DRAFT July 30, 2003

INTERNATIONAL RULES GOVERNING EXPORT CREDIT FINANCING:TOO STRONG, TOO WEAK OR JUST RIGHT?

A Report Prepared for theInternational Financial Flows and Environment Project

World Resources Institute

Peter C. Evans†

July 30, 2003

†Contact: MIT Center for International Studies, tel. (617) 492-7755; email: evansp@mit.edu

DRAFT July 30, 2003

ii

CONTENTS

I. Introduction...............................................................................................….1

II. The Regime Governing Official Trade Finance ………..................... 5

III. Special Sector Agreement on Renewables: Prospects and Problems ......... 10Rationale for Limiting Repayment TermsNuclear Power Sector AgreementFew ExceptionsThe Subsidy Cost Associated with Special TermsThe Problem of Negotiating “Renewables Only” Provisions

IV. Environmental Implications of Helsinki Tied Aid Disciplines ................... 18Reforming Tied-aid RulesEx Ante GuidanceImplications of HelsinkiEnvironmental Control TechnologiesEnergy Projects

V. Gaps in the Regime: Untied Aid Loophole? ..…….............................…… 26Untied-aid and Environmental ConsiderationsSevernaya and Port Dickson Power ProjectsU.S. Proposal to Regulate Untied Aid

VI. Targeting Environmental Technology Financial Assistance ............…… 32Japan’s Green Aid PlanDenmark’s Mixed Credit ProgramUnited States: Sticks but Few Carrots

Appendix I: Aggregate Data ……………..………......……..........…...............40

Appendix II: Sector and Project Data ………….....…........……................... 43

Appendix II: Biographical Sketch of Author ….....…........……................... 52

DRAFT July 30, 2003

1

I. Introduction

The international trade finance disciplines are typically judged from a nationalwelfare perspective. The rules are valued by participants for their ability to containdamaging subsidy races, harden credit terms that conform more closely to marketterms, reduce subsidy burdens on national treasuries, and clarify the distinction betweencommercial trade credits and aid credits intended to serve developmental goals. Theenvironment has been a tertiary matter, if considered at all, when specific provisions arenegotiated. However, there are a number of ways in which trade finance rules canimpinge on environmental outcomes. One way is through rules on credit tenor. Ifdifferent sectors are permitted different financing terms, the effect may be to biastechnology investment choices by reducing financing costs for one set of technologiesover another. Limitations on subsidies that states can offer can have a similar effect. Ifsubsidy prohibitions are written too strictly, they can prevent countries from providingtargeted subsidies that could facilitate the diffusion of cleaner and more efficienttechnologies.

Creditor countries have struggled to develop rules that constrain the negativeaspect of export subsidization through bilateral programs, while preserving its positivepotential. Beginning in the 1970s, countries of the European Union, Japan and theUnited States undertook an effort to develop international rules on export credits andforeign aid. The result was establishment of the Arrangement on Guidelines forOfficially Supported Export Credits (commonly known as the Arrangement).Formalized in 1978, the Arrangement is coordinated through the Trade Directorate atthe Organization for Economic Cooperation and Development (OECD). TheArrangement has emerged as the primary body of international rules that govern exportcredit practices and supplants, in many respects, the World Trade Organization (WTO)in this area.

This paper brings environmental considerations to the forefront. It seeks tocontribute to the growing attention that is now being focused on the environmentalimplications of international trade finance rules. The paper has several objectives.First, it seeks to describe the rationale and evolution of export credit rules with specialfocus on limitations on repayment periods (tenor rules) and procurement conditions(tied aid). Second, it assesses the environmental consequences of the rules byexamining trends, such as the $41.5 billion in concessional financing that OECDcountries have directed to the energy sector between 1988 and 2001. Third, it exploreswhat gaps exist in the current rules and what this means for environmentalsustainability objectives. Finally, it explores the opportunities for targeted assistancefor environmental technologies within the framework of existing rules.

This examination leads to the following general observation: over the past twodecades the rules governing export credits and aid have tightened significantly. Theoverriding goal of the rules is to establish freer and fairer trade by controlling

DRAFT July 30, 2003

2

government financial intervention in trade competition. The rules achieve this result byconstraining the terms and condition on which countries can offer export financing.When viewed from an environmental perspective, some rules can have the appearanceof being too strict. The rules constrain the way countries can use export financing toencourage higher investment in environmental control equipment, renewable energy,and other environmental beneficial exports bound for developing countries. However,this view overlooks the positive contribution the constraints make. The rules forcebuyers to face the full financial cost of power generation, pipelines, petrochemicalcomplexes, and other investments that are inherently commercial. By constrainingexport subsidization, the rules help to curb overinvestment in these activities. This haspositive environmental implications. The tension between trade competition, financingflexibility, and subsidy control is not widely appreciated, but must be a part of anymeaningful trade finance reform agenda.

The analysis presented in this paper yields four specific observations andrecommendations (see Table 1).

Observation 1: Tenor rules vary by sector. For example, nuclear power projects canreceive longer repayment terms than conventional and renewable energy technologies.More flexible financing terms could improve the economic calculus for renewables.Lengthening the repayment terms from the present 10-12 year terms to a 15-year termwould serve to lower the cost of renewable energy by lowering the annual debtpayment amount, thereby making renewable energy technologies more cost competitivewith conventional energy sources. However, there are drawbacks to making such achange. Lengthening repayment terms beyond market terms involves subsidy costs.These costs must be recognized and budgeted for. In addition, lengthening terms to 15years would require changing the terms of the Arrangement. There are several reasonswhy this would be difficult and even unnecessary. First, there are significantmethodological problems associated with creating exceptions for renewables and notother public priorities. Second, there are competitive considerations. Not all countrieshave competitive renewable energy technology manufacturing industries. It is notunreasonable that these countries would object to rule changes that would only benefitcompetitors. Finally, providing longer terms is not the only way to provide support forrenewables or other environment friendly technologies. There are ways forgovernments to provide targeted support that conforms to Arrangement rules.

Recommendation: No change in terms is warranted.

Observation 2: The Helsinki Package is a collection of rules introduced in 1992 togovern tied aid. The environmental implications of these rules are positive. The ruleshave virtually eliminated commercially driven tied aid offers for fossil fuel powerplants. Data on tied aid offers shows a dramatic decline in the number of commerciallymotivated tied aid offers on behalf of coal, oil and natural gas power plants. They alsoshow a relative, although not absolute, increase in concessional funds flowing towardrenewable energy investments. One constraint imposed by the rules is on the level ofsupport that donors

DRAFT July 30, 2003

3

can provide for pollution control technologies. Environmental values receive nospecial consideration. In the course of implementing the rules, countries confrontedthis issue and came to the conclusion that key principles, including appropriate pricingand polluter pays, should guide project appraisals. These principles are logical andsound. In short, lack of special consideration does not appear to be of sufficientconcern to justify major rule changes. Relaxing the disciplines may do more harm thangood.

Recommendation: No change in tied aid rules is warranted.

Observation 3. The regime governing official trade finance is an incomplete regime.Gaps remain in the rules, one of the most significant of which concerns untied aid.Untied aid projects are not subject to commercial viability tests that have been highlysuccessful in routing subsidized financing to commercially viable projects. Thisincludes large-scale fossil fuel power plants, hydroelectric power plants, and pipelineprojects. The application of Helsinki rules devised for tied aid, particularly countryeligibility and commercial viability tests, could have positive environmentalconsequences. Such an application would help to constrain countries from subsidizingcommercially viable projects. It could also help to free up and redirect funds towardprojects that are more deserving of special assistance.

Recommendation: Helsinki-type tied aid rules should be applied to untied aid directedto lower and middle income countries.

Observation 4. The existing body of trade finance rules does not constrain all forms offinancial assistance. Countries may still offer below-market export financing toprojects that meet the rules and support environmental goals. One example of this is the

Issue Area Observation RecommendationTenor rules Tenor rules vary by sector, offering more

favorable financing terms for nuclear than conventional and renewable technologies

No change

Tied aid rules Eliminated subsidies commercially viable fossil plants

No change

Untied aid Unregulated permitting countries to subsidize commercially viable fossil fuel technologies

Apply Helsinki commercial viability rules to untied aid

Domestic policies toward export subsidies

Export promotion policies vary. Some states are not taking full advantage of the opportunities permitted to offer below market financing for environmentally beneficial projects

United States should more actively utilize new policy to grant mixed credits through combined USAID and standard Ex-Im Bank financing for environmentally beneficial projects

Table 1. Observations and Recommendations

DRAFT July 30, 2003

4

Japanese Green Aid Plan, which has been operating since 1992 with the aim ofimproving environmental conditions in China and elsewhere in Asia. Another exampleis the Danish Mixed Credits program, which provides export subsidies for windturbines and other technologies that have environmental benefits. Not all countries takefull advantage of the opportunities permitted by the rules. The United States stands outas a country that offers little below-marketing financial assistance to supportenvironmentally beneficial capital goods exports. This reflects domestic policypriorities more than it signals a problem with international rules.

Recommendation: Countries not taking full advantage of the existing opportunitiesoffered by trade finance rules should do so. The United States in particular shouldmore actively utilize the new policy to provide mixed credits by combining grants fromthe US Agency for International Development and standard export credits from the USExport Import Bank. Mixed credits that fully conform to existing international rulescan be used to support projects whose benefits are not fully captured through financialanalysis due to the existence of externalities, including environmentally friendly andsocial sector projects.

The following sections of this paper examine each of these observations andrecommendations in greater detail. The rules that govern international trade finance arecomplex. Therefore, before turning to this discussion, the next section provides a briefoverview of rules that regulate government-backed trade and places them in theirinstitutional context.

DRAFT July 30, 2003

5

II. The Regime Governing Official Trade Finance

An elaborate set of international rules governs export financing provided bygovernments. The rules have evolved through cooperation among the world’s leadingindustrial countries, which are major creditors as well as major exporters of capitalgoods. The rules set boundaries on the terms and conditions on which these countriescan offer official financing. This includes financing for the development ofconventional fossil fuel as well as renewable energy technologies in developingcountries. The rules regulate the level of subsidies those countries can offer for a givenpurpose (trade promotion or developmental assistance) and the procurement conditions(tied or untied) on which it is offered (see Table 2).

The primary purpose of the rules is to ensure that governments providefinancing in ways that minimize trade distortions and safeguard the quality of aidallocations. An important goal in this area has been to draw a line betweencommercially motivated credits and Official Development Assistance (ODA). This hasrequired the development and enforcement of rules that set guidelines on the terms andconditions of credits offered by ECAs and those designated as ODA.

Table 2. Dimensions of Official Trade Finance

Institution ECA ECA + ODA (mixed credits) Non-ODA

Procurement Policy Tieda Tied Tied Untied Tied

> 0 100%

OECD Arrangementb

no rules(e)

Purpose

Note: ECA = Export Credit Agency; ODA = Official Development Assistance; Non-ODA refers to bilateral financial transfers such as Japan's Green Aid Plan and the United State's support for Isreal, which are not reported as ODA.a. Domestic content requirements vary from country to country, ranging from 50 to 80 percent. b. OECD Arrangement on Guidelines for Officially Supported Export Credits established in 1978. c. OECD Development Assistance Committee established in 1960. d. World Trade Organization Agreement on Subsidies and Countervailing Measures established in 1979.e. The blank areas indicate areas where trade finance rules have not been developed because they are generally considered to be free from problematic trade distortions.

ODA

SubstantialModerate

WTO/ SCM Agreementd

OECD DACc

Subsidy level

Trade finance rules

Helsinki Rules

DevelopmentTrade Promotion

DRAFT July 30, 2003

6

In practice, the line between ODA and financing offered by ECAs has not beeneasy to draw. Because capital goods exports are an important source of job creation andeconomic growth, there are strong economic and political incentives for governments tosweeten export credits to improve their export competitiveness. One way that countriesdo this is by offering borrowers direct loans, guarantees or insurance at below-marketrates. Another way is through tying practices in which aid is provided on the conditionthat goods and services are procured from the donor country. Governments are also onthe look out for ways to stretch scarce aid funds. Combining export credits with aidfunds to create “mixed credits” is one way this can be accomplished. These creditscarry softer terms than standard export credits but harder terms than foreign aid.

The institutional arrangements governing trade finance are complex. Asindicated in Table 2, the three most important forums are the OECD based Participantsto the Arrangement on Guidelines for Officially Supported Export Credit, the WorldTrade Organization and the OECD Development Assistance Committee (DAC).1These forums have different mandates, membership and legal underpinnings (see Box1). In some areas their activities overlap, as is the case for elements of theArrangement and the WTO’s Agreement on Subsidies and Countervailing Measures(ASCM). In some instances, the reach of these forums is incomplete and does not fullycover all the ways that governments can provide concessional export financing. This istrue for untied aid as well as highly concessional tied aid, both of which face limitedcontrols.2 The Participants to the Arrangement has emerged as the most important

Box 1. Institutions Governing Official Trade Finance

OECD Export Credit Arrangement

The OECD Export Credit Arrangement was formally established in 1978 and now comprisesmost OECD countries. As of October 2002, the members of the OECD Arrangement included:Australia, Canada, the Czech Republic, the 15 members of the European Community (Austria,Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, theNetherlands, Portugal, Spain, Sweden and the United Kingdom), Japan, South Korea, NewZealand, Norway, Switzerland and the United States. The nonmember OECD countries areHungary, Iceland, Mexico, Poland, the Slovak Republic and Turkey. The Arrangement setsterms and conditions on government-supplied export financing in order to preventeconomically costly and politically damaging export credit races between countries. The goalof the agreement is “to encourage competition among exporters from the OECD-exportingcountries based on quality and price of goods and services rather than on the most favourableofficially supported terms.”1 It is the primary international forum for setting and enforcing ruleson export credits and mixed credits.

1 A fourth forum is the International Union of Credit and Investment Insurers (Berne Union) made up of51 official and private export credit insurers. The group contributes to coordination between ECAs butplays a minor role in the regulation of medium and long-term export credits.2 It is also true for agriculture and military goods, which remain unregulated by any international forum.

DRAFT July 30, 2003

7

WTO Agreement on Subsidies and Countervailing Measures

Measures to regulate export subsidies were adopted during the Uruguay Round of tradenegotiations completed in 1979. These prohibitions were established in the Agreement onSubsidies and Countervailing Measures (ASCM), also known as the WTO Subsidy Code. Thisagreement defined a subsidy as a financial contribution from a government that confers amaterial benefit to the borrower. Export credits were addressed in the illustrative list of exportsubsidies found in Annex I to the agreement. Item (j) holds that export credit guarantees andinsurance programs provided by governments should not be at premium rates inadequate tocover long-term operating costs and losses. This has been interpreted to mean that programsmust break even, although it is unclear as to over what time frame this must be achieved. Item(k) prohibits governments from offering export credits at rates below their cost of funds in away that achieves a material advantage in export credit terms. However, the drafters recognizedthat these provisions were not sufficiently detailed to be operational. The ASCM thereforedeferred through item (k) of the illustrative list to the rules for official export credits establishedunder the OECD Arrangement. That had the effect of creating a “safe harbor” from WTOrules. As long as export credits are in conformity with OECD interest rate provisions, theycannot be challenged as a prohibited export subsidy.

Development Assistance Committee

The Development Assistance Committee was established in 1961 to identify ways in which thecommon aid effort of OECD countries could be better coordinated.2 In the early years, the DACfocused on improving and harmonizing the financial terms of aid, taking into consideration theimpact on developing countries’ debt and burden sharing among donor countries. Later, thegroup focused on improving burden sharing among donors and improving the quality of aid. Aspart of this effort, the DAC has concentrated on encouraging transparency, statistical reportingand the progressive untying of aid to improve effectiveness and reduce the potential for tradedistortions.

1. Organization for Economic Co-operation and Development (OECD), Arrangement on Guidelines for OfficiallySupported Export Credits (OECD: Paris, 2002), p. 7 available at URL http://www.oecd.org/pdf/M00035000/M00035551.pdf.2. World Trade Organization, Agreement on Subsidies and Countervailing Measures (WTO, Geneva, 2003)available at URL http://www.wto.org/ english/docs_e/legal_e/final_e.htm.3. For a comprehensive history of the DAC see Helmut Fuhrer, “The Story of Development Assistance: A History ofthe Development Assistance Committee and the Development Co-operation Directorate in Dates, Names andFigures,” Organization for Economic Cooperation and Development, OECD/GD/(94)67, Paris, 1994.

forum for regulating the terms and conditions of official export financing.

Effects of Export Financing Regulation on Environmental Sustainability

There are two ways in which the regime governing official export financingcomes to bear on environmental sustainability goals. One way is through the positiveeffect of controlling subsidies. As noted above, the primary aim of internationalcooperation has been to remove trade distortions and to create a more level playing

DRAFT July 30, 2003

8

field for exporters that lack access to subsidized export financing.3 The progressivestrengthening of trade finance rules over the past three decades has reduced theavailability of unwarranted export subsidies.4 Below-market export financing cancreate environmental costs by stimulating excessive investment in fossil fuel powerplants, nuclear power plants, oil and gas pipelines, and industrial manufacturingfacilities such as steel making plants and equipment. Export credit disciplinesnegotiated through the OECD and WTO have helped to remove these artificialstimulants by requiring that their full financing costs be paid, although not necessarilytheir full environmental cost.5 The environmental benefit of controlling export creditsubsidization is often overlooked but is nonetheless a valuable side benefit ofinternational trade finance disciplines.

The other way trade financing regulation may impinge on environmentalsustainability is through the potentially negative effect of restriction of thegovernment’s flexibility to use official financial instruments to achieve beneficial goals.The market regularly under-invests in activities with positive external benefits.Activities in another country may generate sufficient benefit to the United States andother OECD countries to merit the provision of targeted subsidies. Trade finance rulesconstrain how export subsidies can be targeted. This includes financial interventions onbehalf of technology exports with significant environmental benefits.

As sovereign actors, governments may choose to ignore the existing rules.However, derogations carry risks. The export finance regime has proven to be robust,but is unlikely to withstand repeated defections. An alternative is to attempt tonegotiate common rules that would create special flexibility for renewable energy andother exports with environmental benefits. However, there are significant problemsassociated with designing rules that only apply to a limited class of environmentalprojects. One is the methodological problem associated with defining whattechnologies should be considered environmentally beneficial.6 Another problem arisesfrom the political realities of negotiating international agreements. There is a wide

3 The United States has historically allocated few subsidies to support its manufacturing exports. It hastaken a leading role within the OECD to bar these practices and ensure that US manufacturers are notplaced at a competitive disadvantage in international markets. This posture does not extend toagriculture or military exports where the US engages in export subsidization. In these latter cases, theUS has not supported strong international trade finance disciplines and in some cases has blocked theirdevelopment.4 Provide indication of subsidy reduction benefits.5 Environmental policy and review procedures vary significantly among ECAs. Since 1995 there hasbeen an effort to negotiate common environmental guidelines through the OECD Export Credit Group.The negotiations have so far failed to require ECAs to fully account for the environmental impacts oflarge, long-term finance. For a discussion of these issues, see Tomas Carbonell and Roland Stephen,“Unseen Agents and Global Standards: Export Credit, Institutional Design and the Environment,”Department of Political Science and Public Administration, North Carolina State University, February14, 2003.6 From an environmental standpoint, subsidies that encourage investment in a supercritical coal-firedpower plant with higher combustion efficiency than a conventional pulverized coal-fired power plantmay avoid more carbon dioxide than an equivalent subsidy to wind turbines. If this is true, should therules permit subsidies to supercritical coal-fired technology on environmental grounds?

DRAFT July 30, 2003

9

variety of activities that governments would like to subsidize. In exchange for agreeingto flexibility on export financing for renewables, some governments may seekexceptions for their own pet exports, which may not be environmentally benign. Inshort, there is a tension between retaining the integrity of trade finance disciplines,which generate environmental side benefits through subsidy control, and the desire tocreate exceptions within the disciplines that will permit governments to use tradefinance as an instrument to support investment in cleaner and more efficienttechnologies.

The following sections take up these issues in greater detail. The next sectionbegins by examining the prospect and problems of extending the repayment period ofexport financing rules to support renewable energy.

DRAFT July 30, 2003

10

III. Special Sector Agreement on Renewables: Prospects and Problems

One of the most significant constraints on the expansion of renewable energy isthe high up-front per kilowatt capital costs when compared to conventionaltechnologies. The cost comparison becomes more favorable over time when fuel costsare considered, but that point is often far into the life of the project. In developingcountries, this cost factor is a critical– if not the critical– factor when makingtechnology choices. Given budget constraints and economic development priorities,developing countries normally choose the least financially costly technology option.Domestic institutional arrangements and regulatory regimes that allow conventionaltechnologies to escape accounting for their full environmental and social costs tend tofurther bias these technology choices.

More flexible financing terms could improve the economic calculus forrenewables. Lengthening the repayment terms from the present 10-12 year terms to a15-year term would serve to lower the cost of renewable energy by lowering the annualdebt payment amount, thereby making renewable energy technologies more costcompetitive with conventional energy sources. However, there are drawbacks.Lengthening repayment terms beyond market terms involves subsidy costs. These costsmust be recognized and budgeted for. In addition, lengthening terms to 15 years wouldrequire changing the terms of the Arrangement. While this is technically possible, thereare several reasons why it could be difficult and not the best option for encouraging theshift to a more sustainable energy path.

Rationale for Limiting Repayment Terms

Governments long ago discovered that manipulating repayment terms could beused as a tool against competitors to win orders for national exporters. The term ofrepayment was one of the first areas where competitive subsidization broke outbetween ECAs. The first attempt to set rules on tenor took place through the auspicesof the Berne Union in 1961.7 These efforts were not successful. Pledges made by theleading ECAs to restrict any general lengthening of repayment terms beyond five yearswere quickly broken as countries offered longer and longer repayment terms throughthe 1960s and into the 1970s. The inability of the Berne Union to serve as an effectivebreak on competition was an important reason why negotiations on the more tradesensitive medium and long-term credits eventually shifted to the OECD.8

Trade finance disciplines negotiated through the OECD contain several specialsector agreements that have been negotiated as side agreements to the mainArrangement document. They include special agreements on nuclear power, aircraftand ships. These side agreements were not an effort to provide special treatment tocertain sectors. Rather, they reflected cases that presented particular difficulties for 7 “Export credits: the five year breach” The Economist, June 17, 1961, p. 1254.8 Background on the failure of the Berne Union negotiations can be found in United Nations, ExportCredits and Development Financing, vol. 1 and 2, Department of Economic and Social Affairs, UnitedNations, New York, 1967.

DRAFT July 30, 2003

11

countries. As a result, the difference in tenor rules between sectors is the result ofpolitical compromise as much as the outgrowth of economic logic.

From the beginning, countries were divided on the approach to regulating creditterms. The US and Canada (and usually Japan) preferred a term of repayment thatmatched the useful life of a project, while the European agencies preferred to keepterms as short as possible. One explanation for these preferences is that they reflect thedifference between a lender’s approach and an insurer’s approach.9 The programs ofthe US, Canada and Japan have traditionally been oriented toward loans, whereasEuropean countries have traditionally been oriented toward guarantee of commercialbank credits coupled with interest rate subsidization schemes. However, the differencesalso reflect fundamental differences in financial systems. The US historically has haddeep bond markets, which have made it possible for the government to offer repaymentterms over 20 years. European financial markets, by contrast, have been more limited,constraining the terms that European governments could offer when the coreArrangement terms were negotiated.

Participants to the Arrangement eventually negotiated rules to governrepayment terms. However, because of differences in bargaining strength and interestsacross countries and sectors, the rules are not entirely consistent. As some haveobserved, the differences in rules create a situation where nuclear power is permitted15-year repayment terms, whereas renewable technologies such as wind can receive atmaximum 12-year repayment terms (unless they are financed on project finance terms,in which case the repayment term can be extended to 14 years.) Some have called forthe establishment of a separate sector agreement that would offer better terms forrenewable energy projects.10

A review of the negotiations leading up to the special sector agreement onnuclear power illustrates the combination of political and economic factors surroundingthe bargaining over tenor rules.

Nuclear Power Sector Agreement

Nuclear orders have dwindled in the past decade.11 They were, however, verybig business in the 1970s and early 1980s. In 1982 it was estimated that US companieshad the opportunity to compete for between 19.6 to 34.5 gigawatts of nuclear powergenerating capacity or worth from $13 to 20 billion between 1982 and 1990.12 These 9 John L. Moore, Jr. "Export Credit Arrangements," in Seymour J. Rubin and Gary Clyde Hufbauer, eds.,Emerging Standards of International Trade and Investment: Multinational Codes and CorporateConduct (Rowman & Allanheld Publishers: New York, 1983), p. 142.10 Crescencia Maurer, “The Transition from Fossil to Renewable Energy Systems: What Role for ExportCredit Agencies?” report prepared for the German Advisory Council on Global Change, July 9, 2002, p.25.11 Between 1990 and 2001 nuclear energy transactions made up only 4 percent of the energy relatedtransactions financed by US Ex-Im Bank or approximately $1.2 billion in loans and guarantees.12 This number of contracts never materialized, but these expectations were an important element of thepriority that the US and other governments attached to the trade and the need to control competitive

DRAFT July 30, 2003

12

orders were expected to be heavily dependent on official financing. Bilateral financingsupport was the only source of financing available to exporters and buyers since theWorld Bank and other multilateral sources declined to participate in these sales.International constraints on export credit subsidization were limited during the 1970sand early 1980s. What little constraint existed was based on a 1975 “standstill”agreement between major suppliers that attempted to freeze the financial terms offeredby competing export credit agencies. However, this standstill agreement had majorflaws. It specified that there be a minimum cash down payment of 10 percent and amaximum repayment of 15 years, but left a major loophole by setting no minimuminterest rate.

As interest rates rose to historic highs in the late 1970s, the cost of nuclearexport financing subsidies mounted. The US Treasury estimated that the high costinvolved in constructing and commissioning nuclear power plants meant that everypercentage point below market terms was costing export credit agencies as much as$200 million over the life of the loan.13 The mounting costs eventually brought themajor exporters together to work out a more comprehensive agreement. The drivingimpetus for an accord for the Europeans was the desire to prevent the US Ex-Im Bankfrom offering terms longer than 15 years and, if possible, to shorten the US repaymentterms to 12 or 10 years. The US, in turn, sought to raise the minimum interest rate from7.6 percent to a rate closer to market levels (at the time, US long-term treasury noteswere 13.6 percent, whereas French Treasury bonds were about 15.8 percent).

The US began by proposing a system based on market rates and maximumrepayment terms of 20 to 25 years. The US based this proposal on the experience in theUS market in which nuclear power plants were financed by utility bond issues thatcarried a maturity of up to 30 years. The US also noted that these repayment terms werewell within the 40-year estimated project life of nuclear plants. European countriesrejected this proposal, largely because their access to long-term capital was morelimited (typically 10 years on European financial markets), and they believed thatdemand for nuclear contracts would shrink without the credit subsidies. The UScountered that if all members of the Arrangement were not prepared to link interestrates to the cost of money to government (using the CIRR rates as a proxy), the USwould not agree to terms of less than 15 years, as was possible under the standstill of1975.14

A new agreement was eventually reached in 1984. The final understanding wasa compromise between the two contending positions. The United States agreed not toextend term beyond 15 years while the other producers agreed to apply more market-

export subsidization. See Lisa B. Barry, “International Trade Issues of the U.S. Nuclear PowerIndustry,” Office of the U.S. Trade Representative, August 1982.13 “OECD Sector Understanding on Export Credits for Nuclear Power Plants,” Treasury News, UnitedStates Department of the Treasury, Washington, D.C., August 1, 1984.14 Organization for Economic Cooperation and Development, Trade Directorate, “Participants views onan agreement on terms for export credits for nuclear power plants,” TD/CONSENSUS/83.55, OECD,Paris, November 22, 1983.

DRAFT July 30, 2003

13

based interest rates with certain exceptions for low interest rate countries such as Japan.A special CIRR rate was devised for countries providing credits over 12 years.15

Few Exceptions

Whenever rules on tenor and other aspects of official trade finance have beenestablished, pressures to make adjustments and exceptions have soon followed.Participants have mostly resisted these pressures.

One example stems from the rapidly changing events in 1989, which broughtthe eventual collapse of the Soviet Empire. As events unfolded, Western governmentssearched for a means to provide greater economic and political support to Sovietsatellite states in Eastern Europe. At the G-7 meeting in Paris, France in July 1989, theUnited States led an initiative that brought together a group of 24 nations to supporteconomic and political reform. By November 24, a week after the Berlin Wall fell onNovember 9, 1989, these countries had pledged upwards of $8 billion in financialcommitments to support economic reform and restructuring in Poland and Hungary.These commitments included grants, loans, technical assistance, debt forgiveness,export credits, and other forms of assistance.

Throughout this period, calls were made to relax terms of the Arrangement byextending repayment terms and for other measures to make export credit terms lessburdensome for Poland and Hungary.16 These proposals were eventually rejected. Aidfunds were increased, but participants decided against making an exception inArrangement terms for export credits that would apply to only two countries, despitethe political pressure to do so. The following year, this position was reinforced at thesummit held in Houston when G-7 leaders issued a joint communiqué that called oncountries to avoid trade distortions in financial flows to Central and Eastern Europe.17

Project finance is one of the few areas where Arrangement Participants agreedto make adjustments in existing rules. The advent of privatization and marketliberalization in the 1980s caused an increasing number of projects in the developingworld to seek financing on the basis of the project’s expected cash flow, rather than onthe balance sheet of the corporate sponsors or through sovereign guarantees of the hostcountry. “Project financing” is the term used to describe the financing of a major newproject or large project expansion in which the lenders place primary reliance on therevenues of the new project for repayment and use the assets and contracts of the

15 The minimum interest rate was based on a Special Commercial Interest Reference Rate (SCIRR),which added a markup to reflect the longer than standard repayment terms for countries with low interestrates. These conditions required that countries add 75 basis points to the CIRR for the currency of thetransaction, except for Japanese yen. The maximum CIRR term was to be applied for countries withmore than one CIRR rate.16 Daniel L. Bond, “Trade or Aid? Official Export Credit Agencies and the Economic Development ofEastern Europe and the Soviet Union,” Public Policy Paper 4, Institute for East-West Security Studies,New York, 1991.17 G-7 Houston Economic Declaration, “Export Credits,” Houston Economic Summit, July 10, 1990.

DRAFT July 30, 2003

14

project as security. The Arrangement rules presented difficulties for these projects bynot recognizing the early cash flow difficulties associated with these projects.

There were two schools of thought regarding ways in which additionalflexibility could be introduced when Participants took up negotiations on projectfinance in 1996. Some countries preferred a sector-based approach that would take intoaccount the wide variation in project financing characteristics found in differentindustries. Others preferred a less complicated approach that would cut across allsectors. Another consideration was how properly to ring-fence exceptions so that theexceptions would only be made for transactions that supported genuine project financecases. Participants were unable to develop a sufficiently tight, single definition of aproject finance transaction to address this concern. Instead, a general description wasdevised coupled with a list of essential and illustrative criteria. These criteria eventuallygrew to eight items.

In the end, special flexibilities for project finance transactions were adopted byconsensus in 1998 on a trial basis.18 The final agreement adopted a cross-sectorapproach, which included options for extending the maximum repayment period to 14years. Consensus was achieved because the rules were perceived to be technologicallyneutral by applying to all capital goods financed with export credits. They also did notappear to benefit one country unfairly over another.

The Subsidy Cost Associated with Special Terms

There is a cost whenever governments offer financing that is beyondcommercial market terms. These costs may be direct when governments issue loans orindirect when governments issue guarantees. These costs increase with market risk. Asa result, the level of subsidies that are needed to cover these costs will be larger for lesscredit-worthy countries. They will also be higher the longer the repayment term onloans is extended. Put another way, the value of government loans and guaranteesincreases with the underlying risks of the project and the maturity of the loan beingguaranteed. Over the past 20 years the method for estimating these subsidy costs hasbeen refined and improved.19 Measures such as the U.S. Credit Reform Act of 1990represent an effort by governments to more accurately measure the cost of interestsubsidies and defaults in credit programs.20 This legislation and other measures like it

18 The trial period was recently extended to the end of 2003. The anticipation is that they will be madepermanent but Participants are still debating exactly how this will be done.19 Ashoka Mody and Dilip Patro, “Methods of Loan Guarantee Valuation and Accounting,” Cofinancingand Financial Advisory Services, Project Finance Group, CFS Discussion Paper Series, No. 116, WorldBank, Washington, DC, November 1995.20 According to the 1992 Credit Reform Act the subsidy cost of a loan guarantee is “the present value ofcash flows from estimated payments by the government (for defaults and delinquencies, interest ratesubsidies, and other payments) minus estimated payments to the government (for loan origination andother fees, penalties, and recoveries).” See General Accounting Office, “U.S. Needs Better Method forEstimating Cost of Foreign Loans and Guarantees,” GAO/NSIAD/GGD-95-31, Washington, DC, 1994.

DRAFT July 30, 2003

15

have improved transparency of government subsidy allocations and the ability tocompare alternative uses of scarce government resources.

Applying these techniques can provide a measure of the subsidy cost associatedwith extending repayment terms for renewable energy projects. Table 4 illustrates theshift in subsidy cost associated with a hypothetical $10 million renewable energyproject in Mexico authorized in 2001. Two different types of projects are shown. Thefirst considers the shift for a sovereign transaction that carries a repayment guaranteefrom the government of the borrowing country. The second considers the shift for aprivate sector project that lacks a sovereign guarantee. Because the sovereigntransaction is considered more secure, the subsidy cost is somewhat less than that of theprivate transaction. However, in both cases, the cost of extending repayment termsfrom 7 to 15 years is significant. In the case of the sovereign transaction, the subsidycost increases from $430 thousand to $1.05 million. In the case of the private sectortransaction, the subsidy cost increases from $704 thousand to $1.56 million. Mexico isconsidered a relatively good credit risk among emerging markets. The same projectundertaken in a less credit-worthy country such as Brazil, Egypt or India would have ahigher subsidy impact.

What the figures illustrate is that extending repayment terms is not free. It issimply another way to channel subsidies. This raises important policy questions.Although extending term may be more politically palatable in certain contexts, is it themost efficient way to make renewables cost-competitive with conventional energysources? More significantly, what are the implications for the existing body of rulesthat have been established to control subsidized government credit? What are theprospects and consequences of changing the Arrangement?

Table 3. Subsidy Budget Impact of Extending Tenor to 15 Years

Country Risk TypeRepayment Terms (yrs)

Hypothetical Authorization

Subsidy Cost(a)

Subsidy Percent

Mexico Sovereign 7 $10,000,000 $430,000 4.3%Mexico Sovereign 10 $10,000,000 $931,000 9.3%Mexico Sovereign 15 $10,000,000 $1,052,000 10.5%

Mexico Private 7 $10,000,000 $704,000 7.0%Mexico Private 10 $10,000,000 $1,373,000 13.7%Mexico Private 15 $10,000,000 $1,557,000 15.6%

Note: The results are based on the risk levels for Mexico in 2001.Grace Period Assumptions: 7 yrs: 1 yr. disbursement; 10 yrs: 2 yr. disbursement; 15 yrs: 3 yr. disbursement.(a) Subsidy cost is calculated based on a formula using the Interagency Country Risk Assessment System (ICRAS). The ICRAS, established to comply with the Credit Reform Act of 1990, is used to 'score' loans, i.e., to determine the amount (or 'default subsidy') that must be set aside against estimatesof the contingent liability associated with a loan or guarantee.Source: US Export-Import Bank.

DRAFT July 30, 2003

16

The Problem of Negotiating “Renewables Only” Provisions

The Arrangement is the result of cooperation between the United States, theEuropean Community, and other major exporting countries. The disciplines workbecause Participants mutually agree to adhere to its provisions.21 There are severalreasons why it would be difficult to obtain a mutually acceptable agreement on morefavorable terms for renewables. Given the alternatives available to provide targetedsubsidies that conform to the existing rules, such an agreement is probably unnecessary.

First, there are significant methodological problems associated with creatingexceptions for renewables and not other public priorities. Export subsidies arerecognized as an important and even crucial tool for states to achieve legitimate policiesto serve their constituents and national interests.22 However, there is a wide range ofvalues that are underserved by market forces alone that may justify special financialtreatment. The desire to support political independence in Eastern Europe discussedabove is one example. Other examples include public support for health care, povertyalleviation, narcotics interdiction, and counter-terrorism. Some countries considerenergy security a vital national interest that warrants subsidies to secure dependableenergy supplies.23 Receiving longer repayment terms or other special financing termscould advance all of these values. There is no clear reason why renewable energyshould receive special treatment over any of these other values. These are normativeissues on which countries are bound to differ. One solution is to grant special treatmentto all of these values. However, the disciplines would then lose their force, which froman environmental perspective may not be desirable, since the positive consequences ofsubsidy control could be undermined.

A second methodological problem arises from limiting special treatment to asmall class of renewable energy technologies. If the end goal is environmentalimprovement, then other technology options may be of equal or greater value. Thesame level of subsidization provided to supercritical coal-fired power plant technologythat is more efficient than conventional coal-fired power plant technology, but moreexpensive, may yield higher environmental benefits (measured in avoided CO2 or other

21 Arrangement rules are subject to infractions but they tend to be relatively limited and resolved in areasonable amount of time through face-to-face consultation between Participants. A complete list ofinfractions and how they were resolved is not publicly available. A discussion of certain cases can befound in reports published on an annual basis since the late 1970s by the US Export-Import Bank. SeeExport Import Bank of the United States, Report to the U.S. Congress on Export Credit Competition andthe Export-Import Bank of the United States, Washington DC, various years.22 John H. Jackson, The World Trading System: Law and Policy of International Economic Relations,second edition (Cambridge, MA: The MIT Press: 2000), pp. 293-303.23 Few countries have attempted to use financing as an approach to reduce external resource dependencyas Japan. See Terutomo Ozawa, Multilateralism, Japanese Style: The Political Economy of OutwardDependency (Princeton, NJ: Princeton University Press, 1979), pp. 137-145; Terutomo Ozawa, “Japan’snew resource diplomacy: government-backed group investment,” Journal of World Trade Law, vol. 14,no. 1 (Jan/Feb. 1980), pp. 3-13.

DRAFT July 30, 2003

17

missions) than the same level of subsidization of wind turbines. The question is: if theend goal is to improve environmental outcomes, on what grounds should specialtreatment be restricted to a certain group of technologies? Should not special treatmentbe available to any technology that achieves the environmental performance goal? Inother words, why should changes in rules be based on technology rather thanoutcomes?

Another problem arises from competitive considerations. Not all countries havecompetitive renewable energy technology manufacturing industries. It is notunreasonable for countries that lack such industries to object to changes in rules thatwould only benefit competitors. These countries may accept rule changes in exchangefor some type of compensation. In exchange for flexibility on renewable terms, thesegovernments may seek exceptions for their own pet exports. The problem here is thatthe industries that they seek to benefit may not be environmentally benign. Therefore,not only may it be difficult to obtain agreement on special treatment for environmentaltechnologies, the horse trading required to obtain such provisions may leave theenvironment worse off when all is said and done.

Finally, providing longer terms is not the only way to provide support torenewables. There are ways that governments can provide targeted support thatconform to Arrangement rules. As the following sections of this report discuss ingreater detail, the rules permit countries to target subsidies through mixed credits.These rules are tightly constrained to prevent countries from subsidizing exports thatcan be financed on commercial terms. However, the rules leave room for countries tooffer targeted subsidies to support renewable energy and other environmentally andsocially beneficial projects. Peer review procedures among Participants have ensuredthat these rules work reasonably well. The existing rules do provide opportunities forgovernments to offer targeted financial support for environmentally related capitalgoods exports. Within certain defined parameters, governments can provide mixedcredits and highly concessional tied aid to support such investment. There are,however, major differences between countries in how actively these opportunities arebeing pursued. Members of the European community and Japan actively take advantageof these opportunities, while the United States does not. This is a self-imposedconstraint, which points to the need for change in US mixed credit policy rather than inthe overarching body of international trade finance rules.

DRAFT July 30, 2003

18

IV. Environmental Implications of Helsinki Tied Aid Disciplines

The portion of the OECD Export Credit Arrangement that governs tied aid isknown as the Helsinki Package. It refers to a collection of rules that was designed tocontrol the use of aid funds for commercial gain. Participants to the Arrangement hadbecome increasingly concerned about tied aid practices. When the debt crisis depressedorders of high value added goods and services in developing country markets in the1980s, many OECD countries responded by increasing their offers for tied aid credits tosustain (or gain) market share. The United States led the effort to control thesepractices and establish clearer distinctions between trade motivated export credits anddevelopmentally motivated aid credits.24 The rules were eventually adopted byconsensus and went into effect in 1992. While environmental considerations playedalmost no role in the establishment of the rules, Helsinki has had beneficialenvironmental consequences. Although the rules accord no special treatment forpollution control technology, they have reduced subsidies to coal-fired power plantsand other conventional energy technologies by controlling tied aid allocations tocommercially viable projects.

Reforming Tied Aid Rules

The Helsinki rules on tied aid have several parts (see Table 4). First, the rulesregulate what countries remain eligible for tied concessional financing. The rulesprohibit most tied aid credits in higher income countries, while allowing continuedflows to middle income and low-income developing countries.25 Second, the rulesestablish minimum levels of concessionality, which are intended to prevent countriesfrom providing just enough aid subsidies to tip the price of project in the favor of theirnational exporters. Finally, the rules establish hoop tests that are designed to ensurethat aid subsidies do not flow to projects that could otherwise be financed oncommercial terms. This tends to be of greatest concern in middle income countries thathave the best long-term sales prospects. Prior to Helsinki, aid funds were flowing toprojects for no apparent reason other than to help the donor country’s firms establishmarket presence. To avoid this abuse of aid, the rules permit new tied aid credits to beextended to middle income countries under two conditions:

24 For a history of the problem and the negotiations leading up to the Helsinki Package see John E. Ray,Managing Official Export Credits: The Quest for a Global Regime (Institute for International Economics,Washington DC 1995).25 Higher income countries are defined as countries with a Gross National Income per capita sufficient tomake them ineligible for 17-year loans from the World Bank for at least two consecutive years. Thisfigure was $2,465 in 1990 and $2,995 in 2000. In Latin America, this bars Argentina, Brazil, Mexico,and Venezuela from most tied aid but allows it in Colombia, Dominican Republic and El Salvador. InAsia, Hong Kong, Korea, Malaysia, Singapore, and Taiwan are largely barred, but China, India,Indonesia, Philippines, Sri Lanka, Thailand and Vietnam are eligible. In Africa, Botswana and Gabon arebarred, but Algeria, Angola, Egypt, Ghana, Morocco, Namibia, Nigeria, South Africa and Tunisia arepermitted. In the Middle East, Bahrain, Israel, and Saudi Arabia are barred, but Jordan, Turkey andYemen are eligible. Russia and most countries in Eastern Europe are largely barred from tied aid;however, Azerbaijan, Tajikistan, and other countries in the Caspian region are eligible.

DRAFT July 30, 2003

19

1) The project lacks the capacity with appropriate pricing based onmarket principles to generate cash flow sufficient to cover itsoperating costs and debt flow. Such a project would be consideredcommercially non viable (CNV).

2) The project is financially viable, but commercial or ECA financingis not available.

If a project meets one of these criteria, it can be funded with aid funds, provided thatthe aid has a minimum concessionality level of 35 percent. Helsinki also permits tiedaid credits to public or private projects in lower income countries for eithercommercially viable or commercially non viable projects as long as the donor offers aminimum concessionality level of 50 percent.

Governments use cash flow analysis (CFA) to determine financial viabilitywithin the credit periods permitted by the Arrangement. Financial viability isinterpreted strictly in terms of a project’s debt service capacity. The question iswhether the cash flow is sufficient to repay borrowed funds and cover interest chargesusing the Arrangement’s credit rates and terms as the reference point. Traditionalcost/benefit analysis operates at a marginal level, measuring the economic impact of a

Table 4. OECD Arrangement Rules for Tied Aid Financing (Helsinki Package)†

Country Economic Level Type of Project Tied Aid EligibilityMinimum Level of

Concessionality

OECD/ Countries in Transition All projects Prohibited _

Commercially viable Eligible 80%

Commercially non viable Eligible 80%

Commercially viable** Eligible 80%

Commercially non viable Eligible 35%

Low Income (LLDC's) All projects*** Eligible 50%

†Public and private projects in excess of SDR 2 Million.* Countries with a per capita GNP exceeding $2,465 in 1990; exceeding $2,995 in 2000.** A special exception is made in the rare case that ECA or market financing is not available for a commercially viable project. This is case, donors may provide tied aid with a minimum concessionality level of 35 percent.** Given the difficulty that the world's poorest countries face in securing commercial financing no matter how attractive the project, Helsinki rules exempt these countries from financial viability tests. All tied aid offers must, however, have a minimum concessionality level of 50%.

Higher Income*

Middle Income (LDC's)

DRAFT July 30, 2003

20

project proposal as the difference between net economic benefits comparing caseswhere the project goes forward (“with”) and cases where it does not (“without”). Incontrast, the Helsinki process takes a time-slice approach of the “smallest completeproductive entity.”

Ex Ante Guidance

The guidelines that were developed to implement the rules are as important asthe rules themselves. A process was established to resolve disputed cases and otherchallenges created by the new rules. This took place through the Tied AidConsultations Group, which met in Paris under the auspices of the OECD Participantsto the Arrangement on Export Credits. Between 1992 and March 2002, a total of 128cases were challenged by one or more Participant. The largest number of disputesoccurred over energy projects, which made up 43 percent of the cases brought beforethe group.26 Over time, the number of challenges decreased as countries gainedexperience with the rules and definitional and methodological issues were resolved.The experience was codified on the basis of the soft case law that developed and waspublished as Ex Ante Guidance for Tied Aid by the OECD in 1996.27

Appropriate Pricing

One of the most controversial issues that arose during the early implementationof Helsinki concerned the interpretation of “appropriate pricing based on marketprinciples.” The choice of project input prices has the potential to shift a project frombeing considered financially non-viable to being financially viable if “appropriateprices” are applied. Participants differed on whether shadow (i.e. willingness to pay)prices should be used in the analysis in the place of actual local prices where the latterwere considered to be significantly distorted.28 Eventually they came to the view thatevaluations based on local prices would only perpetuate economic inefficiencies. ExAnte guidance leaves it to the country sponsoring the project whether or not to adjustlocal prices.29 It also left open the right for others to challenge these assessments,which they have.

26 US Export Import Bank, Report to the U.S. Congress on Export Credit Competition and The Export-Import Bank of the United States, Washington DC, July 2002, p. 70.27 Organization for Economic Co-operation and Development, Ex Ante Guidance for Tied Aid,OECD/DG(96)180, 1996. A significant drawback of this publication is that it provides almost no contextor back ground for understanding how and why Participants chose this final set of guidelines.28 This was less of a problem for projects that involve internationally traded commodities, where theinternational trade prices at the border provided a clear benchmark. However, it proved morechallenging with respect to internally traded goods such as domestic coal. If no adjustment is made toaccount for the presence of subsidies in domestic coal fuel input prices, then a project may be declaredfinancially non-viable when “correct” pricing would have made it financially viable.29 Ex Ante Guidance for Tied Aid, p. 20.

DRAFT July 30, 2003

21

Project Definition

Another difficulty countries faced was determining what constituted a project.Like pricing, it was controversial because it could influence whether a project wasconsidered to be financially viable or not. Eventually the Participants agreed to definea project as:

The smallest complete productive entity, physically and technicallyintegrated, that fully utilizes the proposed investment and captures allthe financial benefits that can be attributed to the investment.

This definition was designed to prevent equipment that may not have producedrevenue itself (such as pollution control equipment) from being consideredcommercially non-viable. The definition required that the financial test be made withreference to the larger productive entity to which the project was connected (e.g. thepaper and pulp mill, power plant, etc.) and not the retrofit itself. This could be adistinct division of the enterprise undertaking the investment and not necessarily thecomplete legal or accounting unit.

Polluter Pays Principle

Countries came to the consensus that environmental projects should not betreated on an exceptional basis. In working through several cases, Participants decidedit was best to embrace the widely held “polluter pays principle.” This principle holdsthat environmental costs should, to the greatest degree possible, be incorporated in theactual cost of production. The polluter pays principle holds that governments shouldnot subsidize the installation of environmental equipment by industrial polluters, sincesuch subsidies would be inconsistent with efforts to ensure that industrial polluters fullyaccount for environmental costs. Countries agreed to apply this principle whenconsidering tied aid offers not only for new industrial plants, but also for environmentalretrofits to existing facilities.

Implications of Helsinki

From an environmental standpoint, the Helsinki rules have had the greatestimpact in two areas. One concerns the constraints that have been placed on howcountries can offer concessional financing for environmental control technologies. Theother is how the rules have influenced the flow of subsidies to energy projects. Byreducing tied aid offers to middle income countries, the rules have significantly reducedthe volume of concessional financing that once flowed to fossil fuel power plants. Eachof these consequences is addressed in turn.

DRAFT July 30, 2003

22

Environmental Control Technologies

The applicability of tied aid rules to environmental control technologies becamean issue shortly after the Helsinki rules were adopted. The debate began in response totwo tied aid credits brought before the Consultation Group in 1992. One was a Spanishtied aid credit for decontamination equipment for a copper smelter in Chile. The otherwas for an Austrian tied-aid credit for steel dedusting equipment in Indonesia. BothSpain and Austria argued that their projects were environmental in nature with norevenue generating ability. Austria held to the view that tied aid should be universallypermitted for environmental projects in developing countries. The US and Canadastrongly supported the application of the “polluter pays principle” and strongly opposedtreating environmental projects as exceptions to the Helsinki rules. Both countriespointed to the significant problems associated with defining “environmental” andexpressed the fear that any project that improved on existing conditions could claim anexemption which could significantly reduce the effectiveness of stronger tied aid rules.

In subsequent discussions, the Spanish and Austrian projects were deemed to becommercially viable and therefore ineligible for tied aid. Through the consultationprocess it was revealed that the copper smelter was owned by ENAMI, Chile’s secondlargest exporter. It was a well-capitalized, profitable state-owned company. Themajority of the participants found these facts sufficient to deem the smeltercommercially viable and therefore ineligible for tied aid financing. Austria’s proposedtied aid credit proposal was less clear-cut. The Indonesian steel company, Krakatau,was a public enterprise, which did not publish financial statements. As a steelcompany, its financial profitability could not be taken for granted. Austria’s preparedfinancial analysis of the project assumed “world prices” for natural gas and steel andindicated a significant loss for the company’s accounts. However, the US argued thatthere should be a strong presumption of commercial viability for the steel mill, giventhat gas supplies in Indonesia were plentiful and cheaply priced for the domesticmarket, and that domestic steel producers likely benefited from high priced steelimports given relatively high transportation costs. This view eventually prevailed in theConsultation Group, and this project was also found to be commercially viable. Thismeant that Austria would have to raise the minimum concessionality level to 80 percentinstead of 35 percent or abandon its tied aid offer.

The issue of appropriate pricing arose in the context of a German tied aid offerfor sulfur scrubbers in 1994.30 This project proposed retrofitting three units of thehighly polluting Yatagan power plant (3 x 210 MW), which burned locally minedlignite, a soft poor quality coal. The total cost of the FGD retrofit was estimated to be$120 million with approximately 20 percent to be covered by a tied aid credit fromKreditanstalt fur Wiederaufbau (KfW). The United States challenged the project,arguing that it was financially viable and therefore not eligible for tied aid. The 30 This case is described by Anthony Owen, “The Body of Experience Gained under the HelsinkiDisciplines,” unpublished paper presented at MITI- Sponsored OECD Seminar, Tokyo, February 13,1998.

DRAFT July 30, 2003

23

feasibility study presented by Germany was based on domestic electricity prices, whichwere extremely low in Turkey (roughly 83% of long run marginal costs), making itdifficult for the power plant to repay the cost of the FGD units. Participants rejectedthese assumptions in favor of a project evaluation based on theoretical “market” prices,which eliminated the implicit domestic electricity subsidies.31 After this adjustment wasmade, the project was found to be financially viable. The US stance in this case wasmotivated by a desire to establish clear criteria for evaluating projects. It was alsomotivated to protect US commercial interests in this and other potential cases. As oneUS official put it: “we didn’t want aid money freed up by telecoms and power to washinto sulfur scrubbers and wipe out US producers.”32

The result of these and other cases is that the environment essentially receivesno special consideration under Helsinki. This raises the question as to whether the rulesmay be too strict. Should there be a mechanism whereby tied aid can be used to reducethe cost of the investment even if the “smallest productive unit” happens to becommercially viable? Has the desire to control export subsidies and protect nationalcommercial interest gone too far? Ex Ante Guidance for Tied Aid makes some referenceto the need for a flexible approach when environmental considerations are at stake.33

However, there has been no ground swell among Participants to ease the financial testsprojects must pass to be eligible for subsidized tied aid financing on environmentalgrounds.

Energy Projects

The Helsinki rules also had a major impact on energy projects. Participantsconcluded that the smallest complete productive entity project definition should bemade with reference to whether or not the project was connected to an integrated powergrid. This had the effect of rendering the vast majority of power projects linked totransmission systems commercially viable and therefore ineligible for tied aidfinancing. Donors could escape these strictures if they provided financing with aconcessionality level over 80 percent, but this presented an expensive proposition thatmost donors could not afford.34 Table 5 presents an illustrative break-down of whattypes of energy projects are commercially viable and which are consideredcommercially non viable. In general, fossil fuel power plants, large stand-alonehydropower plants, and large-scale wind farms are considered commercially viable. On

31 A consensus emerged that the correct price for the analysis should be the long run marginal cost ofpower generation, estimated from World Bank data on the Turkish electricity sector.32 Personnel communication with US trade official, June 10, 1998.33 Page 15 of Ex Ante Guidance states: “The Participants recognize that some add-on investments toprojects with external environmental effects require special attention under the adopted definition (i.e. thesmallest complete productive entity), and that inflexible application of the polluter pays principle maycreate difficulties and may consequently lead to the rejection of projects… In cases where the cash flowof the project, including the add-on investment, is marginally positive, notifiers may reinforce the claimfor special attention of their project by providing full and transparent information on the externalenvironmental effects of the add-on investment.”34 Given the high capital cost of energy projects, an 80 percent concessionality level represents a hit tothe aid budgets that most donors cannot reasonably justify.

DRAFT July 30, 2003

24

the other hand, power projects that are small-scale and located off-grid such asgeothermal, small-scale wind farms, solar projects, as well as district heating systemsand coal gasification projects that benefit low-income residential users, are consideredcommercially non-viable.

Commercially non-viable projects typically have weak revenue potential, highunit costs, and/or have a small-scale rural focus. This is often the case for powergeneration projects that are separate from integrated power grids away from higherdensity urban areas. Small-scale and/or rural applications of renewable energy havegenerally been found to be commercially non-viable and therefore eligible for tied aidfinancing, provided that the minimum concessionality level of 35 percent (50 percentfor low income countries) is met. Projects related to the supply of coal gasificationequipment that benefit low-income residential users generally have been found to becommercially non viable and therefore eligible for tied aid credits. This was the casefor a project proposed by France that involved the supply of gas to the towns of Xi’anand Wuchan in China. The goal of this project was to supply gas to households,commercial activities, and public services such as hotels and hospitals in order to meettheir day-to-day cooking and hot water needs. The second priority was to supplyindustrial companies.

Table 5. Ex-Anti Guidance for Tied Aid Rules Energy Sector

Projects Generally Considered Commercially Viable Oil-fired power plants Gas-fired power plants Coal-fired power plants Large stand-alone hydropower plants Large-scale wind turbine farms Sulfur Scrubbers Substations in urban or high-density areas Electric power transmission lines in urban or high-density areas

Projects Generally Considered Commercially Non-Viable Transmission lines to low-density, rural areas Geothermal power plants Small wind turbine farms Small solar projects Coal gasification that benefit low-income residential users District heating systems Small hydropower plants connected with irrigation

Source: The list is drawn from OEDC Ex Ante Guidance for Tied Aid and interviews with Tied Aid Consultation Group members.

DRAFT July 30, 2003

25

The number of tied aid offers has declined significantly since the Helsinki rules wereadopted. During the period 1988 to 1991, tied aid constituted over 70 percent of energyrelated aid offers (see Appendix 1-2). This represented an average of $2.2 billion peryear during these four years. By the end of the 1990s, total tied aid offers had fallen tojust 14 percent. Between 1999 and 2001, tied aid offers for energy projects averagedless than $280 thousand a year.

Before the rules were adopted, many of the tied aid offers were flowing toprojects that were questionable from the standpoint of environmental sustainability.Figure 2 shows the trends in tied aid offers by sector between 1988 and 2001. In earlyyears between 1988 and 1992, tied aid offers for fossil fuel power plants were over $1billion, in some years representing nearly a half of all tied aid offers. By the end of thedecade, tied aid offers in the energy sector had fallen significantly. By 2001, both tiedand partially tied aid offers for fossil plants had dropped to just $15.2 million dollars orless than 10 percent of all tied aid offers. This trend was due in large part to the declineof tied aid offers for power plants. A total of 44 power plants were brought before theConsultation Group. Of these, just over half (23) were found to be commercially viableand ineligible for tied aid subsidies.

Prior to Helsinki, tied aid offers for renewables were negligible, making up lessthan 2 percent of energy-related tied aid. This was due in part to the state of renewable

Figure 1. Trends in Energy Tied Aid Offers by Sector, 1988-2001

Source: CRS Database and author’s calculations.

($US thousands)

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

HydroElec Trans/DistRenewableNuclearFossil

Helsinki Tied Aid Rules

DRAFT July 30, 2003

26

technology; particularly, wind had not yet been realized. However, it confirms that thecommercial viability of a project, rather than its effect on sustainable development orother social objectives, was the motivating factor behind donor orientation towardcommercial fossil fuel projects. The total volume of tied aid offers for renewableenergy remains relatively small. In 2001, donors notified a total $87 million. Thisnumber is relatively small but has grown relative to other sectors, constituting 35percent of all tied aid offers. In addition, because of the Helsinki rules, there is agreater likelihood that these funds have been channeled to projects that would not havebeen able to obtain commercial financing.

DRAFT July 30, 2003

27

V. Gaps in the Regime: An Untied Aid Loophole?

From both a trade competition perspective and a developmental perspective,untied aid has long been considered superior to tied aid. Since the late 1960s, aconsensus has emerged in the development field that aid-tying can impose large costson recipient countries.35 The absence of competitive bidding can raise project costs aswell as limit appropriate technology choices for recipient countries. For these reasons,there have been ongoing efforts over the past three decades to encourage the delinkingof purchasing conditions on the provision of aid. Helsinki rules are a prime illustrationof how this has been accomplished.

While untied aid is generally recognized as the ideal, there are a number ofreasons why the ideal is often not reached. In theory, untied aid should be free of tradedistortions. As long as procurement is subject to open competitive bidding, as areprojects financed by the World Bank or other multilateral banks, the outcome should bebased on the competitive merits of the competing firms. However, there have beenlingering concerns that this is not in fact the case. Studies of untied aid and anecdotalcases over the years suggest that there are often biases in outcomes, favoring a highpercentage of contracts awarded to the firms of the donor country.36 Whether thesepatterns are intentional or not is a matter of debate. Countries offering untied aidcontend that if their firms happen to win contracts through untied aid offers, this is aconsequence of superior price, after services or other factors. The officials and firmsof competing countries contend that the outcomes are rigged. An alternativeexplanation points to the interests and strategies of recipient countries who usuallymanage the tender process. ODA financing is often an important source of financingfor the recipient’s infrastructure development, and levels of support are certainly notharmed by awarding contracts to the donor’s firms. Even if contracts are not rigged,unspoken reciprocity (“back scratching’) may explain these outcomes.

Untied Aid and Environmental Considerations

Untied ODA can also be of concern from an environmental perspective. This isbecause untied aid is not subject to the same tests to which Helsinki subjects tied aidoffers. Untied aid is not subject to the 35 percent minimum concessionality levels thattied aid must meet. More significantly, untied aid is not subject to the commercialviability tests that have been so effective in weeding out subsidized financing forprojects that normally could obtain commercial financing. This presents the possibility

35 For a classic treatment of the economic costs of aid tying see Jagdish Bhagwati, “The Tying of Aid,” inJagdish Bhagwati and Richard S. Eckaus, eds., Foreign Aid: Selected Readings (New York: PenguinBooks, 1970), pp. 235-293.36 Peter C. Evans and Kenneth A. Oye, International Competition: Conflict and Cooperation in ExportFinancing,” in Gary Hufbauer and Rita Rodriguez, eds., US Ex-Im Bank in the 21st Century: A NewApproach?, Institute for International Economics, Special Report 14, January 2001, pp. 141-151.

DRAFT July 30, 2003

28

that a loophole exists through which countries can continue to funnel aid funds forcommercial purposes with little true regard for the environmental consequences.

The volume of energy-related untied aid offers has grown significantly sinceHelsinki came into effect. Once running at just over 30 percent of energy-relatedprojects, untied aid offers grew to over 85 percent by the end of the 1990s. Most of theuntied aid offers for energy have been made by Japan. A large proportion of thesecommitments have been for fossil fuel power plants. Since 1988 the Japan Bank forInternational Cooperation (JBIC) and its predecessor, the Overseas EconomicCooperation Fund (OECF), provided over $10 billion in untied loans for fossil powerplant construction and rehabilitation projects (see Appendix II-6 for a complete list).The majority of these funds have gone to construct plants in China, India, Indonesia,Malaysia, Syria and Vietnam. Most of the funds have been used to provide belowmarket financing for coal-fired power plants, but they have also been used to subsidizegas-fired and oil-fired power plants.

Recently, Japan announced that new, highly concessional loan terms would beavailable to support projects with significant environmental benefits through JBIC.Projects funded under these terms have included large loan packages for fossil fuelpower plants, including the construction of two gas-fired combined cycle power plantsthat received $700 million at highly concessional rates (see Table 6). The two projectsillustrate the interplay that exists between trade competition, subsidies, untied aid, andenvironmental objectives when there are few trade finance disciplines in place.

Severnaya and Port Dickson Power Projects

One of these projects is the Severnaya project on the Caspian Sea shore, 40 kmNorth of Baku-Azerbaijan.37 The project was designed to fill part of the Government ofAzerbaijan’s Medium Term Public Investment Program for 1997-1999, which accordedelectricity a priority sector for development. In 1998, Azerbaijan had an officialinstalled electricity capacity of approximately 5,100MW, 84% of which is oil-fired.However, because of its obsolete facilities and the lack of adequate maintenance, actualgeneration capacity had fallen to nearly 4,200MW. On February 27, 1998 the Japanesegovernment announced a special untied loan package to support the introduction of acleaner, higher efficiency gas combined cycle power plant. The 400 megawatt plantwill be built at the site of an existing 150 megawatt power plant in order to meet theincreasing future power demand, especially around Baku, with due consideration to theenvironment.38 This plant is scheduled to be completed in 2003. 37 Japan Bank for International Cooperation, “First Power Project Applying Preferential Interest Rate forSpecial Environmental Projects,” Press Release, February 27, 1998, available at URL http://www.jbic.go.jp/english/release/oecf/1998/0227-ea.php.38 According to a study commissioned for the plant, if compared with the existing plant, the new powerplant will reduce air pollution as follows; [1]SOx will not be produced (the existing power plantdischarges 3,309 ton per year, however, the new plant discharges 0, as a result of switching from oil tonatural gas); [2]the total amount of discharged NOx will be less than half, that is, the existing plant willdischarge 1,728 ton per year, however, the new plant 772 tons , because of efficiency improvements. The

DRAFT July 30, 2003

29

The second project is the Port Dickson Power Station Rehabilitation project.This project proposed scrapping the existing aged and environmentally problematicgeneration plant at the Port Dickson Power Station in Negeri Sembilan State south ofKuala Lumpur, near two large refineries—one operated by Esso and the other operatedby Shell. The plans called for a new plant with a total installed capacity of 750megawatts, or three times larger than the existing units, although having the samefootprint. The project proposed using gas as a fuel in place of oil to facilitate fuel mixdiversification. The goal was to boost the plant’s output while reducing itsenvironmental impact by increasing generation efficiency and reducing emissions. Thetotal cost of the project was estimated to be US$554 million. On March 4, 1999, theJapanese government announced it would provide a $431 million loan covering 75percent of the plant’s cost.39 The remaining 25 percent would be funded by TNB. Theplant is expected to be fully commissioned by October 2004.

Special loan terms were granted for both projects. These terms included aninterest rate of 0.75, a repayment term of 40 years and a grace period of 10 years,commencing not when the loan was awarded but when power plants werecommissioned, thereby providing an additional four years of relief. These termsyielded a grant element of 80 percent for the Severnaya plant and 81 percent for thePort Dickson plant. In relation to financial support that renewable energy technologieshave received, these two loans were very large. The subsidized loan for the Port

new plant is also expected to minimize CO2 emission, which is considered as one of the factors of globalwarming. The total amount of CO2 emission will be approximately 1 million ton per year, and this willbe less than half of those emitted from the oil-fired thermal power plant of the same generation capacity,estimated to be approximately 2.4 million tons.39 Japan Bank for International Cooperation, “Resumption of ODA Loan to Malaysia after Five Years ofInterval at the Largest Scale” Press Release, March 4, 1999 available at URL http://www.jbic.go.jp/english/release/oecf/1999/0304-e.php.

Table 6. Japan Concessional Loans for Fossil Fuel Power Plants with Environmental Benefits

RecipientLoan ($US

millions)Interest

RateLoan term/

Grace periodGrant

ElementTying Status Project Title Size

Contract Winner

Completion Date

AZERBAIJAN $266.4 0.75* 40/10* 80 Untied Severnaya CCGT* 400 MW MHI 2004

MALAYSIA $431.0 0.75* 40/10* 81 Untied Port Dickson CCGT 750 MW MHI 2003

* This project also had a gas pipeline associated with it that received an additional $53 million in funding from JBIC.*Preferential interest rate for special environmental projects provided by JBIC.CCGT = combined-cycle gas turbineMHI = Mitsubishi Heavy Industries

Sources: Creditor Reporting System, OECD, JBIC Press Releases, 1998 and 1999 and "Azerbaijan Ratifies Credit Agreement with Japan," Interfax News Agency, December 1, 1999 and "Project Round Up; Recent Power Plant Contract Awards," Modern Power Systems, June 30, 2000.

DRAFT July 30, 2003

30

Dickson power plant was equivalent to the total amount of aid (tied and untied) that alldonors provided for wind farm development between 1988 and 2001.

These extremely generous terms were justified by the Japanese government onenvironmental grounds. By switching to gas and using CCGT technology, JBICclaimed the new Severnaya plant would eliminate SO2 emissions, cut NOx emissionsin half, and discharge only half the amount of CO2 that a thermal plant of the same sizewould produce. Similar environmental benefits have been forecast for the Port Dicksonplant. Compared to the existing generation plant, JBIC claimed that this project wouldreduce emissions of NOx and SOx per unit of generation by almost 100%, and CO2 byapproximately 50%. JBIC has included both projects on its list of “anti-global warningprojects.”40

Although the projects were officially notified as being untied, the primaryequipment contracts for the plants were both awarded to Mitsubishi Heavy Industries(MHI). Azerenergy, the Azerbaijan state power company, awarded the contract toMitsui and its primary equipment supplier, MHI, in June 2000. In the case of the PortDickson plant, Malaysia’s state-owned utility, Tenaga Nasional Berhad, awarded thecontract to MHI in October 2001.41

The projects raise several policy questions about untied aid. Were the specialloan terms justified on developmental grounds? Were they justified on environmentalgrounds? Concerning competition, were the bids awarded fairly? In other words, didthe Port Dickson and Severnaya plants represent projects with valuable environmentalbenefits that just happened to be won by the donor’s national firms? Or alternatively,did Japan find––by dressing the projects up with environmental justifications and theappearance of untied notifications––a new way to land large contracts for its nationalexporters?

Both projects are problematic on developmental grounds. Highly subsidizedloan terms are particularly hard to justify in the case of the Port Dickson plant.Malaysia is an upper-middle-income country that is quite capable of financing largeinfrastructure projects on commercial terms.42 The project was also located in anindustrial zone with large industrial refineries nearby that have the ability to pay the fullcost of electricity. The case for special loan terms is somewhat stronger in theAzerbaijan, since this country is a low income country, with a gross national income of$745 or less. However, depending on the project’s customer base, it may have been 40 See Japan Bank for International Cooperation, “List of Anti-Global Warming Projects, (FY1998-2001)” at URL http://www.jbic.go.jp/english/environ/support/overseas/warming.php.41 The order for the project was placed with MHI on a full turnkey basis. The project consists of 2Mitsubishi M701F gas turbines, 1 steam turbine and 2 exhaust heat recovery boilers with a total output of750MW, all of which are designed and manufactured by MHI “Malaysian Port Dickson 750MW CCorder received,” MHI POWER, Vol. 3, January 23, 2002, available at URL http://www.mhi.co.jp/ power/e_power/magazine/vol_03.html.42 An upper-middle-income economy is classified by the World Bank as having a gross national income(GNI) per capita between $2,976 and $9,205. Information on the World Bank’s system for classifyingeconomies is available at URL http://www.worldbank.org/data/countryclass/countryclass.html.

DRAFT July 30, 2003

31

able to attract commercial financing. Because projects were officially notified to theOECD as untied, they did not face a commercial viability test that would haveexamined whether the plant could have been financed on commercial terms. There is astrong possibility that under such scrutiny, both projects would have been found to becommercially viable and therefore ineligible for subsidized rates.

A more challenging question is whether the special loan terms were necessaryto induce Azerbaijan and Malaysia to purchase the more efficient gas turbines. If bothcountries were limited to commercial financing, would they have made the samechoice? They may have chosen a different technology or simply forgone theinvestment, keeping the older, smaller, and more polluting plants in operation.Additional information is needed to make this assessment. Suffice it to say that gasturbine technology is now a well-established technology and in many applicationscombined cycle technology is the least costly option. This lends weight to thepossibility that untied aid dressed up with environmental rationales is being used up tosupport unwarranted subsidies that benefit national exporters. The US has beenparticularly critical of Japanese ‘untied aid,’ suggesting that it is de facto tied, explicitlyciting the Severnaya power project.43

US Proposal to Regulate Untied Aid

Proposals have been made to close the loophole that untied aid appears topresent in trade finance rules. In 2000, the United States submitted a proposal to theOECD that called for subjecting untied aid to rules similar to those that govern tied aidas set by the Helsinki Package, including country eligibility, project eligibility,minimum concessionality, and transparency. This would bar higher income countriesthat are ineligible for 17 to 20 year World Bank loans from receiving untied aid. Itwould also mean that projects found to be commercially viable under the existing tiedaid ex ante guidance, case law, and project-by-project consultation would be ineligiblefor untied aid financing. Tied aid eligibility rules do not apply to the LLDCs andtherefore would also not apply to untied aid by this proposal.44

43 The 2002 National Export Strategy has the following to say: “Of great concern is the likelihood thatJapan is using united aid credits to distort trade and circumvent the tied aid rules. While Japan’s untiedaid dropped from $12 billion during the 1993-1997 to $4 billion in 2000, much of this aid appears to bede facto tied. In one well-documented case (the Severnaya gas-fired power plant in Azerbaijan), aJapanese consortium was awarded the contract after a Japanese/U.S. bid was disqualified on technicalgrounds based on criteria not present during the pre-qualification process and despite the bid with U.S.equipment from the world-class supplier of such equipment being 10 percent lower in price. Pressreports later revealed that Japanese officials actively lobbied for the Japanese bidder even though Japanhad provided untied aid. Discussion of this bidding process in the OECD later concluded that this projectwas de facto tied. Trade Promotion Coordinating Committee, The 2002 National Export Strategy, USDepartment of Commerce, Washington DC, 2002, p. 7.44 Personnel communication with officials at US Department of Treasury, Washington, DC, March 5,2003.

DRAFT July 30, 2003

32

Again, the US proposal, like many of its other initiatives in the OECD, isoriented toward eliminating competitive trade distortions created by officialgovernment financing. The motivation is not to improve the environment. However,the general application of Helsinki rules, particularly the commercial viability test,could have positive environmental implications. This would occur if these testssucceeded in weeding out subsidies being offered for commercially viable projects.The primary benefit would be in subsidy control. If Helsinki-type rules were applied tountied aid, buyers would be forced to face the full financial cost of power generationand other projects in domestic investment decisions. As has been the case for tied aid,it could also encourage donors to redirect aid toward projects whose benefits are notfully captured through financial analysis due to the existence of externalities. If this isthe case, the new rules could have the benefit of reducing the flow of unnecessarysubsidies and possibly free up aid funds to be applied to higher priority developmentalneeds, including environmental sustainability.45

45 As of this writing, the issue remains before the OECD Export Credit Participants.

DRAFT July 30, 2003

33

VI. Targeting Environmental Technology Financial Assistance

There is significant variation in the export subsidy programs that countries havemade available to support environmental technologies that conform to existinginternational trade finance rules. Some countries have active programs that meet therules but still provide targeted subsidies. These programs include financial support forexporters of environmentally-related technologies. As illustrated in Table 6, the UnitedStates generally does not provide export subsidies for capital goods, offering littlebeyond standard export credits. Japan has the widest range of instruments available,including export credits, tied aid, and untied aid, as well as grants that are not reportedas ODA. European countries fall in the middle, providing mixed credits and tied aidcredits for environmentally-related capital goods exports.

This section explores the programs that countries have devised to offer exportassistance within the confines of the Helsinki Package and other finance disciplines.One such program is the Japanese Green Aid Plan, which has been operating since1992 with the aim of improving environmental conditions in China and elsewhere inAsia. The other program discussed here is the Danish Mixed Credits program, whichprovides export subsidies for wind turbines and other technologies with environmentalbenefits. While both conform to international trade finance disciplines they offerdifferent types of financing and different levels of concessionality. Also discussedbelow is the US stance on tied aid. The US has staked out a role as the enforcer of theArrangement. Despite pressure from US firms and interest groups seeking favorable

Table 7. Orientation of Governments Toward Financing Capital Goods

Institution Export Credit Agency

ECA + ODA (mixed credits) non ODA

Procurement Policy Tied Tied Tied UntiedHighly

Concessional Tied Aid

United States √ √ * √ √

EU-15 √ √ √

Japan √ √ √ √

Note: ECA = Export Credit Agency; ODA = Official Development Assistance.*A small piloit mixed credit program was initiated by the United States in 2002.Source: Author

ODA

DRAFT July 30, 2003

34

treatment for values that are underserved by the market, the US government hasresisted initiating tied aid offers, lest it cause others to do the same. A consequence oftaking the high ground is that the US makes little contribution toward making lowercost funds available to support investment of more environmentally beneficialtechnologies in the developing world. The recent establishment of the Mixed CreditPilot Program suggests some shift in the US position, but the program would have to belarger in scope than currently being contemplated to even match the level of supportthat Denmark is now providing.

Japan’s Green Aid Plan

Japan’s Green Aid Plan is among the largest bilateral program’s offeringtargeted subsidies for environmentally-related capital goods. This initiative waslaunched in 1992 by the Ministry of Economy, Trade and Industry (METI), agovernment organization that concentrates on the diffusion of clean coal and industrialenergy efficiency technologies.46 This diffusion is accomplished by providing funds todemonstrate and test technologies in the power, steel, cement and chemical industries.Geographically, the program has been concentrated in Asia. Approximately half of theprojects supported through the program have been funded in China with the balance inthe Philippines, Thailand, Malaysia, Vietnam, Indonesia, India and Pakistan.

All the projects are provided on a 100 percent grant basis with no repaymentobligation. As a result, the program conforms to Helsinki rules since all projectsreceive financing above the stipulated 80 percent grant element. The funds cover thecost of feasibility and engineering design, imported and locally procured equipment,and other project costs. In some cases, they also cover a portion of the operating costsof the project during the demonstration period. Individual projects range in value from$1.7 million to over $30 million. The total budget for all types of technologies in alltargeted countries was over $900 million between 1992 and 2000 (ODA and non ODAfunding). China was granted most of these funds, receiving funds for 30 out of 48projects with a budget cost of over $350 million (see Appendix TK for a list of projectsdemonstrated in China).

An important rationale for the program was to develop less costly technologiesthat would have a greater chance of wide-spread dissemination in China and elsewherein Asia. Given the capital constraints and economic growth priorities amongdeveloping countries, which favor productive investments over environmentalspending, the program’s planners realized that technologies need to be made more costeffective to achieve wide-spread dissemination. Japan's largest manufacturing andengineering companies are among the companies selected to receive grants todemonstrate their technology. These companies include Mitsubishi Heavy Industries,Kawasaki Heavy Industries, Hitachi-Babcock, Ltd., Nippon Steel Corp., Kobe Steel,

46 For a discussion of the history and motivation behind the Green Aid Plan see Peter C. Evans, “Japan’sGreen Aid Plan: The Limits of State-Led Technology Transfer,” Asian Survey, vol. 39, no. 6(November/December) 1999, pp. 825-844.

DRAFT July 30, 2003

35

Ishikawajima-Harima Industries, Ebara Corp., Chiyoda Chemical Engineering, andToyo Engineering.

To pay for the research, equipment and technical assistance associated with theprogram, METI combines funds from Japan’s ODA budget (representingapproximately 20 percent of program funds) with non-ODA funds (80 percent ofprogram funds). The non-ODA funds are paid for through two special accountsestablished after the oil shocks of the 1970s. The Special Account for Coal andPetroleum Alternatives is based on a tax on the import duties on crude and fuel oil. TheElectric Power Resources Promotion Account derives its revenue from a tax onelectricity. Under Japan’s Public Finance Law, special accounts are treated separatelyfrom the national budgeting system’s general account and enjoy greater administrativeflexibility. These accounts underwrite the majority of Japan’s $4 billion annualdomestic energy R&D program (research and development for nuclear energytechnology, and other alternatives to oil including hydropower, geothermal, solar, windand fuel cells). Green Aid Plan serves to divert a portion of these domestic R&D fundsto international activities.

The results of the Green Aid Plan are mixed. While the program has raisedawareness about and expanded technical knowledge among cooperating firms andgovernment officials it has yet to achieve more wide-spread diffusion of moreinefficient industrial technologies or cleaner coal technologies. As of January 2000 (8years into the program) there was little evidence of technology diffusion. For example,none of the simplified clean coal technologies demonstrated in China had beenpurchased by a Chinese enterprise outside the Green Aid Plan program. A detailedanalysis of the program reached the following conclusion:

The cooperative nature of feasibility studies led to technologymodifications that reduced costs and simplified operation, but Chineseenterprise staff and local government officials still felt that costs weretoo high and the equipment was too complex. Even with therelationships fostered between Japanese government and industrialorganizations and Chinese planning organizations and researchinstitutes, the program administrators still did not fully consider thebroader economic and operational interests of potential technologyadopters. At the end of the 1990s, the program’s large commitment offinancial, technical, and human resources still had not lead to theprogram’s goal of technology diffusion.47

Japanese government officials maintain that it is necessary to take a long-term view thatconditions favorable to the adoption of clean coal and other more environmentallyfriendly technologies will eventually emerge in time. Officials hold the view thatdiffusion cannot be achieved until demonstration projects can be set up and they are

47 Stephanie B. Ohshita, Japan’s Cleaner Coal Technology Transfer to China: The Implementation ofMITI’s Green Aid Plan, Doctoral Dissertation, Department of Civil and Environmental Engineering,Stanford University, November 2002, p. 289.

DRAFT July 30, 2003

36

committed to allocating the resources necessary to making this possible. In their view,the next phase of the Green Aid Plan will need to focus on demonstrating thecommercial viability of clean coal and other technologies and encourage the Chinesegovernment to provide enterprises greater incentives to adopt these technologies.48

Denmark’s Mixed Credit Program

Most European governments provide financing support for environmentaltechnologies through the application of mixed credits. These programs have a muchlower concessionality level than grant programs like Japan’s Green Aid Plan, usuallycarrying a grant element of 35 percent compared to a grant element of 100 percent.This lower concessionality allows subsidy funds to be stretched over a larger number ofprojects, but provides less financial relief to buyers.

The Danish government’s mixed credit program offers an example of how theseprograms work. The Danish program was introduced in 1993 to provide aconcessional export program for Danish manufacturers that complied with the financerules set out under the OECD Export Credit Arrangement.49 The program replaced theDanish States Loan Program as a state financial instrument in eligible countries. Theprogram mixes both tied and united with export credits having a maturity of 8 to 15years. The program is limited to creditworthy developing countries. To comply withHelsinki rules, the subsidy element is adjusted to reach a grant element of a least 35percent. By the end of 2000, the over 100 projects had been awarded financing with atotal contract amount of Danish Krone (DKK) 3,886 million (US $475 million).

The mixed credit program involves the cooperation of a number of differentparties. The buyer obtains a commercial loan from a Danish bank to finance theproject. The banks provide a loan to the buyer to cover payment of the export and tocover 5 percent of the risk that the buyer may fail to pay back the loan. The remainderof the financial costs is absorbed by the Danish government through grants from DanishInternational Development Assistance (Danida) and export credit from Export CreditFund (EKF), Denmark’s export credit agency. Subsidies provided by Danida serve tobuy down the interest (and risk exposure fees) on loans (typically 10 years) to zero,leaving the buyer with only the obligation to repay the loan principle. Guaranteescovering 95 percent of the repayment risk are issued by EKF. Repayment guaranteesare sought from the buyer’s country through entities such as the People’s ConstructionBank of China and Industrial Credit and Investment Corp of India. However, ultimaterepayment risk is born by the Danish government. Any potential losses to EKF causedby default are covered through a reserve fund paid out of Denmark’s foreign assistancebudget.

48 Stephanie B. Ohshita and Leonard Ortolano, “From Demonstration to Diffussion: The Gap in Japan’sEnvironmental Technology Cooperation with China,” International Journal of Technology Transfer andCommercialisation, vol. 2, no. 4, p. 360.49 Danish International Development Assistance, Evaluation Report: Mixed Credit Programme, No.2002/4, November 28, 2002 available at URLhttp://www.um.dk/publikationer/danida/evalueringer/eval2002/mix_cred_programme/index.asp.

DRAFT July 30, 2003

37

In 1994, changes were made to render the program more attractive in a lowinterest rate environment that has prevailed since the early 1990s. To this end, anupfront grant was provided, which reduces the outstanding loan amount and increasesthe concessionality of the project. This grant amount was adjusted to bring the subsidyto the minimum concessionality levels required by Helsinki rules. The mixed creditprogram is subject to procurement restrictions. Prior to 1998, the projects required 70percent content from Danish manufacturers. Thereafter, tying requirements werereduced to 50 percent in order to comply with untying initiatives in the OECD and togrant project sponsors greater procurement flexibility.

Approximately one-fifth of the mixed credits issued by the Danish governmenthave supported wind power technologies. Table 8 provides a list of the wind powerprojects that have been supported through the mixed credit program from 1994 through2003. Subsidized support for wind turbines between 1994 and the first quarter of 2003amounted to just under $50 million. Commercial bank contributed loans worth $134million secured by guarantees issued by EKF. These funds have supported 15 windfarms with a total installed capacity of 160.4 megawatts.50 The projects have beenlocated in China, Costa Rica, Egypt, India and, most recently, the Philippines. Most ofthe successfully concluded projects have been financed on 10-year repayment terms.51

50 This is roughly one seventh of the total installed 1,150 MW capacity of the Malaysia Port Dickson andAzerbaijan Severnaya power plants financed by Japan at highly concessional rates. Total electricityoutput of the projects would also be less since wind turbines typically have a capacity factor of 30-50%depending on wind conditions compared to a capacity factor for CCGT plants as high as 80 percent.51 It should be noted that a number of approved projects were subsequently cancelled. The cancelledprojects include NEG Micon’s 4.2 MW wind farm in Dongfang China as well as three Vestas projects inIndia including Beltings wind farm (2 MW); Excel wind farm (2 MW) and Fenner wind farm (4 MW).

Table 8. Danish ODA Grants and Mixed Credits for Wind Projects, 1994-2003

Year Country Project name MW Supplier

Commercial Loan ($US

millions)

Danida Subsidy

($US millions)

Interest Rate

Repayment Period

1995 China Dabancheng Xinjiang Wind No. 2 6.0 Vestas A/S 5.3 1.7 0.75 10 yrs.

1995 China Dabancheng Xinjiang Wind Power 7.2 Bonus Energy A/S 6.1 1.9 0 10 yrs.

1995 China Dalian Hengshan Wind Power. Liaoning 5.0 NEG Micon A/S 3.8 1.2 0 10 yrs.

1995 China Donggang Wind Farm. Liaoning 5.0 NEG Micon A/S 4.1 1.3 0 10 yrs.

1995 China Nan'ao Wind Power Plant. Guangdong 4.2 Nordex A/S 4.0 1.3 0 10 yrs.

1995 China Xilin Windfarm No. 1. Inner Mongolia 5.4 NEG Micon A/S 4.7 1.5 0 10 yrs.

1996 India Perengudi Wind Farm 9.0 Vestas A/S 11.6 5.9 0 10 yrs.

1996 China Zhangbei Wind Power. Hebei 2.5 Vestas A/S 3.0 1.0 0 10 yrs.

1997 Egypt Wind Farm Project Zafarana Comp II 11.4 Vestas Int. A/S 23.1 9.3 0 10 yrs.

1997 Costa Rica Tejona Wind Farm Project 6.4 NEG Micon A/S 5.9 3.2 0 7 yrs.

1998 Costa Rica Tierras Morenas Wind Farm 24.0 NEG Micon A/S 21.9 9.2 0 10 yrs.

1999 China Jilin Tongyu Wind Farm 22.8 Nordex A/S 12.1 5.7 0 10 yrs.

2001 India 20 Century 10 MW Wind 10.0 NEG Micon A/S 3.6 2.1 0 8 yrs.

2001 China Shanwei Wind Farm. Guangdong 16.5 Vestas A/S 9.7 3.5 0 10 yrs.

2003 Philippines Ilocos Norte Wind Power Project 25.0 pending 14.5 0.5 n.a. n.a.

160.4 133.5 49.4

n.a. = not available.

Source: Data provided by DANIDA officials and trade press.

DRAFT July 30, 2003

38

The projects supported by Denmark’s mixed credit program represent arelatively small number of the total number of wind turbines that are exported fromDenmark. During the 1990s, Danish wind turbine manufacturers became global leadersin the field of wind turbine technology. By 1999, they had achieved a global marketshare of approximately 50%—close to 65% if foreign joint ventures (associatedcompanies) are included.52 However, it is unlikely that the mixed credit program playsany significant role in the advancement of wind turbine technology. The largest marketsfor wind turbines are Britain, Denmark, Germany, Spain and the United States, and it isthese markets that have been driving technological innovation. The result of the mixedcredit program seems to have been to reduce the financing cost of wind turbinemachines to make them more affordable to buyers in middle-income developingcountries. Because the program only targets credit-worthy countries, highly indebtedcountries are not eligible. In addition, the Danish government has not articulated agoal of providing funds to simplify or otherwise adapt the technology to conditions indeveloping countries. Danish companies have established joint ventures with localcompanies in India and in China, which may lead to the production of lower costturbines in the future.

United States: Sticks but few Carrots

The United States has few programs of positive financial assistance directed atenvironmental technologies. At one time, the US was actively engaged in providingsubsidies for capital goods exports. During the 1950s and through much of the 1960s,the US provided extensive below-market support for capital goods exports. In oneinstance, USAID even provided subsidized loans for two nuclear power plants in India.The US Export Import Bank also played a quasi developmental role by granting specialloan terms to politically important countries.53 However, below market financing forcapital goods was largely eliminated in the 1970s. The reorientation began with theNew Directions policy, which refocused assistance efforts toward basic human needsand away from financing capital goods.54 The reorientation left the US without anysignificant means of providing export financing for capital goods on terms morefavorable than offered by the US Ex-Im Bank.

Attempts were made in the US during the 1990s to establish more favorablefinancing programs for technologies with environmental benefits, but they never gainedtraction. Several programs were established but were never supported with meaningfulbudget allocations. These programs included the U.S. Technology for International 52 Danish Wind Industry Association, “Danish Wind Energy in 1999: Danish Wind TurbineManufacturing Sextuples in Five Years,” News 2000 available at URL: http://www.windpower.org/en/news/stat1999.htm.53 For a history of the tension between the use of the US Export Import Bank for political anddevelopmental objectives and prudent commercial lending practices see William H. Becker and WilliamM. McClenahan, Jr., The Market, the State, and the Export-Import Bank of the United States, 1934-2000(New York: Cambridge University Press, 2003), pp. 77-160.54 Vernon W. Ruttan, United States Development Assistance Policy: The Domestic Politics of ForeignEconomic Aid (Baltimore, MD: The John Hopkins University Press, 1996), pp. 94-114.

DRAFT July 30, 2003

39

Environmental Solutions (U.S. TIES), the Committee on Renewable Energy Commerceand Trade (CORECT), and the Committee on Energy Efficiency Commerce and Trade(COEECT). Proposals were also put forward to reallocate funds from domestic tointernational activities. One example was the US Department of Energy’s proposal todeploy integrated gasification combined cycle (IGCC)55 technology in China. DOEproposed that $50 million be allocated to offset part of the cost and financial riskassociated with demonstrating a $400 IGCC project in China. DOE argued that publicsector resources were justified to facilitate the commercialization of the technology.Congress rejected this proposal.56

As noted above, one reason for the US reluctance to establish a mixed creditprogram to support environmental technologies or other capital goods exports arosefrom the role it had staked out as initiator and defender of the tied aid disciplines. Thedriving concern of US policy was leveling the international playing field for UScompanies. Therefore, the US has been more concerned with finding levers to enforcecompliance than with offering carrots in the form of its own mixed credit programs.After the Helsinki rules were adopted, the US government focused on enforcing the tiedaid rules through an aggressive policy of matching both actual and potential foreign tiedaid offers. In 1994, Congress added this new authority to the “War Chest” – which wascreated in 1986 to create leverage in OECD negotiations – and added $171 million to itwhile renaming it the Tied Aid Capital Projects Fund. Like original War Chest fundsappropriated by Congress, the purpose of the fund was to defend the tied aiddisciplines.57

Environmental technologies have been among the capital goods projects that theUS has matched through the Tied Aid Capital Projects Fund. These funds were drawnon to counter mixed credit financing offered by the Netherlands for three wind turbinefarms in China.58 This made it possible for Zond, a US wind project developer andturbine manufacturer, to win the $15 million order.59 It was also used in Ghana tocounter tied aid offers from Spain for solar lighting equipment. The matching offermade it possible for the US company Solar Outdoor Lighting to win a $5.4 millioncontract for solar street lighting. 55 IGCC is an advanced coal based power generating technology that has the ability to achieve betterenergy efficiencies than conventional pulverized coal-fired generation technology, as well as eliminatemost SO2 and NOx emissions.56 The House Appropriations Committee report state: “The Committee does not support the constructionof ‘show-case’ facilities in international markets as proposed by the Administration … Providing asubsidy to one more gasification project will not make it commercial even if it makes it ‘welcome.’” U.S.House of Representatives, “US Department of the Interior and Related Agencies Appropriations Bill,1995,” Report 103-551, June 17, 1994.57 There have been long-standing disagreements between the US Treasury Department and the US ExportImport Bank over how liberally these funds should be used to support US exporters. See GovernmentAccounting Office, Export Promotion: Export-Import Bank and Treasury Differ in Their Approaches toUsing Tied Aid, GAO-02-741 US General Accounting Office, Washington DC, June 2002.58 Three projects: Huitengxile (Inner Mongolia); Hegnshang Wind Farm, Liaoning and the Nan-Ao WindFarm in Guangdong59 Zond was purchased by Enron Wind Systems and then later by General Electric after the collapse ofEnron.

DRAFT July 30, 2003

40

The tough approach adopted by the US has been upheld as a success. The USTreasury Department is quick to point out the economic benefits of the US strategy.According to its estimates, the US initiatives to reduce tied aid succeeded in reducingtied aid offers from a high of $9.5 billion in 1991 to just $2.5 billion in 2002. In thefirst five years after Helsinki (1993 to 1997), cumulative tied aid offers were reducedby $50 billion. The benefit to the US economy has been estimated by Treasury to be anadditional $1 billion of US exports a year by permitting US companies to compete forcontracts without facing tied aid subsidies.60

One recent development suggests a potential softening in the overriding concernwith subsidy control. In 2002, the Trade Promotion Coordinating Committee61

proposed a pilot program designed to permit USAID and Ex-Im Bank to undertakemixed credits. Not unlike the Danish program, the mixed credits would consist of aminimum of 35 percent grant from USAID with the balance financed on standardexport credit terms by Ex-Im Bank. In line with Helsinki rules, the program projectswould be restricted to developmentally sound capital projects considered to becommercially non-viable.62 In addition to certain environmental control and renewableenergy technology, eligible projects could include: rural road and bridge construction,health infrastructure, waste water treatment, potable water projects, medical equipment,low-income housing, information technology, and education infrastructure. Countrieseligible for the program would include middle-income countries open to USAID andEx-Im Bank programs.63

How effective this program will be in channeling funds to worthwhile projectsremains to be seen. One drawback is that the program does not represent new money.Whatever funds are provided must come from existing USAID program funds. Anotherproblem is the level of interagency coordination that is required. USAID and Ex-ImBank have limited experience in cooperating on projects. Even more significantly froman environmental standpoint, key countries such as China, India and Indonesia aremissing from the present list of eligible countries.

Despite the limitations of the proposed program, it appears to signal a shift–albeit a small one– in US export finance policy. This shift appears to be the result ofconfidence in the durability of the Helsinki rules and the fact that strictures against

60 The 2002 National Export Strategy, p. 7.61 The Trade Promotion Coordinating Committee (TPCC) was created by executive order by PresidentBush in 1992 and legislated by Congress in 1993. The committee is headed by the Secretary ofCommerce and charged with coordinating all federal agencies’ trade promotion and trade financeprograms through the annual National Export Strategy.62 Potential energy and environmental projects would be consistent with those listed in Table 5 above.63 Eligible lower middle income countries, which require a minimum of 35 percent grant element,include: Albania, Belize, Colombia, Dominican Republic, Dominica, Egypt, El Salvador, Guatemala,Jamaica, Jordan, Kazakhstan, Macedonia, Morocco, Namibia, Paraguay, Peru, Philippines, Sri Lanka,and St. Vincent. Eligible upper middle income countries, which require a minimum of 80 percent grantelement, include Botswana, Brazil, Croatia, Lebanon, Mexico, Panama, South Africa (lower middleincome country but requires 80% concessionality), St. Lucia, Trinidad, and Turkey.

DRAFT July 30, 2003

41

commercially driven tied aid have gained widespread acceptance among OECDcountries. Whatever the underlying motivation, the nascent mixed credit programsuggests a move by the US to offer some carrots instead of only sticks.

DRAFT July 30, 2003

42

Appendix I: Aggregate Data

I-1. Total Energy Related ODA by Year, 1988-2001

I-2. Total Energy Related ODA by Sector, 1988-2001

I-3. Percent Tied and Untied Energy ODA by Selected Sectors

DRAFT July 30, 2003

43

Fossil40%

Nuclear2%

Renewable4%

Elec Trans/Dist30%

Hydro24%

I- II. Total Energy Related ODA by Sector, 1988-2001

$16.1 billion$10.1 billion

$12.6 billion$1.6 billion

$1 billion

Source: CRS Database and author’s calculations.

I-I. Total Energy Related ODA by Year, 1988 - 2001

Year Total Tied Untied Total Amount

1988 2,149,886 960,168 3,110,054

1989 1,896,168 687,754 2,583,922

1990 1,871,732 523,634 2,395,365

1991 2,861,177 1,533,425 4,394,602

1992 1,483,233 1,134,354 2,617,588

1993 1,263,565 2,007,852 3,271,417

1994 934,326 2,588,870 3,523,196

1995 1,082,707 4,166,731 5,249,438

1996 707,500 2,280,231 2,987,731

1997 574,989 3,159,588 3,734,577

1998 549,570 1,917,066 2,466,635

1999 322,281 1,766,019 2,088,299

2000 141,858 1,299,543 1,441,401

2001 218,752 1,378,121 1,596,874

16,057,743 25,403,356 41,461,099

Source: OECD, Creditor Reporting System.

DRAFT July 30, 2003

44

I-3 Percent Tied and United Energy ODA by Selected Sectors(US$ thousands)

Fossil (Coal, Oil and Gas)

Year Tied %Tied Untied %Untied Total Energy ODA1988 1,081,250 35% 521,584 17% 3,110,054 1989 269,405 10% 73,355 3% 2,583,922 1990 682,614 28% 62,844 3% 2,395,365 1991 1,306,153 30% 573,377 13% 4,394,602 1992 1,000,988 38% 696,441 27% 2,617,588 1993 417,052 13% 428,764 13% 3,271,417 1994 290,897 8% 1,247,167 35% 3,523,196 1995 308,026 6% 2,483,971 47% 5,249,438 1996 88,533 3% 470,955 16% 2,987,731 1997 61,016 2% 1,364,931 37% 3,734,577 1998 59,542 2% 888,645 36% 2,466,635 1999 111,152 5% 865,296 41% 2,088,299 2000 14,343 1% 538,497 37% 1,441,401 2001 15,158 1% 218,894 14% 1,596,874

Total 5,706,130 14% 10,434,722 25% 41,461,099

Hydroelectric

Year Tied %Tied Untied %Untied Total Energy ODA

1988 314,777 10% 192,134 6% 3,110,054 1989 735,402 28% 318,174 12% 2,583,922 1990 335,719 14% 147,254 6% 2,395,365 1991 576,389 13% 547,624 12% 4,394,602 1992 119,072 5% 267,108 10% 2,617,588 1993 196,691 6% 502,993 15% 3,271,417 1994 321,482 9% 475,735 14% 3,523,196 1995 447,001 9% 936,347 18% 5,249,438 1996 134,529 5% 1,088,541 36% 2,987,731 1997 96,786 3% 658,397 18% 3,734,577 1998 246,620 10% 434,877 18% 2,466,635 1999 93,076 4% 145,691 7% 2,088,299 2000 27,260 2% 248,274 17% 1,441,401 2001 88,141 6% 437,288 27% 1,596,874

Total 3,732,945 9% 6,400,435 15% 41,461,099

Renewables (Wind, Geothermal, Solar, Biomass)

Year Tied %Tied Untied %Untied Total Energy ODA

1988 11,540 0% 733 0% 3,110,054 1989 3,967 0% 45,211 2% 2,583,922 1990 64,218 3% 23,187 1% 2,395,365 1991 14,404 0% 2,361 0% 4,394,602 1992 71,869 3% 15,182 1% 2,617,588 1993 1,646 0% 33,454 1% 3,271,417 1994 45,742 1% 239,738 7% 3,523,196 1995 24,320 0% 27,268 1% 5,249,438 1996 144,456 5% 21,411 1% 2,987,731 1997 58,471 2% 202,672 5% 3,734,577 1998 52,912 2% 30,530 1% 2,466,635 1999 68,598 3% 86,069 4% 2,088,299 2000 13,350 1% 62,124 4% 1,441,401 2001 87,249 5% 121,074 8% 1,596,874

Total 662,742 2% 911,013 2% 41,461,099

Source: OECD, Creditor Reporting System.

DRAFT July 30, 2003

45

Appendix II: Sector and Project Data

II-1. ODA Financed Coal Projects, 1988-2001

II-2. ODA Financed Gas Projects, 1988-2001

II-3. ODA Financed Hydro Electric Power Projects, 1988-2001

II-4. ODA Financed Wind Projects, 1988-2001

II-5. ODA Financed Solar Power Projects, 1988-2001

II-6. ODA Financed Oil Projects by Year, 1988-2001

II-7. ODA Financed Nuclear Projects by Year, 1988-2001

II-8. Japanese Concessional Loans for Fossil Fuel Power Plants, 1988-2001

II-9. Japan Green Aid Plan Projects in China

DRAFT July 30, 2003

46

II-1. ODA Financed Coal Projects, 1988-2001(US$ thousands)

By Donor

Donor Amount Amount TiedAmount

UntiedTechnical

CooperationGrant

Element

Japan 5,847,511 687,803 4,984,797 - 67 Germany 383,483 213,897 167,597 8,034 78 United Kingdom 309,300 90,451 - 225,659 100 France 128,901 128,901 - 756 79 Italy 110,001 101,089 8,912 - 83 Canada 15,812 12,455 3,357 - 95 Finland 6,503 6,503 - - 100 Netherlands 1,151 - 1,151 1,088 100 Australia 823 823 - 708 100 United States 564 - - 562 100 Denmark 242 121 121 - 100 Belgium 16 - - 16 100

6,804,309 1,242,042 5,165,936 236,822 92

By Recipient

Recipient Amount Amount TiedAmount

UntiedTechnical

CooperationGrant

Element

CHINA 2,781,651 489,155 2,289,433 10,112 78 INDIA 2,318,571 733,146 1,195,183 216,418 77 VIET NAM 652,631 - 652,018 612 76 INDONESIA 327,965 - 327,949 16 69 MALAYSIA 252,297 - 252,297 - 52 GHANA 129,596 - 129,596 - 61 MONGOLIA 116,517 3,076 113,441 - 81 PHILIPPINES 109,476 363 109,113 363 83 BOSNIA-HERZEGOVINA 31,398 1,940 29,458 - 80 BOLIVIA 18,133 - 18,133 6,044 81 OTHER 66,074 14,362 49,315 3,256 95

6,804,309 1,242,042 5,165,936 236,822 76

By Year

Year Amount Amount TiedAmount

UntiedTechnical

Cooperation

1988 554,866 467,732 87,134 6,883 1989 12,398 12,398 - - 1990 555 433 121 312 1991 490,453 396,173 94,280 - 1992 628,228 104,518 307,822 216,778 1993 365,984 164,868 200,551 6,609 1994 586,394 56,524 353,455 2,131 1995 1,600,141 697 1,598,944 1,011 1996 227,153 21,731 205,423 - 1997 1,266,110 10,695 1,255,399 16 1998 686,310 3,669 680,331 2,467 1999 217,295 52 217,243 52 2000 8,673 116 8,481 - 2001 159,749 2,435 156,752 562

6,804,309 1,242,042 5,165,936 236,822

Source: OECD, Creditor Reporting System.

DRAFT July 30, 2003

47

II-2. ODA Financed Gas Projects, 1988-2001(US$ thousands)

By Donor

Donor Amount Amount TiedAmount

UntiedTechnical

Cooperation Grant Element

Japan 3,599,713 843,841 2,755,872 - 68 Germany 501,212 472,016 29,195 - 77 France 191,675 191,675 - - 61 Italy 93,813 89,441 4,372 7 81 United Kingdom 62,901 62,901 - - 100 Sweden 29,831 - 29,831 - 100 Belgium 16,539 16,539 - - 92 Canada 4,031 4,031 - 318 95 United States 1,329 - - 26 100 Austria 403 - - 202 100 Switzerland 171 171 - 171 100

4,501,617 1,680,615 2,819,271 724 88

By Recipient

Recipient Amount Amount TiedAmount

UntiedTechnical

Cooperation Grant Element

INDIA 1,426,696 1,022,409 404,287 - 61 MALAYSIA 929,704 - 929,704 - 79 VIET NAM 584,471 1,387 583,084 - 80 SYRIA 455,455 71,827 383,628 - 46 BANGLADESH 251,531 95,911 155,620 - 83 AZERBAIJAN 158,553 - 158,128 - 90 PAKISTAN 132,735 132,735 - - 53 SRI LANKA 123,906 - 123,906 - 63 THAILAND 91,585 91,585 - - 39 MOROCCO 88,571 51,275 37,296 7 86 OTHER 258,409 213,486 43,616 717 89

4,501,617 1,680,615 2,819,271 724 70

By Year

Year Amount Amount TiedAmount

UntiedTechnical

Cooperation

1988 263,682 231,973 31,708 171 1989 82,632 81,942 689 - 1990 492,589 465,835 26,754 - 1991 539,875 154,593 385,282 - 1992 614,612 517,660 96,952 - 1993 256,843 89,166 167,677 22 1994 510,863 16,949 493,914 - 1995 312,572 117,736 194,835 - 1996 124,309 - 123,906 202 1997 97,894 1,713 96,182 - 1998 159,788 1,659 158,128 303 1999 545,891 1,387 544,504 - 2000 500,041 - 498,738 - 2001 26 - - 26

4,501,617 1,680,615 2,819,271 724

Source: OECD, Creditor Reporting System.

DRAFT July 30, 2003

48

II-3. ODA Financed Hydro Electric Power Projects, 1988-2001(US$ thousands)

By Donor

Donor Amount Amount TiedAmount

UntiedTechnical

Cooperation Grant Element

Japan 6,279,463 989,619 5,289,843 - 70 Germany 1,115,348 449,012 660,996 26,826 86 France 801,740 800,462 - 7,250 74 Italy 534,016 491,300 42,712 106 82 Sweden 431,298 218,224 212,587 108,928 100 United Kingdom 219,377 137,489 4,701 73,540 100 Norway 201,223 182,011 19,211 40,853 99 Canada 151,525 114,805 6,360 34,705 98 Spain 149,102 139,923 8,544 - 76 Austria 141,842 137,683 324 2,405 93 Finland 78,459 77,056 1,402 21,808 100 Denmark 21,391 607 20,781 1,016 100 Switzerland 17,070 14,511 2,559 3,530 100 Belgium 6,611 2,269 - 118 100 Netherlands 4,690 1,074 3,616 3,663 100 United States 4,065 1,500 - 338 100 Australia 2,930 2,469 461 442 100 Portugal 625 325 - 325 100

10,160,775 3,760,341 6,274,099 325,854 93

By Recipient

Recipient Amount Amount TiedAmount

UntiedTechnical

Cooperation Grant Element

INDIA 2,126,303 1,087,020 971,653 143,924 83 CHINA 1,347,111 268,152 1,076,116 13,103 80 INDONESIA 689,898 115,703 570,659 5,298 75 VIET NAM 660,043 97,699 562,344 3,181 81 PAKISTAN 658,806 222,072 435,882 31,890 84 THAILAND 480,460 187,191 293,165 49 78 EGYPT 452,402 165,484 286,919 90 85 IRAN 416,766 55,342 361,424 - 55 NEPAL 406,889 116,068 288,075 39,651 95 PERU 327,220 8,545 317,384 649 90 OTHER 2,594,878 1,437,066 1,110,479 88,018 89

10,160,775 3,760,341 6,274,099 325,854 81

By Year

Year Amount Amount TiedAmount

UntiedTechnical

Cooperation

1988 506,911 314,777 192,134 2,839 1989 1,053,576 735,402 317,626 116,559 1990 482,973 335,719 147,078 7,822 1991 1,124,013 576,389 547,303 17,326 1992 386,180 119,072 216,170 56,762 1993 699,684 196,691 501,792 24,187 1994 797,217 321,482 454,919 27,428 1995 1,383,348 447,001 935,631 11,116 1996 1,223,070 134,529 1,086,835 29,880 1997 755,183 96,786 656,619 3,520 1998 681,497 246,620 428,358 6,310 1999 238,766 93,076 111,781 18,805 2000 275,534 27,260 244,004 651 2001 525,429 88,141 433,849 2,648 2002 27,395 27,395 - -

10,160,775 3,760,341 6,274,099 325,854

Source: OECD, Creditor Reporting System.

DRAFT July 30, 2003

49

II-4. ODA Financed Wind Projects, 1988-2001(US$ thousands)

By Donor

Donor Amount Amount TiedAmount

UntiedTechnical

Cooperation Grant Element

Germany 166,706 113,392 51,751 1,563 83Denmark 109,104 77,949 4,084 3,685 100Netherlands 65,223 63,503 1,090 1,258 100Japan 49,752 - 49,752 - 51Spain 26,272 25,494 476 - 76United States* 6,036 5,250 - 486 72United Kingdom 1,559 - - 1,489 100France 859 848 - 11 100Canada 718 85 633 - 100Belgium 326 - - 308 100Sweden 223 - 223 5 100Australia 5 5 - - 100Italy 130 130 100Austria 38 - 100

426,952 286,655 108,009 8,806

*Includes US Ex-Im Bank defensive matching in China ($5,250) in 1996.

By Recipient

Recipient Amount Amount TiedAmount

UntiedTechnical

Cooperation Grant Element

Egypt 117,680 96,086 - 1,015 96

India 112,738 60,958 51,780 1,921 98

China 101,256 96,501 - 475 81

Brazil 49,752 - 49,752 - 51

Costa Rica 12,358 12,335 23 - 100

Cape Verde 9,336 4,218 4,474 345 100

Morocco 6,225 5,930 - 295 97

Other 17,608 10,626 1,980 4,754 99

426,952 286,655 108,009 8,806 90

By Year

Year Amount Amount TiedAmount

UntiedTechnical

Cooperation

1988 827 827 - - 1989 1,238 215 1,023 - 1990 8,167 4,084 4,084 - 1991 5,518 - 1992 205 - 205 - 1993 622 231 - 605 1994 35,630 35,260 27 352 1995 14,024 7,797 282 1,254 1996 108,125 108,008 88 2,996 1997 88,307 22,223 49,752 312 1998 30,876 29,864 50 962 1999 98,155 45,881 52,275 259 2000 3,858 1,806 5 1,402 2001 31,401 30,459 218 663

426,952 286,655 108,009 8,806

Source: Creditor Reporting System.

DRAFT July 30, 2003

50

II-5. ODA Financed Solar Power Projects, 1988-2001(US$ thousands)

By Donor

Donor Amount Amount TiedAmount

UntiedTechnical

Cooperation Grant Element

Germany 124,755 577 119,664 6,918 99 Netherlands 31,260 26,775 3,613 4,894 100 Australia 26,942 20,265 6,677 5,056 100 Spain 21,554 13,557 1,166 - 97 Italy 15,999 15,944 - 13,661 100 France 2,259 2,259 - - 95 Switzerland 1,899 139 427 545 100 Sweden 1,661 - 1,661 - 100 Norway 1,072 1,007 65 - 100 Belgium 886 - 36 3 100 Denmark 746 125 354 172 100 Canada 579 579 - - 100 United Kingdom 495 - - 458 100 Austria 446 - - 104 100 Finland 335 123 212 249 100 United States 3 - - 3 100

230,890 81,348 133,876 32,063 99

By Recipient

Recipient Amount Amount TiedAmount

UntiedTechnical

Cooperation Grant Element

INDIA 114,560 4 114,474 2,475 94 CHINA 18,732 18,598 - 6,378 100 PHILIPPINES 16,695 13,967 2,191 57 100 INDONESIA 16,118 10,183 4,525 5,492 100 BOLIVIA 10,470 8,273 43 2,776 97 BURKINA FASO 10,213 9,373 839 1 87 MOROCCO 6,456 577 5,190 - 100 OTHER 37,645 20,375 6,614 14,884 99

230,890 81,348 133,876 32,063 97

By Year

Year Amount Amount TiedAmount

UntiedTechnical

Cooperation

1988 2,223 2,223 - - 1989 701 701 - - 1990 123 123 - 123 1991 - - - - 1992 579 579 - - 1993 705 695 - 695 1994 301 270 30 170 1995 1,337 608 457 433 1996 18,704 13,737 4,850 941 1997 19,962 11,839 6,585 3,564 1998 24,551 16,690 4,431 6,002 1999 3,341 1,060 389 2,000 2000 12,618 6,825 2,510 1,087 2001 145,744 25,998 114,624 17,048

230,890 81,348 133,876 32,063

Source: Creditor Reporting System.

DRAFT July 30, 2003

51

II-6. ODA Financed Oil Projects by Year, 1988-2001(US$ thousands)

Year Amount Amount Tied Amount UntiedTechnical

Cooperation

1988 164,849 136,983 27,866 1,806 1989 147,739 140,276 7,463 1,961 1990 62,561 54,609 7,953 2,233 1991 200,363 179,347 12,028 23,295 1992 142,611 122,530 20,081 1,723 1993 75,058 48,832 7,253 1,731 1994 214,185 1,362 212,823 - 1995 785,823 172,076 613,748 - 1996 137,476 37,534 99,384 61 1997 28,821 28,817 - 1,718 1998 14,754 4,133 10,619 2 1999 13,578 952 12,626 15 2000 14,921 3,590 11,140 139 2001 16,404 124 15,940 340

2,019,145 931,164 1,058,924 35,024

II-7. ODA Financed Nuclear Projects by Year, 1988-2001(US$ thousands)

Year Amount Amount Tied Amount UntiedTechnical

Cooperation

1988 - - - 1989 196 196 - 0 1990 785 785 - 131 1991 260 260 - 260 1992 1,824 1,824 - 89 1993 10,873 10,873 - 10,098 1994 - - - - 1995 4,332 1,570 - 795 1996 6,811 4,683 - 3,879 1997 56,704 55,371 - 2,037 1998 3,438 1,207 1,256 639 1999 336,609 341 1,460 682 2000 249,671 449 1,749 449 2001 317,542 - 1,033 315,644

989,044 77,559 5,499 334,703

Source: Creditor Reporting System.

DRAFT July 30, 2003

52

II- 8. Japanese Concessional Loans for Fossil Fuel Power Plants, 1988-2001

Year Recipient Type Project Title Loan Amount Amount Tied Amount UntiedGrant

Element

1998 AZERBAIJAN GAS-FIRED SEVERNAYA GAS COMBINED CYCLE 158,128 - 158,128 801993 BANGLADESH GAS-FIRED COMBINED CYCLE POWER PLANT, SYLHET 53,444 50,800 2,644 741993 BANGLADESH GAS-FIRED GAS-FIRED POWER PLANT, HARIPUR 135,791 - 135,791 741998 BOSNIA COAL-FIRED EMERGENCY ELECTRIC POWER IMPROVEMENT 31,398 1,940 29,458 801992 CHINA COAL-FIRED COAL-FIRED POWER PLANTS 31,571 - 31,571 611993 CHINA COAL-FIRED HUBEI EZHOU THERMAL POWER PLANT 111,790 - 111,790 611995 CHINA COAL-FIRED SHANGHAI BAOSHAN POWER PLANT 152,954 - 152,954 611995 CHINA COAL-FIRED HUBEI EZHOU THERMAL POWER PLANT 164,304 - 164,304 801995 CHINA COAL-FIRED JIANGXI JIUJIANG THERMAL POWER PLANT 186,716 - 186,716 631995 CHINA COAL-FIRED JIANGXI JIUJIANG THERMAL POWER PLANT 127,843 - 127,843 801995 CHINA COAL-FIRED SANHE THERMAL POWER PLANT I 116,344 - 116,344 801995 CHINA COAL-FIRED SANHE THERMAL POWER PLANT 145,080 - 145,080 631995 CHINA COAL-FIRED SHANXI HEJIN THERMAL POWER PLANT 116,344 - 116,344 801995 CHINA COAL-FIRED SHANXI HEJIN THERMAL POWER PLANT 145,080 - 145,080 631997 CHINA COAL-FIRED SHAANXI HANCHENG NO.2 THERMAL 289,256 - 289,256 631997 CHINA COAL-FIRED SHANXI WANGQU THERMAL POWER PLANT 247,934 - 247,934 631998 CHINA COAL-FIRED SHAANXI HANCHENG NO.2 164,912 - 164,912 671998 CHINA COAL-FIRED SHAANXI HANCHENG NO.3 10,565 - 10,565 801998 CHINA COAL-FIRED SHANXI WANGQU No. 2 206,891 - 206,891 671988 EGYPT OIL-FIRED THERMAL POWER PLANT, ASSIUT 80,507 80,507 - 491995 GHANA COAL-FIRED POWER PLANT BARGE PROJECT 129,596 - 129,596 611988 INDIA COAL-FIRED RAICHUR THERMAL ELECTRICITY 180,515 126,365 54,150 611988 INDIA COAL-FIRED RAICHUR THERMAL ELECTRICITY 111,505 111,505 - 591991 INDIA COAL-FIRED ANPARA B THERMAL POWER PLANT 370,268 303,242 67,026 611992 INDIA COAL-FIRED ANPARA THERMAL POWER PLANT 104,373 86,638 17,735 611994 INDIA COAL-FIRED ANPARA B THERMAL POWER PLANT 172,583 55,734 116,849 611994 INDIA COAL-FIRED BAKRESWAR THERMAL POWER PLANT 264,863 - 89,951 611995 INDIA COAL-FIRED KOTHAGUDEM A THERMAL POWER PLANT 54,113 - 54,113 801995 INDIA COAL-FIRED BAKRESWAR THERMAL POWER PLANT 92,019 - 92,019 801997 INDIA COAL-FIRED BAKRESWAR PROJECT (II) 282,240 - 282,240 631997 INDIA COAL-FIRED SIMHADRI THERMAL POWER STATION 163,777 - 163,777 631999 INDIA COAL-FIRED BAKRESWAR UNIT 3 EXTENSION (2) 101,291 - 101,291 672001 INDIA COAL-FIRED SIMHADRI PROJECT (2) 100,362 - 100,362 671988 INDIA GAS-FIRED KATHALGURI (ASSAM) GAS TURBINE 105,710 74,002 31,708 591990 INDIA GAS-FIRED BASIN-BRIDGE GAS-FIRED POWER PLANTS 79,075 63,950 15,124 611990 INDIA GAS-FIRED GANDHAR GAS-FIRED POWER PLANTS 90,097 82,169 7,928 611992 INDIA GAS-FIRED GANDHAR GAS COMB.-CYCLE POWER PLANT 336,219 301,665 34,554 611992 INDIA GAS-FIRED GANDHAR GAS-FIRED POWER PLANT 154,207 119,921 34,286 611994 INDIA GAS-FIRED FARIDABAD GAS BASED POWER STATION A 230,294 - 230,294 611995 INDIA GAS-FIRED KATHALGURI (ASSAM) GAS TURBINE 168,130 117,736 50,393 801993 INDONESIA COAL-FIRED ENGINEERING SERVICES FOR TARAHAN PLANT 4,784 - 4,784 611994 INDONESIA COAL-FIRED BANJARMASIN COAL FIRED POWER PLANT 63,249 - 63,249 611998 INDONESIA COAL-FIRED TARAHAN COAL FIRED POWER PLANT 250,764 - 250,764 601998 INDONESIA COAL-FIRED TARAHAN COAL FIRED POWER PLANT 9,152 - 9,152 631989 INDONESIA GAS-FIRED ANPARA THERMAL POWER PLANT 32,210 32,210 - 61

1994 JORDAN OIL-FIRED AQABA THERMAL POWER PLANT 46,429 - 46,429 801996 JORDAN OIL-FIRED IMPROVE POWER STATION & TRANSM. 99,384 - 99,384 601995 KENYA OIL-FIRED MOMBASA DIESEL GENERATING POWER PLA 113,879 - 113,879 801992 MALAYSIA COAL-FIRED POWER STATION, PORT KLANG 252,297 - 252,297 521999 MALAYSIA GAS-FIRED PORT DICKSON (TUANKU JAAFAR) (phase II) 430,966 - 430,966 811995 MONGOLIA COAL-FIRED REHABILITATION PROJECT OF THE 47,747 - 47,747 632001 MONGOLIA COAL-FIRED REHABILITATION ULAANBAATER (PHASE 2) 50,527 2,379 48,148 801995 MOROCCO GAS-FIRED REPOWERING OF KENITRA POWER PLANT 35,388 - 35,388 571992 PAKISTAN OIL-FIRED BIN QASIM THERMAL POWER STATION EXT 106,953 91,602 15,351 611994 PAKISTAN OIL-FIRED BIN QASIM THERMAL POWER STATION EXT 136,732 - 136,732 611993 PHILIPPINES COAL-FIRED COAL-FIRED POWER PLANTS 54,964 - 54,964 571994 PHILIPPINES COAL-FIRED CALACA II COAL FIRED POWER PLANT 53,943 - 53,943 571994 SRI LANKA COAL-FIRED COAL FIRED THERMAL DEVELOPMENT 9,550 - 9,550 801996 SRI LANKA GAS-FIRED KELANITISSA COMBINED CYCLE POW 123,906 - 123,906 631991 SYRIA GAS-FIRED GAS-FIRED POWER PLANTS 383,628 - 383,628 531995 SYRIA OIL-FIRED AL ZALA THERMAL POWER PLANT PR 5,983 - 5,983 631995 SYRIA OIL-FIRED AL ZALA THERMAL POWER PLANT PR 484,973 - 484,973 601994 VIET NAM COAL-FIRED ENGINEERING SERVICES FOR PHA LAI PLANT 7,143 - 7,143 741995 VIET NAM COAL-FIRED PHA LAI THERMAL POWER PLANT 117,503 - 117,503 81

1996 VIET NAM COAL-FIRED PHA LAI THERMAL POWER PLANT (II) 183,824 - 183,824 831997 VIET NAM COAL-FIRED PHA LAI THERMAL POWER PLANT PR 210,983 - 210,983 631997 VIET NAM COAL-FIRED PHA LAI THERMAL POWER PLANT PR 57,851 - 57,851 651999 VIET NAM COAL-FIRED PHA LAI THERMAL POWER PLANT (4) 74,715 - 74,715 671994 VIET NAM GAS-FIRED PHY MY THERMAL POWER PLANT PROJECT 263,620 - 263,620 741995 VIET NAM GAS-FIRED PHU MY THERMAL POWER PLANT PROJECT 109,054 - 109,054 811997 VIET NAM GAS-FIRED PHU MY THERMAL POWER PLANT PRO 96,182 - 96,182 631999 VIET NAM GAS-FIRED PHU MY THERMAL POWER PLANT (4) 114,925 1,387 113,538 801998 VIET NAM OIL-FIRED O MON THERMAL POWER PLANT PROJECT 4,859 4,133 726 80

10,006,154 1,707,886 8,123,356

Note: These project reflect loan commitments by Japan and not necessarily realized projects.Amounts are in thousands of $US dollars.

Source: Creditor Reporting System, OEDC.

DRAFT July 30, 2003

53

II-9. Japan's Green Aid Plan Projects in China

Project/ Technology Facility Location Chinese Counterpart Time Period

Industrial Energy Efficiency Projects

1 Coke Oven Heat Recovery System Steel plant Shichuan Province Ministry of Metallurgical Industry 1993-19952 Blast Furnace Heat Exchanger Steel plant Shandong Province Ministry of Metallurgical Industry 1993-19953 Coke Dry Quenching System Steel plant Beijing Ministry of Metallurgical Industry 1997-20004 Boiler Soot Blowers Power plant Tianjin Junliangcheng Ministry of Electric Power 1993-19955 Variable Speed Clutch Power plant Tianjin Junliangzheng Ministry of Electric Power 1993-19956 Oil Refinery Heat Recovery Oil refinery Shandong Province China Petrochemical Co. 1993-19957 Blast Furace Heat Recovery Steel plant Sichuan Province Ministry of Metallurgical Industry 1994-19958 Waste Heat Recovery Chemical plant Sichuan Province Ministry of Chemcial Industry 1994-19959 Waste Heat Recovery Steel plant Shanxi Province Ministry of Metallurgical Industry 1995-1997

10 Waste Heat Recovery Cement plant Anhui Province Bureau of Construction Material 1995-199711 Electric Furnace Energy Conservation Metal refining Liaoning Province n.a. 1997-200012 Waste Incineration Heat Recovery Municipality Heilongjian Province n.a. 1997-2001

Clean Coal Technology/ SOx Reduction

13 Simplified FGD retrofit Chemical plant Shandong Province Ministry of Chemical Industry 1993-199514 Simplified FGD retrofit Chemical plant Guangxi Autonomous Region Ministry of Chemical Industry 1993-199515 Simplified FGD retrofit Chemical plant Sichuan Province Ministry of Chemical Industry 1993-199516 CFB boiler Textile factory Beijing Beijing Planning Commission 1993-199517 CFB boiler Coal mine Shandong Province Ministry of Coal Industry 1993-199518 CFB boiler Coal mine Shandong Province Ministery of Coal Industry 1997-200019 CFB boiler (cogeneration) Power plant Liaoyuang Province State Planning Commission 1997-200020 Coal Briquette Production Equipment Briquette plant Shandong Province Ministry of Coal Industry 1993-199521 Low-water Coal Preperation Coal mine Anhui Province Ministry of Coal Industry 1994-199722 Low-water Coal Preperation Coal mine Shandong Province Ministry of Coal Industry 1994-199823 CFB boiler (low grade coal) Coal mine Zhejiang Province Ministry of Coal Industry 1997-200024 Coal-Water Mixture (CWM) Power plant Shandong Province State Planning Commission 1995-199825 Coal preparation system Coal mine Chongqing State Planning Commission 1997-200026 Simplified FGD retrofit Petrochemical Hunan Province State Petrochemical Industry 1998-200127 Coke oven gas de-Sox Iron/steel plant Henan Province State Metallurgical Bureau 1999-200228 Coal preparation system Coal mine Chongqing Ministry of Coal Industry 1997-2000

Large Scale FGD/ SOx Reduction

29 23. FGD retrofit (semi-dry system) Power plant Shandong Province Ministry of Electric Power 1993-200030 24. FGD retrofit (wet-system) Power plant Shanxi Province Ministry of Electric Power 1995-2000

FGD=flue gas desulfurization; CFB= Circulating Fluidized Bed Boiler

Source: Compiled by author from Ministry of International Trade and Industry and New Energy and Industrial Technology DevelopmentOrganization brochures and internal documents.

DRAFT July 30, 2003

54

Appendix III: Biographical Sketch of Author

PETER C. EVANS specializes in international political economy, energy market liberalizationand international trade. He has served as a consultant to private firms and trade associationsincluding Cambridge Energy Research Associates, Rio Tinto, American Superconductor Corp.,Science Application International Corporation, and the U.S.-ASEAN Council. He has alsoserved as a consultant to U.S. government agencies and multilateral organizations includingassignments for the U.S. Department of Energy, the U.S. Department of Commerce chairedTrade Promotion Coordinating Committee (TPCC) and the World Bank. He was a visitingscholar at the Central Research Institute for Electric Power Industry, Tokyo, Japan from 1991-1993. His studies on international trade and trade finance include: “Market Window Institutions:Government Sponsored Enterprises in Trade Finance,” report prepared for the TPCC, May 30,2003 (with Kenneth A. Oye); “The Financing Factor in Arms Sales: The Role of Official ExportCredits and Guarantees,” SIPRI Yearbook 2003: Armaments, Disarmament and InternationalSecurity (Oxford University Press: New York, 2003); Liberalizing Global Trade in EnergyServices, (The AEI Press, Washington, DC, 2002); and “Meeting the International Competition:Conflict and Cooperation in Export Financing,” (with Kenneth A. Oye) in Gary Hufbauer andRita Rodriguez, editors, U.S. Ex-Im Bank in the 21st Century: A New Approach, Institute forInternational Economics, Special Report 14, January 2001. Mr. Evans holds a BA fromHampshire College and Master's degree from the Massachusetts Institute of Technology wherehe is currently completing his Ph.D.