|Environmental Technologies Industries
|Financing Environmental Exports - A Guide to the Fundamentals and Sources|
|Chapter 3 - Sources of Export Financing|
|Case Study: Energy Performance Services - Bank Loans for ESCO|
Energy Performance Services, Inc. (EPS), is a U.S. energy services company (ESCO) majority owned by PECO Energy Company, a $4 billion per year electric and gas utility headquartered in Philadelphia, PA. EPS specializes in developing, financing, implementing, and operating performance-based energy savings projects in industrial, commercial, and large institutional energy-consuming facilities around the world.
EPS typically guarantees the facility owner that the total cost of implementing the energy savings program will be paid from the energy savings achieved.
In 1994, EPS CR sro., a subsidiary of EPS in the Czech Republic, entered into a performance-based contract to improve the energy efficiency of a large hospital in the Czech Republic. The upgrade was accomplished by converting the space-heating program from the existing central steam plant to the local municipal district heating system. As part of the contract, EPS installed modern heat recovery units and a new energy control system. EPS also converted the hospital's fuel source from oil to natural gas.
To finance the project, the hospital obtained an eight-year loan from a European bank. The loan was guaranteed by the supplier of the control equipment. The cost of the guarantee was embedded into the lender's cost.
The energy services agreement was a guaranteed performance-based contract in which EPS assumed the performance risk and the lender assumed the credit risk. The projected savings of the project was $635,000 per year. EPS guaranteed a minimum savings of $480,000 per year, which approximated the annual debt service on the project. If the annual savings were less than $480,000, then EPS would write a check to the hospital to pay the shortfall. If the annual savings were greater than $480,000 per year, then the hospital would pay $480,000 to the lender and share the excess savings with EPS. In 1997, the actual project savings was $745,000 per year, 17 percent higher than the projected savings.
EPS monitors the energy savings through its local office in the Czech Republic.
|Finding trade leads in the developing world:|
Global Technology Network (GTN)
GTN facilitates the transfer of U.S. technology to USAID-assisted countries and regions. GTN's extensive databases match developing country's needs with specific U.S. companies with the right technology, expertise, and products to address the problem. GTN focuses on identifying international business opportunities in environmental, agricultural, health, and communications and information technologies.
Business opportunities are identified by a network of participating in-country public- and private-sector representatives. These trade leads are transmitted from the field and electronically matched with U.S. firms registered in GTN's 60 subsector databases. Trade lead information is then faxed or e-mailed to appropriate U.S. companies.
To register for a GTN database contact USAID GTN, G/EGAD/BD, 1300 Pennsylvania Avenue, NW, Washington, DC 20523. Tel: 1-800-872-4348. Fax: (202) 216-3526. On the Web: www.usgtn.org and click on "Trade Lead Services" to download a registration form to fax to GTN.
|Environmental Export Promotion in the United Kingdom|
Recently the U.K. Government has taken on environmental export promotion as a specific task. Two programs are worth noting here.
The Joint Environmental Markets Unit (JEMU) informs British firms of market opportunities abroad in environmental technology and services and helps them participate. It also helps firms with contacts at trade associations and chambers of commerce to enhance the share of the global environmental market held by the United Kingdom. JEMU publishes market and sector opportunity briefs and other information on the environment industry. It also offers advice on sources of government funding and a database of U.K. supply capability. JEMU is run out of the U.K. Department of Trade and Industry's (DTI) Environment Directorate.
On the Web: www.dti.gov.uk/jemu
JEMU also administers the Technology Partnership Initiative (TPI) to give businesses in newly industrializing countries improved access to environmental technologies and services broadly available in the U.K. TPI supports training programs run by U.K. companies for business people from the developing world. The initiative also maintains a free membership network that facilitates bringing business people together to tackle environmental problems. TPI covers many key areas of environmental technology in air, water, waste, and pollution control.
On the Web: www.dti.gov.uk/tpi
|Local Environmental Funds in China|
Following policy reforms in 1988, more than 20 provinces and municipalities in China have set up pilot environmental investment companies. A typical approach is that of the Tianjin Municipal Industrial Pollution Control Fund, launched in 1993. This fund's capital comes from a $19 million loan from the World Bank, revenue from locally levied taxes on pollution, and interest on local enterprise loans.
The fund offers credit to local-level public agencies for industrial pollution abatement projects, up to 70 percent of the project's total investment value.
For more information: The Chinese National Environmental Protection Agency, 115 Xizhimemei Nanxizojie, Beijing 100035, China. Tel: (86-10) 661-519-25. Fax: (86-10) 661-517-68. E-mail: email@example.com
|The North American Environment Fund, LP (NAEF): A specialty fund|
The $50 million NAEF is a private equities fund dedicated to promoting environmental industries in the United States, Mexico, and Canada. The fund is open to portfolio companies and investor-partners. The NAEF raised money from public and private sources in Japan, Mexico, the United States and Europe. Usually the fund takes a minority position, investing no more than $5 million, with a buyout over time. The fund targets environmental opportunities in growth areas including air pollution, power generation, and remediation. For example, NAEF has funded construction and operating contracts for water treatment and recycling, primarily as investments by U.S. companies in Mexican markets.
For more information: Ventana Management Inc., Irvine, CA, 92715. Tel: (714) 476-2204. Fax: (714) 752-0223. On the Web: www.ventanaglobal.com
|First Analysis Venture Capital|
First Analysis is an investment research organization with strong trading experience whose client base includes emerging growth companies. First Analysis Venture Capital (FAVC) has a $100 million Infrastructure and Environmental Private Equity Fund III (IEPEF III), focusing partly on environmental services. Along with the company's two other environmental funds, FAVC has more than $200 million in capital committed to the environmental sector. IEPEF III closed in December 1997. It has invested in Metalico, Inc., a materials recycler and processor of nonferrous metals for commodity metals users.
For more information: First Analysis Corporation, 9500 Sears Tower, 233 S. Wacker Drive, Chicago, IL 60606. Tel: (312) 258-1400. On the Web: www.firstanalysis.com or www.facvc.com
|The Global Environment Fund Family of Funds|
This group of funds specializes in high-growth markets for environmental technologies, products, and services. The Global Environment Fund, LP, (GEF) is a partnership that invests up to $4 million per venture in public and private environmental companies around the world. Global Environment Finance Partners, LP, invests in advanced-stage private firms for stakes ranging between $500,000 and $2 million. The Global Environment Emerging Markets Fund, LP, (GEEMF) is a closed-end $70 million partnership, the bulk of which was provided by the Overseas Private Investment Corporation (OPIC)-guaranteed notes. GEEMF seeks co-investment, up to $10 million, in operating companies in countries where businesses can avail themselves of OPIC's programs. The Global Environment Emerging Markets Fund II, LP, also concentrates on environmental infrastructure (energy, water, and waste) and is backed by OPIC for a total capitalization of $120 million and investment sizes ranging up to $18 million.
GEF's funds take mostly minority stakes in both public and private companies and seek cashout from private firms within seven years.
For more information: The Global Environment Fund Group, 1201 New York Avenue, NW, Suite 220, Washington, DC 20005. Tel: (202) 789-4500. Fax: (202) 789-4508. On the Web: www.geffunds.com
|Angel Capital Electronic Network - ACE- Net|
ACE-Net is an online service that identifies small, dynamic, growing companies seeking equity financing in the $250,000 to $5 million range. ACE-Net provides centralized information for potential angel investors looking for ventures in which to invest. Sponsored by the U.S. Small Business Administration as an information clearinghouse, ACE-Net does not provide investment advice, broker deals, or participate in any sales transactions.
The system is managed by seven network operators around the country that are nonprofit, academic, or state-based centers promoting entrepreneurship. The site is maintained by the Center for Venture Research at the University of New Hampshire.
To list securities offering information on ACE-Net, companies must have a registered or qualified securities offering under Securities and Exchange Commission Regulation A or Regulation D. Applications should be directed to the nearest network operator.
On the Web: ace-net.sr.unh.edu or www.sba.gov/ADVO/
|Case Study: U.S. Filter Corporation - Foreign Direct Investment|
In 1996 United States Filter Corporation used its retained earnings to help fund its acquisition of water companies in various developing countries. U.S. Filter acquired Permutit Ltd., of Cairo, Egypt, which designs water treatment systems used in the Middle East. In a separate transaction, U.S. Filter bought KBS Pure Water PTE LM of Singapore, which primarily supplies water purification and wastewater equipment to industrial customers in Asia.
On the Web: www.usfilter.com
|Case Study: Pate Engineers, Inc. - Strategic Alliance|
A small firm forms a partnership to get recognition abroad
Pate is a small, Houston, Texas-based consulting engineering firm with $6 million in revenues in 1995. Up until that time the firm had served mostly local clients in Texas, focusing on public works for water supply and water treatment. Late that year, Pate and its partners won a $192 million wastewater collection, treatment, and operations contract with the Bangkok Metropolitan Administration (BMA) of Thailand, bidding against some of the largest environmental industry groups. The four-year contract is part of BMA's 12-year, $2 billion sewerage expansion and upgrade program for its 12 million people.
Anticipating U.S. market maturity, Pate had wanted to get into the international market for over five years. A promising contract in Mexico collapsed when the peso fell in December 1995.
Despite leadership in septic tank technology and partnerships with big firms including Thames Water of the United Kingdom, Pate's local Thai partner, Premier Enterprise Co., had been unsuccessful in bidding on previous BMA contracts. It became clear that the large players Premier had been working with were strong in operations and management but tended to contract out process design. To build an edge over the competition, Premier sought collaboration with a high-quality engineering service. On an earlier U.S. visit, Premier had hooked up with Houston-based BRH-Garver for tunneling capability. When Premier decided it wanted to take a more integrated approach, Garver referred the Thai firm to Pate.
Pate's small size and insufficient direct experience led the company to team with Lockwood, Andrews and Newman (LAN of Houston) in the partnership with Premier, with Pate as lead contractor on the BMA bid. This new alliance, which joined resources to operate together internationally, is now better strategically positioned for competing on other projects.
Small firms like Pate may have an edge in some foreign markets where the keys to success include flexibility about how to get the work done and developing the trust of the local partner through lots of face-to-face contact with principals.
Source: Asia Environmental Business Journal, July/August 1996.
|World Bank Environmental Guidelines|
In early 1998, the World Bank issued revised guidelines for the environmental performance of the industrial projects it supports. Commonly referenced by public and private financiers, the guidelines provide specific standards for air emissions, liquid effluent emissions, and solid waste disposal procedures in over 40 industrial sectors ranging from aluminum manufacturing to wood preserving. The guidelines also include recommended systems for environmental monitoring and reporting.
The guidelines contained in the Pollution Prevention and Abatement Handbook will apply to all World Bank-funded projects approved on or after July 1, 1998.
The 1998 Pollution Prevention and Abatement Handbook is available for $75 from the World Bank Infoshop. Tel: (202) 458-5454. On the Web: www.worldbank.org/html/pic/PIC.html
|Case Study: Hartford Cogeneration - Medium-Term Export Insurance|
Hartford Cogeneration was able to provide five-year financing for a Mexican customer using a Medium-Term Export Credit Insurance Policy from the U.S. Export-Import Bank (Ex-Im Bank). The Ex-Im Bank's Export Credit Insurance Policy enabled Hartford Cogeneration to obtain the necessary financing at a time when most U.S. banks were unwilling to provide medium-term financing to Mexico and medium-term credits from Mexican banks were prohibitively expensive.
In applying for the insurance policy, Hartford provided the Ex-Im Bank's loan officer with three years of audited financial statements, a credit report, and a bank reference on the Mexican customer. After determining the creditworthiness of the Mexican customer, the Ex-Im Bank issued the insurance policy to Hartford Cogeneration which then assigned the policy to a commercial bank.
Because of the insurance policy, Hartford's commercial bank offered the exporter attractive financing terms at an interest rate of 0.5 percent over the six-month London Inter-Bank Offering Rate (LIBOR). The customer then issued a promissory note to Hartford as evidence of its obligation to repay. The Ex-Im Bank charged an exposure fee of 4.14 percent. This fee was a one-time flat charge that was added to the financed portion over the five-year term, equaling 0.83 percent per year.
|Case Study: Pura, Inc. - Short-Term Export Insurance|
Pura, Inc., of Valencia, California, is a manufacturer of ultraviolet water purification equipment. With customers in North America, South America, Europe, and Asia, 70 to 80 percent of its business is generated though export sales. According to Ellis Anderson, executive vice president, "Export Credit Insurance has enabled us to extend the credit terms that our customers needed, resulting in a 300 percent sales increase with our existing customers and winning new customers. In the past, our banks wouldn't touch foreign sales receivables, but ... now we are willing to discount these receivables [buy them at a rate below their face value]. This has made a huge difference because most of our receivables are export receivables. At first I was a bit concerned about working with a U.S. government agency because of the red tape, but surprisingly, Ex-Im Bank's insurance required minimal paperwork and the Insurance
Division staff has been very helpful."
|Case Study: Babcock and Wilcox - Loan Guarantees|
Babcock and Wilcox of New Orleans, Louisiana, used a $34.8 million loan guarantee to finance the sale of engineering, project management, procurement, and construction services to a flue gas desulfurization project at a lignite coal-fired power plant in Kemerkoy, Turkey. The new system will enable the plant to operate at full capacity and meet environmental regulations.
|USAID Programs That Support Environmental Companies: A Sampler|
The United States-Asia Environmental Partnership (US-AEP) mobilizes U.S. environmental experience, technology, and practice to assist sustainable development in Asia, especially in the industrial and urban sectors. Led by USAID, the program links 25 U.S. government agencies with thousands of businesses and nonprofits to work with 34 nations in Asia and the Pacific. Among other services, US-AEP helps manage grant funds to U.S. companies transferring environmentally responsible technologies to Asia.
For more information: US-AEP, 1720 I Street NW, Suite 700, Washington, DC 20006. Tel: (202) 835-0333. Fax: (202)-835-0366. E-mail: firstname.lastname@example.org. On the Web: www.usaep.org
The Private Sector Energy Development (PSED) Program offers assistance and matching funds to environmentally friendly, private energy/power projects in developing countries in which the applicant is at least 51 percent U.S.-owned. Funding is generally not more than $200,000 per project; $1.5 million a year is available for feasibility studies. Tel: (703) 524-4400. Fax: (703) 524-3164.
The goal of the Environmental Pollution Prevention Project is to reduce environmental pollution associated with urbanization and industrialization. Technical assistance and training on clean production are available. Tel: (703) 875-4518. Fax: (703) 875-4639.
The Trade in Environmental Services and Technologies (TEST) program for India. The technical assistance component of TEST is implemented by Sanders International, and the financing component is implemented by the Industrial Credit and Investment Corporation of India. TEST finances demonstration projects and exports through conditional loans and grants. Amounts provided range from $100,000 to $2 million at below-market rates. Indian companies interested in buying U.S. technology or services are eligible.
TEST is a unique program designed specifically to help India address its industrial environmental problems by encouraging and facilitating sustainable and profitable business linkages between Indian firms and U.S. environmental equipment and service providers.
For more information: Jeff Hallett, TEST Project Manager, Sanders International, 1616 P Street, NW, Suite 410, Washington, DC 20036. Tel: (202) 939-3486. Fax: (202) 939-3487. E-mail: email@example.com. On the Web: www.info.usaid.gov/TEST
|The Environmental Opportunity Funding Corporation (EOFC) brokers capital packages for the environmental goods and services industry when conventional sources are unavailable. The EOFC's main tools are indirect financial incentives such as loan guarantees or letters of credit to induce private investment.|
For more information: The Environmental and Urban Affairs Program, University of California at Hayward. Tel: (510) 885-3554. Fax: (510) 888-4773. On the Web: http://barney.sbe.scuhayward.edu/~efc9/
|The so-called Tech Fund is designed to attract U.S. environmental companies to the developing country markets of Asia. Launched in 1992, the Tech Fund has awarded grants worth over $2 million for more than 145 projects. To obtain a grant, U.S. companies must work through intermediary organizations such as state development agencies, trade associations, or chambers of commerce. Grants are available up to $20,000 to fund 20 to 50 percent of total project costs. Eligible activities include workshops or seminars, business development missions, and technology/equipment demonstrations. The technology transferred must have demonstrable positive environmental impacts in Asia.|
The Tech Fund at work: G&G Sanitation Systems collaborated with the DeKalb County (Georgia) Chamber of Commerce to demonstrate the environmental benefits of the Ram Jet Compactor Container in Thailand and Taiwan. The technology safely stores wastes containing high amounts of liquid and also compacts them economically. Beyond demonstration, the project sought to build new markets and networks for other environmental products and services, for a total estimated cost of $88,200. The Tech Fund grant helped the company conduct sales seminars and demonstrate the Ram Jet technology to companies and agencies in Thailand and Taiwan, leading to further exposure in other Asian countries. Demand was found for related products and services, such as hauling, waste system design, and bioremediation. In 1996, G&G made sales of $68.5 million in seven Asian countries.
|IFC/GEF Small and Medium Enterprises Program|
In collaboration with the International Finance Corporation (IFC), the Global Environment Facility (GEF) provided $4.3 million to small and medium enterprises (SMEs) in Latin America to intensify their focus on reducing environmental risks. The IFC initially provided low interest loans ranging from $500,000 to $1 million to selected financial intermediaries including banks, nongovernmental organizations and venture capital firms. These intermediaries provide debt or equity financing of $20,000 to $200,000 to SMEs for the incremental costs of undertaking projects that meet GEF objectives in the areas of greenhouse gas mitigation and biodiversity conservation. The IFC and the intermediaries conduct evaluation and monitoring to determine (a) whether this funding mechanism is effective in helping to meet GEF goals and (b) the financial viability of commercial financing for such activities.
|Foundation for the Philippine Environment (FPE)|
FPE is an independent, nongovernment grantmaking organization funding biodiversity conservation programs in the Philippines. It is endowed with $21 million out of a series of debt-for-nature swaps concluded in 1994. As of 1997, $7.2 million had been disbursed to 376 projects for terrestrial and coastal management projects. FPE's focus is on community-based resource management; participatory planning and technical assistance for execution and evaluation are common components in many FPE-funded projects.
For more information: FPE; 77 Matahimik Street, Teachers Village; Quezon City 1101, Philippines. Tel: (63-2) 927-9403 ext. 2186 or 926-9629. Fax: (63-2) 922-3022 or 931-6243. E-mail: firstname.lastname@example.org
|The Americas Fund of Chile|
The Americas Fund is an international organization governed by official Chilean representatives, including the National Environment Commission, a U.S. Government representative, and Chilean environmental and social development nongovernmental organizations (NGOs). The Fund is financed out of interest payments on debt owed by Chile to the United States. The total amount available to date exceeds $5 million and is expected to reach over $17 million in the early 2000s. Nearly $1 million in grants have been disbursed for natural resource conservation projects and environmental projects linked to sustainable development initiatives such as infant survival. Only not-for-profit Chilean NGOs are eligible.
For more information: Alejandro Plon, Executive Secretary; Hu■rfano 886, Office 1118; Santiago, Chile. Tel: (56-2) 632-8704. Fax: (56-2) 632-8687. E-mail: email@example.com