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Canadian Money Targets Power Generation Overseas

Fortnightly Magazine - September 1 1998

CANADA MAY CLAIM ONLY A SMALL SHARE OF THE world's high-profile power developers, but that hasn't stopped its financial institutions from becoming big players. These public and private lenders have made available billions of dollars to nearly any project willing to use Canadian consultants or equipment.

Furthermore, the government is willing to back its country's products with political risk insurance as part of the package. In a world where power projects are becoming expensive and pose greater market and political risk, Canadian involvement is welcomed.

The linchpin of Canada's policy starts with its Export Development Corp., which boasts an asset base of about $8 billion (all denominations in U.S. dollars). Its capital and surplus base (including allowances) totals about $2.4 billion. EDC is part of the Export Credit Agency of Canada, which is controlled by a 15-member board of directors drawn predominantly from the private sector. That makeup gives the ECA an appetite for taking on risk.

Other countries also have similar agencies, but Canada's is different. The U.S. Export-Import Bank, for example, operates as a lender of last resort, using funds appropriated annually by Congress. If the bank runs out of money midyear, it shuts down.

Canada's EDC, though government owned, is financially self-sustaining, operating on a user-pay basis. In fact, during its 53 years, the agency has never lost money, according to Eric Siegel, EDC executive vice president. Last year, its volume increased 30 percent, reaching $18.6 billion. Siegel reports the EDC continues to evolve. About 70 percent of its business last year came from commercial transactions, up from 25 percent and 50 percent of its loan portfolio as recently as 1994 and 1997.

"EDC is also incredibly flexible," according to one banker who has worked with both agencies. "Instead of bureaucrats telling you what they can't do, the EDC people roll up their sleeves to figure out ways to make it happen."

In 1995, EDC created a dedicated unit to deal with limited-recourse financing. Since then, the agency has concluded more than 40 transactions with a financing volume topping $2.2 billion.

"We also have presently an active pipeline of some 50 projects, with EDC direct financing potential participation in excess of $3 billion," says Siegel. He adds that EDC has provided about $2.5 billion in the power sector since 1990 in about 80 transactions.

That support has had a significant impact on Canadian business, which exports almost $2 billion a year in power generating equipment. For example, more than half the hydro generators provided worldwide by General Electric, including those for the Three Gorges project in China, are supported by EDC. On the thermal side, Babcock & Wilcox - provider of about 20 percent of worldwide utility boilers - also has received major EDC support, including a $220-million loan in 1993 for the 1,800-megawatt project in Suralaya, Indonesia.

The EDC: Three Defining Deals

What the EDC is looking for in a project is a payback to Canada, either in goods and services, dividends to Canadian companies or promise of future work. It extends loans to foreign buyers to purchase

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