Country Limitation SCHEDULE
Country Limitation Schedule, the list of the countries where EXIM Bank is both willing and unwilling to provide financial support.
Medium- and Long-term Financing/Activities
This activity can be done as an individual or as a small group assignment. The individuals can then present their findings to the class as a whole. Open the country limitation schedule for Ex-Im Bank (www.exim.gov). Use the schedule to begin your analysis for the following situations.
1. Select three countries where financing coverage is not provided by Ex-Im Bank. Review the notes and the definition of terms at the end of the schedule and discuss the notes for the countries you have selected. Having evaluated Ex-Im Bank’s reasons for not providing coverage, select one of the three countries and evaluate the political and economic associations with the United States.
2. Select three countries that provide complete coverage with some conditional notes under Ex-Im Bank. Review the notes and the definition of terms at the end of the schedule and discuss the notes for the countries you have selected. Having evaluated Ex-Im Bank’s reasons for providing coverage, select one of the countries and evaluate the conditions from economic and political view points that would make the program attractive to a foreign buyer over financing options available in the country.
3. Select three countries that have open coverage without any note conditions by Ex-Im Bank and evaluate the political and economic differences of all three countries to the United States. Your analysis should include whether Ex-Im Bank’s programs are more attractive to the buyer than financing available in the respective countries.
4. Select three countries that have partial coverage in either the public or private sectors. Review the notes and the definition of terms at the end of the schedule and discuss the notes for the countries you have selected. Having evaluated Ex-Im Bank’s reasons for providing partial coverage, select one country and discuss the political and economic conditions that support Ex-Im Bank’s decision to provide partial coverage.
EXIM Back Country Limitation Schedule
Energy Finance 101: What is Project Finance?
Let’s pretend you’re the CEO of Big Energy Corporation. Your company has been around a few years, has some intellectual property and other assets, and you are thinking about doing a new project. But projects can be risky – what happens if that project goes wrong? You can’t lose these other assets you’ve worked so hard to develop, but this project looks like a great investment. What’s an energy company to do? Well, maybe project finance is the answer.
What is Project Finance?
As the project sponsor, the company looking to do the project, Big Energy, could be a wind developer planning to build a new wind farm, an oil company starting development of a new resource, or a transmission company planning a new transmission corridor. An established company, this business has assets, liabilities and equity on its balance sheet. It would also have the in-house expertise to evaluate projects in the field and the connections to get them done. Even so, the equity holders in companies like Big Energy Corp. want to limit their risk in case the project doesn’t work out
A Note on Balance Sheets
A balance sheet is a snapshot of a company’s assets, liabilities and equity at a particular point in time. It must always “balance” the assets with the liabilities and equity. For example, for your personal balance sheet, if you borrow $5 from a friend, your liabilities would increase by $5, but the cash in your wallet, an asset, would also increase by $5. This is one of the 3 main types of financial statements (along with the income statement and cash flow statement) that are used to convey the financial health of a company.
Assets = Liabilities + Equity
What Can Use Project Finance?
One of the first and more important evaluation criteria is whether the margins of the project are right for a project finance situation. In our hypothetical example: will Little Energy generate sufficient revenue to pay back your lenders and provide a return to investors? Are the costs and revenues predictable or, ideally, contractually guaranteed (e.g. under a power purchase agreement)? Investors will look for contracts or historical data that demonstrate that the revenues will be sufficient to cover both the original loan amount, plus the additional required return, plus a cushion, just in case anything goes wrong.
A second important factor for consideration is the size of the project. Although you might have lots of different kinds of investors, the overhead costs of setting up this kind of financing makes it prohibitive if the amount of capital needed is too small. On the flip side, requiring too much capital may scare off investors or raise the cost of capital for the project. These costs mean that if your project requires less than $50 million in loans, it’s probably too small and not ideal for this form of financing.
Finally, most other evaluation criteria can be classified as risk. While we’re planning to explore risk in depth later this year, many factors determine the riskiness of the project. Are there enough physical assets to cover the loans in the case of bankruptcy? Is the technology well established? Are the suppliers reliable? Who has ultimate control over the project? How transparent are you willing to be? The answers to each of these questions affects the willingness of lenders and investors to commit money for a given return, ultimately making or breaking the project.
On the downside, a sponsoring company gives up a substantial amount of control and potentially raises the cost of capital for the project by creating a project company. If Little Energy fails and defaults, Big Energy will not get anything back, because the lenders will take control of Little Energy. Without Big Energy’s assets as collateral for any debt that Little Energy assumes, lenders can, and generally will, demand a higher return. Even with these downsides, many projects still utilize project finance.
What about the PTC?
Different Electricity Markets
For more detail on project finance, see:
For more detail on debt, see:
For more information on financial statements, see:
For more on electricity markets, see: