencies of countries classified in Category 0 or 
treasuries in such hard currencies issued by countries classified in Category 0. 

The security is unconditional and irrevocable for the entire duration of the credit. 

The country where the security is located represents a better risk than the buyer/borrower 
country and would normally a country classified in Category 0. 

The security is beyond the reach and jurisdiction of the buyer/borrower. 

The prudently-assessed projected market value of the securities corresponds throughout 
the repayment period to the amount of the outstanding debt covered by the security. 

In  any  event,  the  cash  deposit  or  the  prudential  value  of  the  securities  (which  should 
cover both Principal and Interest) shall be for (1) not less than 10 per cent of the Principal 

The  calculations  of  LLCR  and  the  ADSCR  shall  be  made  in  accordance  with  the  conventions  normally 
applied  by  prudent  international  lenders  to  establish  an  agreed  (central  scenario)  banking  case  at  or  near 
financial close, after completion of full (technical and economic) due diligence. 

76 

 
 
  
 
                                                 
amount plus the related Interest, or (2) SDR 5 million Principal plus the related Interest if 
the transaction exceeds SDR 50 million. 

The security  can be legally and  unconditionally  realised in  any event  of  default  (i.e. of 
country credit risks in the buyer/borrower country). 

The  proceeds  of  the  securities  or  of  the  cash  deposit  can  be  freely  converted  into  the 
currency of the credit or in another hard currency. 

In the event of default, the securities are directly transferred to the creditor, or the cash 
deposit is paid directly to the creditor for the appropriate amount. 

- 

- 

- 

Additional Factors to be Taken into Consideration: 

The technique applies normally to all countries, buyers/borrowers and sectors, subject to a case-
by-case consideration of the above characteristics and, inter alia, with regard to: 

- 

- 

- 

The  implications  of  the  ownership  (either  public  or  private)  of  the  securities  or  of  the 
cash deposit, e.g. with regard to the likelihood of the realisation of this security in case of 
public debtors. 

The prospective value of the securities and the likelihood of realisation in relation to the 
entity, the sector and the country from which they originate. 

The legal environment. 

Applicable MEF 

The specific MEF to be applied shall: 

- 

- 

reflect the degree of potential externalisation subject, inter alia, to the continuing value 
of  the  assets,  as  well  as  the  possible  uncertainties  with  regard  to  the  realisation  of  the 
security; 

be  determined  case-by-case  to  reflect,  inter  alia,  on  a  basis,  the  value  of  the  security 
provided  in  relation  to  the  principal  value  of  the  credit  and  the  applicable  country  risk 
classification of the country in which the security is located. 

The value of cash security shall be taken at no more than 80 per cent and the value of stocks or 
bonds shall be taken at no more than 35 per cent of its prudential valuation. 

3. 

Offshore Asset-Based Security 

Definition:  

Security  in  the  form  of  first  priority  mortgages  on  real  (i.e.  immovable)  assets  which  are  held 
offshore. 

Criteria: 

77 

 
 
  
 
- 

- 

- 

- 

- 

- 

The security is unconditional and irrevocable for the entire duration of the credit. 

The  real  assets  have  a  prudently-assessed  projected  market  value  and  represent  for  the 
owner  a  substantial  equity  stake.  This  projected  value  corresponds  throughout  the 
repayment period with the amount of the outstanding debt on the buyer/borrower. 

The security can be legally and unconditionally realised in any event of default (e.g. of 
country credit risks in the buyer/borrower country). 

The proceeds can be converted into the currency of the credit or in another hard currency. 

In  the  event  of  default  the  appropriate  proceeds  are  paid  or  assigned  directly  to  the 
creditor. 

The country where the security can be enforced represents a better-risk category than the 
buyer/borrower country, i.e. it is normally ranked in the best-risk categories. 

Additional Factors to be Taken into Consideration: 

The technique applies normally to all countries, buyers/borrowers and sectors, subject to a case-
by-case consideration of the above characteristics and, inter alia, with regard to: 

- 

- 

- 

The implications of the ownership of the real assets (either public or private), e.g. with 
regard to the likelihood of the realisation of this security in case of public owners. 

The  nature  of  the  real  assets  (e.g.  sector)  which  may  impact  on  the  continuity  in  their 
value and on the likelihood of realisation. 

The legal environment. 

Applicable MEF 

The specific MEF to be applied shall: 

- 

- 

reflect the degree of potential externalisation subject, inter alia, to the continuing value 
of  the  assets,  as  well  as  the  possible  uncertainties  with  regard  to  the  realisation  of  the 
security; and 

be  determined  case-by-case  to  reflect,  inter  alia,  on  a  basis,  the  value  of  the  security 
provided  in  relation  to  the  principal  value  of  the  credit  and  the  applicable  country  risk 
classification of the country in which the security is located. 

The  difference  between  the  MPR  resulting  from  the  application  of  this  technique  and  the  MPR 
which  would  apply  absent  mitigation  shall  be  no  greater  than  15  per  cent  of  the  difference 
between  the  MPR  which  would  apply  absent  risk  mitigation  and  the  MPR  which  would  result 
from the application of the country risk classification of the country in which the asset is located.  

In the following circumstances, the pricing implications apply on a basis as outlined below: 

78 

 
 
  
 
- 

- 

The security (which should cover both Principal and Interest) is limited in amount on a 
uniform basis for the entire duration of the credit and for (1) not less than 10 per cent of 
the  Principal  amount  plus  the  related  Interest,  or  (2)  SDR  5  million  Principal  plus  the 
related  Interest  if  the  transaction  exceeds  SDR  50  million;  in  this  case  the  pricing 
implication applies on a pro-rata basis to the guaranteed Principal/the Principal amount 
of the credit. 

The security (which should cover both Principal and Interest) is limited in amount on a 
non-uniform basis for the entire duration of the credit and for (1) not less than 10 per cent 
of the Principal amount plus the related Interest or (2) SDR 5 million Principal plus the 
related  Interest  if  the  transaction  exceeds  SDR  50  million.  In  this  case  the  pricing 
implication applies on a pro-rata basis derived from the use of the average weighted life 
concept. 

4. 

Offshore Asset-Secured and Asset-Based Financing 

Definition:  

Security in the form of an offshore lease or a first priority mortgage on movable assets which is 
not (1) used to make the country credit risks acceptable (e.g. for countries in high risk categories), 
or (2) mainly related to the buyer/borrower or the lessor risks. 

Criteria: 

- 

- 

- 

- 

- 

- 

- 

- 

The assets are typically directly related to the transaction. 

The assets are identifiable and mobile or portable and can be physically as well as legally 
repossessed/seized  by  the  creditor,  its  agent  or  nominee  outside  the  country  of  the 
buyer/borrower or lessee. 

The security is irrevocable and unconditional for the entire duration of the credit. 

The  assets  have  a  prudently-assessed  projected  market  value  which  corresponds 
throughout the repayment period to the amount of the outstanding debt. 

The security is registered offshore in an acceptable jurisdiction 

The assets can be freely sold and offer opportunities for their use outside the country of 
the buyer/borrower or lessee. 

The  proceeds  can  be  converted  into  the  currency  of  the  credit  or  in  any  other  hard 
currency. 

In the event of realisation of the security, the proceeds are paid directly to the creditor. 

Additional Factors to be Taken into Consideration: 

79 

 
 
  
 
The  technique  applies,  in  the  first  instance,  to  e.g.  aircraft,  ships  and  oil  platforms,  primarily 
intended  to  be  used  outside  the  country  of  the  buyer/borrower  or  lessee,  however  it  may  be 
applied to all countries, buyers/borrowers and sectors, sunbject to a case-by-case consideration of 
the above characteristics and, inter alia, with regard to: 

- 

- 

- 

The nature of the assets which may impact on their complete mobility, the possibility to 
repossess  them  outside  the  country  of  the  buyer/borrower  or  lessee  and  their  projected 
commercial market value. 

The  costs  of  seizing,  transporting,  refurbishing  and  re-selling  the  assets,  as  well  as  the 
interest costs accruing until re-sale. 

The  possibility  of  seizing  the  assets  in  the  best-risk  countries  offering  an  appropriate 
legal environment. 

Applicable MEF 

The specific MEF to be applied shall: 

- 

- 

- 

reflect the degree of potential country credit risk mitigation depending, inter alia, on the 
continuing  value  of  the  assets  as  well  as  the  possible  uncertainties  with  regard  to  their 
international recoverability; 

be determined on a case-by-case basis; and 

not exceed 0.10, or 0.20 in the case of aircraft. 

In  the  case  where  the  security  (which  should  cover  both  Principal  and  Interest)  is  limited  in 
amount on a uniform basis for the entire duration of the credit and for: (1) not less than 10 per 
cent  of  the  Principal  amount  plus  the  related  Interest,  or  (2)  SDR  5  million  Principal  plus  the 
related Interest if the transaction exceeds SDR 50 million, the MEF shall be calculated on a basis 
reflecting  the  amount  of  the  security  in  comparison  with  the  guaranteed  Principal/the  Principal 
amount of the credit. 

5. 

Co-Financing with International Financial Institutions (IFIs) 

Definition:  

The  export  credit  (i.e.  insurance/guarantee/loan)  is  co-financed  with  an  IFI  which  has  been 
classified by the Participants for premium purposes. 

Criteria: 

- 

- 

- 

The IFI has a preferred creditor status. 

The  IFI  has  assessed  the  project,  its  technical,  economic  and  financial  aspects  and  the 
country risk environment. 

The IFI is deemed to follow the execution and the repayment of the project. 

80 

 
 
  
 
Additional Factors to be Taken into Consideration: 

The technique applies to all countries/buyers/borrowers and sectors where the IFI may intervene 
in  accordance  with  its  status  and  policy  subject  to  a  case-by-case  consideration  of  the  above 
characteristics and, inter alia, with regard to whether, in respect of the project: 

- 

- 

- 

- 

the  Participant  and  the  IFI  have  developed  close  exchanges  during  the  evaluation  and 
setting-up process of the project and of its financing; 

the  Participant  has  obtained  from  the  IFI  the  benefit  of  pari  passu  and  cross-default 
clauses for the entire amount and duration of the credit; 

the  clauses  and  the  co-operation  between  the  Participant  and  the  IFI  will  also  apply  in 
case the maturity schedule of the two credits is not parallel; and 

the same IFI arrangements apply to any competing offer from a Participant. 

Applicable MEF 

The maximum applicable MEF shall be no greater than 0.05. 

6. 

Local Currency Financing 

Definition:  

Contract and financing negotiated in  convertible and available  local, other than hard,  currencies 
and financed locally that eliminates or mitigates the transfer risk. The primary debt obligation in 
local currency would, in principle, not be affected by the occurrence of the first two country credit 
risks. 

Criteria: 

- 

- 

- 

- 

- 

- 

The  ECA  liability  and  claims  payment  or  the  payment  to  the  Direct  Lender  are 
expressed/ made throughout in local currency. 

The ECA is normally not exposed to the transfer risk. 

In the normal course of events, there will be no requirement for local currency deposits to 
be converted into hard currency. 

The  borrower’s  repayment  in  his  own  currency  and  in  his  own  country  is  a  valid 
discharge of the loan obligation. 

If  a  borrower’s  income  is  in  local  currency  the  borrower  is  protected  against  adverse 
exchange rate movements. 

Transfer  regulations  in  the  borrower’s  country  should  not  affect  the  borrower’s 
repayment obligations, which would remain in local currency. 

81 

 
 
  
 
- 

- 

Subsequent  to  an  event  of  default  leading  to  a  claims  payment  in  local  currency,  the 
value  of  that  claim  is  translated,  as  explicitly  set  out  in  the  loan  agreement,  into  an 
equivalent  hard  currency  amount.  Recovery  of  the  claims  payment  would  be  in  local 
currency as a counter value of the hard currency value of the claims payment at the time 
of the claims payment. 

Responsibility for conversion of local currency repayments by the buyer/borrower will be 
borne  by  the  insured  party  who  would  also  carry  the  exchange  risk  of  devaluation  or 
appreciation  of  local  currency  receipts.  (Whilst  a  Direct  Lender  may  have  a  direct 
exposure  to  currency  fluctuations  it  is  not  related  to  country  risks  or  buyer/borrower 
risks). 

Additional Factors to be Taken into Consideration: 

The  technique  applies  on  a  selective  basis  in  respect  of  convertible  and  transferable  currencies, 
where the underlying economy is sound. The Participant ECA should be in a position to meet its 
obligations  to  pay  claims  expressed  in  its  own  currency  in  the  event  that  the  local  currency 
becomes either ‘non-transferable’ or ‘non-convertible’ after the ECA takes on liability. (A Direct 
Lender would however carry this exposure.) 

Translation  of  a  defaulted  amount  (not  the  whole  loan  value)  into  an  equivalent  hard  currency 
amount  would  still  leave  the  borrower  with  a  continuing  local  currency  obligation,  albeit  of  an 
‘open-ended’ value, in relation to the equivalent hard currency value of the defaulted amount. The 
eventual payment in local currency by the borrower of its outstanding indebtedness would need to 
be equivalent to the hard currency value of the claims payment at the time of the claims payment. 

Applicable MEF 

The specific MEF to be applied shall be determined case-by-case basis, however, if the first three 
country  credit  risks  are  specifically  excluded,  the  maximum  MEF  is  0.50.  If  the  risk  is  only 
mitigated, i.e. not explicitly excluded, the maximum MEF is 0.35.  

7. 

8. 

Third Country Insurance or Conditional Guarantee 

Debtor Representing a Better Risk than the Sovereign 

The  use  of  techniques  7  and  8  of  this  Annex  is  subject  to  further  discussions  among  the 
Participants. 

ANNEX VIII: INFORMATION TO BE PROVIDED FOR PREMIUM-RELATED 
NOTIFICATIONS 

The following information should be provided for notifications made in connection with Article 
23 e) or Article 27 of the Arrangement: 

82 

 
 
  
 
BASIC INFORMATION 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

10. 

11. 

12. 

13. 

14. 

15. 

16. 

17. 

18. 

19. 

20. 

21. 

22. 

Notifying country 

Notification date 

Name of notifying authority/agency 

Reference number 

Original notification or revision to previous notification 

The  Arrangement  article  under  which  being  notified  [i.e.  Article  23  e)  first  and  second 
tiret, Article 27] 

Tranche number if appropriate 

Name of buyer/borrower 

Location of buyer/borrower 

Status of buyer/borrower (i.e. sovereign, public, private) 

Buyer/borrower country 

Country risk classification of buyer/borrower country 

Nature of project/goods to be exported 

Location of project (if relevant) 

Tender closing date (if relevant) 

Contract value and currency by SDR Category 

Credit value and currency by SDR Category 

Length of the disbursement period 

Length of the repayment period 

Percentage of cover 

Quality of cover (i.e. below standard, standard, above standard) 

MPR based on country risk classification of the buyer/borrower country absent any risk 
mitigation/exclusion 

23. 

Actual premium rate charged (expressed in MPR format as a percentage of the principal) 

83 

 
 
  
 
ADDITIONAL INFORMATION FOR ALL  NOTIFICATIONS MADE UNDER ARTICLE 
27 

24. 

25. 

26. 

27. 

28. 

Risk mitigation/exclusion technique(s) used 

MPR absent risk mitigation/exclusion 

MEF applied 

Applicable MPR after risk mitigation/exclusion 

Full  explanation  of  what  country  credit  risks  have  either  been  externalised/removed  or 
limited/excluded  in  the  individual  transaction,  as  well  as  an  explanation  of  how  such 
externalisation/removal or limitation/exclusion of the country credit risks justify the MEF 
applied. 

ADDITIONAL  INFORMATION  FOR  ALL  NOTIFICATIONS  MADE  UNDER  THE 
FIRST TIRET OF ARTICLE 23 E) 

29. 

30. 

31. 

32. 

33. 

34. 

35. 

36. 

37. 

38. 

Guarantor name 

Guarantor location 

Status of guarantor (i.e. sovereign, public, private) 

Guarantor country 

Country risk classification of guarantor country 

Confirmation that the guarantee covers all five country risk for the entire duration of the 
credit 

Indication as to whether the total amount at risk (i.e. principal and interest) is covered by 
the guarantee 

Confirmation that the guarantor is creditworthy in relation to the size of the guaranteed 
debt 

Confirmation that the guarantee is legally valid and capable of being enforced in the third 
country jurisdiction. 

Indication as to whether any financial relationship exists between the guarantor and the 
buyer/borrower. 

39. 

In the case that there is a relationship between the guarantor and the buyer/borrower: 

the type of relationship (e.g. parent-subsidiary, subsidiary-parent, common ownership) 

84 

 
 
  
 
confirmation  that  the  guarantor  legally  and  financially  independent  and  can  it  fulfil 
buyer's/borrower's payment obligation 

confirmation that the guarantor would not be affected by events, regulations or sovereign 
intervention in the borrower's country 

40. 

Applicable MPR absent third country guarantee 

ADDITIONAL  INFORMATION  FOR  ALL  NOTIFICATIONS  MADE  UNDER  THE 
SECOND TIRET OF ARTICLE 23 E) 

41. 

42. 

Name of multilateral/regional institution 

Classification of multilateral/regional institution 

ANNEX IX : CHECKLIST OF DEVELOPMENTAL QUALITY 

CHECKLIST OF DEVELOPMENTAL QUALITY OF AID-FINANCED PROJECTS 

A number of criteria have been developed in recent years by the DAC to ensure that projects in 
developing  countries  that  are  financed  totally  or  in  part  by  Official  Development  Assistance 
(ODA), contribute to development. They are essentially contained in the: 

- 

- 

- 

DAC Principles for Project Appraisal, 1988; 

DAC Guiding Principles for Associated Financing and Tied and Partially Untied Official 
Development Assistance, 1987; and  

Good Procurement Practices for Official Development Assistance, 1986. 

CONSISTENCY  OF  THE  PROJECT  WITH  THE  RECIPIENT  COUNTRY'S  OVERALL 
INVESTMENT PRIORITIES (PROJECT SELECTION) 

Is  the  project  part  of  investment  and  public  expenditure  programmes  already  approved  by  the 
central financial and planning authorities of the recipient country?  

(Specify  policy  document  mentioning  the  project,  e.g.  public  investment  programme  of  the 
recipient country.) 

Is the project being co-financed with an international development finance institution? 

Does  evidence  exist  that  the  project  has  been  considered  and  rejected  by  an  international 
development  finance  institution  or  another  DAC  Member  on  grounds  of  low  developmental 
priority? 

85 

 
 
  
 
In  the  case  of  a  private  sector  project,  has  it  been  approved  by  the  government  of  the  recipient 
country? 

Is  the  project  covered  by  an  intergovernmental  agreement  providing  for  a  broader  range  of  aid 
activities by the donor in the recipient country? 

PROJECT PREPARATION AND APPRAISAL 

Has  the  project  been  prepared,  designed  and  appraised  against  a  set  of  standards  and  criteria 
broadly  consistent  with  the  DAC  Principles  for  Project  Appraisal  (PPA)?  Relevant  principles 
concern project appraisal under: 

a) 

b) 

c) 

Economic aspects (paragraphs 30 to 38 PPA). 

Technical aspects (paragraph 22 PPA). 

Financial aspects (paragraphs 23 to 29 PPA). 

In the case of a revenue producing project, particularly if it is producing for a competitive market, 
has the concessionary element of the aid financing been passed on to the end-user of the funds? 
(paragraph 25 PPA). 

a) 

b) 

c) 

Institutional assessment (paragraphs 40 to 44 PPA). 

Social and distributional analysis (paragraphs 47 to 57 PPA). 

Environmental assessment (paragraphs 55 to 57 PPA). 

PROCUREMENT PROCEDURES 

What procurement mode will be used among the following? (For definitions, see Principles listed 
in Good Procurement Practices for ODA). 

a) 

b) 

c) 

International competitive bidding (Procurement Principle III and its Annex 2: Minimum 
conditions for effective international competitive bidding). 

National competitive bidding (Procurement Principle IV). 

Informal competition or direct negotiations (Procurement Principles V A or B). 

Is it envisaged to check price and quality of supplies (paragraph 63 PPA)? 

86 

 
 
  
 
ANNEX X: UNDERSTANDING ON THE APPLICATION OF FLEXIBILITY TO THE 
TERMS AND CONDITIONS OF THE ARRANGEMENT ON GUIDELINES FOR 
OFFICIALLY SUPPORTED EXPORT CREDITS IN RESPECT OF PROJECT FINANCE 
TRANSACTIONS FOR A TRIAL PERIOD (UNTIL 31 DECEMBER 2004) 

CHAPTER I: SCOPE 

1. 

FORM AND SCOPE OF APPLICATION 

This Understanding, which complements the Arrangement: 

a) 

b) 

2. 

a) 

sets  out  the  special  guidelines  for  flexibility  which  will  apply  to  the  export  of  goods 
and/or  services  where  official  support  is  provided  for  transactions  undertaken  on  a 
project finance basis; the Description and Criteria for project finance transactions are set 
out in Appendix 1; 

unless otherwise provided for in this Understanding, the terms of the Arrangement shall 
apply. 

CHAPTER II: PROVISIONS FOR EXPORT CREDITS 

REPAYMENT OF PRINCIPAL AND MAXIMUM REPAYMENT TERMS 

A Participant may, on a case-by-case basis, agree to flexibility on the timing of the first 
repayment  of  principal,  the  repayment  profile  and  the  maximum  repayment  term 
provided  that  the  average  life  of  the  credit,  insurance  or  guarantee12  does  not  exceed 
either: 

- 

- 

five-and-a-quarter years; or 

seven-and-a-quarter  years,  provided  that  the  first  repayment  of  principal  is  to  be 
made within two years of the starting point of credit and the maximum repayment 
term is 14 years. 

b) 

If flexibility is agreed in accordance with: 

- 

the first tiret of sub paragraph a) above involving exports to High-Income OECD 
Countries as defined in Article 24 c) of the Arrangement, official support shall only 
be provided on the basis of co-financing with financial institutions and where the 

12 

The concept of the average life of the credit, insurance or guarantee is based on the time it takes to retire half 
the weighted principal of the credit, insurance or guarantee. This concept is based solely on the repayment 
term of the credit, insurance or guarantee and excludes the period before the starting point of credit  

87 

 
 
  
 
                                                 
Participant is a minority partner and has pari passu status for at least a significant 
portion of the life of the credit, insurance or guarantee; 

- 

either  the  first  or  second  tirets  of  sub-paragraph  a)  above,  it  is  expected  that 
Participants would not agree to a single repayment in excess of 25 per cent of the 
principal sum repayable during the repayment term. 

Flexibility  in  accordance  with  the  second  tiret  of  sub-paragraph  a)  above  shall  not  be 
agreed for exports to High-Income OECD Countries. 

PAYMENT OF INTEREST 

Interest shall not be capitalised during the repayment period. 

If  interest  is  capitalised  before  the  starting  point  of  credit,  this  shall  be  notified  in 
accordance with Article 5 of this Annex. 

c) 

3. 

a) 

b) 

4. 

MINIMUM INTEREST RATES 

Where the Participants are providing official financing support: 

a) 

b) 

5. 

a) 

b) 

c) 

for  a  repayment  term  of  up  to  and  including  12  years,  the  normal  CIRR  constructed  in 
accordance with Article 19 of the Arrangement shall apply; and 

for  a  repayment  term  in  excess  of  12  years  and  up  to  14  years  in  accordance  with  the 
second tiret of Article 2 a) above, a surcharge of 20 basis points on the CIRR shall apply 
for  all  currencies.  The  level  of  the  surcharge  shall  be  reviewed  at  the  end  of  the  trial 
period referred to in Article 6 of this Annex. 

CHAPTER III: PROCEDURES 

PERMITTED EXCEPTIONS: PRIOR NOTIFICATION WITH EXPLANATION 

A  Participant  shall  notify  all  other  Participants  at  least  20  calendar  days  before  issuing 
any commitment where the intention is to allow flexibility in accordance with Article 2 
above.  

The  notifying  Participant  would  be  expected  to  provide  the  information  required  in  the 
Standard  Form  for  Notifications,  in  accordance  with  Annex  IV  of  the  Arrangement, 
supplemented to include the additional information set out in Appendix 2. 

Although other Participants have the right to seek further information from the notifying 
Participant  over  the  rationale  for  and  basis  of  the  proposed  support,  the  notifying 
Participant would be free to issue a commitment at the end of the 20-calendar-day period. 
It  would  be  expected  that  the  notifying  Participant  would  respond  to  any  questions 

88 

 
 
  
 
without  delay,  whilst  recognising  the  constraints  of  commercial  confidentiality.  Where 
possible, the Participants will provide additional information on the cash flow of projects 
after  contract  award  (when  the  export  credit  agreement  and  ancillary  documents  have 
already become effective). 

CHAPTER IV: REVIEW 

6. 

a) 

b) 

c) 

d) 

e) 

TRIAL PERIOD AND MONITORING 

The  special  guidelines  for  flexibility  shall  apply  for  a  Trial  Period  of  three  years,  i.e. 
from the 1st September 1998 to the 31st August 2001. After a period of two years (i.e. on 
or  after  the  1st September  2000),  the  Participants  shall  review  the  operation  of  this 
Understanding to consider the experience gained13. 

The special guidelines for flexibility shall be discontinued at the end of the Trial Period 
unless the Participants agree upon one of the following: 

- 

- 

to continue the Trial Period, with any necessary enhancements/modifications, or  

flexibility 
to  cement 
enhancements/modifications. 

the 

in 

the  Arrangement,  with  any  necessary 

However,  if  after  two  years  (i.e.  on  or  after  the  1st  September  2000),  at  least  seven 
Participants  agree  that  there  is  justification,  the  Trial  Period  shall  continue  for  an 
additional one year (i.e. to the 31st August 2002).  

In  the  event  that  the  Trial  Period  is  not  extended  beyond  the  31st  August  2001,  the 
Participants shall follow the Arrangement rules for the validity period for export credits. 

The  Secretariat  shall  monitor  and  regularly  report  on  notifications  and  the  use  of 
flexibility in project finance transactions. 

APPENDIX 1: DESCRIPTION AND CRITERIA 

1. 

13 

Conforming  to  both  a  General  Description  of  and  Essential  Criteria  for  project  finance 
transactions  could,  together  with  appropriate  transparency  procedures,  be  the  means  to 
ring-fence  any  flexibility  in  the  Arrangement  to  accommodate  project  finance 
transactions.  The  purpose  of  the  Essential  Criteria  would  be  to  assist  decisions  on 
whether or not a specific case could be afforded flexibility. 

The Participants agreed to the prolongation of the Trial Period of the Project Finance Understanding for a 
year  until  31 August  2002  at  their  78th  Meeting  held  on  14-15 November 2000,  for  another  year until  31 
August  2003  at  their  83rd  Meeting  held  on  29-30  May  2002,  for  four  months  until  31  December  2003 
through  written  procedure  on  11  June  2003  and  for  a  further  year  until  31  December  2004  at  their  90th 
Meeting held on 6 November 2003. 

89 

 
 
  
 
                                                 
2. 

The  approach  proposed  below  combines  a  General  Description  of  project  finance 
transactions together with Essential and Illustrative Criteria. If a Participant considered a 
transaction which conformed to the General Description and met all Essential Criteria, it 
would  be  able  to  apply  the  special  guidelines  for  flexibility.  It  is  expected  that  the 
Essential  Criteria  shall  be  satisfied;  in  the  event  that  any  individual  criterion  is  not 
satisfied, justification should be provided. The use of this flexibility would require prior 
notification  of  the  specific  transaction  to  all  Participants  together  with  the  appropriate 
“explanation” in accordance with Article 5 of this Annex.  

GENERAL DESCRIPTION 

A 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. 

ESSENTIAL CRITERIA 

- 

- 

- 

- 

- 

- 

- 

Financing of export transactions with an independent (legally and economically) project 
company,  e.g.  special  purpose  company,  in  respect  of  “greenfield”  investment  projects 
generating their own revenues. 

Appropriate  risk-sharing  among  the  partners of  the  project,  e.g.  private  or  creditworthy 
public shareholders, exporters, creditors, off-takers, including adequate equity. 

Project cash flow sufficient during the entire repayment period to cover operating costs 
and debt service for outside funds. 

Priority deduction from project revenues of operating costs and debt service. 

No sovereign repayment guarantee with regard to the project (not including government 
performance guarantees, e.g. off-take arrangements). 

Asset-based  securities  for  proceeds/assets  of  the  project,  e.g.  assignments,  pledges, 
proceed accounts. 

Limited or no recourse to the sponsors of the private sector shareholders/sponsors of the 
project after completion. 

ILLUSTRATIVE CRITERION 

- 

Hard currency revenues; in the case of local currency revenues, additional securities may 
be required. 

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APPENDIX 2: ADDITIONAL INFORMATION FOR NOTIFICATIONS 

- 

- 

- 

- 

- 

Enhanced description of the project. 

Confirmation  of  conformity  with  General  Description  and  the  Essential  Criteria 
(including comment, if available, on conformity with the Illustrative Criterion). 

A full explanation why more flexible terms are required. 

The  date  of  the  first  repayment  of  principal  in  relation  to  the  starting  point  of  credit, 
together with details of how this was determined. 

For the purpose of notification of anticipated cash flow patterns, the following template 
shall be used: 

The construction period is _____ years, the repayment period is _____ years for a total term of 
_____  years.  The  repayment  profile  is  [front-ended],  [back-ended],  [variable],  [substantially 
equal], [other, please describe], with ____ per cent of the principal being repaid by the mid-point 
of the repayment period, and has an average life of _____ years. 

- 

- 

- 

Information on any premium surcharge. 

An explanation of whether interest has been capitalised before the starting point of credit. 

Information on the interest rate charged and the level of surcharge over the CIRR where 
Article 4 b) of this Annex applies.  

ANNEX XI: LIST OF DEFINITIONS 

For the purpose of the Arrangement: 

a) 

b) 

c) 

Commitment: any statement, in whatever form, whereby the willingness or intention to 
provide  official  support  is  communicated  to  the  recipient  country,  the  buyer,  the 
borrower, the exporter or the financial institution.  

Common  Line:  an  understanding  between  the  Participants  to  agree,  for  a  given 
transaction  or  in  special  circumstances,  on  specific  financial  terms  and  conditions  for 
official  support.  The  rules  of  an  agreed  common  line  supersede  the  rules  of  the 
Arrangement  only  for  the  transaction  or  in  the  circumstances  specified  in  the  common 
line. 

Concessionality Level of Tied Aid: in the case of grants the concessionality level is 100 
per  cent.  In  the  case  of  loans,  the  concessionality  level  is  the  difference  between  the 
nominal  value  of  the  loan  and  the  discounted  present  value  of  the  future  debt  service 
payments to be made by the borrower. This difference is expressed as a percentage of the 
nominal value of the loan. 

91 

 
 
  
 
d) 

e) 

f) 

g) 

h) 

i) 

j) 

Export Contract Value: the total amount to be paid by or on behalf of the purchaser for 
goods and/or services exported, i.e. excluding local costs as defined hereafter. In the case 
of a lease, it excludes the portion of the lease payment that is equivalent to interest. 

Final  Commitment:  for  an  export  credit  transaction  (either  in  the  form  of  a  single 
transaction or a line of credit), a final commitment exists when the Participant commits to 
precise  and  complete  financial  terms  and  conditions,  either  through  a  reciprocal 
agreement or by a unilateral act. 

Interest  Rate  Support:  an  arrangement  between  a  government  and  banks  or  other 
financial institutions which allows the provision of fixed rate export finance at or above 
the CIRR. 

Line of Credit: a framework, in whatever form, for export credits that covers a series of 
transactions which may or may not be linked to a specific project. 

Local  Costs:  expenditure  for  goods  and  services  in  the  buyer's  country,  those  are 
necessary  either  for  executing  the  exporter's  contract  or  for  completing  the  project  of 
which  the  exporter's  contract  forms  a  part.  These  exclude  commission  payable  to  the 
exporter's agent in the buying country. 

Pure Cover: official support provided by or on behalf of a government by way of export 
credit  guarantee  or  insurance  only,  i.e.  which  does  not  benefit  from  official  financing 
support. 

Repayment Term: the period beginning at the starting point of credit, as defined in this 
Annex, and ending on the contractual date of the final repayment of principal. 

k) 

Starting Point of Credit:  

1) 

Parts or components (intermediate goods) including related services: in the case of 
parts or components, the starting point of credit is not later than the actual date of 
acceptance  of  the  goods  or  the  weighted  mean  date  of  acceptance  of  the  goods 
(including  services,  if  applicable)  by  the  buyer  or,  for  services,  the  date  of  the 
submission of the invoices to the client or acceptance of services by the client. 

2)  Quasi-capital  goods,  including  related  services  -  machinery  or  equipment, 
generally of relatively low unit value, intended to be used in an industrial process 
or for productive or commercial use: in the case of quasi-capital goods, the starting 
point  of  credit  is  not  later  than  the  actual  date  of  acceptance  of  the  goods  or  the 
weighted mean date of acceptance of the goods by the buyer or, if the exporter has 
responsibilities 
is  at 
then 
commissioning,  or  for  services,  the  date  of  the  submission  of  the  invoices  to  the 
client  or  acceptance  of  the  service  by  the  client.  In  the  case  of  a  contract  for  the 
supply  of  services  where  the  supplier  has  responsibility  for  commissioning,  the 
latest starting point is commissioning. 

latest  starting  point 

for  commissioning, 

the 

92 

 
 
  
 
3)  Capital  goods  and  project  services  -  machinery  or  equipment  of  high  value 

intended to be used in an industrial process or for productive or commercial use:  

- 

- 

- 

- 

In the case of a contract for the sale of capital goods consisting of individual 
items usable in themselves, the latest starting point is the actual date when the 
buyer  takes  physical  possession  of  the  goods,  or  the  weighted  mean  date 
when the buyer takes physical possession of the goods. 

In the case of a contract for the sale of capital equipment for complete plant 
or factories where the supplier has no responsibility  for commissioning, the 
latest  starting  point  is  the  date  at  which  the  buyer  is  to  take  physical 
possession of the entire equipment (excluding spare parts) supplied under the 
contract. 

If the exporter has responsibility for commissioning, the latest starting point 
is at commissioning. 

For services, the latest starting point of credit is the date of the submission of 
the invoices to the client or acceptance of service by the client. In the case of 
a contract for the supply of services where the supplier has responsibility for 
commissioning, the latest starting point is commissioning. 

4)  Complete  plants  or  factories  –  complete  productive  units  of  high  value  requiring 

the use of capital goods: 

- 

- 

- 

In the case of a contract for the sale of capital equipment for complete plant 
or factories where the supplier has no responsibility  for commissioning, the 
latest  starting  point  of  credit  is  the  date  when  the  buyer  takes  physical 
possession of the entire equipment (excluding spare parts) supplied under the 
contract. 

In  case  of  construction  contracts  where  the  contractor  has  no  responsibility 
for commissioning, the latest starting point is the date when construction has 
been completed. 

In the case of any contract where the supplier or contractor has a contractual 
responsibility for commissioning, the latest starting point is the date when he 
has completed installation or construction and preliminary tests to ensure it is 
ready for operation. This applies whether or not it is handed over to the buyer 
at that time in accordance with the terms of the contract and irrespective of 
any  continuing  commitment  which  the  supplier  or  contractor  may  have, 
e.g. for guaranteeing its effective functioning or training local personnel. 

-  Where  the  contract  involves  the  separate  execution  of  individual  parts  of  a 
project, the date of the latest starting point is the date of the starting point for 
each  separate  part,  or  the  mean  date  of  those  starting  points,  or,  where  the 
supplier has a contract, not for the whole project but for an essential part of it, 
the starting point may be that appropriate to the project as a whole. 

93 

 
 
  
 
- 

For services, the latest starting point of credit is the date of the submission of 
the invoices to the client or the acceptance of service by the client. In the case 
of a contract for the supply of services where the supplier has responsibility 
for commissioning, the latest starting point is commissioning. 

l) 

Tied Aid: aid which is in effect (in law or in fact) tied to the procurement of goods 
and/or services from the donor country and/or a restricted number of countries; it 
includes loans, grants or associated financing packages with a concessionality level 
greater than zero per cent.  

This  definition  applies  whether  the  “tying”  is  by  formal  agreement  or  by  any  form  of 
informal understanding between the recipient and the donor country, or whether a 
package  includes  components  from  the  forms  set  out  in  Article  30  of  the 
Arrangement that are not freely and fully available to finance procurement from the 
recipient  country,  substantially  all  other  developing  countries  and  from  the 
Participants,  or  if  it  involves  practices  that  the  DAC  or  the  Participants  consider 
equivalent to such tying. 

m)  Untied Aid: aid which includes loans or grants whose proceeds are fully and freely 

available to finance procurement from any country. 

94