Berlin Annual Report - AGA-Portal€¦ · [email protected] ... 2006 Annual Report 2006 – Export Credit Guarantees of the Federal Republic of Germany ... Große Gallusstraße

Head Office

Euler HermesKreditversicherungs-AGFriedensallee 254D-22763 HamburgPhone: (+49 40) 88 34-91 92Fax: (+49 40) 88 34-91 [email protected]

Export credit guaranteedepartment,Berlin

D-10117 BerlinFriedrichstadt-PassagenQuartier 205Friedrichstraße 69Phone: (+49 30) 20 94-53 10Fax: (+49 30) 20 94-53 [email protected]

Branch offices of Euler Hermes Kreditversicherungs-AG

2006

An

nu

al

Re

po

rt 2

00

6 –

Ex

po

rt C

red

it G

ua

ran

tee

s o

f th

e F

ed

era

l R

ep

ub

lic

of

Ge

rma

ny

Export Credit Guarantees of the Federal Republic of GermanyHermes Cover

Annual ReportD-60311 FrankfurtGroße Gallusstraße 1-7Phone: (+49 69) 13 48-159Fax: (+49 69) 13 48-170

D-79100 FreiburgRehlingstraße 6ePhone: (+49 7 61) 40 07 9-39Fax: (+49 7 61) 40 07 9-50

D-20251 HamburgStraßenbahnring 11Phone: (+49 40) 2 36 36-190Fax: (+49 40) 2 36 36-166

D-30159 HannoverGeorgstraße 36Phone: (+49 5 11) 3 64 01-90Fax: (+49 5 11) 3 64 01-70

D-50672 KölnHohenzollernring 31-35Phone: (+49 2 21) 9 20 60-293Fax: (+49 2 21) 9 20 60-159

D-04157 LeipzigLandsberger Straße 23Phone: (+49 3 41) 9 08 23-0Fax: (+49 3 41) 9 08 23-10

D-68259 MannheimHauptstraße 161Phone: (+49 6 21) 1 29 05-18Fax: (+49 6 21) 1 29 05-99

D-80339 MünchenRidlerstraße 35Phone: (+49 89) 5 43 09-143Fax: (+49 89) 5 43 09-166

D-90429 NürnbergSpittlertorgraben 3Phone: (+49 9 11) 2 44 05-15Fax: (+49 9 11) 2 44 05-30

D-66111 SaarbrückenBahnhofstraße 80Phone: (+49 6 81) 3 89 96-0Fax: (+49 6 81) 3 89 96-99

D-70597 StuttgartLöffelstraße 44Phone: (+49 7 11) 9 00 49-38Fax: (+49 7 11) 9 00 49-70

D-12435 BerlinAn den Treptowers 1Phone: (+49 30) 20 28 43-23Fax: (+49 30) 20 28 43-01

D-33602 BielefeldZimmerstraße 8Phone: (+49 5 21) 9 64 56-0Fax: (+49 5 21) 9 64 56-50

D-28195 BremenMartinistraße 34Phone: (+49 4 21) 1 65 97-0Fax: (+49 4 21) 1 65 97-49

D-44137 DortmundLindemannstraße 79Phone: (+49 2 31) 1 82 99-90Fax: (+49 2 31) 1 82 99-99

D-01129 DresdenRiesaer Straße 5Phone: (+49 3 51) 8 53 77-0Fax: (+49 3 51) 8 53 77-10

D-40472 DüsseldorfKanzlerstraße 4Phone: (+49 2 11) 9 65 76-80Fax: (+49 2 11) 9 65 76-99

E-mail address for all branch offices: [email protected]

RZ_JB_2006_US.qxd 23.08.2007 10:27 Uhr Seite 1

2004Values inmillion EUR


Federal export guarantees at a glance


Statutory cover limit 117,000 117,000 117,000

Cover applications (number) 1) 27,753 23,745 23,129

of which for SMEs in % 2) 76.1 75.8 73.4

Covered export volume 21,067 19,773 20,297

of which for developing countries in % 75.8 72.2 71.8

Central and Eastern Europe in % 16.7 18.0 16.9

Western industrial countries in % 7.5 9.8 11.3

Covered volume as % of total exports 2.9 2.5 2.3

Premiums 472.9 511.2 556.0

Recoveries 1,029.3 4,874.7 5,970.8

from political claims 855.3 4,623.5 3) 5,761.0 3)

from commercial claims 174.0 251.2 209.8

Special revenues from unscheduled repayments 0.0 0.0 423.6

Claims paid 558.5 695.1 292.9

for political claims 124.9 258.3 141.0

for commercial claims 432.3 432.9 149.5

Exchange rate claims 1.3 3.9 2.4

Management fee 65.6 66.5 65.6

Annual financial result 878.0 4,624.4 3) 6,591.9 3)

1) Including tied finance credits (adjusted subsequently for the years 2003 and 2004)2) With up to 500 employees3) Non-recurring result because of early repayments under rescheduling agreements

Deficit accrued (since 1951) -11,035.5 -6,411.2 180.7

The annual deficits from 1983 till 1998 accumulated to 13,517m EUR as per 31.12.1998;since 1999 accrued deficit has been progressively reduced by the annual surpluses

Amounts subrogated to Federal Government 17,063.6 12,361.9 5,929.7

under claims paid/rescheduling agreements; the recoveries expected under these will be transferred to the Federal Budget Accounts

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 2

Annual Report 2006


RZ_JB_2006 16.08.2007 14:40 Uhr Seite 3

and jobs in our country. It is especially whenthey move into new and risky markets thatexport credit insurance which allows them toobtain internationally competitive financing andreliable protection from bad debt risks is oftenindispensable for exporters. The Federal Gov-ernment is aware of its responsibilities here andmakes a reliable, flexible and practical range ofcover instruments available to German ex-porters. This makes it possible for German companies to become successfully involved inthe developing countries and threshold coun-tries, markets which are often difficult, but at thesame time hold out the promise of high eco-nomic growth rates.

We took a number of measures in 2006 to fur-ther bolster the competitive position of Germancompanies. The Federal counter-guarantee wasintroduced and has stimulated high demandfrom exporters. The wholeturnover policy (APG)for short-term export trade has been givenadded flexibility by creating the option of select-ing countries for cover, and the exporter’s self-retention in the wholeturnover policy light forsmall export volumes was reduced from 15 % to

The year 2006 was an extremely successful onefor the Federal Government Export Credit Guar-antees. Demand from German exporters forstate cover to secure their foreigntransactions continues unabated.The assumption of cover for 20.3billion EUR of new business marksthe second best result in the historyof the Federal Government’s guar-antee programme to promote exports. At thesame time the year closed with a record cashsurplus of 6.6 billion EUR as a result of the earlyrepayment of debt by a number of countries,first and foremost Russia. This meant that thedeficit totalling 13.5 billion EUR which accumu-lated due to high indemnifications during theyears from 1983 to 1998 was completely amort-ized. At year-end the export credit guaranteeprogramme posted a positive balance of 181million EUR. We have successful claims man-agement and dogged negotiations with thedebtor countries to thank for this excellentresult. It shows that in the long term, the instru-ment of state cover pays for itself.

The German economy is particularly dependenton foreign trade. Efficient promotion of exportsis therefore very important in securing growth

4

Message from Michael Glos

Michael Glos, Federal Minister of

Economics and Technology

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 4

5

10 %. Premiums are more commensurate withthe actual risk due to the risk-based system ofpremium calculation using buyer surchargesintroduced in May 2006.

It will remain our task to continue developing theunderwriting tools of the programme. Ever newchallenges are presented by the internationalcompetitive arena, and the Federal Governmentmust react to them in its export credit guaranteescheme. The ongoing dialogue with exportersabout how best to optimize the Hermes guaran-tees is therefore a matter of particular concernto me. It is only by maintaining a constantexchange of information about the internationalcompetitive situation that we can succeed inadapting the export credit guarantees to a rap-idly changing environment and giving Germanexporters and banks the best protection we can.The large-scale dialogue workshops on theexport credit guarantees with high-ranking rep-resentatives of exporting industry, banks andindustry associations which were held for thesecond time in May 2006 at my ministry areexemplary for this partnership between the com-panies and the Federal Government.

During the German presidency of the EU Coun-cil in the first half of 2007 the Federal Ministry forEconomics and Technology will be chairing theEU Council Group on Export Credits. We will useour influence here to campaign for a strengthen-ing of the international competitive position ofEuropean companies in view of the growingcompetition from new players such as India andChina. Our long-term goal is to bring these com-petitors into line with the rules of the OECD,

such as the OECD Consensus and the OECDenvironmental guidelines, in order to achieve alevel playing field and thus greater equality ofopportunity in competition for international con-tracts. At the same time we have to take carenot to pitch our demands too high. The FederalGovernment takes environmental, social anddevelopmental aspects into consideration whendeciding whether to grant cover. In the case ofthe foreign buyer, who is free to choose who hebuys from, we can give an incentive to comply-ing with these criteria by granting an exportcredit guarantee. For this, we cannot allow theexport deal to be hampered by long drawn-outand bureaucratic scrutiny procedures, with theresult that the order then goes to a foreign com-petitor. I am therefore very happy that we havefound the right balance between efficient pro-motion of exports and an appropriate regard forenvironmental concerns in the review of theOECD environmental guidelines which has justbeen completed.

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 5

6

Inhalt

8 Business overview 2006

10 The Interministerial committee

12 The Hermes guarantees write black figures

15 State export credit guarantees in the international arena

17 The promotion of renewable energies19 Hydro-electric power - a special topic: major dam projects - a bone of

contention20 The Ilisu dam project in Turkey

23 Projects with an environmental impact23 OECD environmental guidelines23 Transparency

24 The Federal Government export credit guarantees and their dialogue with industry

25 Workshop I: Energy and infrastructure – the parameters for sectors with a

future

26 Workshop II: Export financing in local currency – a future trend?

26 Workshop III: Financing of foreign investment – challenges with practical

examples from companies’ experience

27 Workshop IV: Focus on Africa – perspectives for German companies

28 Workshop V: Export credit guarantees for small and medium enterprises –

ideas and impulses for stronger support

29 Workshop VI: Ethics and business – fair competition through preventive

action against corruption – the role of the export credit guarantee schemes

30 Important innovations and issues30 The Federal counter-guarantee enhances liquidity for small and medium-

sized enterprises

32 The wholeturnover policy with greatly improved conditions

32 Modified conditions for credit line facility cover

32 New anti-corruption measures for state export credit insurance

32 Calculation of premium on a risk-based system

33 Reducing bureaucracy33 Speeding up decisions

33 The dialogue with industry goes on – small and medium enterprises

34 Special forms of cover34 Project finance and structured finance40 Aircraft business41 Shipping business42 Export credit guarantees for military equipment

44 Country cover policy44 CIS countries, Central and Eastern European countries and South-Eastern

Europe45 CIS countries48 Central and Eastern European countries, South-Eastern Europe, Turkey

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 6

7

49 Africa

56 Latin America and the Caribbean

61 Asia

65 The Middle East

68 International Cooperation

68 Developments in the OECD

71 European Union

71 Berne Union

73 Cooperation with credit insurers in other countries

76 Development of export credit guarantees

76 Cover for new business79 Breakdown of newly covered business by country groups

80 Breakdown by horizon of risk and type of cover

82 Number/volume of applications, types of goods covered

84 Claims and recoveries, rescheduling84 Claims

86 Recoveries

87 Rescheduling87 Early repayments89 The HIPC initiative89 Multilateral agreements at the Paris Club91 Bilaterally implemented agreements

92 Profit and loss account

92 Revenues

93 Expenses

93 Financial result

94 Export guarantee portfolio

95 Statutory cover limit, total commitment level and total outstanding risk

96 Funds earmarked for export credit guarantees at year-end

96 Unrecovered claims

98 Annex

RZ_JB_2006 21.08.2007 14:42 Uhr Seite 7

8

Business Overview 2006

In the past year the Federal Governmentassumed export credit guarantees to the tune of20.3 billion EUR. This was the second highestvolume of newly covered business in the 57years of the existence of the Hermes guarantees.The result was 2.6 % up over the previous year’sfigure of 19.8 billion EUR. Overall, 2.3 % of totalGerman exports were covered by state exportcredit guarantees. Total exports rose by 13.7 %to 893.6 billion EUR.

Federal Government export credit guaranteesare the central instrument for promoting andfinancing foreign trade. They strengthen the pos-ition of German exporters in the internationalcompetitive arena. They play a very importantrole, particularly for German companies export-ing to risky markets where no cover is available

Business Overview 2006

from the private insurance market. Thus the lion’sshare of cover, 71.8 %, was once again account-ed for by guarantees for exports to the develop-ing and threshold countries. 16.9 % of coverwent to the Central and Eastern European coun-tries. The covered exports to the Western indus-trial countries went up to reach a share of 11.3 %,largely as a result of several large ship transac-tions, especially with the USA.

As in the preceding year, the highest cover vol-ume was for Russia, followed by the USA, China,and Turkey. The composition of the various typesof guarantee shifted further in favour of capitalgoods business with medium- and long-termcredit periods. Due to the covering of severalmajor transactions, this type of cover went up by4.9 % to 10.0 billion EUR. This means that

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 8

9

extended-term business accountsfor almost half (49.4 %) of the totalvolume of cover.

Short-term business, which roseby 0.5 % to 10.3 billion EUR,remained virtually unchanged; itsrelative share of total cover grantedfell to 50.6 % (2005: 51.7 %). SinceBulgaria and Romania joined theEU at the beginning of 2007, nonew cover for short-term trade canbe assumed for them. The volumeof insured short-term trading trans-actions for Romania and Bulgaria,which had totalled just under 200million EUR in 2006 will therefore bereduced to zero over the followingone to two years.

In terms of the financial result, 2006 closed withan all-time record high figure. Due to early repay-ment of debt under rescheduling agreementswith Russia, Algeria and Brazil, the export creditguarantees generated an extraordinary and non-recurring surplus for the Federal budgetaccounts of 6.592 billion EUR. As a result ofthese special factors, the financial result was 2billion EUR higher than the previous recordreached in the preceding year (4.624 billionEUR). This enabled the deficit accumulated dur-ing the years 1983 – 1998 to be completely paidoff. The early repayments led to the scheme writ-ing black figures for the first time in 24 years witha positive balance of 180.7 million EUR. Thisdevelopment shows that the programme paysfor itself in the long term, and that it can deliverthe protection that exporting industry needs tocompete successfully without putting extra strainon the taxpayer’s pocket.

In 2006, the Federal Government introducedimportant innovations and improvements to the

Development, result and balance of the Export Credit Guarantee scheme of the Federal Republic of Germany 1980 - 2006 in million EUR

Result Accumulated result

'80 '90 '00 '06'96'92'88'84'82 '98'94 '02'86 '04

-5,000

-10,000

-15,000

10,000

5,000

export credit guarantees which represent a sig-nificant improvement especially for small andmedium-sized companies in obtaining financingfor their business. The newly introduced Federalcounter-guarantee and the more attractive conditions for the wholeturnover policy in partic-ular helped to further expand the range ofoptions in export financing. The reform of thepremium system which took effect as of 1st May2006 was implemented in a pragmatic way andnow takes account of the creditworthiness ofthe foreign banks and buyers when calculatingthe premium.

The underwriting tools for the promotion ofexports are being continually developed in viewof the changes taking place in the market envir-onment. For this purpose the Federal Govern-ment has continued its intensive dialogue withexporters. The close exchange of views and con-tact with exporting companies and banks guar-antees that the Federal Government can providea flexible, market-orientated and competitivepalette of cover which makes an important con-tribution to the success of German exports.

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 9

10

The Interministerial Committee

The Interministerial Committee (IMC) for theexport credit guarantees of the Federal Govern-ment, chaired by the Federal Ministry of Eco-nomics and Technology, examines all majorapplications and decides whether to grant cover.It also debates basic policy issues and is respon-sible for the modernisation of the export creditguarantees and the formulation of cover policy,


RZ_JB_2006 16.08.2007 14:40 Uhr Seite 10

11

Composition of the Interministerial Committee – IMC

BMWi

BMF

AA

BMZ

Federal Ministry of Economics and Technology

– lead function –

Federal Ministry of Finance

Federal Foreign Office

Euler Hermes

Kredit-

versicherungs-AG

Pricewaterhouse-

Coopers AG

Wirtschafts-

prüfungs-

gesellschaft

KfW IPEX-Bank

AKA Ausfuhrkredit-Gesellschaft mbH

Federal Audit Office

Exp

erts

Federal Ministry for Economic Cooperation and

Development

Man

dat

ary

cons

ortiu

m representatives of exporting industry

and the banking sector

which stipulates the scope and the conditions ofcover available (cf. P. 44). The Federal Govern-ment has mandated the administration and hand-ling of the export credit guarantee scheme to aprivate consortium consisting of Euler HermesKreditversicherungs-AG as lead partner andPricewaterhouseCoopers AG Wirtschaftsprü-fungsgesellschaft. The companies working underthis mandate prepare decisions on applicationsfor consideration at the meetings of the IMC andadvise the Federal Government together withexperts from exporting industry during the deci-sion-making process. All in all, the committeewhich makes the decisions comprises some 35persons. Besides the Federal Ministry of Eco-nomics and Technology, which has the lead func-tion, the Federal Ministry of Finance, the FederalForeign Office and the Federal Ministry for Eco-nomic Cooperation and Development also havea vote in the IMC. Decisions are always made ona consensus basis.

The criteria for granting a guaranteeare the eligibility of the export trans-action for cover and its economic via-bility, as well as the amount set in theFederal Budget every year as a statu-tory cover limit for export credit guar-antees. Promotion of exports byexport credit guarantees is not a sub-sidy, i.e. the revenues from premiumsand recoveries must balance out inthe long term the sums paid out inindemnification and the costs ofadministrating the scheme. Thesegoals, which are in part contradictory– for the scheme to be self-financingdemands a prudent selection of risks,so that the options for cover arerestricted, while subsidiarity may lead to animbalance in the spread of risks which are under-written – exist in a field of potential conflict whichdemands that the contradictory aspects be con-stantly weighed against each other.

Members of the Interministerial Committee (IMC)

RZ_JB_2006 21.08.2007 14:42 Uhr Seite 11


The Hermes guarantees write black figures

For the first time since 1983, the export creditguarantee scheme wrote positive figures again inNovember 2006, this being the balance betweenall the revenues (premiums and recoveries) andall the amounts paid out (indemnifications)accrued over the years, so that 2006 closed witha positive balance of 180.7 million EUR on thebooks. Annual surpluses have already beenposted since 1999, so that the deficit accumu-lated between 1983 and 1998 was reduced yearfor year. This still stood at 6.4 billion EUR at theend of 2005.

The deficit had originated with the beginning ofthe international debt crisis of the early Eighties,in the aftermath of which the Federal Republic ofGermany had to pay out considerable sums inindemnification under Hermes guarantees forexport business. The deficit built up further in thecourse of the Nineties as a result of the paymentdifficulties with a number of former Eastern Bloccountries. Between 1983 and 1998, the claimspaid out therefore exceeded the revenues frompremiums and recoveries, so that a deficit of13.5 billion EUR accrued during this time. The

Financial result (excl. interest) in million EUR

'92 '93 '95 '97 '99'94 '96 '98 '00 '01 '02 '03 '04 '05* '06*

-1,180* including early repayments from2005: Russia and Poland2006: Russia, Nigeria, Brazil and Algeria

-2,610-2,230

-776-443 -298 -29

110 35388 402 669 878

4,624

6,592

12

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 12

Demag Cranes & ComponentsGmbH, a subsidiary of Demag

Cranes AG, manufacturesindustrial cranes, lifting equip-ment and conveyor compon-

ents for the global market. Theproducts are used by com-

panies ranging from smallcraftsmen up to major industrial

firms. The company secures alarge proportion of its world-

wide exports by means ofrevolving specific guarantees.

accrued deficit was balanced at any givenmoment, however, by the trade receivables duefrom the foreign buyers subrogated to FederalGovernment on indemnification.

The tide turned in 1999 with scheduled pay-ments of debt and early repayments. The indem-nifications paid out by the Federal Governmentwere repaid under rescheduling agreements, andthe deficit steadily shrank. After early repaymentunder rescheduling agreements from Russia,Brazil and Algeria, and due to payments fromNigeria, it has been possible to completely balance out the deficit in 2006. The amortization of the deficit thus achieved is the result of deter-mined negotiations with the individual debtorcountries.

The extraordinarily good result for the year doesnot, however, give any room for manoeuvre inreducing premiums. According to the WTO ruleson subsidies, state export credit insuranceschemes must be designed so as to offer theirservices at premium rates which cover the oper-ating costs and claims payments in the longterm, and must pay for themselves. It should be

remembered here that the debtor structure hasaltered significantly over recent years. Today it isno longer predominantly countries who are thedebtors, but private enterprises. Privatization andeconomic liberalization in the markets of the for-mer command economies have contributed toan ongoing decline in the share of state buyersand a shift to private foreign buyers. Whereas inthe Eighties and Nineties political causes of losswere the primary source of claims, since the year2000 commercial loss events – e.g. the insolven-cy or bankruptcy of foreign customers – haveaccounted for the brunt of claims. Pursuingrecovery action against individual privately-owned foreign companies, however, is far moredifficult and time-consuming than carrying onrescheduling negotiations with individual foreign

13

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 13


countries. Recoveries under commercial claimshave to be individually negotiated with thedebtors in each case. On top of this, the devel-opment and the reliability of the legal systems inthe target countries is frequently not comparablewith that in the industrialized world. And finally, itis often impossible to collect the money owed if

the foreign buyer becomesinsolvent. Against this back-drop, the recovery rate in com-mercial claims lies much lowerthan that of political claims (cf.P. 87). It will therefore not bepossible to realize a level ofrecoveries comparable to thatseen over recent years infuture. Of the current outstand-ing amounts due to the Federal

14

The international leader in the sectorof décor printing, INTERPRINT

GmbH & Co, KG, exports its prod-ucts all around the world. The com-

pany has insured its contracts with awide range of foreign customers in

recent years by means of whole-turnover policies (APG).

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 14

Government under export credit guaranteestotalling 5.9 billion EUR, only 3 billion EUR are stillregulated by rescheduling agreements. 700 mil-lion EUR of this is already envisaged to be for-given in debt relief for Cameroon, Iraq and theDemocratic Republic of Congo during the cur-rent year.

State export credit guaranteesin the international arena

The export credit guarantee scheme of the Fed-eral Republic of Germany achieved its secondhighest result ever in 2006. Cover was given forexports to 158 countries with a total volume of20.3 billion EUR, a rise of 2.6 % over the previousyear’s figure. Total exports also rose by 13.7 %to reach an all-time high, so that Germanexporters have been able not only to maintaintheir position on the world market despite mas-sive changes in traditional trading structures, buteven to expand it. Tariff barriers to free trade havebeen continually reduced over recent years due tothe far-reaching measures of the WTO to liberal-ize international trade. In view of the increasinglydynamic character of international competition,the Federal Government plays its part in inter-national organizations such as the OECD, the WTOand through its presidency of the EU to create alevel playing field for all countries and thus toguarantee equal chances for German exporters.The Federal Government’s target is to bringabout a situation where the competitors fromnon-OECD countries also compete on fair terms.An important aspect here is also measures tocombat corruption. Against this background, theOECD developed further in 2006 the rules intro-duced in 2000 in the „Action Statement onBribery“ for the prevention of corruption and for a

common framework for dealing with caseswhere possible corruption is involved, andpassed an OECD Recommendation in this con-text (cf. P. 69).

The Federal Government supports Germanexporters in opening up new markets through itsinstruments for the promotion of exports. TheAfrican continent in particular presents betterbusiness prospects again than for a very longtime. A private sector has sprung up in manycountries, with whom a growing volume of tradeis being transacted, some of it taking advantageof export credit guarantees. The situation in thestate sector of formerly highly indebted countriesis more problematic. Following the debt forgive-ness granted to many countries, the task now isto avoid building up new foreign debt which thecountry cannot support, and to find a waydespite this to enable the supply of the goodsneeded to create an appropriate infrastructure(“debt sustainability“). In this way, a sensible con-tribution can be made in the long term to devel-oping these countries.

The major infrastructure projects in Africa at pres-ent are mainly being carried out and financed byinvestors from China, Kuwait, Brazil, India, SouthKorea and Saudi Arabia. These countries areinvesting huge sums in Africa and devoting ahuge financial effort to developing the continent.At the same time they secure in this way theiraccess to raw materials and future markets for

15

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 15


their products. As non-OECD countries they are(with the sole exception of South Korea) notbound by the OECD Consensus, which pre-scribes compliance with minimum rules govern-ing the granting of officially supported exportfinance and the consideration of environmentalaspects in order to create a level playing field forcompanies competing for international business.The member states of the OECD are attempting,through an intensive process of dialogue andcooperation – including that in theBerne Union – to work towards per-suading the non-OECD countries toaccept and implement the rules ofthe Consensus (so-called “outreachactivities” – cf. P. 69). Thus China,Brazil, India, South Africa as well asSlovenia and Romania took partwith observer status at a meeting ofthe OECD credit insurers in Novem-ber 2006. Through a coordinatedprocess of consultation and compli-ance with these standards in invest-ment, it would be possible to avoidthe accrual of new unsustainabledebt in the poorest countries with-out compromising the sovereigntyof the developing countries in ques-tion and without setting up newbureaucratic hurdles for companiesand export credit insurers.

A further topic of discussion for the ECAs in theOECD in view of globalization and the increasinginvolvement of suppliers from non-OECD coun-tries is also the level of permissible foreign con-tent or local costs when granting cover.

Besides the aspects already mentioned above inan international context, the question as to thefuture of the state export credit insurers isincreasingly coming to the fore in the ongoingdebate. Thus, private insurers are more and

16

The sole German manufacturer oftinfoil, Rasselstein GmbH in Ander-

nach, has an annual output of some1.4 million tonnes of the material.

The company delivers to some 400customers in 80 countries and

insures much of this export volumeunder wholeturnover policies.

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 16

more offering cover for medium and long-termcredit horizons including political risk. Since theprivate insurers are expanding their products tocover a constantly growing range of countries,the state credit insurers are increasingly facedwith a negative risk selection. On the one handthe state credit insurers must abide by the WTOrules and pay for themselves over the long term.On the other, however, this principle of coveringall operating costs can only be upheld with a bal-anced spread of risks, which is jeopardized whenstate cover can only be given for countries andbuyers with the highest risk.

17

The promotion of renewable energies

Increasingly, the export of projects for generatingelectricity from renewable energy sources isbeing promoted. While in 2005 six plants with avolume of 104 million EUR were covered bymeans of export credit guarantees in this sector,this already rose to nine new projects in the yearunder review with a volume of over 210 millionEUR. This positive development is directly con-nected with the improvements in cover intro-duced by the Federal Government to cater forthe needs of this sector. In many discussionsand at many events held with representatives ofthe sector associations and exporters, the inter-ests and needs for the successful promotion ofexports of renewable energies were determinedand new instruments tailored to the requirementsdeveloped.

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 17

As general planning contrac-tor, the Kiel-based LAWI

Engineering GmbH has sup-plied, among other equip-

ment, three stoker moduleswith reciprocating grate barsfor a biomass power plant inTrincomalee, Sri Lanka. The

company secured variouscontract bonds in connec-

tion with this transaction bymeans of a contract bondguarantee and the Federalcounter-guarantees newly

introduced in 2006.

As a rule, electri-city generated byenergy projectswith renewable en-ergy technology isfed into the powergrid of the country

in which it is produced, and is therefore paid forin the respective local currency. It thereforemakes sense to denominate the financing forsuch a project in the local currency. The optionalready created by the Federal Government in2001 of covering contracts in local currency isparticularly relevant for cover for this type ofplant. It was only possible in this way, forinstance, to support a project for a wind farm inTaiwan with a capacity of 100 megawatts (MW).When carrying out this project the additionaloption of adopting a repayment term as neededof 15 years (instead of the normal 12 years) wasapplied. These new possibilities contributed tothe realization of the project as a project-financed


18

RZ_JB_2006 21.08.2007 14:42 Uhr Seite 18

Hydro-electric power – a special topic: major dam projects – a bone of contention

Hydro-electric power is a mature technology,which is used to produce some 19 % of the elec-tricity generated worldwide. In Germany, hydro-electric power was for a long time the mostimportant regenerative energy source, a status itonly lost in 2004, when more energy was pro-duced by wind farms than by hydro-electricplants. The great advantage of hydro-electricpower lies in its high degree of efficiency and itsability to make energy available at any time.Hydro-electric power plants are used, besidesfor electricity production, in the framework ofhydrological plans for the prevention of flooddamage, for making rivers navigable and solvingproblems of crop irrigation. There are more than45,000 major dams all over the world. Thus, e.g.,the Three Gorges Dam in China has an energyoutput of 18,200 megawatts, enabling it to coversome 10 % of China’s electricity needs. This represents the output of 16 atomic power sta-tions or an annual saving of c. 50,000 tonnes oflignite. This makes dams and their power gener-ation capacity an important alternative to atomicpower and power stations which burn fossilfuels. Large-scale dams are no longer, however,free of controversy today; prestige projects havebecome objects of contention. The advantagesoffered by the often gigantic constructions arealmost always accompanied by massive environ-mental impacts. They change the living condi-tions of fauna and flora, and in many cases thou-sands of people have to be relocated. The World

19

transaction. The proceeds the project generatesare sufficient to cover the repayment of theinvestment costs and the operating costs in localcurrency and in line with the credit horizon in aself-sustaining manner. This has up to now notalways been a foregone conclusion in the renew-able energy sector.

The extension of the maximum repayment periodfrom 12 to 15 years is especially reserved for thecover of projects in the renewable energy sector.It was created by the members of the OECDthanks to an initiative of the Federal Governmentaimed at promoting sustainable sources of ener-gy production. This sector agreement, whichalso includes water supply projects, has been inplace in all the state ECAs of the OECD since 1stJuly 2005. The agreement was designed to runfor a test period of two years in the first instance.An extension of this test phase for a further twoyears up to 1st July 2009 was decided at theOECD in April 2007. The demand for cover regis-tered to date demonstrates the success of theagreement in Germany, e.g. with export creditguarantees for biomass plants in Brazil and windturbine plants in Turkey.

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 19

20


Commission on Dams (WCD) set up at the endof the Nineties states in its report that dams haveplayed a major role in the development of manycountries, and would continue to be an import-ant option for responding to the growing needfor development, but that in the past they hadoften been accompanied on the downside bysignificant social and ecological damage.

Against this background, the export credit agen-cies which give guarantees in respect of damprojects have been considering for many yearsnow the question of what requirements must befulfilled by such projects in order to make themeligible for cover. This was also one of the ques-tions discussed in the OECD in connection withthe sector agreement for renewable energy pro-jects (as an appendix to the OECD Consensus).Agreement was eventually reached to allowhydro-electric power projects to benefit from theextended credit period of up to 15 years along-side other regenerative energy projects. The par-ticipant countries in the OECD Consensus didhowever consider it necessary to add a specificdeclaration that hydro-electric power projectsmust fulfil the relevant criteria under all ten of theWorld Bank Safeguard Policies in order to begranted insurance with the extended credit hori-zon of 15 years. Furthermore, the OECD coun-tries acknowledged in their declaration the valueof other guidelines in the decision on cover forhydro-electric power projects, e.g. the import-ance of the “Core Values and Strategic Prior-ities“ of the WCD report and of the guidelinespublished by the International Hydropower Asso-ciation, an international association of the hydro-electric power industry. In line with this, decisions

on granting Hermes guarantees for Germandeliveries in connection with hydro-electric powerstations are subject to examination of the envir-onmental and social impacts according to thereview criteria of the World Bank and the furtherguidelines quoted in the declaration of the OECDcountries.

The Ilisu dam project in Turkey

The focus in 2006 was particularly on one pro-ject which came up for review for cover: theTurkish dam project at Ilisu, comprising a 135metre high dam with 6 turbines and generatorsand a planned total capacity of 1,200 MW. It isintended to be erected on the Tigris, some 65km upstream from the Syrian-Turkish border inSouth-East Anatolia, and has a total volume ofmore than 2 billion EUR. Companies from Aus-tria and Switzerland are also involved in the pro-ject. The effects of the project on the people andthe environment of the region present a consid-erable challenge. Thus a large number of peoplewould have to be relocated, adequate waterquality ensured, the effects on flora and faunamitigated by protective measures, cultural treas-ures moved and due account taken of the inter-ests of the adjoining countries, Iraq and Syria.Many non-governmental organizations haveopposed the project for these reasons. At thesame time however, Ilisu holds out the promiseof development options in a region character-ized by high unemployment and depopulation.Since the dam could make a positive contribu-tion to the general economic development andquality of life in the region in view of the growingenergy hunger in Turkey, the project is very high-ly regarded there.

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 20

From the outset theFederal Governmentplaced very stringentrequirements on theprocedure for deciding on the assumption ofcover. The most important goal in this was tominimize the impact of the structure on the peo-ple and the environment and cultural heritage of the region in line with the standards set by the World Bank in such cases. Turkey has committed itself, following intensive discussionswith Germany, Austria and Switzerland as well asthe international construction consortium, toimplement measures which go far beyond thosepractised to date in the erection of dams.

The Federal Government regards it as a particu-lar achievement that it was agreed to set up anindependent panel of internationally reputedexperts to monitor compliance with the meas-ures agreed, which will support and advise theTurkish developer in realizing the project.

21

The planned Ilisu dam will create a lake with a sur-face area of some 300 square kilometres andmore than 20 islands. The picture shows thefuture location of the dam.

More than 3,800 GWh of electricity will be gener-ated every year by the six turbines and generatorsof the power station at the planned Ilisu Dam (totalcapacity 1,200 MW) from climate-friendly hydro-electric power.

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 21

It is envisaged that historically andculturally significant monuments inthe town of Hasankeyf will be re-erected in a cultural park nearbyafter the construction of the dam.Many of these artefacts will haveto be extensively restored beforebeing re-erected.


As a result of the improvements made in the pro-ject design, the IMC granted an export creditguarantee for the German export portion of theIlisu hydro-electric power station on 24th March2007. Austria and Switzerland have also madepositive decisions concerning the export creditguarantees applied for there. Further improve-ments to the project are to be implemented as itprogresses and are intended to ensure that theundertaking will comply with international re-quirements.

This means that the Federal Government cancontinue, together with the other two ECAs, towork together with Turkey to implement the pro-ject according to World Bank standards. Thewithdrawal of the three export credit insurersfrom the project – a step demanded by severalnon-governmental organizations – would in con-trast have had negative consequences for thelocal population, the environment and the cultur-al heritage, since it would not have been possible

to press through necessarymeasures. With the improve-ments now agreed, the projectwill be able to achieve WorldBank standards and thus fulfilthe requirements of the OECDenvironmental guidelines (the“Common Approaches“).

Applications were made in Austria,Switzerland and Germany for exportcredit guarantees covering deliv-eries and work to the tune of some450 million EUR in all. The totalorder value is some 1.2 billion EUR.The Federal Government will covera share of 93.5 million EUR for theconstruction of three diversionarytunnels and three pressure galleriesby Ed Züblin AG, Stuttgart. In addi-tion, it will give reinsurance amount-ing to 100 million EUR for Germandeliveries to the Austrian partner inthe consortium. For measures inconnection with the project, e.g. therelocation of the population of theregion and protection for the cultur-al heritage and the environment ofthe area, Turkey will deploy a further800 million EUR. All in all, the struc-ture will generate costs of close to 2billion EUR.

22

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 22

23

The OECD environmental guidelines

The OECD environmental guidelines were onthe agenda of the OECD Export Credits Grouponce again in 2006. The Group based itsreview on the experience meanwhile gatheredwith the operation of the rules and agreed onmodified rules for screening in April 2007. Thenew version of the OECD guidelines givesequal consideration to justified environmentalconcerns and to the need for the efficient pro-motion of exports.

Transparency

For a number of years now a wide range ofoptions have been available to the public, espe-cially via the Internet (www.agaportal.de), toaccess information about projects for whichFederal Government cover has been granted orapplied for. Thus, in cooperation with thoseinvolved in the project, details of transactionswhich received Hermes cover are publishedunder the heading „Project Information“. In linewith the provisions of the OECD environmentalguidelines, in-depth information on the environ-mental aspects of nine particularly environmen-tally sensitive projects (Category A projects) waspublished prior to the final decision on whetherto grant cover. In order to achieve greater trans-parency regarding the specific issues whichaffect the environmental impact of projects ineach sector, the appropriate checklists havebeen available on the Internet since 2006 underthe heading “Environment”. They give an idea ofwhat type of information in the various sectorsmay be of importance when making an applica-tion for cover. Depending on the details of theproject, only excerpts from these checklistsmight be relevant, but additional informationcould also be needed.

Projects with an environmental impact

Following the formulation of environmental guid-ing principles at the OECD (the „Recommenda-tion on Common Approaches on Environmentand Officially Supported Export Credits“), alltransactions with an order value exceeding 15million EUR and payment terms longer than acredit period of two years were subjected to ascreening process to determine their environ-mental impact. In 2006, this was done with atotal of 132 transactions (2005: 127) with anorder volume of 13.5 billion EUR (2005: 13.8 bil-lion). Of the transactions which underwent pre-liminary screening, 71 projects (2005: 61) with anorder volume of 5.9 billion EUR (2005: 6.2 billionEUR) were assigned to environmental impactcategories A and B and went through the in-depth environmental audit under the OECD envir-onmental guidelines.

The OECD guidelines prescribe a notificationprocedure whereby all category A and B projectsfor which a firm commitment on cover is given inthe year under review are notified to the OECD.Over and above this, Germany also publishesdetails of these projects on the Internet. In 2006this involved 4 Category A projects with an ordervalue of 522 million EUR as well as 27 CategoryB projects with an order value of 1.9 billion EUR.

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 23

The Federal Government export credit guarantees and their dialogue with industry

24


mes Kreditversicherungs-AG. Theconference programme inauguratedin 2004 aims at seeking a dialoguewith exporting industry on as broada basis as possible. This seconddialogue conference marks a furthermilestone in the longstanding con-structive cooperation between allthose participating in the process ofdeveloping and improving the

underwriting tools for thepromotion of exports. In anumber of workshops, theparticipants discussedcurrently relevant issuesrelated to the two financ-ing instruments deployedby the Federal Govern-ment. State export creditguarantees and invest-ment guarantees haveproved themselves asinstruments for promotingforeign trade over a periodof more than 50 years,which support companieseffectively and flexibly indifficult markets. Despitethe rapid changes takingplace in international mar-

kets and the economic and financialenvironment in which the covertools for promoting foreign tradeoperate, it has been possible,thanks to the ongoing contacts andexchange of views with exporters,to successfully maintain a range of

“Promoting exports and foreigninvestment“ – this was the motto ofthe export dialogue conference, thesecond on such a scale since 2004,which was held on 31st May 2006at the Federal Ministry of Econom-ics and Technology in Berlin, andwhich was attended by 250 repre-sentatives of exporting companies,banks, industry associations and

embassies. Undersecretary of StateDagmar Wöhrl opened the one-dayconference together with Dr. Ludolfvon Wartenberg, General Director ofthe BDI employers’ association andDr. Hans Janus, member of theBoard of Management of Euler Her-

cover options which is adapted toreal needs, close to the market andcompetitive. The discussion in thesix workshops revolved around thequestion in what ways currentdevelopments and issues influenceor could influence the tools for pro-viding cover. Besides many expertsfrom the export industry and fromGerman and foreign banks, foreignstate export credit insurers and theBerne Union were also representedon the panels at the workshops.This made it possible to discuss thetopics in hand in an internationalcontext. The most important resultsof the discussions, but also the newideas for further improvement of thecover tools, were summarized bythe moderators at the concludingplenary session.

The dialogue conference was opened by (from right toleft) Undersecretary of State Dagmar Wöhrl, Dr. Ludolf

von Wartenberg (BDI), and Dr. Hans Janus (Euler Hermes), seen here together with Dr. Hans-Joachim

Henckel, the Chairman of the IMC (second from right).

RZ_JB_2006 16.08.2007 14:40 Uhr Seite 24

25

The following suggestions for thefurther development of the covertools were formulated during theconstructive discussions:

� increase the cover available forlocal content,

� introduce comprehensive coverfor PPP projects as a combin-ation of export credit guaranteesand investment guarantees,

� longer credit horizons for financ-ing with matching maturities,

� speed up the application proced-ure to stay competitive com-pared with non-OECD countries(environmental screening),

� ongoing evaluation of local andinternational export credit pro-motion schemes; where neces-sary, a response to develop-ments which intensify competi-tive pressures should be coord-inated within the OECD.

Workshop I: Energy and infrastructure –the parameters for sectorswith a future

The value added created by majorprojects is more and more shiftingto the target countries. From theperspective of the participants inthis workshop, companies musttherefore bend their efforts towardsincreasing their ability to delivercomplete solutions in terms of pro-ject structuring, project develop-ment and operative control, e.g. inthe shape of BOOT projects*, pub-lic-private partnership (PPP) pro-jects and project financed deals.

* Build, Own, Operate, Transfer

The IMC experts, the moderators and repre-sentatives of the Federal Ministry of Econom-ics and Technology (from left to right): Dr.Hans-Georg Vater (MAN), Heinrich Heims(KfW IPEX), Dr. Jens Breitengroß (Jos. Hansen& Soehne), Ministerialdirigent Dr. MichaelKruse (Federal Ministry of Economics andTechnology), Ministerialdirektor Dr. Karl-Ernst

Brauner (Federal Ministry of Economics and Technology), Dr. Hans Janus (EulerHermes), Dr. Hans-Joachim Henckel (Federal Ministry of Economics and Technolo-gy), Dr. Hermut Kormann (Voith) and Dr. Hannes Hesse (VDMA)

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 25

Workshop II: Export financing in local currency – a future trend?

In the opinion of the experts fromexporting industry and the bankingworld as well as of foreign creditinsurers, the demand for financing ofexport transactions in local currencywill continue unabated. Local cur-rency financing is particularly suitedto sectors in which the companiesgenerate revenues primarily in localcurrency, such as in the telecommu-nications field. Despite above-aver-age creditworthiness and a signifi-cant improvement in the local fund-ing options available in many devel-oping countries, it is often not evenpossible for the international banksto ensure refinancing of deals in therelevant local currency.

Many export credit insurers arealready offering cover denominatedin local currency, or are planning tointroduce it, as Lars Kolte, Presi-dent of the Berne Union, explained.They are responding in this way tothe needs of their exporting com-panies while at the same time re-ducing the risk involved in a possibleclaim by granting a state exportcredit guarantee in local currency.For this reason, some ECAs already

26


Workshop III: Financing of foreign invest-ment – challenges withpractical examples fromcompanies’ experience

The dividing line between the sim-ple delivery of goods and a long-term commitment (investment) isbecoming increasingly blurred ininternational projects. SMEs, too,often find themselves obliged to actas a system provider or as a gener-al contractor – i.e. an investor. Thismeans a comprehensive and long-term commitment in risky foreignmarkets, and a crucial prerequisitefor this is appropriate protectionagainst the risks involved.

Federal Government investmentguarantees can be included in thefinancing of a company if it is equi-ty participation, a shareholder loanor some other innovative form ofinvestment (e.g. investment fundconstructions). In practice, thedeployment of the cover tools pro-vided by the Federal Government

offer a premium discount for suchbusiness. Local interest rates high-er than those customary in WesternEurope were also being accepted,since the advantage conferred bythe reduction of risk far outweighedthe increased nominal risk of in-demnification.

The Federal Government has itselfalready insured the first transactionsin local currency. The participantsurged that the scope of cover avail-able for local currency financingshould be further expanded and, inview of the need for a level playingfield, should be brought into linewith the flexible and pragmaticapproach of other ECAs.

Undersecretary of State Dagmar Wöhrl and theChairman of the IMC, Dr. Hans-Joachim

Henckel talking to participants of the conference.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 26

(export credit guarantees, invest-ment guarantees and guaranteesfor untied loans) in flexible combin-ations tailored to the project in ques-tion has proved to be the best wayof securing the great variety ofmodern investment forms and pro-ject constellations.

According to the views expressedby exporters and representatives ofthe banks, there is at present a needto do something to create appropri-ate forms of cover, especially fordeals with a volume of 10 - 15 mil-lion EUR. Representatives of bankssuggested discussing the possibil-ities of a „project finance light“ con-cept with exporters and the min-istries in order to standardize proced-ures as far as possible and draft acatalogue of defined requirementsas to security instruments and re-view criteria.

In view of this divergent develop-ment, the export credit insurersshould focus their cover policymore closely on the situation in theindividual countries.

Representatives of the export cred-it insurers present at the workshopexplained that cover policy wasbeing adapted to the improved eco-nomic situation on an ongoingbasis, and that a slight upwardtrend could be detected in the vol-ume of business accepted for cov-er. There were however still nomajor infrastructure projects in theregion which could help to developthe countries and which would pro-vide an opportunity to use the otherinstruments for promotion of ex-ports.

Workshop IV: Focus on Africa – perspectives for Germancompanies

The participants expressed theirfundamental optimism with regardto the future prospects for develop-ment in Africa, and thus also for thebusiness opportunities there forGerman exporters. Sub-SaharanAfrica in particular is regarded asholding out the promise of above-average growth. Progress in privat-ization initiatives, the standardiza-tion of exchange rates and theirfree float as well as further liberal-ization of markets have already cre-ated a greater degree of trans-parency and planning reliability forcompanies. Representatives of thebanks reported on positive devel-opments in the local banking sec-tor. The impact of this stabilizationprocess was seen above all in theimproved credit portfolios of thelocal banks. This has increased thefinancing capacity available foradditional export projects fromGerman companies. Grave prob-lems such as insufficiently function-ing institutions and ahigh level of corruptiondid however persist incertain countries.

27

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 27

28


Workshop V: Export credit guarantees forsmall and medium enterpris-es – ideas and impulses forstronger support

„Hermes guarantees are moreimportant than ever today for smalland medium enterprises.“ Thisassessment was shared by thenumerous participants at this work-shop. The increasing internationaldivision of labour meant that forcompetitive reasons the present lim-its imposed on the inclusion of for-

eign goods in cover were no longerappropriate. Greater flexibility, notonly in individual cases, could beprovided by a general increase in thelimits, expansion of the permissiblescope of local deliveries and theexpansion of reinsurance agree-ments with non-OECD countries.Besides the order value, follow-on

business which wasalready agreed at thetime of signing thecontract such as main-tenance or the supplyof spare parts couldalso be taken into con-sideration when calcu-lating the level of per-missible deliveriesfrom subcontractors.The proposal was alsomade not to make eli-gibility for cover de-pendent on a certainproportion of valueadded being created inGermany. Other ECAs,

for instance, have already gone overto requiring merely a „national inter-est“ to be present in the exporttransaction.

From the exporters’ perspective, theself-retention rates currently appliedfor supplier credit cover (15 % forcommercial claims) are no longer inline with the needs of the times,

since the exporters themselves alsocarry out a professional-standardcheck on their customer’s creditwor-thiness and have good loss man-agement procedures when prob-lems occur. Thus there was no plaus-ible reason why they should be putat a disadvantage compared withthe banks with their 5 % self-reten-tion. In order to improve the refi-nancing options for exporters, it wassuggested that the self-retentionshould be reduced to 5 % in favourof a bank which bought the receiv-ables or to release the bank from theclause prohibiting it from insuring theself-retention elsewhere, on the con-dition that it agreed to bear the self-retention on the difference of 10 %.

Against the background of a gap inthe palette of financing available forsmall order values, the banks pre-sented a model for discussion whichwould provide solutions for „smalltickets“, i.e. export transactions from250,000 to 5 million EUR and withmedium-term credit periods. Thebanks are currently of the opinion,however, that they can meet suchneeds adequately. It was suggestedthat the options available under pro-ject finance cover should be appliedfor smaller business volumes in thearea of medium-term capital goodsexports.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 28

29

Workshop VI: Ethics and business – faircompetition through prevent-ive action against corrup-tion – the role of the exportcredit guarantee schemes

The discussion here centred on the„Action Statement on Bribery andOfficially Supported Export Credits“which was reviewed and modifiedby the OECD Export Credits Groupin May 2006. The Federal Ministry ofEconomics and Technology wel-comed the new action statement asa clear commitment to combatingcorrupt practices in a form whichdid not burden exporters by intro-ducing unnecessary bureaucraticprocedures into applying for cover.

Transparency International alsogave a positive assessment of theAction Statement on Bribery. In theinterests of fair competition, it wasindispensable to pursue determinedand comprehensive measuresagainst corruption. This was as truefor the exporting companies as forthe state: corruption carried the riskof severely damaging an exportingcompany’s reputation, but also thatof the Federal Government if theygave cover for a transaction taintedby corruption.

Representatives of exporting com-panies supported the goal ofachieving a competitive arena freeof corruption, but reminded theaudience that structural changes in

the importing countries need a longtime in their experience. An ex-porter would only be able to influ-ence these change processes if hewas himself active on the marketconcerned (“business-inducedchange”). It was hardly a respon-sible course of action in entrepre-neurial terms – also thinking of theeffects on jobs – for acompany to withdrawfrom foreign marketsbecause of possibleproblems with corrup-tion.

There was some worryon the part of ex-porters that the state-ment from the OECDcountries might act toperpetuate inequalityof competitive condi-tions with suppliersfrom non-OECD coun-tries. Thus the meas-ures should not beaddressed exclusively to exporters,but should also be applied in theprocedures for the award of con-tracts abroad.

The Ministry of Economics andTechnology stressed that the ActionStatement was in no way intendedto induce German companies towithdraw from certain markets. Its

purpose was, on the contrary, toenable entry to markets on fair con-ditions. All participants were inagreement that a comprehensiveplan for combating corruption mustnot only involve exporters andexport credit insurers, but also thegovernments of the importing coun-tries and the foreign buyers.

From left to right: Caspar von Hauen-schild (Transparency International) talkingto Ministerialdirigent Dr. Michael Kruse(Federal Ministry of Economics and Tech-nology).

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 29

30


Important innovations and issues

The Federal counter-guaranteeenhances liquidity for small andmedium-sized enterprises

The counter-guarantee introduced as of 1st Janu-ary 2006 enables exporters to put up the contractbonds which are usually required in foreign tradewithout restricting their liquidity.

The contract bonds issued by banks are normal-ly set off against the exporter’s credit line. On topof this, security is usually asked for the issuanceof the bond – often in the form of a charge overthe advance payment sum as collateral. This con-strains the exporter’s liquidity.

The counter-guarantee can provide relief in thissituation. The basic idea of the counter-guaranteeis the promise from the Federal Government, itselfequivalent to a guarantee, to reimburse to theguarantor up to 80 % of the sum which he has topay out in the event of the contract bond in favourof the foreign buyer being called – either fairly orunfairly – by the foreign customer. This meansthat the Federal Government takes over in largepart the risk for the guarantor that the latter isunable to successfully take recourse for compen-sation to the exporter. This enables the guarantornot only to refrain from demanding further collat-eral from the exporter, thus constraining his li-quidity, but in addition makes it unnecessary forhim to charge the amount of the bond issued byhim against the exporter’s credit lines.

The maximum liability of the Federal Governmentin respect of all counter-guarantees assumed is80 million EUR per exporter.

Mr Kronitz, how did theintroduction of this newform of cover go?

As we had expected, there was astrong demand from exporters andbanks for information when thecounter-guarantee was introducedon 1st January 2006. For this rea-son we held eleven workshops allover Germany at each of which atleast two of our counter-guaranteeexperts were present. Our primarytarget group in this direct dialoguewere the bankers, so as to achieveas broad an impact as possible onthe people who advise exporters onthe financing of their export trans-actions. In addition to this, our clientadvisers were very active and also

Interview withLudwig-RüdigerKronitz, Head ofSales Organisa-tion for the Export CreditGuarantees

RZ_JB_2006 21.08.2007 14:42 Uhr Seite 30

held numerous information meet-ings in the local chambers of indus-try and commerce as well as advis-ing many of their clients personallyall across their sales areas.

How has the counter-guar-antee gone down withexporting industry?

This new form of cover has met withan excellent level of acceptance andwe are registering continuing briskdemand for it. The first requestsalready came in in January, and all inall 121 applications were receivedfrom 45 companies in 2006 with atotal volume of about 600 millionEUR. 18 of these companies, all ofthem small or medium businesses –are making their first application fora Federal export credit guarantee –and precisely because of the coun-ter-guarantee.

The figures are evidence of thepositive echo from exporters andbanks. A particularly successfuloutcome from our point of view isthat we have come into contact withmany exporters and bank advisersthrough the counter-guarantee whowere not clients of ours up to now,and who we were able to inform

about the options available underthe state export credit guaranteescheme with the counter-guaranteeas our starting point.

Were there any special fea-tures involved in the intro-duction of the counter-guar-antee?

Our first experience has shown thatit is not possible up to now to han-dle the counter-guarantee in thebanks in a completely automatedprocess; part of the work has to bedone manually. In the meantime,however, most of the banks haveintegrated the special features ofcover under a Federal counter-guar-antee into the internal IT workflow oftheir bonding business.

Are there plans todevelop the counter-guarantee further?

The feedback from ex-porters and banks doesnot suggest that there isany immediate need toadapt this form of cover. Of course,we are keeping our finger on thepulse of the market and are con-

stantly talking to the exporters andbanks so as to be able to respondas needed to changes as they occurand to adapt our cover tools tochanging requirements. At the sametime we will continue to inform theexport industry at our presentationsabout the advantages of the coun-ter-guarantee and the various waysit can be used. On top of this, ourclient advisers in the sales officesand the experts in Hamburg will beglad to advise all those interestedany time they wish to arrange ameeting.

31

The team which developed the Federalcounter-guarantee (from left to right): HansSchlütter, Dr. Roland Scheibe, MatthiasBöckl and Ludwig-Rüdiger Kronitz

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 31

The wholeturnover policy withgreatly improved conditions

The reworked wholeturnover policy introduced atthe beginning of 2006 is now since that timeeven better tailored to business needs and moreflexible in use. In this spread policy for exportbusiness on short payment terms to countriesoutside the EU or the OECD core countries, theexporter can now choose in what countries hewants to include all private buyers in his cover.On top of this, he has the option to includereceivables due to his foreign subsidiaries,receivables due from foreign associated com-panies, from public buyers, secured by letter ofcredit and service business within his whole-turnover policy. The new system for calculatingthe premium takes risk factors specific to theindividual policy into account and the loss experi-ence of the policy is factored in through a systemof premium loading points.

Modified conditions for creditline facility cover

Credit line facility cover bundles a large numberof small credits with a foreign company or a for-eign bank in a much simplified and thereforecost-effective procedure. Order values up to 10million EUR (previously 5 million EUR) can beincluded under this blanket cover simply by noti-fying the individual credit amount without carry-ing out a prior check. Individual credits with ahigher order value can also be included on acase-by-case basis provided that the FederalGovernment has already given its consent tosuch inclusion when assuming cover for thetransaction.


32

New anti-corruption measuresfor state export credit insurance

The measures decided in the new version of theOECD Action Statement on Bribery and OfficiallySupported Export Credits in May 2006 wereintended to come into force as of 1st January2007. Based on this resolution, additional infor-mation has been required to be given in applica-tions for cover (Appendix: „Preventing corrup-tion“). If the details given or indications from othersources give reason to suspect a connectionwith corruption, in-depth investigations becomenecessary when checking applications for coveror claims advices which are currently beingprocessed. Export transactions booked as aresult of corruption will not be covered. If evi-dence of corruption comes to light later, claimswill not be indemnified (cf. P. 69).

Calculation of premium on a risk-based system

Since 1st May 2006, the premium for specificguarantees for private buyers has been calculatedon a new risk-based system which divides buyersinto five categories with different buyer sur-charges. These categories take account of thebuyer’s creditworthiness, payment behaviour andother special features of an export transaction.

Both the old and the new system ran in parallelfor a transition period of three months, wherebythe premium more favourable for the exporterwas charged. This practical solution and thepragmatic way it was handled facilitated theswitch to the new system. Initial worries on thepart of the exporters that there would be diffi-culties in assigning buyers to the right categoryhave turned out to be groundless. Due to thesmall number of risk categories, they are able todetermine the correct premium rate with greataccuracy at an early stage of proceedings whencalculating their quotation.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 32

The export credit guarantee schemewas represented at numerous tradefairs and other events during the yearunder review.

33

Together with the increase of authority for themandataries as of 1st January 2007 the frequen-cy of IMC meetings, till now every three weeks,changed to every four weeks. This new rulinggives the IMC greater scope for the discussion ofdecisions with a fundamental dimension. In casesin which time is absolutely of the essence theIMC can be convened flexibly for an additionalextraordinary session. The frequency of SmallIMC meetings also changed from weekly to fort-nightly.

The dialogue with industry goeson – small and medium enter-prises

Besides the central conference held at the Fed-eral Ministry of Economics and Technology,there were 126 further meetings, trade fairs andpresentations, at which experts from the man-datary consortium and in some cases also repre-sentatives of the Federal Ministry of Economicsand Technology informed participants about theexport credit guarantee programme andanswered questions from banks and exporters atfirst hand. Many events took place in coopera-tion with chambers of commerce, industry asso-ciations or banks. 48 of these events werespecifically aimed at the target group of smallbusinesses. In the current year, too, there will be

the chance to contact the repre-sentatives of the Federal Ministryof Economics and Technology aswell as the experts of the man-datary consortium at conferencesand trade fairs. The dates of thesecan be seen in the calendar ofevents on the website (www.aga-portal.de).

Reducing bureaucracy

Speeding up decisions

A wish expressed by many respondents in thecustomer satisfaction study carried out in 2004was that the application procedure for covershould be speeded up. Following intensive dis-cussions between the ministries and the man-datary consortium, the authority of the SmallInterministerial Committee to make decisions oncover was increased in principle to transactionsup to 10 million EUR and that of the mandatariesto 5 million EUR. This extension of the authorityof the small committee and the mandataries willbenefit above all SMEs with small export trans-actions, since decisions on cover for these canbe made more swiftly in future. Only transactionswith an order value exceeding 10 million EURmust in principle be placed before the Interminis-terial Committee (IMC).

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 33


Special forms of cover

Project finance and structured finance

Demand for export credit guarantees for projectfinanced and structured finance business contin-ued to gain momentum in 2006. These financinginstruments provide options for realizing high-revenue projects which are not suitable for clas-sical forms of business finance and require indi-vidually tailored security schemes and repaymentprofiles.

In the past year an increasing trend in projectfinanced transactions towards investor-initiatedmulti-sourcing projects (projects in which ex-porters from different countries with multi-national financing are involved) was recognizable.The investor here is a so-called sponsor, whodelegates the task of working out the overallfinancing design to a “financial advisor“, general-ly an internationally active bank. The first contactfor the Federal Government or its mandatedagents in new, large-scale project financeschemes is thus more and more frequently thebank advising the foreign sponsor, before it isfinally decided which exporters are going to beinvolved in the project.

In all, the Interministerial Committee gave com-mitments for cover for five project finance trans-

The realization of twoproject financed deals inSaudi Arabia:

The focus in project finance busi-ness over the year just ended wason the Middle East, and here in par-ticular on Saudi Arabia, wherenumerous projects are currently inthe process of being realized. Alarge number of projects for the fur-ther processing of the mineralresources available and in infra-structure expansion are alsoplanned for the future in this region.Last year the Federal Governmentwas able to make a contribution toensuring that German companieswill also participate in this invest-ment boom by assuming cover fortwo major projects in Saudi Arabia,thus enabling them to establish orconsolidate their position in thisfiercely contested market.

Linde AG is constructing an olefin complexin Saudi Arabia. This major order is an

important keynote project for the Germancompany in the region.

34

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 34

„Shuaibah“ is an infrastructureproject intended to ensure the sup-ply of drinking water to the Saudipopulation. The Federal Govern-ment assumed cover in this casefor an oil-fired steam power stationin conjunction with a seawaterdesalination plant. The project isbeing realized by an internationalconsortium under the lead ofSiemens. The overall order volumeis some 2.45 billion US dollars. Thecovered deliveries from Siemenscomprise three steam turbosetswith an output of 400 megawatts(MW) each, as well as the associat-ed electrical engineering equip-ment and control systems. Aftercommissioning in mid-2009 thetotal plant capacity will thus besome 900 MW net. Part of the elec-tricity produced, 300 MW, will beneeded to power the connectedseawater desalination plant, whichwill then supply some 883,000 m3

of drinking water a day to the citiesof Mecca, Jeddah, Taif and Al-

Baha. Similar projects are plannedfor the future to further improvewater supply.

On the private enterprise front, theFederal Government supports theproject finance deal „SEPC“ to but-tress the downstream activities ofthe petrochemical sector in SaudiArabia. A consortium of Saudi andinternational sponsors has con-tracted with Linde AG as well asother firms for the erection of anintegrated olefin complex with atotal order value of 2.6 billion USdollars. The core element of theoverall project is an ethylenecracker, which will be built underthe technical supervision of Linde.The purpose of this is to splitethane and propane primarily intoethylene and propylene. Theseintermediates will be further proc-essed in two connected polymeri-zation plants into high densitypolyethylene (HDPE) and low dens-ity polyethylene (LDPE). The final

products will then be marketedworldwide via the sponsors’ distri-bution network. This major order isanother good reference for Linde inthis important region and is anexcellent platform for getting fol-low-on contracts.

The construction of an oil-firedsteam power station in conjunctionwith a seawater desalination plant isintended to secure the drinkingwater supply for the Saudi popula-tion in the cities of Jeddah, Al-Baha, Mecca and Taif. Siemens isdelivering three steam turbosetsand the associated electrical engin-eering equipment and control sys-tems for this project.

35

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 35

36


actions with an order value of some 1,341 billionEUR in 2006 (2005: 533 million EUR). Thismeans that the volume of project financed busi-ness almost tripled over the previous year’s fig-ure. This reflects the importance of this form offinancing for large-scale plant. Besides a powerstation in Bulgaria, two projects in Saudi Arabia –a steam power station with a seawater desalin-ation plant and an integrated petrochemical com-plex –, a wind farm in Taiwan and a steelworks inthe USA were covered.

Brisk demand for project financed deals is alsoon the cards for 2007. Six further projects with atotal order value of some 1.7 billion EUR are inpreparation. These are major projects in theenergy, aluminium, transport and oil and gas sec-tors, mainly in the Middle East as well as in Asiaand Central America.

The result in structured finance transactionswas up by more than a third on the precedingyear’s already very good figure. The Interminister-ial Committee granted cover for four projectswith a total order value of 1.3 billion EUR (2005:969 million EUR). The lion’s share of this isaccounted for by a single project in the petro-chemical sector in Trinidad and Tobago with anorder value of c. 1 billion EUR. Besides this, thereare also further major projects in Argentina andIndia. For Argentina, this was the first time that a big structured finance transaction in SouthAmerica was covered again.

The expansion of an aluminium works in Bosnia-Herzegovina is also worthy of mention. The Fed-eral Government already supported the alumini-um works with a guarantee within the frameworkof a structured finance scheme in 2000, in orderto rebuild productive capacity after the destruc-tion wreaked by the war. The company hasdeveloped positively since that time, so that itwas now possible to secure this further expan-sion by means of an export credit guarantee.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 36

37

Structured finance deal combined power station Aluar

For the first time in several years,structured finance cover was givenagain for an Argentine project in2006.

This involves the delivery of equip-ment for the construction of a gas-fired 465 MW combined power sta-tion in Puerto Madryn, about 1,400km south-west of Buenos Aires, byALSTOM Power Generation AG inMannheim. The buyer is Aluar Alu-minio Argentino S.A.I.C., which re-quires additional electricity due tothe envisaged expansion of capaci-ty at its aluminium smelter.

A gas-fired combined power stationis the first Argentine project for sev-eral years to be realized via a struc-tured finance scheme. The companywhich will build and operate it isALSTOM Power Generation inMannheim.

“Aluar” was among the 35 transac-tions selected to receive the award“Best Deal of 2006” given by GlobalTrade Review magazine. In all, thetitle was awarded to eight exporttransactions covered by Hermesguarantees. The award “Best Deal of2006” is given in recognition of out-standing and innovative examples offinancing and security models in theexport financing area.

The financing of the overall projectis on the one hand to be realizedfrom Aluar Aluminio ArgentinoS.A.I.C.’s own funds and on the otherby means of a commercial loan andtwo state-covered term loans, oneof them secured by the French ECACoface. The guarantee from theFederal Republic of Germany, incontrast, is in respect of the loanfrom a consortium of banks includ-ing KfW IPEX-Bank, with CitigroupGlobal Markets Deutschland AG &Co. KGaA, Frankfurt as lead partner,which is secured by, among otherelements, the assignment of theright to receive payment out of theproceeds of sales of aluminiumfrom existing production. The pow-er station is projected to come onstream at the end of 2007.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 37


Offers of cover in principle have already been giv-en for two further transactions with a total ordervalue of 136 million EUR. These projects are partof a structured finance scheme in Africa. Appli-cations have been received for another threeprojects with an order value totalling 220 millionEUR. The planned projects are in very diversesectors: from air transport to telecommunica-tions and in timber processing, the petrochem-ical sector and steel.

More and more, one-off transactions whichneed in-depth scrutiny are being applied for.These are not designed as structured finance orproject financed deals, but for rea-sons of creditworthiness businessplans are required and have to beanalyzed in greater detail. Based onsuch an examination, it was pos-sible to give an offer of cover in prin-ciple to a project in the automobilesector in the Ukraine for 44.6 millionEUR. An additional three projectswith a total order value of some 180million EUR also received offers ofcover.

38

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 38

39

Structured finance dealammoniac-UAN-melamine (AUM) complex

The Essen-based MAN FerrostaalAG is building a large-scale integrat-ed petrochemical complex inTrinidad and Tobago over a con-struction period of some three yearsin cooperation with Proman(Trinidad) Limited. The buyer isMethanol Holdings (Trinidad) Ltd.,Point Lisas („MHTL“).

The turnkey complex is based ontried and trusted technology andconsists of six individual plants.From 2009 onwards primarily theproducts UAN and melamine will beproduced from natural gas for theworld market. UAN is a liquid fertil-izer, while melamine is used in numer-

ous end products, e.g.for the surface coatingof laminate flooring andfurniture.

The project has a finance volume of1.24 billion US dollars and isdesigned as a structured financedeal. The so-called non-standardterms introduced by the OECD as of1st July 2005, which allow moreflexible payment terms, will beapplied here. The financing volumeconsists of a commercial trancheand a loan from a European bankconsortium under the lead of KfWIPEX-Bank, Frankfurt secured by anexport credit guarantee.

The security scheme is on the linesof that for the eight methanol plantsin Trinidad and Tobago, which weresimilarly secured by means of exportcredit guarantees and realized with-in the framework of a structuredfinance or project finance design. Inthe present financing scheme –besides the future products from thecomplex to be constructed – pro-ceeds from the ongoing sale ofmethanol from existing productionat MHTL are included.

This, the largest project by a privateinvestor on the islands to date, isintended to drive forward the furtherdiversification of the country’s petro-chemical sector.

Over a period of about three yearsMAN Ferrostaal AG will build amajor petrochemical complex inTrinidad and Tobago. After comple-tion, the plant will primarily producethe liquid fertilizer UAN andmelamine, which is used for coat-ings in the furniture industry.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 39

40


Aircraft business

As in the preceding years, the market environ-ment in the year under review was propitious forthe sale of Airbus aircraft. Thus Airbus delivered434 aircraft in 2006 (2005: 378, 2004: 320); 60of these were covered by guarantees from thegovernments of Germany, France and the UnitedKingdom (2005: 75, 2004: 68). The main focusof cover given was for 46 aircraft of the A320family. 14 Airbus guarantees were issued in theyear under consideration for wide-body aircraft(A330/A340). The German share of manufacturesecured by means of export credit guaranteeshad a volume of 932 million EUR (2005: 1.4 bil-lion EUR, 2004: 1.2 billion EUR).

In 2006 once again, no new claims occurred inrespect of the loan guarantees for Airbus air-craft. At the same time itproved possible to suc-cessfully market aircraftheld as salvage underexisting claims due to thebuoyant demand for sec-ond-hand aircraft. In orderto be even better pre-pared to sell on aircraft inthe event of future claims,one of the global leadersin the aircraft sector wasselected. By planning a

professionally run marketing operation for futureAirbus claims, the three ECAs involved in Airbuscredit insurance are aiming at further optimizingthe efficiency of their claims management pro-cedures.

The market launch of the Airbus A380 has beendelayed due to production problems by an aver-age of two years. As a result of this, state-insuredA380 projects will only become concrete at a laterdate than was first expected.

RZ_JB_2006 21.08.2007 14:42 Uhr Seite 40

Shipping business

In terms of the number of newly covered trans-actions in the merchant shipping sector, 2006was one of the most successful years ever forthe Federal Government export credit guaranteescheme. All in all, ten transactions with a totalvolume of some 1.462 billion EUR were covered.This means that the Federal Government hasgiven export credit guarantees for shippingfinance to the tune of some 4.4 billion EUR since2001. Particularly noteworthy in this context isthe shipyard Meyer Werft, Papenburg, with twonewly built cruise liners with a total value of 1.040billion EUR for the Royal Caribbean Cruise Lines,Miami. On top of this, the Meyer Werft was ableto book the 24th passenger ferry for Indonesia,thus demonstrating once again both their ownexcellent market position and the high quality ofGerman shipbuilding. As in prior contracts, partof the order value will be financed from fundsprovided for financial cooperation by the FederalMinistry for Economic Cooperation and Develop-ment. Alongside the promotion of Germanexports, the Federal Government has been con-tributing for years now in this way to expandingthe transport infrastructure in Indonesia underdevelopment aid programmes.

German shipbuilders have in general a goodposition on the world market for the constructionof highly complex and innovative special-pur-pose ships. A good example of this is the orderfrom the German/Danish shipping line CombiLiftfor the construction of two dock ships whichwent to Lloyd Werft in Bremerhaven. There isstrong demand for these specially designedships for the transport of general cargo andgoods in connection with projects as well as forheavy loads, particularly in the plant constructionindustry and the offshore sector. The order forthe construction of the hull was subcontracted toa Polish shipyard. The Interministerial Committee

41

Airbus delivered 434 aircraft in the year underreview, of which 60 were secured by an Air-bus guarantee. These comprised predom-inantly aircraft of the A320 family.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 41


42

gave a guarantee for shipping finance in this casefor the first time based on a reinsurance agree-ment with the Polish export credit insurer KUKE.

The Lloyd Werft established a good reputationfor itself in the past, especially in shipping repairsand the elongation of ships. The InterministerialCommittee was therefore able, besides the twodock ships, to give cover for two contracts ofLloyd Werft for the elongation of the two passen-ger ferries “Stena Britannica“ and “Stena Hol-landica“ belonging to the Swedish Stena Line forc. 100 million EUR. As in the case of other ship-ping orders, full advantage was taken of the new-ly available option from the Federal Governmentto take out, in addition to manufacturing risk orexport credit guarantees, a counter-guaranteecovering the contract bonds issued. In view ofthe high financial strain caused by the regularlylarge volume of new construction, the Federal

counter-guarantee providesrelief for the credit lines ofthe mostly small and me-dium-sized shipyards. Thisensures that they have the

liquidity to make the future investments neces-sary for safeguarding the jobs and the marketposition of the German shipyards.

Export credit guarantees for military equipment

Export credit guarantees for military equipmentonly make up a very small share of total coverunder the export credit guarantee scheme. Thereason for this is the generally very restrictive pol-icy adopted by the Federal Government regardingthe export of military equipment. On average, theshare of military goods in newly covered ordersduring the years 1997 to 2005 was less than 3 %,in 2006 it stood at 5.8 %. These figures alsoinclude goods for which an export licence isrequired which go to military end users, but whichare not military equipment in the more specializedsense of the word. Where a higher share wasposted in individual years, this was due to coverfor major single items, e.g. naval vessels. Theseare also used by the buyer countries for coastaldefence purposes and for combating internation-al criminal activities. The decision on whether togive cover for military equipment is only made bythe Interministerial Committee for the FederalGovernment export credit guarantee scheme

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 42

43

ests of the Federal Republic of Germany. This isnormally regarded as being the case for deliver-ies to NATO partners.

Comprehensive details of the military equipmentexported overall by Germany can be found in thereports on military exports published annually bythe Federal Government. Since the granting of anexport credit guarantee is often not decided inthe same year as the issuance of the exportlicence, however, the information on the volumeof cover for military equipment does not corres-pond directly with the details given in the reporton military exports for the same year.

Heavy lift carriers are specializedships for the transportation of

awkward heavy and hazardouscargo. Thanks to their onboardheavy lifting gear they can loadheavy items of equipment inde-

pendently of land-based loadingequipment. The brisk demand

for this type of ship is particularlydriven by China, which has a

great number of power stationand industrial projects, and the

Middle East with many gas plantand refinery projects.

(IMC) after close scrutiny on a case-by-case basistaking into account its eligibility for cover andwhether it is justifiable from a budgetary perspec-tive. On top of this, it is a mandatory prerequisitefor granting cover that all approvals which may berequired under the Law for the Control of the Saleof Weapons (Kriegswaffenkontrollgesetz) and/orthe Foreign Trade and Payments Law (Außen-wirtschaftsgesetz) have been given. Theseapprovals are only issued after a separate strin-gent examination by the competent authorities instrict compliance with the international andnational laws and regulations.

When checking the eligibility for cover of trans-actions involving military equipment, a review isalso carried out in each case to determinewhether the export of the goods is in the inter-

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 43

44


Country cover policy

A central aspect of the work of the Interminister-ial Committee (IMC) is setting cover policy inaccordance with the risks actually present inthe various buyer countries. This forms thebasis for the individual decisions to grant Her-mes guarantees. When deciding country coverpolicy the Committee makes a distinctionbetween cover for short-term and extended-term business.

There are almost no restrictions on short-termcover with credit periods up to one year. It isprecisely in short-term business that the FederalGovernment demonstrates its willingness tomaintain cover for a country when payment dif-ficulties are experienced, since here there is arelatively good chance of reacting quickly tochanges in the level of risk. In this way it canhelp to enable buyers in crisis-ridden states tocontinue importing crucial goods. How differen-tiated the cover options can be depends par-ticularly on the requirements for security instru-ments. It is only in relatively few countries whichpose a particularly high risk or have unregulatedoverdues that the facilities for short-term coverare suspended.

Risk mitigation measures are mostly taken by theIMC for medium and long-term cover, in as faras there is no possibility of unrestricted opencountry policy due to specific country risks. Therisk situation has improved over recent years dueto the positive economic development in manycountries, thus enabling the IMC to extend theoptions for cover accordingly and to ease exist-ing restrictions.

Measures to mitigate risk are the setting of acountry cover ceiling with a maximum credit limit and the stipulation of a transaction limit, as well as requiring security instruments whereappropriate. When the IMC puts a country ceilingin place, this allows cover for medium-term busi-ness in the country in question to be granted upto the maximum limit. When it becomes clearthat the ceiling will be exceeded, the IMC exam-ines the possibility of setting a further ceiling orconsiders whether other cover options would bepossible or necessary. In order to enable a largenumber of exporters and banks to use the coverlimits in equal proportions, a transaction limit forindividual transactions is set.

There is also the option, despite the limitedavailability of cover, to grant guarantees in thecase of special eligibility for cover to small-scaleprojects. As a rule, there is also a chance toobtain cover outside the ceilings in the form ofproject financed and structured finance deals, inwhich the credit risks are removed outside thebuyer country.

CIS countries, Central and Eastern European countries,South-East Europe

Economic growth in the CIS countries contin-ued to stabilize, buoyed up by the upturn in theoil and gas sector. As a result of this there wasa further acceleration in the business underexport credit guarantees in important core mar-kets. The favourable economic environment inthe region allowed the Interministerial Commit-tee to further increase the amount of cover

RZ_JB_2006 21.08.2007 14:42 Uhr Seite 44

45

available, making an important contribution inthis way to increasing the competitiveness ofGerman exporters and banks. As of 1st January2007, Bulgaria and Romania joined the Euro-pean Union, thus automatically giving them thestatus of countries with marketable risks. Thismeans that state export credit cover can nolonger be given for short-term business withthese countries.

CIS countries

As in the preceding year, Russia led the field withthe highest cover volume of all markets world-wide in 2006. The volume of 2 bil-lion EUR represented an increase of12 %, with the rise in volume ofcover mainly in medium-term busi-ness. New projects in chemicalplant construction, the telecommu-nications sector and the steelindustry played, among otheritems, a part here. There have nolonger been any restrictions undera country ceiling since 2003. Forthe first time all projects were grant-ed cover without security from astate guarantee. In the case ofbusiness on credit terms the sharecovered on a corporate risk basis,i.e. based on the Russian buyer’screditworthiness, remained stableat a high level, accounting for 67 %.The precondition for this is the sub-mission of annual financial statements drawn upaccording to international accounting standards.The remaining 33 % (2005: 26 %) of cover was

ESCON Engineering,Services and Consult-ing GmbH is supplyingapparatus and equip-ment for the extensionand expansion of asugar factory in Russia.The company insuredthe manufacture, deliv-ery and installation ofthe plant by means of amanufacturing risk andexport credit guarantee.Due to the high propor-tion of componentssupplied from France

and Norway, the ECAs Coface(France) and GIEK (Norway) areinvolved as reinsurers in this project.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 45

Achenbach Buschhütten GmbH took out a manufacturing riskand export credit guarantee in 2005 to insure the production

and export of aluminium rolling mills, roll grinders and annealingfurnaces. These were delivered to Rusal Armenal CJSC in Ere-van – a subsidiary of the Russian Armenal CJSC – as part of acomprehensive modernization programme to resume the pro-

duction of aluminium.

This was the first Hermes guarantee for business in Armenia for 20 years. The project is a crucially important one for the economy of the country. By producing to Western quality standards it is intended to increase the share for export, thus generating revenues in hard currency.

46


given on the basis of bank guarantees. Besidesthe banks already generally recognized, Vnesh-torgbank, Sberbank, Vnesheconombank andGazprombank, more than 50 further banks aremeanwhile recognized on a case-by-case basis.Economic growth of 6 %, markedly improvedhard currency reserves, continuing budgetaryand current account surpluses as well as theearly repayment of foreign debt to the Paris Clubcompleted in 2006 reflect Russia’s current eco-nomic strength. In February 2007 Russia wasplaced in premium category 3. In the run-up tothe presidential elections of 2008, however, theimplementation of important structural reformsremains a central priority.

Of the other CIS countries, newly covered busi-ness with the Ukraine rose markedly by 23 %

(279 million EUR). After a solution was found forthe issue of the pricing of Russian gas deliveriesand due to the relatively stable political situationas well as the brisk demand for steel products,the bad patch in growth the country wentthrough in 2005 was overcome. Since experi-ence all in all was good, the Interministerial Com-mittee renewed the ceiling of 250 million EUR inJanuary 2007.

A comparably high level of cover was given forKazakhstan with 256 million EUR. The volume ofbusiness jumped by almost 60 % year-on-year,mainly due to a major project in the plant con-struction area. Favourable developments in theoil and gas sector as well as in the constructionindustry are fuelling economic growth across theboard. Through measures such as the so-called

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 46

By means of a combined manufacturing risk,export credit and tied loan guarantee, SMS MeerGmbH insured the export of an assembly line forseamless tubing to Belarus within a structuredfinance framework. All the components for theplant were delivered in March 2007 and the fac-tory was put into production in July.

47

cluster initiative to diversify eco-nomic activity, efforts are beingmade to expand the non-oil sectoras well. The IMC removed the ceil-ing in place up to then in February2007, so that an open cover policyhas operated since that time.

The demand for cover for Belarus,with a volume of 202 million EUR,continued to be high, althoughwithout repeating the record resultof 2005 (267 million EUR). Agricul-tural machinery has traditionallyplayed a major role in insured Ger-man exports here. In January 2006the Committee made a ceiling of 75 million EURavailable, which was raised to 100 million EUR in

October. After this had beenexhausted, the IMC then put a newceiling of 100 million EUR in placeat the beginning of 2007. In view ofthe adjustment of the prices forRussian oil and gas to world mar-ket levels, the ongoing develop-

ment of the Belarussian economy is being close-ly watched.

AzerbaijanUkraineSerbiaUzbekistanBelarus

200250200150100

Country ceilings in million EUR

Azerbaijan Category 5 previously Category 6Bulgaria Category 3 previously Category 4Georgia Category 6 previously Category 7Latvia Category 3 previously Category 2Macedonia Category 5 previously Category 6Romania Category 3 previously Category 4Russia R.F. Category 3 previously Category 4Slovenia Category 0 previously Category 1Ukraine Category 5 previously Category 6Hungary Category 3 previously Category 2

New Country Categories

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 47


Montenegro in 2006 demonstrates. The FederalGovernment supports development in the regionby, among other measures, setting up a ceilingof 200 million EUR for business on credit termswith Serbia. The premium categories for a num-ber of countries were upgraded at the beginningof 2007.

The positive economic development in Turkeycontinued by and large, but the financial andmonetary turbulence at the beginning of May2006 showed that the economy is still vulnerableto external shocks. In the political sphere, 2007will be dominated by the presidential and parlia-mentary elections. On top of this, solutions haveto found to give the country a European perspec-tive following the suspension of talks on severalchapters of the EU membership negotiations.

The volume of cover was slightly up year-on-yearat 1.3 billion EUR in 2006, so that Turkey onceagain lies in fourth place in the league of thecountries with the highest cover. Germanexporters were able here to realize major projectsin local transport networks and in plant con-struction.

Central and Eastern and South-East European countries and Turkey

As expected, the volume of businesscovered by guarantees went down in2006 due to the ten EU accessioncountries being classified as mar-ketable risks. New cover for Poland,for instance, dropped by 56 % to112 million EUR, for the CzechRepublic by 26 % to 101 millionEUR and in the case of Hungary by52 % to 39 million EUR. A similar development ison the cards for short-term business with Bul-garia and Romania starting from 2007, sincethese countries too have now been in the EUsince the beginning of this year, so that insuringshort-term business under export credit guaran-tees for them is no longer possible. Businesswith extended credit horizons still plays a signifi-cant part here, however. Thus the volume of cover for Bulgaria doubled in 2006 to 450 millionEUR, thanks among other items to a guaranteefor a steam power station.

Economic and political consolidation on theBalkans is continuing to make progress. In themeantime, after Croatia, Macedonia too hasattained the status of a candidate for EU mem-bership. The other countries are receiving sup-port under the EU stabilization and associationprocess. At the same time the process of re-organization in the region is still in flux, as the dis-solution of the confederation between Serbia and

48

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 48

49

Africa

The economic fundamentals in Africa improvedagain in the year under review. The growth ratefor the continent outperformed the global aver-age for the third year running, at just under 6 %.

A crucial factor driving growth is the steep rise indirect inward investment in Africa, which hadalready climbed by some 78 % to about 31 bil-lion US dollars in 2005, according to an UNCTAD*report. This means that Africa was the recipient of10 % of all inward investment in developing andthreshold countries in 2005 alone. Due to thegood economic development of the continent,direct investment forged ahead in 2006 too, con-tributing further growth impulses. The World Bankplaced Africa third among the regions with thehighest rate of reform in 2006, after EasternEurope and the OECD countries.

* United Nations Conference on Trade andDevelopment

The Istanbul city administration ordered 15pump water tenders and two fire serviceturntable ladders from IVECO MagirusBrandschutz GmbH in 2006. This transactionwas insured on the basis of a guaranteefrom the city of Istanbul and is an examplefor the increasing importance of so-calledsub-sovereign cover, i.e. guarantees givenwithout the direct involvement of the centralgovernment.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 49


50

This development is buttressed by a largely infla-tion-free global economic environment with lowinterest rates and strong demand for raw mater-ials, some of which come from Africa. At thesame time a number of countries, in particularthose without mineral resources, continued toprove stable. Their goal is to take advantage ofthe current favourable situation to carry out fur-ther reforms and consolidate the stabilityachieved to date. An important role is playedhere by the completion of the HIPC* and MDRI**debt relief initiatives, enabling considerable fundsto be freed up in some 20 Sub-Saharan Africancountries. These funds can now be used for eco-nomic and social development in the countriesconcerned. These developments will likely haveboosted the confidence of domestic and foreigncompanies and could result in greater investmentactivity and thus further impulses for growth in2007.

* Debt relief initiative of the World Bank and theIMF: Heavily Indebted Poor Countries’ Initiative

** IMF Multilateral Debt Relief Initiative

In most of the countries of Sub-Saharan Africa,however, this positive trend is starting from avery low level, and the medium-term prospectsare fraught with uncertainty: per capita incomesin the region are still among the lowest any-where in the world, while it will still remain vul-nerable to external shocks and dependent onfunds donated from outside for the foreseeablefuture. Poverty, disease, conflicts and inad-equate infrastructure as well as fragmented mar-kets and dubious activities by state authoritiesare still the order of the day in the majority ofthese countries.

Against the background of better economic fun-damentals across the board, business opportun-ities for German companies in Africa have fur-ther improved in 2006. This can be seen in theOECD country risk classifications for the follow-ing countries: Morocco, Libya, Namibia andCap Verde were all upgraded by one category.This results in a noticeable reduction in premi-um for Hermes guarantees in respect of thesecountries.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 50

51

In addition, the Interministerial Committeeextended or opened cover policy for Algeria,Cameroon, Nigeria, Libya, Angola, Madagas-car, Zambia as well as Ghana, thus improvingthe range of cover options open for Germanexports to these countries. The newly openedoption of obtaining cover for Nigeria after thepayment of its rescheduled debthave resulted within just a fewmonths in a surge in demand, pri-marily for trade goods on short-termfinancing conditions.

Simed International GmbH was commissioned by the Angolangovernment to set up a dialysis ward in Saurimo as well as todeliver medical equipment for another hospital.

This is the first transaction with the Angolan public sector to begranted a Hermes guarantee for decades. The order is particu-larly eligible for cover since it makes an important contribution tothe reconstruction of the healthcare system of the country,which was severely impaired by the civil war.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 51

This notwithstanding, the development opportun-ities associated with the sustained upswing ingrowth in Africa have still not sufficiently impingedon the awareness of German exporters and thusfound an echo in the Hermes guarantees. Whilethe turnover in consumer goods increased over-all, major projects in all areas of infrastructure andthe capital goods sector for German companiesremained limited to isolated cases.

Overall, the cover volume for Africa went up bysome 14 % from just under 1.2 billion EUR to1.35 billion EUR in 2006. As already in the pre-ceding years, the lion’s share of this (some 1.1billion EUR) was accounted for by the larger andmore receptive markets of the Republic of SouthAfrica and the Maghreb states.


52

The Moroccan companyCosumar has been ableto turn out 50,000 sugar

loaves daily at its newproduction facility since

2006. The plant wasdesigned, produced and

delivered by Kautz Vor-richtungsbau GmbH inWillstätt-Lengelshurst.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 52

53

Five African countries are already among theforty countries with the highest cover volume in2006, namely South Africa, Algeria, Libya,Morocco and Egypt, after only three countries inthe previous year.

The volume of guarantees given for South Africawas the highest single figure, with just under 480million EUR. This jump of some 83 % is due to aparticularly large energy project. In the tradegoods segment, cover related mainly to prelimi-nary products for agrochemicals and consumerdurables and perishables.

Although the cover volume for Algeria fell byabout 24 % to approximately 207 million EUR, ithas stabilized at a high level since 2004. In theyears prior to that, cover was often only given inthe tens of millions. German exporters have alsosucceeded in establishing a presence in Algeriawith major projects in the rail, mechanical engin-eering and energy sectors as well as through asteep rise in exports of trade goods.

There was a striking increase in the cover volumefor Morocco, Libya, Gabon and Uganda. Thevolume of covered business with Kenya andAngola remained steady at a relatively high level.

Even though there were no guarantees given formajor infrastructure projects in Sub-Saharancountries in 2006, the sustained positive trend inmany areas of political and economic activity vis-

ible since 2004 was neverthelessconfirmed once again. The pros-pects for business opportunities forGerman companies in the conti-nent thus remain bright.

Three rapier weaving machines (shown above) and apneumatic weaving machine were exported by the Lin-dau-based DORNIER GmbH to South Africa in 2006.The machines will be used on site for the manufactureof industrial fabrics.

Cape Verde Category 6 previously Category 7Libya Category 6 previously Category 7Marocco Category 3 previously Category 4Namibia Category 3 previously Category 4


RZ_JB_2006 16.08.2007 14:41 Uhr Seite 53

54


Africa – an altered political risk situation

The continent moved further intothe public eye in 2006 as a result ofits mineral wealth and the heavycommitment undertaken by China.Somewhat less visible, but no lessimportant, is the sustained stabledevelopment in many countries,first and foremost those in the Sub-Saharan region. Countries such asGhana, Senegal, Benin, BurkinaFaso, Tanzania, Mali, Madagascar,Uganda, Mozambique, SouthAfrica, Namibia, Lesotho, Morocco,Gabon and Zambia have achievedfurther political consolidation andare on the brink of making majorinvestments in the energy, mining,financial, agricultural and infra-structure sectors.

This has been reflected for a num-ber of years now in the assessmentof the political risks which is fac-tored into the risk premium chargedfor financing business in the coun-try in question. Many of the coun-tries listed as examples here havealready been upgraded into a high-er country risk category and othersare on track for an upgrade.

A good example for positivechange is Ghana: after some 16years of stable government andthree free and fair elections, pairedparticularly over the last few yearswith surging economic growthrates, there are currently no indica-tions that the country could relapseinto political turmoil.

Macroeconomic and political man-agement structures in the countriesmentioned above have improvednoticeably in recent years. Duringthe debt relief initiatives for eachcountry and after their completion,the budget data, growth rates andinflation rates scored well. The freefloating exchange rates in mostcases ensure that movements inexchange rates were regularized.

In a simultaneous process, thestate has withdrawn from econom-ic activities in many countries. Par-allel to this, the private sectorexhibits dynamic expansion, lead-ing in many cases to better riskassessments. Due to higher foreigninward investment in mineral re-sources and other sectors such as telecommunications, the inte-gration and the interconnectednessof these countries in global trade

have risen significantly. This hasalso resulted in a decline in thetransfer risks. This is why there hasnot been any default by thesecountries for political reasons formany years now.

The lending restrictions for com-mercial finance imposed in particu-lar by the multilateral financinginstitutions World Bank and IMFhave their basic justification as pre-cautionary measures. At the sametime it should be remembered thatit is precisely the financing of pro-jects in crucial sectors such asinfrastructure which not only servesto swell exports from the OECDcountries but above all to fuel mar-ket growth in the African countries,thus integrating them more closelyinto the global economy.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 54

55

A new hydro-electric power station is being built on theOmo River, some 270 km south-west of the Ethiopian

capital Addis Abeba. Following its completion, plannedfor 2008, the installed capacity will produce 420

megawatts of electricity. Voith Siemens Hydro deliveredfour turbines for the project and was responsible for

installing and commissioning them on site.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 55

Latin America and the Caribbean

The Latin American and Caribbean region onceagain posted high economic growth of some4.7 % in 2006, thus continuing the positivetrend of previous years. Alongside robustgrowth, the sustained dynamic upswing is char-acterized by current account surpluses, declin-ing inflation rates and steadily improving indica-tors for the indebtedness of many economies.What is more, increasing investment activity andthe reduction of public sector budget deficitsindicate that economic growth in the region isremarkably stable. This broad-based develop-ment has made real wage rises possible inmany countries and led to a positive employ-ment trend.

The positive macroeconomic situation,which is mainly due to a very favourableinternational environment with highprices obtainable on the global marketfor important export goods, holds out theprospect of overcoming the considerablestructural and social challenges beset-ting many countries. After a year in whichpresidential and parliamentary electionsin 12 countries have set the agenda forthe future, it is still uncertain, however, towhat extent structural reforms will be ini-tiated and social policies implemented.


56

The photo shows a paint line forsheet metal boards with a thermaldrying system and a stacker. KBA-MetalPrint GmbH in Stuttgartdelivered three plants of this type toBrazil in the year under review andinsured them by means of an exportcredit guarantee.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 56

Notwithstanding, the external conditions, espe-cially developments on the commodities mar-kets, continue to be favourable, so that positiveeconomic development across the board is onthe cards in 2007 for the Latin Americaneconomies.

New cover for German exports to Central andSouth America was up by 34 % to 3.2 billionEUR in 2006 (2005: 2.4 billion EUR). This is duealmost entirely to a single project with an ordervalue of almost 1 billion EUR in Trinidad andTobago. If this transaction is disregarded, thevolume of covered German exports to the regionshrank despite the economic upswing. Thusexport credit guarantees for the Latin Americancountries (excluding the Caribbean) went downfrom 2.3 billion EUR to 2.1 billion EUR.

This trend is reflected in the biggest markets ofthe region. Cover for exports to Brazil fell from834 million EUR to 741 million EUR, coveredexports to Mexico dropped from 657 millionEUR to 553 million EUR. Export credit guaran-tees for business with Columbian and Peruvianbuyers, too, were down, while the volume ofcover on Argentina, Chile and Ecuador rose.

Economic growth in Argentina, too, stood at over8 % in 2006. The prolonged economic upturnwas maintained and will in all probability con-tinue throughout 2007. The economic rally whichset in after the recession at the beginning of thedecade has developed into a steady growthtrend, coupled with real wage increases andimproved poverty and employment figures.Based on significantly higher tax revenues, thegovernment is continuing to pursue its expan-

57

sive fiscal policy. Public sector investment wentup markedly again by more than 50 % and lend-ing to the private sector, too, was almost halfagain as much.

As of the beginning of 2006, Argentina had metall of its obligations towards the IMF and endedits cooperation with them on the IMF pro-gramme. At the end of the year Argentina start-ed talks with the Paris Club creditors on therepayment of more than 6 billion US dollars. Thecountry had suspended payments under itsrescheduling obligations at the beginning of2002. There are also no payments for outstand-ing amounts covered by Hermes guarantees.Since that time it has been unclear what form afinal regulation of public sector debt might take(cf. P. 90), so that the public sector is in principlecurrently off cover.

The rally in Argentine foreign trade was accom-panied by a marked rise in covered exports byGerman companies in 2006. Cover volume wentup from 160 million EUR to 217 million EURyear-on-year, of which more than half was forcapital goods. This included a major project forthe first time again, a power station with an ordervalue of 91 million EUR.

Brazil, too, continued the positive economicdevelopment which has held for a number ofyears now. Economic growth was 2.8 % in the

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 57

58


The Magdeburg-basedVAKOMA GmbH insured adelivery of spare parts for

compressors to Cuba with anexport credit guarantee. Thecountry was one of the mostimportant trading partners of

the former GDR.

Deliveries by small and me-dium-sized enterprises in the

eastern federal states areclassed as being particularly

eligible for cover.

past year and was consolidated above all, as inpreceding years, thanks to the rising prices onthe commodities markets. A currency which isregaining its strength and decreasing inflationenabled interest rates to be reduced, which inturn revitalized domestic demand. The eco-nomic stability policies pursued by PresidentLula da Silva, newly confirmed in office, arebearing fruit and have led to a significant stabil-ization in the financial situation of the country.The indicators of indebtedness have improvedand Brazil’s hard currency reserves havereached an historic high.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 58

59

offer without formal restrictions under the exportcredit guarantees for Chile, Costa Rica, El Sal-vador, Columbia, Panama, Peru and Uruguay.Guarantees for exports to Bolivia, Ecuador,Honduras and Cuba increasedonce again and expanded coveroptions for Nicaragua, Surinamand the Dominican Republic alsoresulted in higher volumes of cover.

Mexico, too, with growth of 4.7 %,makes a contribution to the positivepicture presented by the region asa whole. Improved levying of taxes,an economic upswing and the higher prices obtainable for crudeoil have resulted in double-digitincome growth in the public sector budgets.Thanks to the improved income situation, thepublic budgets again posted only minimal deficitsat the end of a year dominated by the electioncampaign – and in which infrastructure measureswere implemented, education programmespushed forward and current expenditure by the

Brazil took advantage of the favourable financialdevelopments in 2006 to repay IMF loans pre-maturely, to buy back still outstanding BradyBonds and to fulfil the obligations under itsrescheduling agreements prematurely one yearbefore the last instalment was to fall due. Anotherelement of Brazilian debt management policy isthe ongoing reduction of floating-rate debtdenominated in US dollars, in order to minimizevulnerability to interest and currency fluctuations.The improvement of the country risk was docu-mented in an upgrade of the country risk classi-fication at the OECD. Since June 2006, Brazilhas been in premium category 4, its best resultsince the OECD country risk system was intro-duced.

Despite the positive developments describedabove, however, the annual volume of cover forBrazil was down again. Of the export businesscovered in the amount of 741 million EU (2005:833 million EUR), capital goods accounted for257 million EUR. Notwithstanding the fall in cov-ered exports, Brazil still remains the country withthe highest cover in the region, and occupiesninth place in the league table of the countrieswith the highest volume of covered exports.

The overall economic upturn in the region hasspread to virtually every economy in Latin Amer-ica and the Caribbean. German exporters areincreasingly doing business with the smaller mar-kets, and can draw here on the wide palette ofcover tools available from the Federal Govern-ment. There has been no change in the cover on

ArgentinaDominicanRepublicCuba (2 ceilings)

100

100

60

Country ceilings in million EUR

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 59

state rose. The increasing competition on the USmarkets from Asian, especially Chinese,exporters has not up to now had the predictedeffect on Mexico’s foreign trade; indeed, theMexican share of overall imports into the USAeven went up slightly to 10.6 %.

Cover for exports to Mexico continues to beavailable without formal restrictions. Comparedwith the previous year, cover volume fell for thefirst time in threeyears and stoodat 553 millionEUR for 2006.

60


Brazil Category 4 previously Category 5Dominican Rep. Category 5 previously Category 6Guatemala Category 5 previously Category 6Colombia Category 4 previously Category 5Uruguay Category 5 previously Category 6


WEIMA MaschinenbauGmbH is specialized in theconstruction of plasticcrushers and delivered acrushing unit to Mexico inearly 2006. The transactionwas secured by means ofan export credit guarantee.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 60

Asia

With growth of around 8 % in 2006 – the secondhighest rate in the past five years – and predict-ed growth of some 7 % on average in 2007, Asiaremains, due to steeply rising investment andgrowing productivity, the world’s most dynamicgrowth region.

The motors driving the growth of the region con-tinue to be above all the boom in China and therapid development in the Indian economy. Highprivate domestic consumption – especially inChina, India and Vietnam – and increasing tradebetween the Asian countries are helping toreduce susceptibility to external shocks.

The Asian economic boom does, however, facea number of risks. These include the effects ofelevated oil prices and the hike in domestic inter-est rates. On top of this, many Asian countriesare still heavily dependent in their exports onconsumer demand in the USA, where the econ-omy is hoping for a soft landing after the markeddip in real estate prices. There is also the latentthreat of an avian flu pandemic lurking in thebackground.

Export credit guarantees for the Asia countrieswere down by 7.7 % at 8.4 billion EUR after 9.1billion EUR in the previous year. New cover forthe countries of Eastern Asia went down by20.3 %, dropping to 3.3 billion EUR. The coun-tries within the Asian region for which the volumeof cover in 2006 rose significantly include thePhilippines (47.7 %) and Indonesia (34.2 %). Sin-gapore and Mongolia posted increases of 11.6 %and 13.1 % respectively. In contrast to this, therewas a steep drop in some cases in new cover forIndia, Taiwan, South Korea, Hong Kong, Thailandand Vietnam.

In terms of newly assumed cover for Asia, Chinaled the field with 1.3 billion EUR. The exportscovered by guarantees slipped however by

61

17.2 %, so that China moved down from secondplace in the league table of the countries with thehighest cover to third.

With projected growth of 9.6 % in the currentyear, China is once again set to be an engine forgrowth in the Asian countries and the globaleconomy. The leaders of China are, however,worried about the ballooning growth in moneysupply, the generation of a speculative bubble,overcapacity in some industrial sectors andexploding foreign trade surpluses. The centralbank had attempted to apply corrective meas-ures in the last year by raising interest rates sev-eral times. The government is making efforts toredirect credit flows away from overheated sec-tors into new areas, giving first priority to pro-moting economically backward provinces andunderdeveloped parts of the country. Thedemand from the USA to speed up the revalu-ation of the Chinese currency, the renminbi, inorder to reduce distortions in the balance oftrade could result in increased tension in traderelations between the two countries.

The lion’s share of export credit guarantees forbusiness with China is, no change here, for pro-jects for the construction and modernization ofsteelworks as well as in the mechanical engin-eering, chemicals and paper sectors and for Airbus aircraft. The high liquidity in the Chinesemarket is reflected in the fact that long-termcapital goods transactions are largely carried out

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 61

62


on short credit terms for goods delivered andservices provided, secured by letter of credit.The Federal Government is prepared, in princi-ple, to insure capital goods business on thebasis of corporate risk, i.e. the creditworthinessof the buyer. It is however often not possible toobtain the documentation necessary for thecredit check (annual financial statements as wellas credit reports from reputable sources) in therequisite quality. Further banks can be acceptedafter an appropriate examination as guarantorson a case-by-case basis besides those alreadygenerally recognized.

India, too, is on a steep sustained growth curvewith 8 to 9 % per year, which is fuelled principal-ly by domestic consumption, high investmentand exports. Persistent serious infrastructureshortcomings and high oil prices have not up tonow been able to make a dent in the sustaineddynamic economic development of the country,which is heavily dependent on oil imports. Thepremise for achieving the planned target of 10 %growth in about two years’ time is extensiveinvestment in infrastructure, such as the con-struction of roads, ports and in electricity gener-ation. The programme planned by the govern-ment for increased spending on infrastructurewill make it more difficult to restructure the highdeficit in the public sector finances which is theAchilles’ heel of the otherwise positive macro-economic development. After climbing steeply in2005, cover volume in 2006 fell back again byone third to 486 million EUR. Exports of capital

goods to India are also often on short creditterms for goods delivered and services provid-ed. Export credit guarantees for capital goodsbusiness are largely related to projects in thesteel sector. A number of applications for coverfor large-scale infrastructure projects such asthe power sector have been received.

The export credit guarantee scheme operatesan open cover policy for Brunei, China, HongKong, India, Macao, Malaysia, Taiwan andThailand. For South Korea export credit guar-antees can be given on the basis of recent cred-it reports after a stringent examination of theeconomic viability of the project. Cover policy forIndonesia and the Philippines, too, isunchanged, whereby the criterion of whether the

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 62

63

Hebenstreit GmbH exports itsmachinery for the production of waf-fles and ice-cream cones all over the

world. In 2006 the company deliv-ered a waffle-making plant to the

Indonesian market leader for confec-tionery and insured the transaction

by means of a combined exportcredit and tied loan guarantee.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 63

64


The household waste treat-ment plant under construc-

tion in Lebanon (Sidon).

project will gener-ate hard currencyrevenues is includ-ed when check-ing the credit-worthiness of the

buyer. Cover policy for Pakistan was continuedwith a ceiling of 50 million EUR and the option ofcover for project financed and structured finance

deals. Cover on Vietnam is unchanged, with atransaction limit of 20 million EUR, which may be exceeded in the case of projects ofspecial macroeconomic importance and in busi-ness in the framework of project financed orstructured finance schemes. The positive eco-nomic trend in Papua New Guinea led to anupgrading of its premium risk classification during the year under review.

Pakistan 50

Country ceiling in million EUR

New Country CategoryPapua New Guinea Category 5 previously Category 6

RZ_JB_2006 21.08.2007 14:42 Uhr Seite 64

65

The Middle East

Driven first and foremost by the oil and gasexporting countries, economic growth in theMiddle East once again outperformed the glob-al average in 2006, as in the preceding years.German exporters were able to benefit from theboom in the region this time around too. The vol-ume of export credit guarantees for the regionrose by a good 20 % to almost 4.3 billion EUR,reaching the highest level since 2004.

This by no means exhausts the potential of thisregion with its mainly young population however,and not all the countries are benefiting to anequal degree from the positive development.The conflicts in Lebanon, Palestine and Iraq,the difficult political situation with Iran againstthe background of the disputed Iranian nuclearprogramme, and the tensions with Syria havecaused setbacks in the region. The restrictedcover available for Iran as a result of the portfolio

situation (cf. P. 100) and the politically fraught situation led to a steep drop in cover volume of40 % to about 900 million EUR (2005: 1.4 billionEUR). The value of covered exports in 2004 stillstood at 2.4 billion EUR.

At the moment it is apparent that the individualcountries in the Middle East are developing inmany areas at different speeds – investments todiversify their economy, infrastructure and edu-cation programmes and political developments.This is confirmed in the OECD country risk clas-

Doppstadt Calbe GmbH exportedmechanical equipment for thehousehold waste treatment plant inLebanon in 2006.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 65

sifications for the region. In all, two countrieswere reclassified in 2006: Bahrain was upgrad-ed from category 3 to 2, while Iran moved downone step to category 5.

The all in all positive situation for Germanexports to the Middle East is reflected in theleague table of the countries with the highestnew cover. Apart from Israel, the countries of theGulf Cooperation Council* are once again repre-sented among the top forty.

* Cooperation Council for the Arab States of theGulf (Saudi Arabia, Bahrain, UAE, Oman, Qatarand Kuwait)

66


A hydraulic transfer press with a convey-or system for producing wheels was

delivered by Schuler SMG GmbH & Co.KG to Iran in the second quarter of

2006. Here is a photo showing the pre-liminary assembly of the plant at the fac-

tory in Waghäusel.

For the event that it had proved impos-sible to deliver the plant, e.g. due to

insolvency of the buyer, the companyinsured the prime costs for construction

and assembly of the machinery bymeans of a manufacturing risk guarantee.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 66

67

The positive trend in Saudi Arabia was contin-ued; cover volume doubled from just over 500million EUR to almost 1 billion EUR. The trendtowards long-term financed deals is also continu-ing. While only 11 million EUR were on long-term financing in 2004, in 2005 it was already justover 100 million and in 2006 already more than600 million EUR. This is a result of the structuralchanges in economic planning and developmentas well as the opening of the Saudi economy forfinancing models which are normal internationalpractice. Export credit guarantees were given forprojects in the power generation, water treat-ment, petrochemical and mechanical engineer-ing sectors. Alongside these, as in previousyears, a large volume of trade goods was insuredunder wholeturnover policies. The positive trendis continuing in the current year, with a substan-tial volume of applications for projects alreadysubmitted.

The cover volume in the short-term segment forIsrael remained constant, while longer-term pro-jects were also insured, primarily related to porttechnology. One major project in the naval con-struction sector was covered, which resulted in asteep rise in the volume of cover. Volume heremore than quadrupled over 2005.

The sustained investment boom in the UnitedArab Emirates (UAE) led to cover volume doublingto 467 million EUR. The main objects of coverwere capital goods in the mechanical engineer-ing, cement production and power generationsectors, as well as in water treatment. The exportcredit guarantees given here were no longer onlydivided between the two “boom emirates” AbuDhabi and Dubai, but there is increasing demand for capital goods from companies andpublic buyers in the smaller (in economic terms)

emirates. This shows that the UAE as a whole isdeveloping into an attractive market for Germanexporters.

The cover volume for Qatar went up from justunder 400 million EUR in the previous year tosome 470 million EUR. Guarantees were givenfor a large infrastructure project in road-buildingand for Airbus aircraft for the state-owned airline.

In Yemen, too, it was possible again to realizemajor projects, so that the construction of a facil-ity for cement production and the further expan-sion of the mobile telephone network wereinsured. This brought cover volume up to some94 million EUR.

Large-scale investments in the industrial andinfrastructure sectors have for a good three yearsnow been above all the hallmark of the countriesin the Gulf Cooperation Council. These are gen-erating further impulses for growth which couldwell mean good market opportunities for Germanexporters over the next few years. The precondi-tions for this are however that the oil priceremains high andthat the politicaldifficulties in somecountries of theregion calm down.

Bahrain Category 2 previously Category 3Iran Category 5 previously Category 4


RZ_JB_2006 16.08.2007 14:41 Uhr Seite 67

68

Developments in the OECD

International cooperation between the exportcredit insurers in the industrialized member statesof the OECD in the year under review focused onthe following aspects:

In the OECD Consensus Group the membercountries have been attempting for several yearsnow to convince the countries which operate

International Cooperation

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 68

69

state instruments for the promotion of businesson medium and long payment terms, but are notmembers of the OECD and thus not subject tothe OECD Consensus, of the merits of the Con-sensus as a model for non-subsidized stateexport finance and state export credit insurance.A number of non-OECD countries (China, India,Brazil, South Africa, Slovenia and Romania) wereinvited to attend a meeting of the OECD Consen-sus Group and the OECD Export Credits Groupas observers in the year under review. It isplanned to intensify these so-called “outreachactivities“ in future; non-OECD member countriesalso took part in the meeting in April 2007. Inaddition, Turkey was granted observer status inthe Consensus Group in 2006.

The political negotiations focused during the yearnow finished on the creation of a new OECDSector Agreement for Aircraft. Brazil is alsoinvolved in these negotiations as an importantmanufacturer of regional jets. The talks madeprogress in 2006; a definitive agreement has notyet been reached, however. Negotiations centredon a risk-based premium system. It is becomingclear that there will probably be two separateminimum premium systems, for wide-body air-craft on the one hand and the regional short-hauljets produced by Canada and Brazil on the other.

A new Action Statement on Bribery and Offi-cially Supported Export Credits was adopted bythe OECD Export Credits Group in the yearunder review. This resolution passed by theExport Credits Group is a modest extension ofthe earlier Action Statement passed in 2000. Asin the earlier case, the agreement of the newAction Statement was also largely due to Germaninitiative. The Action Statement makes an appro-priate contribution to combating corruption ininternational business transactions without over-taxing the realistic possibilities of the state exportcredit insurers or creating unnecessary newbureaucratic hurdles in the application proced-ures. In December 2006 a resolution of theOECD Council was passed which gives theAction Statement the legal status of an OECDrecommendation. This resolution lent greaterweight to the goal of combating corruption ininternational business without making substantivechanges to the Action Statement.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 69

70


The so-called Common Approaches came intoeffect on 1st January 2004. The experiencegained with these OECD environmental guide-lines, which have been continually modified in thelight of practice, was incorporated into the reviewprocess and the revisions in 2006. Substantialprogress was made in this task during the yearunder review and work on the contents wascompleted in April 2007.

The focus in the work of the OECD PremiaGroup in the year under review continued to befurther deliberations on harmonizing the premi-ums for the assumption of commercial risk cov-er, i.e. the payment risks connected with privatebuyers or banks. Since these, in contrast to thepolitical risks, have not yet been harmonizedthrough the introduction of minimum rates, thepremiums currently set individually by the nation-al credit insurers can lead to competitive distor-tions.

A reason which gives these efforts to harmonizethe premium for commercial risks particularurgency is the decline in political claims observ-able over recent years, which has led to a greaterrelative importance of the buyer risks. They thusplay an increasing role in determining the overallpremium charged.

Against this background the development andthe introduction of the new premium system forthe German export credit guarantees as of 1stMay 2006 was followed with great interest by theinternational premium experts. Special acclaimwas given here to the approach contained in thenewly introduced method of calculating the pre-mium for the commercial risks underwritten sep-

arately from the political risk premium. This wasincorporated into the ongoing deliberations atinternational level.

Since the results reached in the present stage ofdiscussions in the Premia Group were alreadyincluded in the design of the German premiumsystem, any adaptations necessitated by aninternational agreement on a common premiumsystem could be kept to a minimum.

The group of OECD Country Risk Experts con-tinued its evaluation of country risks which formthe basis for classification under the country riskmodel, which in turn is the basis for calculatingthe harmonized premium rate for the politicalrisks. The quarterly rhythm of its meetingsensures that every one of the 145 countrieswhich are to be classified by the OECD isreviewed at least once a year. This proceduregives the opportunity in addition to respond rap-idly by taking account of current political andeconomic developments.

Parallel to this, the Group worked on modifica-tions to the macroeconomic model on which thecountry classification is based. The analysis oftwo indicators and their effects on the countryrisk was completed, and the model adaptedaccordingly. These indicators refer on the onehand to the domestic indebtedness of countries,an aspect which is taking on ever greater im-portance, and on the other to those Europeancountries which have entered the review processfor acceptance into the eurozone.

The most recent classifications for countries canbe seen on our website www.agaportal.de.

RZ_JB_2006 22.08.2007 9:32 Uhr Seite 70

71

European Union

The EU Council Working Group on the coordi-nation of policy in the field of credit insurance,bonding and loans once again played an impor-tant role in 2006, especially in coordinating thepositions taken by the EU on issues discussed inthe OECD Consensus Group and in the OECDnegotiations on a new sector agreement for air-craft. These negotiations are part of the commontrade policy of the EU. It is the aim of the consul-tations taking place in Brussels to give the Com-mission a mandate for these negotiations.

Germany held the presidency of the EU Councilin the first half of 2007 and chaired the EU Coun-cil Working Group, which meanwhile has the taskof coordinating the positions of 27 memberstates, during this time.

It is one of the primary goals of the German presi-dency to safeguard and to buttress the compet-itive position of European exporters in the globalarena. This means for the state export creditinsurers that a level playing field must be createdboth within the OECD and, looking furtherahead, with respect to the non-OECD countrieswhich are increasingly financing their exports onmedium and long payment terms, and thatunnecessary bureaucratic red tape must bereduced and avoided.

Berne Union

Membership of the Berne Union, the biggest pri-vate law union of export credit and foreign invest-ment insurers from OECD and non-OECD coun-tries worldwide, provides an effective forum forthe discussion of currently relevant issues. Thefocus here is on cover policy and information onspecific countries as well as general issues of

economic policy.Besides more than50 member organi-zations, internation-

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 71


al financial institutions such as the World BankGroup are also involved in these discussions.There is also the opportunity for a comprehensiveexchange of experience at the annual CommitteeMeetings, which were held in the year underreview in Hong Kong, as well as at the AnnualGeneral Meeting (AGM), which lasts for oneweek. Reflecting the continually growing numberof members in the Berne Union (BU), for the firsttime there were more than 250 delegates at theAGM 2006 in Amsterdam. The undiminishedkeen interest in the BU is due to the fact thatmembership has for quite some time now alsobeen open to private companies. It had previous-ly been reserved for state or state-mandatedinstitutions.

There were further opportunities to discussissues in depth at a workshop held by the invest-ment insurers in Paris as well as three seminarson financing in local currency, project finance andportfolio management. The prevailing themes atthese events were options for risk sharing withthe private market (the commercial banks, rein-surers, private credit insurers), the effects of vari-

72

ous financing constructions and of environmen-tal aspects on the process of deciding on coveras well as the existing premium systems of theBU members. Particular attention was paid tothe increasing trend towards financing in localcurrency.

Besides Russia, China and Latin America, firstand foremost Venezuela, the focus in the discus-sions concerning individual countries continuedto be on Iran. The most recent developments inSerbia and Montenegro, too, were subjected toan initial assessment.

Besides providing an effective forum for the inter-national exchange of specialized knowledge, theactivities and goals of the BU include efforts toachieve greater international recognition for gen-eral accepted rules to avoid offering conditionswhich distort fair competition. In order toapproach this goal as effectively as possible,intensive efforts were made to adapt the internalorganizational structures of the union and to for-mulate a total of ten fundamental principlesbased on the “Berne Union Value Statement“passed in the autumn of 2004. In this declarationthe members of the BU for the first time express-ly advocated ethical and environmental values inconnection with the promotion of exports and for-eign investments and underlined their commit-ment to promote world trade on the basis ofresponsibility and sustainability.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 72

Cooperation with credit insurers in other countries

A reinsurance agreement wassigned with the Australian exportcredit agency EFIC (Export Financeand Insurance Corporation) inMarch 2006. As a result of thisframework agreement the first German-Australian project forthe construction of a cable stayed bridge in Ho Chi Minh City,Vietnam, has already been granted a Federal guarantee withreinsurance from EFIC.

73

The signing of the reinsurance agreement with theAustralian Export Finance and Insurance Corporation(EFIC). (From left to right) Managing Director AngusArmour (EFIC), Dr. Hans Janus and Volkmar Euler(Euler Hermes).

In January 2007 EFIC granted reinsurance for thefirst time for the construction of a cable stayedbridge in Vietnam.

RZ_JB_2006 22.08.2007 10:35 Uhr Seite 73

The growing importance of inter-national cooperation between com-panies in the export of capital goodsand the need for individually tai-lored cover options which goeswith it has been taken account ofby the signing of a large number ofreinsurance agreements betweenthe state export credit insurers.

The reinsurance model is mean-while being used in many projectswith the participation of exportersfrom different countries. Here theentire insurance and administrationof the guarantee is taken over by

One-stop shopping by means of reinsurance

the ECA of the principal supplier orthe financing bank on the principleof “one-stop shopping”. The creditinsurer receives reinsurance fromthe subcontractor’s credit insurerfor the value of the foreign portionof deliveries which is covered underhis guarantee. This type of risksharing can often involve severalreinsurers.

For the export and finance commu-nity this has the advantage thatthey only need to deal with oneECA as contact partner. The Ger-man main supplier or the bank

which provides financing is granteda Federal Government export cred-it guarantee for the entire project inaccordance with the applicableGeneral Conditions. These regulateaspects such as the scope of cover,the insured percentage, waitingperiods etc. as well as the proce-dures to be observed in applyingfor Federal export credit guaran-tees and obtaining cover.

German-Japanese consultations in Tokyo from 27th-28th November 2006.

The members of the German delegation (left to right)Dr. Thomas Solbach, Dr. Hans-Joachim Henckel (Fed-eral Ministry of Economics and Technology), Dr. Hans

Janus and Dr. Eckhardt Moltrecht (Euler Hermes).

74


RZ_JB_2006 16.08.2007 14:41 Uhr Seite 74

Australia R Austria S, C, R Belgium S, C, R Brazil C* Bulgaria S, C Canada R Cyprus S, C Czech Republic S, C, R Denmark S, C, R Estonia S, C Finland S, C, R France S, C, R Greece S, C Hungary S, C Israel R Italy S, C, R Japan S*, C*, R Korea C* Latvia S, C Lithuania S, C Luxembourg S, C, R Malta S, C Netherlands S, C, R Norway S*, C*, R Poland S, C, R Portugal S, C, R Romania S, C Slovak Republic S, C Slovenia S, C, R Spain S, C, R Sweden S, C, R Switzerland S*, C*, R Turkey C United Kingdom S, C, R

S – subcontracting deliveries accounting for 30-40 % pursuant to decision of the Council of the EU (up to 40 % in the case of order values under 7m EUR)

S* – subcontracting delieveries of 30 % according to bilateral agreement

C – coinsurance agreement under EU regulations

C*– coinsurance under bilateral agreementR – reinsurance agreement on a bilateral basis

Cooperation agreements

Bilateral consultations with important Europeanpartner countries and with Japan also take placeat regular intervals outside the multilateral com-mittees of the EU and the OECD. In addition, theG7 export credit insurers meet annually. Cooper-ation with non-OECD countries is also taking onincreasing importance. Thus discussions tookplace with representatives of Brazilian ministriesand the Brazilian export credit agency SBCE(Seguradora Brasileira de Crédito à ExportaçaoS.A.) in July in Berlin on possible future commonbusiness areas and the application of the OECDConsensus rules and its sector agreements innon-OECD countries. An open workshop deal-ing with German-Brazilian cooperation in exportprojects to third markets was held together withexporters and banks following this bilateralmeeting.

75

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 75

76

Cover for new business

The Federal Republic of Germany granted exportcredit guarantees for exports to 158 countries inthe year under review. Newly covered businessreached 20.3 billion EUR, thus posting the sec-ond best result in the history of the export creditguarantee scheme, and was 2.6 % up on thealready good 2005 figure of 19.8 billion EUR.This means that export credit guarantee coveredtransactions accounted for 2.3 % of totalexports, which went up by 13.7 % to 893.6 bil-lion EUR.

Development of export credit guarantees

Russia led the field in newly covered business,followed by the USA, China, Turkey and Israel.The ten countries with the highest cover volumeaccounted together for 56.9 % of insured ordersby value. Russia posted an increase of 12 %here. Large-scale guarantees for Russia weregranted in plant construction, the telecommuni-cations sector and for the steel industry.

Newly covered business with the United Statesrose significantly by 57 % due to guarantees fortwo cruise liners, leasing transactions with Airbusaircraft and a steelworks.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 76

Cover for exports to China dropped by 17 %.The largest share of export credit guarantees, nochange here, continued to be accounted for byinvestments in the petrochemical sector, plantand machinery for the manufacture of paper andprojects for the construction and modernizationof steelworks.

Cover for business with Turkey increased by 5 %.Both short-term trade and medium- and long-term exports in plant construction, for the expan-sion of local transport networks as well asmachinery for virtually every sector of the econ-omy were insured.

Besides cover for short-term trade, export guar-antees for Israel were also granted in respect ofnaval construction.

Cover was once again given on Trinidad andTobago under a structured finance scheme forthe construction of a methanol plant, while exportguarantees were assumed within a projectfinance structure for a steam power station and asea water desalination plant in Saudi Arabia.

Export credit guarantees for Iran went down by agood third (-38 %). Besides cover for short-termtrade, they were mainly in respect of medium andlong-term projects in the petrochemical sectorand for the manufacture of foamed plastic.

Cover for Brazil continues to be largely based onwholeturnover policies, i.e. for short-term tradetransactions. In addition, equipment with a longercredit horizon was covered within the frameworkof a programme to protect the Amazon Basin.

Export credit guarantees for Mexico were main-ly selective cover for short-term goods underwholeturnover policies.

Subtotal 2006: 11.55 bn EUR (56.9%)Total 2006: 20.30 bn EUR (100%)

Russia R.F.

United States

P.R. China

Turkey

IsraelTrinidad

and TobagoSaudi Arabia

Iran

Brazil

Mexico

2.021.79

1.530.98

1.341.62

1.281.221.22

0.280.99

0.000.98

0.530.90

1.450.740.83

0.550.66

Top markets for new guarantees 2006/2005 in billion EUR

2006

2005

77

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 77

Covered percentage of total export volume by country groups in %

Industrial countries

Central/Eastern Europe

Developing countries

9.5

2.9

0.4

'02 '03 '04 '05 '06

0.3

3.8

10.911.4

3.8

0.20.2

4.2

12.313.2

4.3

0.3





Total

European developing countries

African developing countries

Latin American developing countries

Asian developing countries

Near/Middle East

Southern/Central Asia

East Asia

Oceania

million EUR

1,932.3

3,567.8

14,273.4

19,773.5

1,494.4

1,181.4

2,453.6

9,142.5

3,525.3

1,533.8

4,083.4

1.5

million EUR

2,287.6

3,425.4

14,584.3

20,297.3

1,541.3

1,350.9

3,252.8

8,437.9

4,298.3

883.9

3,255.7

1.4

Volume of cover by country groups

2005

%

9.8

18.0

72.2

100.0

7.6

6.0

12.4

46.2

17.8

7.8

20.6

0.0

%

11.3

16.9

71.8

100.0

7.6

6.7

16.0

41.5

21.1

4.4

16.0

0.0

2006

Guarantees by country groups in billion EUR

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06

2.3

3.4

14.6

20.3

1.9

3.6

14.3

19.81.6

3.5

16.0

21.1

12.0

2.8

1.2

16.01.0

2.9

12.5

16.4

14.7

3.11.0

18.8

11.9

3.00.5

15.4

11.7

1.60.3

13.6

17.0

1.90.6

19.5

13.9

2.30.4

16.6

Industrial countries Central/Eastern Europe Developing countries

78

RZ_JB_2006 21.08.2007 14:42 Uhr Seite 78

Breakdown of newly covered business by country groups

As regards regional distribution of new cover thedeveloping countries – and in particular here thethreshold countries – once again accounted for thelion’s share with 71.8 % (2005: 72.2 %). The Centraland Eastern European countries reached 16.9 %after 18.0 % in 2005, while the Western industrialcountries once again posted the lowest volume with11.3 % (2005: 9.8 %).

Total exports from the Federal Republic of Germanyto the developing countries rose by 17.8 % to 153.9billion EUR. Of this, exports to the tune of 14.6 billionEUR were covered by Federal export credit guaran-tees – this represents a share of 9.5 %.

The main thrust of cover for the developing countriesin 2006 once again lay in the countries of Asia*.(*Please refer to the country classification in theannex P. 108.)

German exports to the Central and Eastern Euro-pean countries were up by 27.7 % year-on-year.Newly granted cover in the same period fell by 0.4 %to 3.4 billion EUR. The proportion of business inthese countries covered by Federal Governmentguarantees is thus 2.9 %.

Due to the lower risk in exports to the Westernindustrial countries and the availability of insurancecover from the private market, there is relatively littledemand for state export credit guarantees forexports to these countries. In the year under reviewthe industrial countries accounted for exports with avalue of 622 billion EUR, representing 69.4 % of totalGerman exports. Of this, export credit guaranteescovered a volume of 2.3 billion EUR, predominantlylarge-scale projects (2005: 1.9 billion EUR).

The share of the industrialized countries in totalexport guarantee cover was 11.3 % (2005: 9,8 %).As a proportion of total exports to the industrializedworld this resulted in a covered share of 0.4 %.

79

2.826

Volume of cover for Central/Eastern Europe in billion EUR

'02 '03 '04 '05 '06

3.4253.5683.5232.880

Subtotal: 3,103.5 m EUR (90.6%)Total: 3,425.4 m EUR (100%)

Russia R.F.

Bulgaria

Ukraine

Belarus

Romania

2,015.1

449.6

278.7

202.3

157.8

Guarantees 2006 forCentral/Eastern Europein million EUR


United States

CanadaUnited

KingdomDenmark

France

1,529.7

253.3

182.4

104.8

83.3

Guarantees 2006 for industrial countriesin million EUR

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 79

Breakdown by horizon of risk and type of cover

A breakdown of newly covered orders in theamount of 20.3 billion EUR by horizon of risk andcover type can be seen in the charts (shown onthe opposite page).

In short-term business with credit periods of upto one year the volume of cover increased slight-ly by 0.5 % to 10.3 billion EUR. Differing trendsemerged for the various types of short-term cov-er: turnover under wholeturnover policies re-mained more or less at the previous year’s level (- 0.5 %), while the turnover covered by revolv-ing policies suffered a sharp decline (-17 %).Short-term specific cover posted a rise of 6.2 %.The share of short-term guarantees in total cov-er continued to drop and stood at 50.6 % after51.7 % in the previous year. 69.9 % of newly cov-ered short-term business was under whole-turnover policies (2005: 70.7 %).

The decrease in cover volume under whole-turnover came to a halt in 2006*. Turnover, at 7.2billion EUR, equalled the previous year’s result.Premium income however, 45 million EUR, was

down by 1.7 million year-on-year. This alreadyreflects the individually calculated loss experi-ence factored into the premium as a result of thenewly introduced reforms to the wholeturnoverpolicy. Thus more favourable premiums werecharged under some two thirds of the whole-turnover policies switched over to the new con-ditions in 2006 due to their good loss record inthe past.

Turnover under wholeturnover policies with theCIS states went up by 140 million EUR from 663to a new figure of 809 million EUR. The two frontrunners in this group – Russia and the Ukraine –now occupy 2nd and 13th place respectively inthe list of the 50 countries with the highestturnover under wholeturnover policies. Anincrease of 78 million EUR was posted for the PRChina, so that this country has now moved forthe first time into third place on this list afterTurkey and Russia.

The withdrawal of the Federal Government frominsuring marketable risks in the EU countries onlybegan to impact on the wholeturnover policylight in 2006, leading for the first time since thiscover instrument was introduced to a decreasein the number of policies to 834 (2005: 922).

The volume of revolving specific policies fellsteeply (-17 %) and reached 343 million EUR(2005: 413 million EUR). Their share of total cov-er was 1.7 % after 2.1 % in the previous year.

80


* The declaration of the EU Commission prohibits the assumption of state export credit cover for short-term exportsto the EU and the core OECD countries, since these risks fall into the category of marketable risks. For this rea-son, the Federal Government has on principle ceased to grant cover for this segment as of 1st January 2005.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 80

Short-term specific policies with a credit peri-od up to one year went up by 6.2 % to 2.74 bil-lion EUR after 2.58 billion EUR a year earlier.This figure also includes short-term receivablesdue in respect of progress payments in con-structional works contracts. In addition theyinclude cover for capital goods transactionswhich were financed on short-term conditionsalthough long-term payment would have beenpermissible.


United States

Russia R.F.

IsraelTrinidad

and TobagoSaudi Arabia

1,529.4

1,329.9

1,003.1

979.5

629.9

Medium/long-term policies 2006 in million EUR


China P.R.

Iran

QatarUnited Arab

EmiratesRussia R.F.

846.6

405.3

261.4

160.0

122.3

Short-term specific policies 2006 in million EUR


Turkey

Russia R.F.

China P.R.

Mexico

Brazil

Wholeturnover policies 2006in million EUR

537.3

469.0

467.8

458.1

610.2

81

Guarantees 2006 by horizon of riskin billion EUR

Wholeturnover policies:

Revolving policies:

Short-term specific policies:

1 - 5 years:

Over 5 years:

7.2

0.3

2.7

2.6

7.5

35.4 %

1.7 %

13.5 %12.6 %

36.8 %

The volume of medium/long-term specific poli-cies rose by 4.9 %. Order values stood at 10.0after 9.6 billion EUR in the preceding year. Theshare of total cover rose correspondingly to 49.4 % from 48.3 % in 2005. The countries withthe highest cover were the USA, Russia and Israel.

The share of tied loans in the volume of extend-ed-term specific guarantees was 74.7 % after79.8 % in 2005.

Covered exportsby horizon of riskin billion EUR

Wholeturnover and revolving policies

Specific policies up to 1 year

Specific policies 1 - 5 years

Specific policies over 5 years

7.5

2.6

2.7

7.5

20.3

'02 '03 '04 '05 '06

6.2

1.5

4.2

9.2

21.1

8.4

2.6

1.4

3.6

16.0

3.6

2.1

2.2

8.5

16.4

8.3

1.3

2.6

7.6

19.8

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 81

Number/volume of applications,types of goods covered

The number of new cover applications in theyear under review, including those for increasedcover, slipped by 2.6 %. The volume subject todecisions, i.e. the sum of order values underly-ing the applications, went down by 8.4 %. Thenumber of applications for wholeturnover poli-cies was down by 2.5 %, whereby there was aslight drop for private buyers while public buy-ers showed an increase. Specific policies onprivate buyers also went down slightly ( -5.4 %),while specific cover for public buyers went upby 14.4 %.

The total number of all decisions taken includingperiodic renewals for offers of cover and requestsfor modification decreased by 1.6 % to 35,044.

The number of new specific policies rose by 8.9 %to 1,338. At the same time the overall volume of underlying orders went up by 5.2 %. The num-ber of major projects with a value in excess of 50

million EUR climbed to 46 (2005: 42). Thesetransactions represent 58.7 % (2005: 48.0 %) ofthe volume of specific cover.

The ratio between cover for public and privatebuyer risks shifted by 4.2 percentage points infavour of the number of private buyers. 84.8 % ofspecific policies were accounted for by privateand 15.2 % by public buyers. In terms of theorder values covered, the ratio between privateand public buyers was 74.7 % to 25.3 % (2005:77 % private to 23 % public buyers).

The breakdown of specific policies by types ofgoods reveals an increase in the volume of cov-er for plant construction (18.6 %) and formachinery and equipment (3.9 %). In plant con-struction, chemical plants took the lion’s sharewith 11.9 %, followed by power stations with10.8 % and steelworks and smelting plants with6.9 %. Export guarantees for aircraft were downby 44.4 % year-on-year, taking the share ofguarantees for aircraft to 7.3 % of overall specif-ic cover or 4.6 % of total business covered. (cf.P. 100). Export credit guarantees for ships wentup by 72.4 % compared with the previous year,contributing 12.4 % to the total volume ofexports. The share of military goods was 5.8 %(2005: 1.6 %).

82


RZ_JB_2006 16.08.2007 14:41 Uhr Seite 82

Number of newspecific policies

of which for private buyersof which for public buyers

Volume in million EURof which for private buyersof which for public buyers

1,229991238

12,1429,3462,796

8.914.5

-14.7

5.22.1

15.5

-2.6

-8.4

changein %

1,3381,135

203

12,7749,5463,228

New specific policies2005 2006

Numbers of applications 1)

Initial decisions incl. increases

Volume of decisionsOrder values / limits in million EUR

23,745

24,798

23,129

22,712

Numbers of applications/volume of cover2005 2006

1) Tied finance credits included

in m EUR

changein %

in m EUR

in m EURin m EUR

Specific policies 2006 by typeof goods in million EUR

Plants

Machinery and equipment

Electronic, precision engineeringand optical equipment,telecommunication

Ships

Vehicles, locomotives

Aircraft

Construction services

Other services

Various

5,607

2,122

554

2,516

289

932

470

264

20

43.9 %

16.6 %

4.3 %

19.7 %

2.3 %

7.3 %3.7 % 2.1 %

0.1 %

Total: 12,774 m EUR

83

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 83

Besides the indemnifications under reschedulingagreements – for Pakistan (6.8 million EUR), Iraq(1.4 million EUR) and Kyrgyzstan (0.7 millionEUR) – further claims were paid out for Zimbab-we (9.5 million EUR), Moldavia (4.3 million EUR)and Columbia (2.4 million EUR). A reschedulingagreement in respect of Moldavia has meanwhilebeen concluded.

As expected, the volume of indemnified com-mercial claims fell significantly. Thus there wereno major new commercial claims. On top of this,the Federal Government had already indemnifieda number of major claims from preceding yearsin one final payment discharging the totalremaining outstanding principal in 2005, so thatno further instalments remained to be indemni-fied in 2006. As a result of these acceleratedclaims payments, the best result for many yearswas posted in 2006 with 149.5 million EUR. Thismeans that the files on the major claims of thepast few years, particularly those resulting fromthe „aircraft crisis“ and the Asian default crisis ofthe Nineties, have been closed in the vast major-ity of cases. It is only in respect of major claimssuch as transactions with the APP Group (AsiaPulp & Paper Company), which affects Indone-sia and China, and for one further claim inIndonesia (the project finance deal Musi Pulp),that indemnification is continuing as the instal-ments fall due.

The marked decline of two thirds in claims paidout was not reflected, however, in the numberof claims applications. While the claims madewere about 20 % down year-on-year, thedecrease in numbers of claims is far less notice-able than the reduction in the amount indemni-fied. The minimal range of fluctuation in thenumber of applications is explained by the factthat the number of claims under short-term

Claims and Recoveries,Rescheduling

Claims

2006 saw a marked decline in indemnifications,both for political and commercial claims. Thetotal amount paid out for claims in 2006, 292.9million EUR, was 58 % lower than the previousyear’s figure of 695.1 million EUR. The decreasein claims showed diverging trends: while indem-nifications for political claims almost halved, thefall in commercial claims plummeted by a full twothirds. The ratio between political and commer-cial claims has thus balanced out and stands at48.5 % to 51.5 %.

Payments for political claims totalling141.0 mil-lion EUR after 258.3 million EUR in 2005 thusreturned to the levels of 2002 to 2004. The year2005, in which political claims were indemnifiedto the tune of 258.3 million EUR, was in contrastuntypical, since the maturities for a number ofoverdue instalments for a transaction withArgentina fell due during the year, leading toextraordinary claims payments. All in all, 236.6million EUR were paid out for political claims inArgentina alone in 2005.

115.9 million EUR was paid out for Argentina in2006. This puts such payments well below thelevel of 2005.

84


RZ_JB_2006 16.08.2007 14:41 Uhr Seite 84

business for smaller sums usuallyremains pretty much constant, in con-trast to the claims made under coverfor major finance schemes. Manyclaims under the expanded forms ofcover newly offered by the FederalGovernment in the recent past and tai-lored particularly to small and medium-sized enterprises also came in andwere processed for the first time in2006. Thus there were a growing num-ber of claims under the wholeturnoverpolicy light introduced in January 2003,which is designed mainly for smallexporters with annual turnover up to 1million EUR. Many small exportersfound in this connection that the policyof tailoring the cover instruments asclosely as possible to their practicalneeds also works reliably to supportthem when they make a claim.

Claims payments in million EUR'06

141.0

149.5

2.4

292.9

'04

124.9

432.3

1.3

558.5

'02

173.7

513.1

2.1

688.9

Political risk claims

Commercial risk claims

Exchange rate risk claims

Total

'03

108.6

403.0

2.4

514.0

'05

258.3

432.9

3.9

695.1

85

Claims payments 2006in million EUR

Commercial risk claims

Political risk claims

Exchange rate risk claims

149.5

141.0

2.4

51.0 %

0.9 %

48.1 %

Subtotal: 292.9 m EUR

Subtotal 2006: 126.4 m EUR (84.5%)Total 2006: 149.5 m EUR (100%)

Indonesia

China P.R.

India

Brazil

Mexico

Venezuela

Argentina

Korea

Chile

Poland

35.9102.9

16.118.3

12.842.4

11.828.8

11.212.710.0

15.89.4

42.18.311.8

7.19.8

3.80.5

Claims payments under commercial risk cover 2006/2005 in million EUR

2006

2005

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 85

Recoveries

The Federal Government posted recoveries oncommercial claims of 209.8 million EUR in2006. This means that recoveries overall were16.5 % down on the preceding year (251.2 mil-lion), but remained at a high level.

As in 2005, the results of recovery work wereinfluenced by various one-off factors. Mentionshould be made here in particular of the pro-ceeds from the sale of aircraft held as salvageunder aircraft business for the Bermudas, whichat the same time represent the highest singleamount recovered under a commercial claim in

2006. Further recoveries, almost exclusively fromaircraft business, were generated from Belgium,Mexico, Columbia and Ireland.

On top of this, several restructuring schemeswere brought to a successful conclusion bymeans of early repayment of debts in 2006,including projects in Brazil (18.4 million EUR)and Argentina (10.5 million EUR). Overall, recov-eries from Argentina (19.6 million EUR) were, asexpected, lower in 2006 than the year before(59.4 million EUR), since several debtors hadrepaid their debt prematurely in 2005 and therewere no non-recurring effects in the year underreview.

Besides the proceeds of marketing aircraft heldas salvage, the recoveries are due to successfulrestructuring programmes which were serviced

86


Recoveries for claims paid (excl. interest) in million EUR'02 '03 '04 '05 '06

5,761.05,751.4

209.8

5,970.8

4,623.54,604.0

251.2

4,874.7

855.3849.4

174.0

1,029.3

477.7470.1

343.4

821.1

under political risk coverthereof rescheduled amounts

under commercial risk cover

Total

718.5703.1

78.5

797.1 Subtotal: 190.8 m EUR (90.9%)Total: 209.8 m EUR (100%)

Bermuda

Indonesia

Brazil

Belgium

Argentina

Mexico

Colombia

Korea

Ireland

India

Recoveries under commercial claims 2006 in million EUR

44.2

27.8

26.0

22.5

19.6

16.6

10.8

8.5

8.0

6.8

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 86

thanks to the improved economic situation of thedebtors. A particularIy strong influence contribut-ing to the high level of recoveries was the positivedevelopment in Latin American economies, suchas Brazil and Argentina. A comparably high levelof recoveries was also generated from Indonesia,largely due to repayments under restructuringprogrammes in the paper industry (24.0 millionEUR).

Since many completed restructuring pro-grammes were fulfilled according to plan or evenahead of time in 2006, as in the previous year,and claims volumes are declining in parallel tothis, the level of recoveries is set to decrease inthe coming years.

Rescheduling

In the rescheduling field, the year 2006 wasmarked by the following events: the Paris Clubcelebrated its 50th year of successful reschedul-ing and there were further early repayments ofdebt from important debtor countries.

Early repayments

BrazilWith advance repayment of almost 1 billion USdollars on the last debt agreement concluded in1992 at the Paris Club, Brazil discharged its lia-bilities to the Paris Club creditors. Early repay-ment of some 300 million EUR was made to Ger-many by Brazil in this context in February 2006.Brazil now maintains its connection with the ParisClub as a creditor on a case-by-case basis.

87

RussiaAfter Russia had already made early repaymentof some 40 % of its liabilities to Germany, itslargest Paris Club creditor, in 2005, paying a sumof 5.5 billion EUR, it repaid the remaining amountowed in August 2006 at the market value of thedebt. The basis for this payment transaction wasan agreement reached with the Paris Club inJune 2006 covering a total volume of 22 billionUS dollars; Germany accounted for 8.1 billionEUR of this. This marked the complete and finaldischarge of Russia’s debt to the Paris Club andput an end to the country’s dual role in the Clubas both creditor and debtor, a situation whichhad not always been easy to handle.

AlgeriaIn May 2006 Algeria agreed the full advancerepayment of its liabilities with the Paris Club in atotal volume of 7.9 billion US dollars under tworescheduling agreements. The multilateral agree-ment was implemented towards Germany withthe payment of two sums in August and Novem-ber 2006. This brought the Federal Governmentand the guarantee-holders some 580 millionEUR before the expiry of the original paymentterm up to 2011.

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 87

1956 – 2006: 50 years of rescheduling in the Paris Club

The Paris Club celebrated its 50thanniversary on 14th June 2006. Thefirst rescheduling agreement wassigned in 1956 with Argentina. Thecountry was at that time in thethroes of a severe economic crisis,and sought to re-establish contactswith the IMF and the World Bankafter President Perón was deposedby a military coup in September1955. The donor countries held adhoc meetings to negotiate withArgentina in the French finance min-istry. This is considered to be thebirth of the Paris Club, which hasplayed an important role in dealingwith international debt crises up tothe present day. The Paris Club canlook back on 50 years of success:more than 400 rescheduling agree-ments with 84 debtor countries anda total volume in excess of 500 bil-lion US dollars. And the Paris Club


has maintained its character of aninformal forum without writtenstatutes till the present day. This cir-cumstance, together with the un-wavering principle of always takingdecisions on a consensual basis,have made it into an independentand internationally recognized bodyand an important partner in discus-sions with international financialplayers. Numerous countries wereable to solve theirfinancial problemswith the help of theParis Club. Theseincluded in the 1990sEgypt, Poland andabove all Russia. Inrecent years it wasparticularly Indonesia,Iraq and Nigeria. Inorder to ease the debtburden of the poorestcountries in the world,the Paris Club has developed vari-ous models of debt relief since1989, as well as tailoring solutionson the basis of IMF programmes.

Dr. Siegfried Borggrefe, Chair-man of the Interministerial Com-mittee from 1980-1988, headedthe German delegation at theParis Club from 1995 till 2007.

Here he wasinstrumental incrafting theagreementswith Russia,Nigeria andIraq.

88

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 88

89

MacedoniaNegotiations took place in Paris in January 2007with Macedonia concerning the early repaymentof debt rescheduled in 1995. The economicupswing in Macedonia enabled the country topay back prematurely 104 million US dollars, ofwhich the German share amounted to about 8million EUR.

The HIPC initiative

As in the preceding years, progress was madeby the creditors represented in the Paris Club inimplementing the expanded HIPC initiative todischarge the debt of the heavily indebted poorcountries in the year under consideration. WithMalawi, Cameroon and now Sierra Leone, in all,21 of the 40 countries currently eligible for theprogramme have completed the discharge oftheir debt under the HIPC process. Multilateralfinal rescheduling agreements were signed in theParis Club during the year under considerationwith Cameroon covering 3.5 billion US dollarsand Malawi for 363 million US dollars (the Ger-man share of this under covered exports was:Cameroon 481.2 million EUR including debt due to the former GDR and Malawi 0.13 millionEUR).

Regarding the further implementation of theHIPC initiative, the Executive Directors of the IMFand the World Bank have decided not to renewthe cut-off date of the so-called “sunset clause“,already postponed several times, beyond 31stDecember 2006. The “sunset clause“ is intendedto ensure that the HIPC initiative does not presenta permanent option to discharge IMF and WorldBank debt. A country which is eligible for consid-eration as a HIPC now has to have gone throughan IMF programme during the period from thebeginning of the HIPC Initiative in 1996 up to thecut-off date in each case, but in any event before

the final date of 31st December 2006. At thesame time it was agreed that those countrieswhich had not yet qualified for participation in theHIPC Initiative through reaching the decisionpoint (Côte d’Ivoire, Togo, the Central AfricanRepublic, Kyrgyzstan, Nepal, Eritrea, theComoros, Liberia, Somalia and Sudan) shouldstill be able to participate after 31st December2006. This so-called “protection of confidence”is also intended to be enjoyed by countries forwhich it only transpires in future, based on theinformation on indebtedness available as per31st December 2004, that they may possibly beHIPC countries.

At the end of the year under considerationAfghanistan was granted a rescheduling agree-ment in the Paris Club on Naples Conditions (67 %debt forgiveness) covering a volume of 2.4 bil-lion US dollars; Germany is only affected herewith 34 million EUR in trade receivables due tothe former GDR.

Multilateral agreements at the Paris Club

In the year under review 12 agreements wereconcluded in all with debtor countries at the ParisClub involving a total volume approaching 38 bil-lion US dollars (the German share of trade debtswas some 9.6 billion EUR), of which c. 31 billionUS dollars are accounted for by agreements forthe early repayment of debt by Brazil, Russia andAlgeria (the German share of trade debts here:some 9 billion EUR).

RZ_JB_2006 21.08.2007 16:04 Uhr Seite 89

90


Rescheduling agreements with Grenada and MoldaviaIn May of the year under review, agreementswere concluded at the Paris Club with Grenadaand Moldavia for the rescheduling of debt with-out forgiveness covering 16 million US dollarsand 151 million US dollars respectively. Ger-many, which was only involved here in the caseof Moldavia with 18 million EUR of trade debts,was already able to sign the bilateral agreementin November 2006.

Serbia and MontenegroPolitical developments brought major changes in2006 for the confederation of Serbia and Mon-tenegro. After the Montenegrin parliament haddeclared independence on 3rd June 2006 fol-lowing a referendum, the Serbian parliamentdeclared the Serbian state the successor of theformer confederacy on 5th June 2006, thus defacto recognizing both their own independenceand that of Montenegro. Both countries subse-quently informed the Executive Committee ofthe Paris Club that they have reached agree-ment on the distribution of the debt owed by theformer state.

The second stage of debt relief under the mostrecent rescheduling agreement of 2001, forwhich Serbia-Montenegro had qualified at thetime, as well as the regulation of the obligationsarising for each country out of this agreement,must now be formally implemented bilaterallywith Serbia and with Montenegro. No change isenvisaged in the rescheduling conditions.

ArgentinaAt the turn of the years 2001/2002 Argentina hadsuspended the service of its foreign debt againstthe background of a total indebtedness of some170 billion US dollars. The amount of about 6 bil-lion US dollars owed to the Paris Club onlyaccounted for a small portion compared with thedebt from Argentinian government bondstotalling some 100 billion US dollars. A goodthree quarters of private creditors have mean-while accepted the Argentinian offer to restruc-ture the government debt at a discount of 75 %.Since Argentina does not intend to implement afurther IMF programme after the prepayment ofits outstanding debts towards the World Bankand the IMF at the change of the year2005/2006, the question of a final regulation ofdebts remains unresolved. No solution is in sightfor the backlog of payments to the Paris Club,which has meanwhile grown to 4.4 billion US dol-lars (with a German share of some 1.2 billionEUR), since the Paris Club creditor countries willonly grant a rescheduling to a debtor country onthe condition of an agreement with the IMF. Theintention is to ensure that the terms of therescheduling agreement are in line with themacro-economic and fiscal recommendationsgiven by the IMF. In the light of its growth ratesand of increasing hard currency reserves, theArgentine economy has overcome the funda-mental crisis which afflicted it at the turn of themillennium. It is still impossible to predict whetherthe impending presidential elections scheduledfor autumn 2007 in Argentina will accelerate ordelay agreement with the Paris Club.

AngolaAngola has accumulated arrears of some 4 bil-lion US dollars (including late interest) towardsthe Paris Club countries since the beginning ofthe 1990s. A multilateral rescheduling agreementwas prevented in preceding years due to the

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 90

country’s unwillingness to cooperate with theIMF. In the year under review, the Angolan gov-ernment for the first time took steps in the direc-tion of resuming its relations with the IMF, andrepaid 2.3 billion US dollars at the Paris Club upto January 2007. There are no arrears due toGermany. It remains to be seen whether Angolawill continue its efforts to achieve a regulation atthe Paris Club.

Bilaterally implemented agreements

Besides the agreements on early repaymentswith Brazil, Russia and Algeria and the resched-uling agreement with Moldavia, the multilateralagreements signed in the previous year wereimplemented bilaterally, e.g. the bilateral re-scheduling with the Dominican Republic onclassical rescheduling conditions without debtforgiveness.

Among the agreements to forgive debt under theHIPC initiative covering a total of 315.8 millionEUR, the agreement with Zambia involving acomplete forgiveness of 202.5 million EUR andone with Cameroon agreeing interim relief of 111million EUR are particularly deserving of mention.

NigeriaNigeria made repayments, as foreseen under thebilateral agreement of 17th December 2005, ofsome 1.8 billion EUR, thus becoming debt-freetowards Germany for the first time in 25 years.

Total: 6,820 m US-Dollar

Cameroon

Afghanistan

Malawi

Moldova

other countries

3,502

2,400

363

151

404

Volume of multilateral reschedulings 2006 in million US-Dollar *

* without prepayments

Total: 540 m EUR

Moldova

Afghanistan

Cameroon

other countries

18

34

481

7

Share of German tradereceivables in volume of multilateral reschedulings 2006 in million EUR *


Volume of multilateral reschedulings 2006 in million US-Dollar

prepayments:

extended HIPC-Initiative:

Afghanistan:

reschedulings without debt forgiveness:

30,900

4,253

2,400

167

6.0 %

11.0 %

Total: 37,720 m US-Dollar

83.0 %

Total: 9,362 m EUR

Russia

Algeria

Brazil

Sambia

Cameroonother HIPC-

countriesother countries

8,144

576

306

202

111

2

21

Volume of trade receivables covered by bilateral resche-dulings 2006 in million EUR


91

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 91

92

Revenues

Revenues from the Export Credit GuaranteeScheme in the year under review reached anextraordinary and non-recurring record level of9.4 billion EUR (2005: 7.4 billion EUR), mainlydue to the early repayments under debt resched-uling agreements with Russia, Algeria and Brazil.This sum can be broken down as follows:

Premiums and fees received rose by 8.8 % to556 million EUR.

The recoveries in respect of already indemnifiedclaims and above all the debt repayment underrescheduling agreements in a total amount of5,970.8 million EUR must be added to the pre-mium income. The highest recoveries came fromRussia (4,317 million EUR), Algeria (560 millionEUR) and Brazil (382 million EUR), all in respectof early repayment of debt, as well as from Nige-ria (420 million EUR).

In addition to this there was interest incometotalling 2,431.8 million EUR (2005: 1,981 millionEUR), which was generated almost entirely by

Profit and loss account

RZ_JB_2006 16.08.2007 14:41 Uhr Seite 92

rescheduling agreements. The lion’s share here,47.5 %, came from Nigeria, followed by Russiawith 43.2 %.

In addition to exchange rate gains amounting to9.6 million EUR, a special principal repayment of414.2 million EUR was received from Russia inconnection with the early repayment of the coun-try’s debt.

Expenses

Expenses fell during the year under review by 53 % to 358.5 million EUR. In addition to claimspayments totalling 292.9 million EUR there werecosts for the administration of the export creditguarantee scheme of 65.6 million EUR.

Financial result

With a cash surplus of 6,592 million EUR, theexport credit guarantees of the Federal Republicof Germany posted their best ever positive resultin 2006. This exceeded the previous year’srecord figure of 4,624 million EUR. A positiveresult was achieved for the eighth consecutiveyear since the scheme returned to black figuresin 1999 after 16 years of running a deficit. Thisenabled the negative balance of 6.4 billion EURfor the export credit guarantee scheme in 2005to be completely covered, resulting in a positivebalance for 2006 of 180.7 million EUR.

On top of this, interest of 2,432 million EUR wasreceived (2005: 1,981 million EUR). This is trans-ferred to the Federal budget accounts, but formethodical reasons is routinely excluded whencalculating the financial result, since the refinanc-ing costs incurred by the Federal Government inrespect of claims paid are also not included.


Nigeria

Russia (FSU)

Brazil

Algeria

Egypt

1,158.4

1,054.7

63.2

35.2

28.8

Highest interest paymentsunder reschedulingagreements in 2006in million EUR

93

Revenues 2006 in million EUR

Amortisation and recoveries:

Premium/fees earned:

Interest received:

Exchange gains:

* including unscheduled repayment from Russia

5,970.8

556.0

2,431.8

423.6*

63.7 %5.9 %

25.9 %

Total: 9,382.2 m EUR

4.5 %

Financial resultin million EUR

'99 '00 '01 '02 '03 '04 '05 '06

Interest received

Cash deficit/Surplus

2,432

6,592

669878

110 34388 402

1,173 1,203

543 499

1,284 1,120

4,624

1,981

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 93

94

Total commitments of the Federal Government (exposure), breakdown by country groups and statutory maximum exposure limit in billion EUR

Stat. max. exp. limitIndustrial countriesUncategorisable*



* The "uncategorisable" exposure refers mainly to allocations made for wholeturnover policies under the statutory maximum exposure limit.

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06

117.0117.0117.0

102.3109.9 112.5 112.5

117.6 117.6 117.0

9.1

8.0

11.9

69.4

98.49.1

6.4

19.0

70.4

104.9

68.3

20.3

3.37.2 7.4

3.3

21.5

68.7 69.4

20.8

3.47.5

7.73.8

20.7

73.9 71.7

20.6

2.67.8

102.7

70.1

21.1

3.38.5

103.0106.1

101.1100.999.1

69.4

20.5

4.1

8.9

102.99.2

5.2

20.1

68.7

103.2

Export guarantee portfolio

RZ_JB_2006 21.08.2007 14:42 Uhr Seite 94

95

at 117 billion EUR. 84.1 % of it had been utilizedat year-end. The statutory limit for 2007 has beenset at the same level, since it provides sufficientscope for issuing new guarantees in respect ofeligible export business.

The total commitment level (exposure) of theFederal Government under export credit guaran-tees (without interest) went down by 6.2 % to98.379 billion EUR. This figure represents theexposure level actually recorded by the BADV atthe end of the year. This is only a very roughguide to the amounts actually at risk, however,since transactions remain on the register untilthey are finally discharged, irrespective of thestage of repayment. In the year under review newpolicies in the amount of 14.4 billion EUR wereissued as against old commitments with a valueof 20.9 billion EUR which were deleted.

Statutory cover limit, total commitment level and total outstanding risk

A statutory cover limit is set every year in theBudget Law which stipulates the maximumaggregate amount of cover available for exportcredit guarantees and tied loans to foreigndebtors. The Bundesamt für zentrale Diensteund offene Vermögensfragen (BADV) (FederalOffice for Central Services and undischargedAsset Issues) monitors the utilization of the statu-tory cover limit, registers the maximum amountsfor which it accepts liability and deletes expiredcommitments. Cover granted for interest is notset off against the statutory limit. In the budgetyear 2006 this limit stood, as in the previous year,

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 95

Funds earmarked for export credit guarantees at year-end

At the end of the year the Interministerial Com-mittee had issued offers of cover in principle (cov-er notes) for contracts under negotiation but notyet concluded with a total value of 9.8 billionEUR. This represents a decline of 1.5 billion EURor 12.6 % over the previous year. Once again, thelion’s share of this, 7.6 billion EUR or 77.6 %, wasaccounted for by the developing countries (2005:65.5 %). Offers of cover in principle for exports tothe Central and Eastern European countriesremained stable at 1.5 billion EUR, representing ashare of 15.3 % (2005: 13.3 %). Offers of coverfor business to the industrial countries went downfrom 2.4 billion EUR to 0.7 billion EUR, a share of7.1 %. It is still uncertain at the time of issue ofthese offers of cover whether the contracts willactually go to German exporters. Experienceshows that only about a third of the transactionsearmarked for cover are realized.

Unrecovered claims

The total amount outstanding to the FederalGovernment from already indemnified commer-cial and political risk claims – including resched-uled commercial debt – was just under 6 billionEUR at year-end (2005: 12.4 billion EUR).

3 billion EUR of these outstanding claims is reg-ulated by bilateral rescheduling agreements, thusrestructuring the debt of the debtor countries inaccordance with their ability to pay. The graph on

In addition to this, new cover had been issued atyear-end for interest of 38.1 billion EUR (2005: 39billion EUR). This was not set off against thestatutory cover limit. Overall, this brought thetotal commitment of the Federal Government to136.5 billion EUR.

The outstanding risk of the Federal Governmentis calculated by taking the future maturities of thecovered amounts less the percentage to beborne by exporters for their own account. The fig-ure arrived at in this way represents the maximumoutstanding risk at any given time under activecover assumed by the Federal Government. Thissays nothing about the probability that the risk willgenerate a loss leading to a claim on the FederalGovernment however. On top of this, postponeddelivery dates and deferred repayment maturitiesafter cover has been assumed frequently lead toa subsequent increase or decrease in the out-standing risk for the year in question.

The Federal Government’s actual outstandingrisk including interest rose by 3.1 % in compar-ison to the preceding year and stood at 58.5 bil-lion EUR at year-end (see P. 100). Half the totalwas accounted for by eight countries. The high-est outstanding risk, 71.9 %, is in respect of thedeveloping countries, followed by the Westernindustrial countries with 14.6 % and the Centraland Eastern European countries with 13.5 %.

Export guarantee portfolio

96

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 96

below right shows the debt owed to the FederalGovernment under rescheduling agreements (3 billion EUR) and political claims (0.9 billionEUR).

The political claims indemnified over recent yearsand regulated in rescheduling agreements con-tinue to justify expectations of recovery. These willhowever be at a far lower level than in the two pre-ceding years. They can also not be completelytaken for granted, since debt forgiveness whichhas already been granted and will come into forcein following years is a component which will mod-ify the figures of outstandings. Successive re-scheduling agreements under the HIPC Initiativewill thus lead to further debt forgiveness. Some 1 billion EUR in debt forgiveness has already beenplanned for 2007 and 2008 for Cameroon, theDemocratic Republic of Congo and Iraq.

In the year under review, debt relief on the capi-tal repayment due to the Federal Governmentunder rescheduling agreements of 690.1 millionEUR (2005: 431.8 million EUR) became effec-tive. Nigeria had the biggest share here, 486.1million EUR, followed by Iraq, Serbia, Montene-gro, Zambia and Cameroon. All in all, the FederalRepublic of Germany has already forgiven debtof 3.2 billion EUR to the poorest countries in theworld in its export credit guarantee schemeunder earlier initiatives.

Subtotal: 3.46 bn EUR (88.0%)Total: 3.93 bn EUR (100%)

Iraq

Argentina

Cameroon

Egypt

Pakistan

Ukraine

MyanmarSerbia-

MontenegroCongo

Dem. Rep.Korea, DPR

0.95

0.95

0.32

0.31

0.22

0.20

0.16

0.13

0.11

0.11

Debt owed to the Federal Government out of rescheduling agreements and political risk claims 2006 in billion EUR


AsianAfrican

Latin AmericanEuropean



42,920.1

26,733.24,208.06,879.25,099.7

6,916.9

6,874.8

42,059.2

26,586.13,758.67,078.94,635.6

7,886.5

8,527.9

Total outstanding risk by country groupin million EUR

Total 56,711.8 58,473.6

2005 2006

Subtotal 2006: 32.7 bn EUR (55.9%)Total 2006: 58.5 bn EUR (100%)

Iran

Russia R.F.UnitedStatesTurkey

China P.R.

IndonesiaTrinidad

and TobagoSouth Africa

BrazilUnited

Kingdom

5.3*5.8

5.24.6

4.02.8

4.04.4

3.94.4

3.33.6

2.11.0

1.92.0

1.51.7

1.51.4

Total outstanding risk of the Federal Government2006/2005 in billion EUR

2006

2005

* For accounting reasons this figure does not include Iran-related risks in the amount of 304.8 m EUR which existed as at 31.12.2006.

97

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 97

Year

Total exportvolumein billion EUR

Newguaranteesin billion EUR

Covered per-centage oftotal exportvolume

Coverapplicationsin billion EUR

New guarantees as related to total export volume;cover applications

1950 4.3 1.0

1955 13.1 5.1

1960 24.5 2.4 9.6 8.3

1965 36.7 2.8 7.5 10.0

1970 64.1 4.9 7.7 12.0

1975 113.3 10.1 8.9 55.8

1976 131.0 13.4 10.2 61.8

1977 139.8 17.2 12.3 59.1

1978 145.5 13.2 9.1 68.4

1979 160.9 12.8 8.0 53.1

1980 179.2 14.6 8.1 64.8

1981 202.9 18.6 9.2 91.5

1982 218.7 20.0 9.2 75.6

1983 221.0 17.0 7.7 58.8

1984 249.6 16.4 6.6 49.0

1985 274.6 15.9 5.8 54.0

1986 269.1 12.9 4.8 27.5

1987 269.5 12.5 4.6 25.9

1988 290.3 13.3 4.6 21.5

1989 * 348.8 14.1 4.0 23.0

1990 348.0 13.7 3.9 29.9

1991 340.4 19.3 5.7 60.2

1992 342.8 20.0 5.8 50.4

1993 321.3 ** 17.2 5.4 43.2

1994 353.1 17.1 4.8 31.6

1995 383.2 17.1 4.5 29.8

1996 403.4 18.1 4.5 26.7

1997 453.8 18.8 4.1 30.2

1998 488.4 15.4 3.2 23.0

1999 507.2 13.6 2.7 22.5

2000 596.9 19.5 3.3 21.0

2001 640.6 16.6 2.6 21.4

2002 647.0 16.4 2.5 22.8

2003 661.6 16.0 2.4 22.7

2004 733.5 21.1 2.9 23.6

2005 786.2 19.8 2.5 24.8

2006 893.6 20.3 2.3 22.7

* Starting 1989, values include former Eastern Germany** Starting 1993, a new statistical method is applied in the EU to record overall export figures

98

Annex

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 98

Stat. max. exp.limitYear

Allocatedamount of stat. max. exp.limit*

Offers ofcover

Totaloutstandingrisk*

Utilization of the statutory maximum exposure limit and offers of cover in billion EUR

1950 0.3 0.3

1955 3.8 2.5 0.8

1960 6.1 5.2 3.0

1965 8.7 8.1 4.4

1970 13.8 12.9 5.2

1975 30.7 25.0 29.6

1976 38.3 35.4 33.2

1977 56.2 42.0 40.9

1978 66.5 45.6 58.4

1979 74.1 52.5 49.5

1980 76.7 59.6 42.3

1981 76.7 69.4 41.5

1982 81.8 77.0 39.2

1983 94.6 80.1 40.3

1984 99.7 79.9 35.7

1985 99.7 80.9 33.3

1986 99.7 75.3 23.8

1987 99.7 71.4 24.7

1988 99.7 67.8 23.0

1989 99.7 66.3 19.0

1990 81.8 68.3 20.9

1991 84.4 77.6 33.6

1992 92.0 82.3 29.4

1993 92.0 85.2 28.6

1994 97.1 92.1 19.0

1995 99.7 91.9 15.4

1996 99.7 97.1 14.8

1997 102.3 99.1 17.1 58.0

1998 109.9 100.9 13.6 56.6

1999 112.5 101.1 15.7 54.2

2000 112.5 106.1 18.6 56.5

2001 117.6 102.7 16.2 55.2

2002 117.6 103.0 18.5 52.4

2003 117.0 102.9 16.3 51.6

2004 117.0 103.2 12.5 54.0

2005 117.0 104.9 11.3 56.7

2006 117.0 98.4 9.8 58.5

* The column “Allocated amount of stat. max. exp. limit” reflects the overall level of exposure under thestatutory limit for the respective year. On the basis of these figures conclusions cannot, however, bedrawn on the amounts actually at risk, because they include claims paid as well as disbursements withinthe scope of reschedulings, for which recoveries are still expected.For this reason, the Federal Government’s total outstanding risk is recorded separately since the end of1997.

99

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 99

100

Annex

2005 inbillion EUR in %

2006 inbillion EUR

Total outstanding risk by country

in %

Iran 5.8 10.2% 5.3* 9.1%

Russia R.F. 4.6 8.1% 5.2 8.9%

United States 2.8 4.9% 4.0 6.9%

Turkey 4.4 7.8% 4.0 6.9%

China P.R. 4.4 7.7% 3.9 6.6%

Indonesia 3.6 6.3% 3.3 5.6%

Trinidad and Tobago 1.0 1.7% 2.1 3.6%

South Africa 2.0 3.6% 1.9 3.3%

Brazil 1.7 3.0% 1.5 2.6%

United Kingdom 1.4 2.4% 1.5 2.5%

other countries 25.0 44.3% 25.8 44.0%

Total 56.7 100.0% 58.5 100.0%

* For accounting reasons this figure does not include Iran-related risks in the amount of 304.8 m EURwhich existed as at 31.12.2006.

1999 2000 2001 2002 2003

Breakdown of specific policies by type of goods in million EUR

2004 2005 2006

I Plants 1,545 3,510 2,009 2,864 3,187 5,368 4,728 5,607

II Machinery and equipment 908 1,166 1,137 1,409 1,433 2,397 2,043 2,122

III Electronic, precision engineering

and optical equipment,

telecommunication 418 246 779 1,195 813 1,109 1,181 554

IV Ships, equipment for ships 1,138 1,870 808 403 632 815 1,459 2,516

V Vehicles, locomotives etc. 117 67 653 136 338 356 507 289

VI Aircraft 1,209 2,126 1,549 1,156 764 1,279 1,676 932

VII Construction Services 437 751 52 286 188 234 140 470

Others 384 608 454 494 344 359 408 284

Total 6,154 10,343 7,441 7,943 7,699 11,917 12,142 12,774

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 100

101

Year(s)Premiums/fees earned

Recoveries forclaims paid andrescheduledamounts***

Disbursementsfor claims andreschedulings Cost

Financial result in million EUR

Interest*

1950-1954 27.6 16.8 25.6 5.3

1955-1959 85.6 83.2 168.0 10.8

1960-1964 141.3 144.7 370.1 14.4

1965-1969 247.0 381.4 587.7 22.8

1970-1974 346.1 421.9 808.1 37.9

1975-1979 897.5 468.5 580.6 82.6

Subtotal 1,745.1 1,516.6 2,540.1 173.7 482.1

1980-1984 1,437.3 860.9 3,034.5 149.9 238.2

1985-1989 1,343.3 1,034.6 5,512.6 183.9 760.1

1990-1994 2,022.9 2,028.3 12,121.9 244.3 1,725.6

1995 591.9 593.2 1,909.9 51.1 803.7

1996 559.7 451.4 1,405.8 48.4 909.1

1997 616.8 604.3 1,469.6 49.7 1,087.3

1998 565.3 488.8 1,031.1 51.5 800.3

1999 393.6 584.5 798.0 70.0 ** 543.2

2000 570.0 501.9 972.9 64.5 498.6

2001 574.5 755.4 880.8 61.0 1,284.2

2002 332.3 821.4 688.9 63.2 1,119.6

2003 449.6 797.1 514.0 63.3 1,172.9

2004 472.9 1,029.3 558.5 65.6 1,203.3

2005 511.2 4,874.7 695.1 66.5 1,981.0

2006 556.0 6,394.4 292.9 65.6 2,431.8

Total amount 12,742.5 23,336.7 34,426.5 1,472.1 17,041.1

Total income 36,079.3

Total expenses 35,898.6

Result 180.7

Debt owed to the Federal Government 5,929.7

of which regulated under reschedulings 2,992.9

* interest received by the Federal Budget; not included in result** including supplementary payments for previous years*** without regard of the Aries-transaction (from 2004)Recoveries for claims paid and reschedulings include exchange rate claims and unscheduled repayments

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 101

102

Annex

Federal counter-guaranteeTo complement contract bond cover taken outby an exporter, a counter-guarantee in favour ofthe guarantor can be assumed by the FederalGovernment. This entitles the guarantor, equiva-lent to a demand guarantee, to receive paymentfrom the Federal Government for up to 80 % ofthe amount of a called bond. This relieves thestrain on the exporter’s credit lines up to theamount indemnified and so means considerablyimproved liquidity for him.

Financial credit cover facility(buyer credit cover facility)Protects banks against the risks arising inconnection with the amounts receivable under acredit provided to a foreign buyer or borrower.

Leasing cover facilityCovers the political and commercial risks involvedin leasing transactions by German lessors(manufacturers or leasing companies) with les-sees abroad.

Manufacturing risk cover facilityA manufacturing risk cover facility enables theexporter to protect his production costs incurredin the manufacture of the goods supplied and/orthe performance of the services specified in theexport contract in the event that fulfilment of theexport contract becomes impossible for or un-acceptable to the exporter.

Products

Contract bond coverContract bond cover enables the exporter whohas to put up a bond in favour of his buyer inorder to secure his own contractual obligations(advance payment, bid, supply or maintenancebonds) to protect himself from losses resultingfrom the bond being called unfairly or for politicalreasons (cf. Federal counter-guarantee).

Constructional works cover facilityThis type of cover protects the exporter from thetypical risks involved in construction work carriedout abroad and covers, in addition to the amounts receivable, other risks which may arisein connection with political events during construction abroad (e.g. the risk of confiscationor destruction of construction equipment).

Credit line facility coverCredit line facility cover is a cover line whichincludes small tied finance credits issued under acover facility agreement. The Federal Govern-ment makes a maximum amount available inadvance, and this can be drawn down by simplynotifying the individual credit contracts, subjectto these complying with the conditions stipulatedby the Federal Government. All German banksas well as the branches of foreign banks in Ger-many are eligible for such cover.

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 102

103

Revolving specific policiesThese are recommended for recurring deliveriesto one and the same foreign buyer due to thesimple handling in order to avoid having to sub-mit an individual application for each transaction.The maximum credit period is 24 months.

Securitisation guaranteeA securitisation guarantee can be used to en-hance the credit valuation of a debt as an addi-tional agreement to a finance credit guarantee,thus improving the conditions of the guarantee, ifthe policyholder bank grants a tied finance creditto the foreign debtor and wishes to refinance theloan in turn on the capital market. After assign-ment of the covered debt and of the right toreceive payment under the guarantee to a refi-nancing institution (a bank or finance house), thefinance credit guarantee thus enhanced by asecuritisation guarantee takes on the status of anunconditional payment guarantee of the FederalGovernment in favour of the refinancer (i.e., hehas no waiting period, no self-retention, and isentitled to unconditional indemnification (as if hehimself held the original guarantee)).

Specific policyMay be issued within the scope of public or pri-vate buyer risk guarantees in respect of individu-al export transactions to cover the credit risk aris-ing from an export contract concluded with a foreign buyer.

Wholeturnover policyThe wholeturnover policy offers comprehensivecover for non-marketable risks at reasonablepremiums for export contracts with a large num-ber of foreign buyers and with payment terms ofup to 12 months. The countries to be covered inthis spread policy can be chosen by thepolicyholder with convenient online handling.

Wholeturnover policy lightThe Wholeturnover policy light is a comprehen-sive cover instrument which is inexpensive andeasy to handle, especially well suited to theneeds of small and medium-sized enterpriseswith an annual insurable turnover not exceeding1 million EUR. It covers export business with oneor more foreign buyers on credit terms of up tofour months. The policy protects against the riskthat receivables are still unpaid 6 months afterdue date (protracted default).

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 103

104

Annex

Definitions and explanations

Arrangement (Consensus)The Arrangement is a “Gentlemen’s Agreement”between the OECD members which regulatesthe minimum and maximum terms permissiblefor the official support of exports in order to avoidfinancing competition which would place anunnecessary burden on national budgets. Itapplies only to transactions with repaymentterms of more than two years.

CeilingFor countries where cover facilities have beenrestricted for risk management reasons, an amount of cover is fixed which places a limit onthe maximum amount for which guarantees canbe issued, i.e., a ceiling is established. As a rule,such ceilings apply to transactions with repay-ment terms of more than 12 months.

Club of LondonThe uncovered loans granted by commercialbanks are rescheduled by the banks on their owninitiative (cf. also Paris Club).

CoinsuranceWhen the primary supplier passes on his foreignrisks to the subcontractor, e.g. when the latteronly gets paid when the foreign buyer has paidthe primary contractor, an application can bemade for so-called coinsurance. Among EUmember states, this is regulated by a directivefrom the Council. There are bilateral agreementswith other credit insurers. Besides this, there isthe option of concluding a coinsurance agree-ment with other state export credit agenciescovering just a single transaction.

Commercial risksCommercial risks are mainly insured under thecover given for the credit and manufacturing risksinvolved in export contracts with private buyers.In the case of credit risk, the insured event is theuncollectability of insured accounts receivable asa result of the insolvency of the foreign buyer, aswell as his simple non-payment after the expiryof a certain period (protracted default). In manu-facturing risk cover, the commercial risks recog-nized as insured are also the occurrence of buy-er insolvency during the manufacturing period,the unlawful repudiation of the contract by thebuyer as well as non-payment of cancellationcosts if the contract was lawfully cancelled.

Environmental auditThe screening process to review environmentalaspects when granting export credit guaranteesis based on the OECD environmental guidelinesset out in the Recommendation on CommonApproaches on Environment and Officially Sup-ported Export Credits passed in 2004, whichcontains basic rules agreed at OECD level for thefor the review in OECD countries. The OECDmembers reached agreement in April 2007 onmodifications to the guidelines based on theexperience gained with it over the last few years.These new Common Approaches will form thebasis for the review process when granting exportcredit guarantees in future. The earlier nationalguidelines will be applied in addition to the extentthat they are not superseded by the OECD rules.

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 104

105

Screening

During the preliminary screening process, thoseprojects with potentially negative environmentalimpacts are filtered out. In addition, all projectswith an order value exceeding 15 million EURwith extended credit terms are given a prelimi-nary check. Projects located in areas close tonature reserves, or which give concrete reasonto expect environmentally relevant impacts arealso subjected to preliminary screening. The pro-jects are divided into three categories – A, B andC. Category C consists of projects with no oronly minimal environmental impacts, B thosewith only limited impact and A is for projects withserious potential environmental impacts.

Review

The second stage of the procedure involves amore thorough examination, called the review, forthose projects which the initial screening has proved to be in need of it. Projects in Category Care as a rule exempted from any further checks.For category A and B projects further details mayhave to be provided in order to be able to assesstheir environmental impact. In principle, for cate-gory A projects an Environmental Impact Assess-ment, i.e., a very detailed environmental exper-tise, must be presented. Within the scope of thisin-depth examination it is ascertained – amongother things – that the project complies withinternational environmental standards.

Exposure1) Total commitment level of the Federal Govern-ment booked against the annual cover limit; 2) the commitment under an individual exportcredit guarantee.

Interministerial CommitteeDecides on matters of principle and on the avail-ability of cover for individual transactions. TheFederal Ministry of Economics and Technologytakes the decisions on the cover applications withthe approval of the Federal Ministry of Finance,in agreement with the Federal Ministries for Foreign Affairs and for Economic Cooperationand Development, and with the assistance of theConsortium and experts.

Marketable risksWith effect from 1st January 2002, the commer-cial and political risks arising out of export trans-actions with public and non-public debtors withcredit periods up to two years in the core OECDcountries – i.e. the EU member states, the USA,Canada, Japan, Australia, New Zealand, Iceland,Switzerland and Norway – are considered to bemarketable risks. It has become apparent thatprivate credit insurers are able to offer sufficientand long-term cover facilities in this segment.Due to the principle of subsidiarity it is thereforeno longer permissible to offer state export creditguarantees for this type of business. As of 1stJanuary 2005, the subsidiarity principle – with theexception of wholeturnover policies light – alsoapplies to the ten new member states which join-ed the EU on 1st May 2004. Short-term exportrisks in Romania and Bulgaria have also beenregarded as being marketable risks since 1stJanuary 2007.

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 105

106

Annex

Multi-sourcing projectsProjects involving exporters from different coun-tries and, in many cases, with multinational financ-ing.

Offer of coverDeclaration of intent to provide cover subject tothe condition that the factual and legal basis ofthe transaction does not change.

Parallel insuranceWhen the various suppliers in a multi-sourcingproject each have their own payment claimsagainst a foreign buyer, each supplier insures hisreceivables against loss with his own nationalexport credit agency.

Paris ClubInternational association of official creditorswhich restructures the debt of countries experi-encing payment difficulties. The debt treatmentrefers almost exclusively to officially guaranteedcommercial debt, i.e. guaranteed in particular bythe governments of the creditor countries (in thecase of Germany: export credits backed byFederal export guarantees) and development aidloans. The Paris Club has no organisationalstructure with written statutes. The proceduralguidelines have been developed over the courseof time and are amended when and as neces-sary (compare “Club of London”).

Political risksThe origin of political risks is to be sought in mea-sures or events originating in the sphere of stateauthorities. In the case of cover for amounts duefor payment, such risks are political circum-stances which cause the insured accountsreceivable to become uncollectible, especiallythe general political cause of loss, which includeslegislative or regulatory actions and so-calledchaos events such as war, civil unrest or revolu-tion in foreign countries. The Federal Govern-ment further grants cover for the conversion andtransfer risk, i.e., the risk that amounts duly paidby the foreign buyer in local currency are notconverted and/or not transferred due to restric-tions on the international payment system be-tween countries.

Cover is also given for the risks of frustration ofcontract, when it becomes impossible to fulfil acontract and entitlements under it are lost, aswell as the risk of loss of goods before the pass-ing of risk for reasons which can be attributed topolitical circumstances. If such a cause of lossseems likely – just as in the case of the generalpolitical cause of loss – and the goods are soldelsewhere in such a situation, then the risk of ashortfall in the proceeds realized is also insured.

In the case of manufacturing risk cover the politi-cal risks insured comprise the political circum-stances abroad which lead to the cessation ofmanufacture or to non-shipment, as well asembargos imposed under the export Law and byany third countries which may be involved.

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 106

107

Private buyer risk guaranteeAn export credit guarantee is considered to be inrespect of private (as opposed to public) buyerrisk when the foreign contractual partner of theGerman exporter is a private buyer and canbecome bankrupt.

Project financing schemesAre applied to complex export transactions forwhich traditional security is not available, butwhere the project itself generates sufficient incometo cover the operating costs and the debt service for borrowed funds.

Protracted defaultNon-payment which persists for a longer period.If an amount owed by a foreign buyer is not set-tled within a period of, normally, six months afterdue date, this is considered to constitute pro-tracted default. In the case of the financial creditcover facility the waiting period is reduced to onemonth.

Public buyer risk guaranteeAn export credit guarantee is considered to be inrespect of public (as opposed to private) buyerrisk when the foreign contractual partner of theGerman exporter or guarantor fully liable for con-tractual liabilities towards him is a government, aregional authority or other similar institution.

ReinsuranceUsing the reinsurance model, projects involvingexporters from different countries (multi-sourc-ing-projects) can be covered by a single exportcredit insurer, so that the main supplier and thefinancing bank only have to deal with one part-ner. The risk is shared between the parties to thereinsurance agreement according to the nationalpercentages of goods delivered.

Statutory maximum exposure limitMaximum amount up to which liability in the formof issued export guarantees may be accepted bythe Federal Government under the Federal Bud-get Law. Its utilization is monitored by the FederalSecurities Administration.

Structured finance transactionThe financing of an export transaction in which,due to insufficient or non-assessable creditworthi-ness of the foreign debtor, and because con-ventional security instruments (payment guaran-tee, letter of credit) are not available, other ele-ments are included in the construction to ensureservice of the debt, such as the proceeds of off-take agreements.

Total outstanding risk of theFederal GovernmentThe country risk statistics reflect the debt owedby individual countries (including interest) to theFederal Government and the amount whichwould actually have to be indemnified by theFederal Government under the export guaran-tees issued.

Uninsured percentageExporter’s share in the loss in an event of loss,normally 5 % for political risks and 15 % for com-mercial risks and protracted default. For theWholeturnover and Wholeturnover light policies,it is 10 % for commercial risks. In the case offinance credit cover, the uninsured percentage is5 % for all risks, for manufacturing risk cover it isalso 5 %.

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 107

108

Annex

Classification of countries

DAC Classification of developingcountries(DAC = Development Assistance Committee ofthe OECD)

Lat in American developingcountr ies:Anguilla, Antigua and Barbuda, Argentina,Aruba, Bahamas, Barbados, Belize, Bermuda,Bolivia, Brazil, British Virgin Islands, CaymanIslands, Chile, Colombia, Costa Rica, Cuba,Dominica, Dominican Republic, Ecuador, ElSalvador, Falkland Islands, Grenada,Guadeloupe, Guatemala, Guyana, Haiti,Honduras, Jamaica, Martinique, Mexico,Montserrat, Nicaragua, Netherlands Antilles,Panama, Paraguay, Peru, Puerto Rico, St. Kittsand Nevis, St. Lucia, St. Pierre and Miquelon, St.Vincent and the Grenadines, Suriname, Trinidadand Tobago, Turks and Caicos Islands, Uruguay,Venezuela

African developing countries: Algeria, Angola, Benin, Botswana, Burkina Faso,Burundi, Cameroon, Cape Verde, CentralAfrican Republic, Chad, Comoros, Congo, Con-go (Democratic Republic), Côte d’Ivoire, Dji-bouti, Egypt, Equatorial Guinea, Eritrea,Ethiopia, Gabon, Gambia, Ghana, Guinea,Guinea-Bissau, Kenya, Lesotho, Liberia, Libya,Madagascar, Malawi, Mali, Mauritania, Mauritius,Mayotte, Morocco, Mozambique, Namibia,Niger, Nigeria, Reunion, Rwanda, Sâo Tomé andPrincipe, Senegal, Seychelles, Sierra Leone,Somalia, South Africa, St. Helena, Sudan,Swaziland, Tanzania, Togo, Tunisia, Uganda,Zambia, Zimbabwe

European developing countries: Albania, Bosnia-Herzegovina, Croatia, Cyprus,Gibraltar, Malta, Macedonia, Moldova, Montene-gro, Serbia, Slovenia, Turkey

Asian developing countries:• Near/Middle east: Bahrain, Iran, Iraq, Israel, Jordan, Kuwait,Lebanon, Oman, Palestine (autonomous territo-ries), Qatar, Saudi Arabia, Syria, United ArabEmirates, Yemen

• East Asia:Brunei, Cambodia, China (People’s Republic),East Timor, Hong Kong, Indonesia, Korea, Korea(Democratic People’s Republic), Lao People’sDemocratic Republic, Macao, Malaysia, Mongo-lia, Philippines, Singapore, Taiwan, Thailand,Vietnam (Socialist Republic)

• South/Central Asia:Afghanistan, Armenia, Azerbaijan, Bangladesh,Bhutan, Georgia, India, Kazakhstan, Kyrgyzstan,Maldives, Myanmar, Nepal, Pakistan, Sri Lanka,Tajikistan, Turkmenistan, Uzbekistan

• Oceania:Cook Islands, Fiji, French Polynesia, Guam, Kiri-bati, Marshall Islands, Micronesia, Nauru, NewCaledonia, Niue, Northern Mariana Islands,Palau, Papua New Guinea, Pitcairn Islands,Solomon Islands, Samoa, Tokelau, Tonga,Tuvalu, Vanuatu, Wallis and Futuna

Central/Eastern European countries: Belarus, Bulgaria, Czech Republic, Estonia,Hungary, Latvia, Lithuania, Poland, Romania,Russian Federation, Slovak Republic, Ukraine

Industrial countries:Andorra, Australia, Austria, Belgium, Canada,Canary Islands, Denmark, Germany, Finland,France, Greece, Greenland, Iceland, Ireland,Italy, Japan, Liechtenstein, Luxembourg,Monaco, Netherlands, New Zealand, Norway,Portugal, San Marino, Spain, Sweden,Switzerland, Vatican City, United States, UnitedKingdom

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 108

Photographs by courtesy of

P. 4, 11 Bundesministerium für Wirtschaftund Technologie, Berlin

P. 8, 47 SMS Meer GmbH, Mönchengladbach

P. 10, 13 Demag Cranes & ComponentsGmbH, Wetter

P. 14 INTERPRINT GmbH & Co. KG,Arnsberg

P. 16, 17 Rasselstein GmbH, Andernach

P. 18 LAWI Engineering GmbH, Kiel

P. 21, 22 Gabriele Klein, Hamburg

P. 24 - 29 Hajo Zylla, Berlin

P. 30 Lilly Latranyi, Hamburg

P. 31 Michaela Röming, Hamburg

P. 33 Burckhardt Noßeck, Hannover

P. 34, 94 Linde AG, Pullach

P. 35 Siemens AG, Offenbach

P. 36, 37 ALSTOM Power AG, Augsburg

P. 38 MAN Ferrostaal, Essen

P. 40, 41 Airbus S.A.S., exm company, S. Ognier

P. 42, 43 Reederei Harren & Partner ShipManagement, Bremen

P. 45, 76 ESCON Engineering, Servicesand Consulting GmbH, Berlin

P. 46 Achenbach Buschhütten GmbH,Kreuztal

P. 47 SMS Meer GmbH, Mönchengladbach

P. 48, 49 Iveco Magirus BrandschutzGmbH, Ulm

P. 51, 68 Simed International GmbH, Düsseldorf

P. 52 Kautz Vorrichtungsbau GmbH,Willstätt-Lengelshurst

P. 53 Lindauer DORNIER GmbH, Lindau

P. 55, 92 Voith Siemens Hydro, Heidenheim

P. 56 KBA-MetalPrint GmbH & Co. KG,Stuttgart

P. 58 VAKOMA GmbH, Magdeburg

P. 60 WEIMA Maschinenbau GmbH,Ilsfeld

P. 62, 63 Hebenstreit GmbH, Moerfelden-Walldorf

P. 64, 65 Doppstadt Calbe GmbH, Calbe

P. 66 Schuler SMG GmbH & Co. KG,Waghäusel

P. 73 Detlev Malzkuhn, Hamburg

P. 75 Nippon Export and InvestmentInsurance (NEXI), Japan

P. 88 Thomas Leye, Hamburg

109

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 109

The leadership function in the InterministerialCommittee, which has the underwriting respon-sibility for Federal Export Credit Guarantees, isexercised by the Federal Ministry of Economicsand Technology.

Bundesministerium für Wirtschaft und TechnologieReferat VC 2Scharnhorststraße 34-37D-10115 Berlinwww.bmwi.bund.de

The Federal Government has appointed a con-sortium formed by Euler Hermes Kreditver-sicherungs-AG, Hamburg, as lead partner, andPricewaterhouseCoopers AktiengesellschaftWirtschaftsprüfungsgesellschaft, Hamburg, tomanage the official export credit guaranteescheme. Further details and information may beobtained by contacting the Head Office of EulerHermes Kreditversicherungs-AG in Hamburg orone of the branch offices. Additional informationon the official export guarantee scheme, e.g. cur-rent editions of the AGA-Report, the GeneralConditions and information leaflets as well as theAnnual Reports can also be accessed via Inter-net. You may also request additional informationmaterial or raise your questions directly via e-mail.

Head OfficeEuler Hermes Kreditversicherungs-AGFriedensallee 254D-22763 HamburgMailing address:D-22746 HamburgFederal Republic of Germany

Phone: (+49 40) 8834 9192Fax: (+49 40) 8834 [email protected]

This report on the official export credit guaranteescheme of the Federal Republic of Germany isavailable in German and English.

110

Annex

RZ_JB_2006 16.08.2007 14:42 Uhr Seite 110

Head Office

Euler HermesKreditversicherungs-AGFriedensallee 254D-22763 HamburgPhone: (+49 40) 88 34-91 92Fax: (+49 40) 88 34-91 [email protected]

Export credit guaranteedepartment,Berlin

D-10117 BerlinFriedrichstadt-PassagenQuartier 205Friedrichstraße 69Phone: (+49 30) 20 94-53 10Fax: (+49 30) 20 94-53 [email protected]

Branch offices of Euler Hermes Kreditversicherungs-AG

2006

An

nu

al

Re

po

rt 2

00

6 –

Ex

po

rt C

red

it G

ua

ran

tee

s o

f th

e F

ed

era

l R

ep

ub

lic

of

Ge

rma

ny


Annual ReportD-60311 FrankfurtGroße Gallusstraße 1-7Phone: (+49 69) 13 48-159Fax: (+49 69) 13 48-170

D-79100 FreiburgRehlingstraße 6ePhone: (+49 7 61) 40 07 9-39Fax: (+49 7 61) 40 07 9-50

D-20251 HamburgStraßenbahnring 11Phone: (+49 40) 2 36 36-190Fax: (+49 40) 2 36 36-166

D-30159 HannoverGeorgstraße 36Phone: (+49 5 11) 3 64 01-90Fax: (+49 5 11) 3 64 01-70

D-50672 KölnHohenzollernring 31-35Phone: (+49 2 21) 9 20 60-293Fax: (+49 2 21) 9 20 60-159

D-04157 LeipzigLandsberger Straße 23Phone: (+49 3 41) 9 08 23-0Fax: (+49 3 41) 9 08 23-10

D-68259 MannheimHauptstraße 161Phone: (+49 6 21) 1 29 05-18Fax: (+49 6 21) 1 29 05-99

D-80339 MünchenRidlerstraße 35Phone: (+49 89) 5 43 09-143Fax: (+49 89) 5 43 09-166

D-90429 NürnbergSpittlertorgraben 3Phone: (+49 9 11) 2 44 05-15Fax: (+49 9 11) 2 44 05-30

D-66111 SaarbrückenBahnhofstraße 80Phone: (+49 6 81) 3 89 96-0Fax: (+49 6 81) 3 89 96-99

D-70597 StuttgartLöffelstraße 44Phone: (+49 7 11) 9 00 49-38Fax: (+49 7 11) 9 00 49-70

D-12435 BerlinAn den Treptowers 1Phone: (+49 30) 20 28 43-23Fax: (+49 30) 20 28 43-01

D-33602 BielefeldZimmerstraße 8Phone: (+49 5 21) 9 64 56-0Fax: (+49 5 21) 9 64 56-50

D-28195 BremenMartinistraße 34Phone: (+49 4 21) 1 65 97-0Fax: (+49 4 21) 1 65 97-49

D-44137 DortmundLindemannstraße 79Phone: (+49 2 31) 1 82 99-90Fax: (+49 2 31) 1 82 99-99

D-01129 DresdenRiesaer Straße 5Phone: (+49 3 51) 8 53 77-0Fax: (+49 3 51) 8 53 77-10

D-40472 DüsseldorfKanzlerstraße 4Phone: (+49 2 11) 9 65 76-80Fax: (+49 2 11) 9 65 76-99

E-mail address for all branch offices: [email protected]

RZ_JB_2006_US.qxd 23.08.2007 10:27 Uhr Seite 1

Documents

Berlin Annual Report - AGA-Portal€¦ · [email protected] ... 2006 Annual Report 2006 – Export Credit Guarantees of the Federal Republic of Germany ... Große Gallusstraße