Indian Lines of Credit: An Instrument to Enhance India ... · PDF fileAn Instrument to Enhance...

Indian Lines of Credit:

An Instrument to Enhance India-Africa Partnership

November 22, 2011

New Delhi

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� SET UP BY AN ACT OF PARLIAMENT IN SEPTEMBER 1981

� WHOLLY OWNED BY GOVERNMENT OF INDIA

� COMMENCED OPERATIONS IN MARCH 1982

� APEX FINANCIAL INSTITUTION

Exim Bank of India

� OBJECTIVES:

“… for providing financial assistance to exporters and importers, and for functioning as the

principal financial institution for coordinating the working of institutions engaged in

financing export and import of goods and services with a view to promoting the country’s

international trade…”

“… shall act on business principles with due regard to public interest”

(Export-Import Bank of India Act, 1981)

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Export-Import Bank of India

� Countries in the African region constitute a focus region for Exim Bank of India - a

critical component of the Bank’s strategy is to promote and support two-way trade

and investment flows.

Partner in Africa’s Economic Development

� As a partner institution to promote economic development in Africa, the

commitment towards building relationships with the African region is reflected in

the diverse range of activities and programmes which Exim Bank of India has set in

place.

� Representative Offices in Johannesburg (South Africa) / Dakar (Senegal) / Addis

Ababa (Ethiopia)

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Lines of Credit Programme

Exim Bank’s Assistance under LOCs ….

� Exim Bank extends LOCs –

� to regional development banks and economically strong

developing countries on commercial terms; and

� at behest of Govt. of India on concessional terms to

As on October 31, 2011Existing GOI-

Supported LOCs

NO. OF LOCS 126

NO. OF COUNTRIES 55

TOTAL AMOUNT USD 7054 mn

� at behest of Govt. of India on concessional terms to

developing countries in Africa/Asia/Latin America with a long-

term perspective.

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Lines of Credit Extended to Africa

�87 LOCs currently in operation in Africa amounting to US$ 3.78 billion;

�39 Countries covered:

Promoting Economic Development in the Region

1. Angola

2. Benin

3. Burkina Faso

8. Cote d’Ivoire

9. D.R. Congo

10. Djibouti

15. Guinea Bissau

16. Guinea

17. Ghana

24. Mali

25. Mauritania

26. Mauritius

32. Seychelles

33. Sierra Leone

34. Sudan

� ECOWAS Bank for Investment & Development

3. Burkina Faso

4. Burundi

5. Cameroon

6. Central African

Republic

7. Chad

10. Djibouti

11. Eq. Guinea

12. Eritrea

13. Ethiopia

14. Gabon

15. Gambia

17. Ghana

18. Kenya

19. Lesotho

20. Liberia

21. Madagascar

22. Malawi

26. Mauritius

27. Mozambique

28. Niger

29. Nigeria

30. Rwanda

31. Senegal

34. Sudan

35. Swaziland

36. Tanzania

37. Togo

38. Tunisia

39. Zambia

� Institutions include:

�13 LOCs in pipeline amounting to USD 503.9 million, covering an additional 2 countries in Africa

1. Comoros

2. Republic of Congo

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Total LOCs = USD 7054 MN

LOCs to AFRICA= USD 3781 MN

Regional Distribution of GOI-supported LOCs – October 31, 2011

Asia43%

Latin America and Caribbean

1%

Oceania1% CIS

1%

EastNorth15%

AFRICAN COUNTRIES ARE MAJOR BENEFICIARIES OF LINES OF CREDIT

Africa54%

43%East35%

South5%

West 35%

Central10%

15%

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HIPCs LICs / LDCs MICs

INTEREST RATE

(% p.a.)1.75 2.00 LIBOR + 0.50%

Broad Terms for LOCs

Recipient countries have been classified into three categories: (a) Heavily Indebted Poor

Countries (HIPCs), (b) Low Income Countries (LICs) and Least Developed Countries

(LDCs - Other than those included in ‘(a)’ above) and (c) Middle Income Countries (MICs).

(% p.a.)

CREDIT PERIOD

(in years)20 10 8

MORATORIUM

(in years)5 3 2

Built- in grant

element (%)* 56.4 37.3 34.4

* The grant element (difference between Net Present Value of the loan repayments

and the actual amount of loan) is in-built into the terms of credit.

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Initiation of LOC Proposal

PARTNER COUNTRY MINISTRY OF FOREIGN

AFFAAIRS

1. The partner country discusses development priorities with the Indian Mission and a feasible project is identified / developed.

2. The partner country requests for an LOC accompanied with a pre-feasibility or a detailed project report, which would include, amongst others, the basis of estimated costs and justification of the project.

3. Such a report may be developed in coordination with the Indian Mission, if required.

Forwards proposal with their recommendations /

comments

INDIAN MISSION IN THE PARTNER COUNTRY

INDIAN MINISTRY OF INDIAN MINISTRY OF FINANCE INDIAN MINISTRY OF EXTERNAL AFFAIRS

Recommends the proposal, if considered acceptable

INDIAN MINISTRY OF FINANCEDEPARTMENT OF ECONOMIC AFFAIRS

Examines; if acceptable from finance/budget angle, conveys approval

INDIAN MINISTRY OF EXTERNAL AFFAIRS EXIM BANK

Conveys offer Conveys terms (interest rate & credit period) & sends draft LOC Agreement

INDIAN MISSION IN THE LOC-RECIPIENT COUNTRY

LOC-RECIPIENT COUNTRYMINISTRY OF FOREIGN AFFAIRS

Conveys offer of LOC Forwards terms & draft LOC Agreement

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Signing of LOC Agreement

1. Sends draft LOC Agreement through

Indian Mission

2. Exim Bank Resident Representative could

visit LOC-recipient country to familiarize government with operational aspects

GOVERNMENT OF

EXIM BANK

Conveys acceptance Comments / Suggestions

GOVERNMENT OF LOC-RECIPIENT COUNTRY

Agreement finalized

AGREEMENT IS SIGNED

Consultation


Concurs

EXIM BANK

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� There shall be automatic annulment of an LOC which does not get

signed for a period of 18 months from the date of its approval by GOI.

For justifiable reasons, this period could be extended by a maximum 6

months.

� All LOCs will have terminal disbursement date, i.e., the date falling on

expiration of a period of 48 months after the scheduled completion date

Broad Guidelines for GOI-LOCs

expiration of a period of 48 months after the scheduled completion date

for project exports and 72 months of execution of LOC Agreement for

supply contracts.

� Goods and services for minimum 75% value of the contracts covered

under these LOCs must be sourced from India. A suitable relaxation not

exceeding 10% may be considered on a case to case basis for

exceptional reasons, especially in case of projects having civil

construction. Consultancy services under the project will be sourced

from India.

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DISSEMINATION OF LOC AVAILABILITY

After the LOC Agreement is signed, the information on the LOC is

disseminated through various channels such as:

� Press Release

� Exim Bank’s Website

� Copies of Press Release sent for dissemination of information among their

members to : members to :

Industry Associations: CII/FICCI/ASSOCHAM/FIEO/EEPC

Projects Export Promotion Council

All India Association of Industries

� Reserve Bank of India issues A.P. (DIR Series) Circular

All Category - I Authorised Dealer Banks

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Forwards 1. Legal opinion from legal counsel of

government of LOC-recipient country2. List of Authorized Signatories3. Guarantee of government of LOC-

recipient country if borrower is an agency nominated by Government

Operationalizing the LOC


agency nominated by Government

Scrutinizes the documents and if found in order

Conveys effectiveness


EXIM BANK

LOC AGREEMENT MADE EFFECTIVE BY EXIM BANK

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� Government of LOC-recipient country must provide sovereign

guarantee for repayment and servicing of the loan in case the loan is

taken by its agency.

� Liability of the Borrower/Recipient of the LOC, for repayment of


principal instalments and payment of interest and other dues under

the LOCs, to Exim Bank, is absolute and irrevocable, and is, in no

way, linked to repayment/payment by sub-borrowers or to the

completion of the projects/contracts covered under the LOCs, or

subsequent operation thereof.

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Requests for coverage of a contract under LOC accompanied by an evaluation report of a transparent and competitive bidding process & reasons for recommendation for selection of Indian company

1. Competitive bidding process is mandatory.

2. Government of LOC-recipient country is expected to conduct fair and transparent selection with wide

Contract Approval



1. Examines the proposals2. Seeks information/clarification from the

Government of LOC-recipient country/Indian Supplier/Contractor

3. Examines the projects in the light of provisions of the LOC

4. If found OK, conveys approval of specific contracts/projects to

fair and transparent selection with wide participation of Indian companies.

EXIM BANK

INDIAN SUPPLIER / CONTRACTOR

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� Transparent competitive bidding process by LOC-recipient Government

is mandatory. Only in very exceptional circumstances, intimated to Exim

Bank and approved in advance by GOI, will exceptions be considered.

� Eligibility of participation is limited to Indian companies registered in

India and/or incorporated/established under any law in force in India.


India and/or incorporated/established under any law in force in India.

� Information about tenders floated should be widely circulated in India on

websites of Exim Bank, industry associations, export promotion

councils, MEA-GOI, etc. in the interest of greater transparency and cost

competitiveness.

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� Selection of Indian company as per the above process is the complete

prerogative & responsibility of the government of LOC-recipient country.

Contract is between the borrower of LOC-recipient country and the

Indian company. Transparency in the award of contract is extremely

critical.

� Government of LOC-recipient country to advise Exim Bank about the

procedure followed for selection of Indian companies and the names of


procedure followed for selection of Indian companies and the names of

other Indian bidders. In case of any deviation from this procedure, the

government of LOC-recipient country must provide detailed justification

to Exim Bank.

� Goods and services covered under the LOCs will be free from all kinds of

taxes and duties of any nature whatsoever levied in the LOC-recipient

country including all corporate/personal/Value added taxes,

import/custom duties, special levies and social security contributions

for temporary employees deputed by Indian exporters in relation to the

project execution in the Recipient countries.

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INDIAN EXPORTER / CONTRACTOR EXECUTES

CONTRACTSBUYER / EXECUTING AGENCY

Claims disbursements from

BUYER / EXECUTING AGENCY

Disbursements & Repayments under LOCs

INDIAN EXPORTER / CONTRACTOR

Opens Letter of Credit (LC)

in favour of

1. Supplies equipment/goods

2. Provides services

EXIM BANK

1. Payment against conforming documents

including Bill of Lading for supplies.

2. Payment against Payment Authorization

Certificate from Borrower Government in

EXIM BANK

INDIAN MINISTRY OF FINANCEINDIAN MINISTRY OF EXTERNAL AFFAIRS


CONTRACTOR

1. Advises Disbursement

2. Advises Repayment schedule as

per the provision of the

Agreement

EXIM BANK

Certificate from Borrower Government in

respect of services rendered

EXIM BANK

Provides monthly statement on status

of GOI-supported LOCs to

1. Repayment of Principal

Installments

2. Payment of Interest /

Commitment Fee/Management Fee


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� Pre-shipment inspection of equipment/ goods is mandatory.

� Government of LOC-recipient country / executing agency are required

to set up suitable monitoring mechanism

� Half-yearly status reports by executing authorities


� Half-yearly status reports by executing authorities

� Comprehensive project completion reports along with visual

documentation giving benefits derived from the project and its socio-

economic impact.

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PROJECTS/SECTORS FINANCED LOC RECIPIENT COUNTRIES

Agricultural Projects : Burkina Faso, Cameroon, Chad, Cote d’Ivoire,

Gambia, Ghana, Madagascar, Mali, Senegal,

Sierra Leone, Sudan, Tanzania

Construction Projects : Gabon, Gambia, Ghana

Irrigation : Lesotho, Malawi, Mozambique, Senegal

Wide Range of Projects Financed: Examples

Power Generation : D.R. Congo, Equatorial Guinea, Ethiopia, Mali,

Mozambique, Niger, Sudan

Power Transmission &

Distribution, Rural

Electrification

: Burkina Faso, Ghana, Mali, Mozambique,

Senegal

Railway Rehabilitation : Angola, Benin, Ghana, Mali, Senegal

Road Transportation : Central African Republic, Cote d’Ivoire, Ghana,

Niger, Senegal

Technology (Parks & Training) : Cote d’Ivoire, D.R. Congo, Mozambique, Senegal

Sugar Industry Rehabilitation : Ethiopia, Sudan

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� Modernization and upgradation of workshop,

supply of 41 coaches, 3 locomotives, 2 Diesel

Multiple Units and pick-up vehicles and buses.

� Coaches are operating between Namibe and

Matala (434 km) carrying, both passenger and

freight traffic.

Success Story: Angola

� Indian company also imparted training to technical

professionals of Mocamedes Railways.

� Provides cheaper mode of transportation as

compared to road

� Facilitated exploration of Kassinga Mines deposit

bed (iron ore) in the municipality of Jamba Huila

Province.

� Farmers using railway to transport their agricultural

products to interior regions at reasonable price.

Locomotives and coaches were supplied for rehabilitation of

Railway in Angola under the LOC of US$ 40 mn

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� Coverage area under irrigation has increased

more than two fold from 24,500 ha in 2006-07

to 65,000 ha in 2008-09.

� Rice production in the region has also gone

up by 177% from 130,000 tonnes in 2006-07

to 360,000 tonnes in 2008-09.

Success Story: Senegal

to 360,000 tonnes in 2008-09.

� Now, around 40% of the rice demand of

Northern Senegal could be met by local

production, as compared to the earlier 19% of

local demand.

� Reduced the import bill of food products as

also generated employment as field workers

(particularly women farmers) and servicing

staff of equipment.

Under the LOC of US$ 27 mn to the Govt. of Senegal, Indian company

manufactured, supplied and installed 2394 diesel engine pumpsets in rice

producing zones of Senegal

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�Revamping Sugar Sector

�Rehabilitation of existing

facilities (Finchaa and Wonji-

Shoa).

�Creating a new green field

project (Tendaho) with total

Case Study: Ethiopia

project (Tendaho) with total

capacity to produce 26,000 tons

per day of raw/refined sugar.

Phase I to be commissioned in

mid-2012, followed by Phase II in

2013.

�Central to the progress of

Ethiopia's Agriculture sectorContracts for Sugar Development Projects under the LOCs of USD

640 mn to Government of Ethiopia

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� Importance of a high-quality Detailed Project Report (DPR).

� Involvement of a highly qualified consultant as Lenders Engineer or

Project Management Consultant.

� Key prerequisites to avoid delays and disruptions include:

Lessons Learned

� Financial Closure

� Site Availability, allocation and handover

� Availability of power, water

� Completion of local erection and commissioning

� Wide dissemination of tender notices under LOCs including

advertising in Indian newspapers, placement on Exim Bank website,

circulation to chambers of commerce and industry bodies in India.

WebsiteWebsite

www.eximbankindia.in www.eximbankindia.in

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