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WHETHER DOING BUSINESS IN SANTIAGO OR Krakow, Budapest or Bang Kraui, American energy service companies agree: It's tough to find a lender to finance international projects.
ESCO executives working around the globe met to commiserate at the International Roundtable on Energy Efficiency Financing Feb. 26-27 at the Ritz-Carlton Hotel in Arlington, Va. Sponsors of the Roundtable included the National Association of Energy Service Companies and the Export-Import Bank of the United States.
Listening to foreign bank representatives, one might think few problems exist, that money is available. Yet from the ESCO perspective, money is there only for perfect customers, for large projects, or not at all. And besides winning a bank's confidence, ESCOs also must educate customers about performance contracting. They must find qualified customers, raft political turmoil and deal with devalued currencies, legal issues, organized crime and inflation.
Brazil, for instance, has essentially no long-term private bank financing, according to a study presented by Howard Geller of the American Council for an Energy Efficient Economy. Shorter-term financing is very expensive. Public development bank financing, available in theory, hasn't reached ESCO projects. Meanwhile, the market promises much: Paulo Cezar Tavares of PROCEL, the Brazilian electric energy conservation program, estimates that in the next five to 10 years, the ESCO business in his country will reap $5 billion, at least $500 million of that profit.
Perhaps the moral of the story worldwide (em drawn from speakers' comments (em is that banks and ESCOs need to allow for more risk in building foreign business, and that bases should be covered via ties to government or quasi-government funding agencies.
South America: A Market With Promise?
Julie Belaga, COO of the Export-Import Bank of the United States, said her organization lessens risks for ESCOs by collaborating with the commercial banking community. The bank looks at credit worthiness of an ESCO and at the company buying its product. "I've been all over the world and all people want to talk to me about is energy, energy, energy," Belaga said. "Congress tells us to reach out to small business. We're Westinghouse's and Boeing's bank, that's true, but we want to reach out to small businesses."
In 1997, 21 percent of the bank's financing (dollar volume) went to small businesses. Some 81 percent of the deals were small business deals. "We're already in your marketplace," Belaga said. "Many of the countries where you're moving, we're already there."
Privately, during the conference, one participant noted banks and ESCOs often don't see eye-to-eye on investments of less than $1 million, and this fact was reinforced by speakers' comments. "Banks aren't interested in the small-scale investments, and then when they are, they require houses and other personal assets to be put up as collateral," said one attendee.
"There's a lot of lip service which is paid to financing small projects, but not many of the larger organizations are willing or can afford to spend the time and effort on small projects given the return they bring in terms of interest and fees," said attorney B. Thomas Mansbach of Dewey Ballantine.