Indian Lines of Credit: An Instrument to Enhance India ... · PDF fileAn Instrument to Enhance...
Transcript of 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
GOVERNMENT OF LOC-RECIPIENT COUNTRY
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
GOVERNMENT OF LOC-RECIPIENT COUNTRY
agency nominated by Government
Scrutinizes the documents and if found in order
Conveys effectiveness
GOVERNMENT OF LOC-RECIPIENT COUNTRY
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
Broad Guidelines for GOI-LOCs
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
GOVERNMENT OF LOC-RECIPIENT COUNTRY
GOVERNMENT OF LOC-RECIPIENT COUNTRY
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.
Broad Guidelines for GOI-LOCs
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
Broad Guidelines for GOI-LOCs
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
GOVERNMENT OF LOC-RECIPIENT COUNTRY
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
GOVERNMENT OF LOC-RECIPIENT COUNTRY
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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
Broad Guidelines for GOI-LOCs
� 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