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Financing Environmental Exports - A Guide to the Fundamentals and Sources
Chapter 3 - Sources of Export Financing

Debt Financing

Core features: Taking out a loan is the most traditional method of financing in the United States. The debt creates an obligation to pay back the loan with interest over a specified period. Debt holders acquire a claim to a business' income, earnings, or assets that takes precedence over the claim of equity holders. Once the obligation is met, creditors have no say in the business, unlike equity investors. However, because of a lack of credit history and other perceived risks of small businesses, debt can be costly, hard to find, and when available, the rigid terms can be tough if earnings decline.

Types: Many debt instruments are available from the U.S. private sector to finance environmental exports and overseas projects. Commercial banks provide the bulk of trade finance, commercial lending, and project finance. Bonds, which are usually underwritten by investment banks, are a major financing vehicle used by private firms to obtain working capital and by governments to fund specific projects. In addition, various types of infrastructure funds, both public and private, global and domestic, are available. Examples of such funds are provided throughout this chapter because infrastructure funds provide both equity and debt. Debt finance vehicles available from international markets (not discussed here) include syndicated loans and Eurobonds.

The U.S. Government and the governments of other industrialized countries, as well as multilateral aid agencies, make up the bulk of public-sector lenders. Very often, private lenders are reluctant to finance export transactions or projects abroad because the risk of not getting paid or not obtaining forecast revenues is much larger than with purely domestic ventures. To cover deals that cross national borders, lenders often require more protection against nonpayment.

Limitations: Borrowing money will be more costly and the terms more variable for small or start-up firms than for established companies. Ease of borrowing also depends on how well the economy is doing. The obligation to repay outstanding loans is paramount, even in times of operating deficits.

For more information: Financing Your Small Business: Techniques for Planning, Acquiring and Managing Debt, Arthur R. DeThomas, Oasis, 1-800-228-2275, 1992.

Private Sources of Debt Finance

Commercial Banks
Basics: Banks loan money for specific time periods. The borrower repays the loan in monthly installments covering a portion of the principal loaned, plus an interest charge reflecting the bank's expenses and the risks assumed in making the loan. Commercial banks are the most common providers of trade finance and commercial lending. Commercial bank repayment terms (also called loan tenors) range from several months to several years. Commercial banks, individually or in syndicated loan arrangements, are also a major source of project finance. Commercial banks may also participate in project finance lending under export credit agency guarantees in risky countries or when extended repayment terms are involved.

Terms: Banks offer secured and unsecured loans. For a secured loan, the borrower puts up collateral in case of default. An unsecured loan carries a higher interest charge based on the credit of the borrower. A line of credit is an open account on which the borrower may draw up to the limit.

Eligibility: Because banks provide loans, not equity, they are more interested in a firm's cash flow than in the value of its underlying assets. Most established businesses with good credit histories and ability to show profit can get bank financing. Start-ups, with the exception of franchises, have a more difficult time.

Environmental/export focus: If one's local bank seems reluctant to lend money to new export efforts, try the U.S. Department of Commerce, which maintains information on public and private finance institutions that offer trade finance. Also, the Office of Finance within the Department of Commerce's International Trade Administration is in the process of developing a web-based export finance matching service that will use a wide variety of financing sources to match exporter needs, and it will be available in the spring of 1999.

For more information: U.S. Department of Commerce, International Trade Administration, Office of Finance. Tel: (202) 482-3050.
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.

Business Development Corporations
Basics: Business development corporations (BDCs) are licensed by states to make loans to small businesses to support job creation. They are generally owned and funded by financial institutions or corporations with a business interest in a vigorous local economy. Beyond standard loans, BDCs can also make SBA-guaranteed loans, and provide purchase/leasebacks and venture capital.

Terms: BDCs can usually make loans 90 percent guaranteed by the SBA.

Eligibility: BDC assistance is available exclusively to small businesses.

Environmental/export focus: BDC-type funding could be used to support small environmental firms or as a source of growth capital for start-ups in the environmental sector. It is more appropriate as a source of growth capital than as a source of export financing.

For more information: Association of Small Business Development Centers, 3108 Columbia Pike, #300, Arlington, VA 22204. Tel: (703) 271-8700.

Infrastructure Investment Funds
Such funds are investing ever greater amounts in developing countries, where yields are expected to exceed 20 percent annually in some cases, which is much more than yields from mature infrastructure projects in industrialized economies. Most investors in such funds are institutional, with large pools
of capital seeking high but secure returns. Funds are channeled to sponsors, whether public or private, of infrastructure projects, often in developing countries.

Terms: As variable as the funds themselves.

Eligibility: Often infrastructure funds invest in the securities of infrastructure entities through private placements. Infrastructure investment funds can be a group of investors or they may be project cosponsors involved in structuring deals and mobilizing further capital.

Environmental/export focus: Examples of such funds are found throughout this chapter.

Private Export Funding Corporation
Basics: The Private Export Funding Corporation (PEFCO) is a consortium of private lenders who supplement conventional export financing sources. PEFCO works in concert with the Export-Import (Ex-Im) Bank of the United States, and all PEFCO loans are required to be covered by Ex-Im Bank's guarantees. PEFCO lends money to foreign buyers making large-scale purchases, usually of capital equipment, when the amounts are larger or the repayment periods longer than traditional lenders can offer.

Terms: Loans range from $1 to $225 million, for 5- to 22-year terms, and are sponsored by domestic and foreign banks. Fees and rates reflect the market.

Eligibility: The loan request must come through a commercial bank.

For more information: Private Export Funding Corporation, 747 Third Avenue, New York, NY 10017. Tel: (212) 826-0710.

Public Sources of Debt Financing


Loans from Financing Agencies
U.S. Programs
Many sources of debt financing are available from the U.S. Government for the export of goods and services, as well as for environmental investment projects abroad. This section briefly outlines U.S. Government-backed lending, along with that of other industrialized countries.

In the United States, the major players in public-sector lending are the Ex-Im Bank; the U.S. Small Business Administration (SBA); the Overseas Private Investment Corporation (OPIC); and the U.S. Agency for International Development (USAID). France, Germany, Japan, and the United Kingdom all have significant environmental export promotion programs of which U.S. environmental firms should be aware.

Export-Import Bank of the United States
Basics: Ex-Im Bank's mission is to support the U.S. private sector by financing exports. Its focus is on transactions the private sector cannot support alone. Although Ex-Im Bank provides mostly guarantees and insurance, it does support some direct loan programs.

Terms: Medium- and long-term loans: The foreign buyer/borrower can qualify for financing up to the lesser of 85 percent of the value or 100 percent of the U.S. content of the export transaction. Typical repayment terms range between 2 and 10 years. The borrower must make a 15 percent cash payment, not financed by Ex-Im Bank, to the exporter. Smaller, short-term transactions can be financed through Ex-Im's export credit insurance.
Tied-aid capital projects fund: Evidence of foreign, officially supported export credits on concessional terms is required to enable Ex-Im to match the terms, structured as low-rate loans for 100 percent of export value. However, Ex-Im matches only cases that are confirmed matches of a foreign offer and that meet its tied aid guidelines.

Ex-Im offers direct loans and guaranteed loans in project finance for large capital equipment and service contracts where repayment depends on future project-revenue streams. Fees and interest rates for all programs are risk based.

Eligibility: Only foreign buyers (including foreign government entities) can receive direct or guaranteed loans to purchase U.S. goods and services. Overall, small businesses (less than 500 employees) and environmental exporters receive priority.

Environmental/export focus: Ex-Im Bank has an Environmental Exports Program that approved 47 transactions in 1997 for a total export value of $1.9 billion, $551 million of which was specifically environmentally beneficial. The program features greater support for financing of environmental sector
goods and services, including local cost coverage of 15 percent, capitalization of interest during construction, and the longest permissible repayment terms under the rules of Organization for Economic Cooperation and Development (OECD).

For example: In 1996 Ex-Im Bank provided a $49.7 million direct loan to fund a private geothermal power project in the Philippines for Ormat Leyte Co.

For more information: Business Development, Export-Import Bank of the United States, 811 Vermont Avenue, NW, Washington, DC 20571. Tel: 1-800-565-EXIM or (202) 565-3946. On the Web: www.exim.gov

U.S. Small Business Administration
Basics: The SBA has one loan program of interest to small or start-up companies. They range from funding increases in export sales to establishing an overseas presence.

Terms: The Export Working Capital Program (EWCP) guarantees a loan up to $833,333 for a maximum guarantee of 90 percent ($750,000, for product/service export purposes, extendible to preshipment working capital and post-shipment exposure), including labor and materials for manufacturing, raw material purchases, or foreign accounts receivable.

The Regular 7(a) Loan Program guarantees are the same as under the EWCP; the interest rate caps at 2.25 points above the New York prime rate for loans up to seven years.

The International Trade Loan Program offers long-term fixed-asset financing to help small firms compete globally. Guarantees are up to a loan amount of $1.25 million; maturities can be as long as 25 years; and the collateral must be located in the United States.

Eligibility: Only small businesses that are independently owned and operated, not dominant in their field, and falling in specific employee and annual sales ranges (depending on the industry) are eligible.

For more information: United States Small Business Administration, Office of International Trade, 409 3rd Street, SW, 6th Floor, Washington, DC 20416. For regional Small Business Development Centers, which provide business assistance including export and trade counseling/referrals, call 1-800-8-ASK SBA (1-800-827-5722). See the Insider's Guide to Small Business Loans, by former SBA official Dan Koehler, Oasis, 1-800-228-2275, 1996. On the Web: www.sba.gov

Overseas Private Investment Corporation
Basics: OPIC supports U.S. business investment in developing countries. Programs include loans, insurance, guarantees, with a firm to analyze and structure financing for an overseas environmental project. It should be noted that OPIC supports overseas investment rather than exports, which are the Ex-Im Bank's focus.

Terms: Direct loans are available to small business, generally for $2 to $10 million. OPIC can provide loans of up to $30 million. For investment insurance, OPIC can insure up to $200 million per project covering 90 percent of the political risks. For investment finance (loans and guarantees), OPIC guarantees range up to $200 million and cover 100 percent of the commercial and political risks. Interest rates on investment finance are market based.

Eligibility: OPIC does not provide export financing. Projects must have a positive effect on U.S. employment, be financially sound, have significant developmental benefits, and meet worker rights and environmental criteria. OPIC will give special consideration to projects in less developed countries and those involving small U.S. firms as sponsors.

Environmental/export focus: OPIC has established the Environmental Enterprises Development Initiative to spur investment by U.S. environmental firms in Asia. OPIC also supports the Aqua International Partners Environmental Fund.

For more information: Overseas Private Investment Corporation, 1100 New York Avenue, NW, Washington, DC 20527. Tel: (202) 336-8400. On the Web: www.opic.gov

U.S. Agency for International Development
Basics: Established in 1961 by President Kennedy, USAID's mission is to provide economic development and humanitarian assistance to advance U.S. interests overseas. USAID has several mechanisms to support exports, concentrating on the least developed markets of the world. The export support primarily provides procurement opportunities for U.S. firms to supply USAID as part of the agency's development activities. USAID does operate some loan programs, including the Forfait Guarantee Program to assist U.S. companies in negotiating guarantee contracts with U.S. banks for cash payment of export receivables. USAID also provides financing for environmental projects in developing countries through its Private-Sector Revolving Fund. USAID runs the Small Business Loan Portfolio Guarantee (LPG) Program as well as provides credit guarantees to financial institutions worldwide to help them increase their lending to small businesses. To bolster trade to the developing countries where USAID works, the agency built the Global Technology Network (GTN).

Terms: Project financing is available up to $3 million and 25 percent of total project costs. The maximum term is 10 years with flexible grace periods for repayment of principal. Collateral requirements are also flexible. Guarantees are available for one- to five-year terms for a maximum of $1 million in export value. Under the LPG, guarantees are provided for three years, are extendable to nine years, and can be up to 50 percent of the principal amount but not to exceed $3 million in the loan portfolio.

Eligibility: The types of exports that qualify for financing are manufactured goods: machinery, spare parts, tools, and durable goods. Under the forfait program, foreign buyers must be wholly privately owned in the importing country. Similarly, for project financing, substantial local ownership must be demonstrated. Sponsors must be host-country nationals or U.S. firms or citizens. The LPG program is available to private banks and other financial institutions in USAID-assisted nations. The maximum loan amount guaranteed for any single loan is $150,000.

Environmental/export focus: Project financing is only for sustainable environmental development ventures. USAID's Business Support Service supports linkages with the private sector for sustainable development via USAID contracts. USAID's GTN finds trade leads providing small and medium-sized environmental/energy companies with business opportunities throughout the developing world.

For more information: USAID, 1300 Pennsylvania Avenue, NW, Washington, DC 20523. Tel: 1-800-USAID 4-U or (202) 712-4810.

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.

Other Countries’ Export Credit Programs
This section covers loans and other support available in other countries to foreign firms that may be direct competitors to U.S. companies contemplating environmental exports. These countries' export assistance programs are covered here to ensure that U.S. companies are aware of the support their competitors may receive so that they can seek similar assistance from U.S. sources.

As a first step, environmental firms contemplating seeking financing for exports should consult the U.S. Government's new Untied Aid Initiative, which helps U.S. companies take advantage of potential business opportunities created by official untied aid and credit financing in developing countries. Information is collected on projects that may be financed by industrialized country (particularly Japan) untied aid and credits so that U.S. firms will have enough time to prepare bids. In addition, untied aid notifications and project summaries from the OECD are also being collected and disseminated to U.S. firms via the National Trade Data Bank and the International Trade Administration of the U.S. Department of Commerce.

For more information: To learn about opportunities to participate in projects through other countries' untied aid programs, consult the U.S. Department of Commerce untied aid website at www.ita.doc.gov/untiedaid/ or www.ita.doc.gov/industry/sif/sifuai/oda.html. Also consult the OECD's Development Assistance Committee home page, which contains similar information at www.oecd.org/dac

Japan is a leading exporter of capital goods, equipment, and technology because of the high quality of production and the high level of support in Japan for yen financing of exports, imports, and foreign ventures. The Japan Export-Import Bank, the Japanese Overseas Economic Cooperation Fund, and the
Japan International Cooperation Agency are the official institutional vehicles for this support.

Japan Ex-Im Bank
Basics: The Japan Ex-Im Bank JEXIM is the country's export credit agency. Although its programs support primarily Japanese exports and overseas investments, JEXIM also operates some programs open to non-Japanese firms, such as untied loans.

Terms: For export loans, JEXIM requires down payments of 15 percent cash for Japanese exporters. Suppliers' credits are limited to 85 percent of the export contract. Insurance against commercial and political risk is required from the Export Import and Investment Insurance Department (EID) of the Ministry of International Trade and Industry (MITI).

Eligibility: Primarily Japanese firms are eligible. Some programs support medium- and long-term financing for importers of U.S. goods to Japan and to U.S. manufacturers in setting up and maintaining long-term supply contracts to Japanese markets.

For more information: Representative Office, Japan Ex-Im Bank, 2000 Pennsylvania Avenue NW, Suite 3350, Washington, DC 20006. Tel: (202) 331-8547. Fax: (202) 775-1990. On the Web: www.japanexim.go.jp. For EID/MITI: Tel: +81 3 3501 1665/6979. Fax: +81 3 3508 2624/3501 0948: On the Web: www.miti.go.jp.

Overseas Economic Cooperation Fund
Basics: The Overseas Economic Cooperation Fund (OECF) helps developing countries primarily by providing low-interest, long-term loans. OECF provided $11 billion in untied loans to developing countries in fiscal year (FY) 1996.

Terms: The average OECF repayment period is 28 years, with interest averaging about 2.5 percent. Loans are commonly denominated in yen, but can be in other currencies as well.

Eligibility: OECF loans are made only to governments or their guaranteed public entities. Private sector loans and equity investment eligibility are based on the project's contribution to welfare in developing countries and the difficulty of obtaining loans from traditional sources.

Environmental/export focus: At the 1992 Earth Summit in Rio de Janeiro, Japan pledged to spend $9 billion over the following five years on environmental concerns. For example: Aid from Japan has helped improve air quality in Mexico City. This project is one illustration of Japan's growing orientation toward environmental protection and, not coincidentally, to opening up foreign markets for Japanese pollution control technology.

For more information: Washington Office, Overseas Economic Cooperation Fund, 2100 Pennsylvania Avenue, NW, Suite 535, Washington, DC 20037. Tel: (202) 463-7492. Fax: (202) 463-7496. On the Web: www.oecf.go.jp. See also the guide to Japanese Overseas Development Administration (ODA), the "ODA Handbook," at www.ita.doc.gov/region/japan/odahand.html or www.ita.doc.gov/untiedaid

Japan International Cooperation Agency
Basics: The Japan International Cooperation Agency (JICA) finances, among other things, technical assistance and feasibility studies, some through grants. JICA allows non-Japanese companies to participate in its Development Survey studies, 40 percent of which become untied OECF-financed projects.

Terms: Non-Japanese participation is allowed only as part of a consulting team that consists of more than half Japanese nationals.

Eligibility: U.S. firms can find out about Japanese consulting companies interested in collaborating on Development Survey work from the U.S. and Foreign Commercial Service (US&FCS) staff in Tokyo.

Environmental/export focus: As the distributor of Japan's official development assistance, JICA carries out many environmental development programs. Projects JICA supports must meet Japanese environmental impact requirements.

For more information: Resident Representative, Japan International Cooperation Agency, 1730 Pennsylvania Avenue, NW, Suite 875, Washington, DC 20006. Tel: (202) 393-5422. Fax: (202) 393-1940. On the Web: www.jica.ific.or.jp. Also, see the "ODA Handbook" prepared by the US&FCS staff in
Tokyo on the Web at www.ita.doc.gov/untiedaid

Basics: A consortium of the private insurance corporation Hermes Kreditversicherungs AG (Hermes), the lead partner, and Treuarbeit AG, in which the government holds a minor stake, is authorized by the government to provide insurance. Export finance is provided by the bank Kreditanstalt fur Wiederaufbau (KfW) and a syndicate of 49 private banks called Ausfuhrkredit-Gesellschaft mbH (AKA). KfW's funds come from the federal government and from money raised by KfW on capital markets. It provides mostly buyer credit loans. AKA finances suppliers as well.

KfW also implements bilateral financial cooperation for the Federal Republic of Germany from BMZ (Ministry of Economic Cooperation) funds. Single transaction cover is available, as well as revolving and comprehensive cover for supplier credit. Buyer credit (tied loan) cover is available for German banks loaning to foreign buyers of German exports.

Terms: Coverage for all programs is normally 85 percent for commercial and 90 percent for political risks. Financing terms vary depending on the source and the type of loan and normally are market determined.

Eligibility: Insurance is available to German exporters and for goods and services from Germany. Direct finance credit available from KfW export promotion funds varies from actual value to a maximum of DM 170 million. Hermes cover is usually required for official support and is the norm, though not the rule, otherwise. AKA finances capital goods and services, with almost 90 percent going to developing countries.

For more information: Export Credit Financing Systems in OECD Member and Nonmember Countries, Organization for Economic Cooperation and Development Publications, 2, rue Andre Pascal, 75775 PARIS CEDEX 16, France (updated annually).

Fondo de Inversión en Infraestructura
Basics: Fondo de Inversion en Infraestructura (FINFRA), the Mexican Government's infrastructure fund, is part of Mexico's national development bank, BANOBRAS. FINFRA's goal is to encourage private-sector participation in basic infrastructure projects with high social returns where financial returns may be below market rates or where financing is difficult to obtain because of size, maturity, or risk. In 1996, FINFRA
had $252 million to participate in new projects, which it supports through equity participation or subordinated debt.

Terms: FINFRA's equity participation is limited to 35 percent and it expects the same financial return as private-sector partners would expect. FINFRA also offers long-term subordinated debt at costs up to 40 percent of total project investment. FINFRA's combined involvement cannot exceed 49 percent of total project investment.

Eligibility: Water supply and water treatment are favored sectors for FINFRA. Any combination of public and private entities may apply to BANOBRAS. Preference is given to Mexican-led projects.

Environmental/export focus: FINFRA has a strong focus on environmental infrastructure and is thus considered an important source of funds for purchases of exports in this sector.

For more information: FINFRA office at BANOBRAS;
Tecoyotitlan 100, Esquina Francia; Colonia Florida; 03010
Mexico, DF. Tel: (525) 723-6200. Fax: (525) 723-6007.

Nacional Financiera, S.A.
Basics: Nacional Financiera, S.A. (NAFINSA) is the Mexican private-sector development bank. It focuses on lending to small- and medium-sized industry.

Terms: Loans are available at fixed and variable rates for up to 12-year terms with up to 2-year grace periods.

Eligibility: Mexican companies, investors, and government authorities may borrow from NAFINSA to buy a broad range of goods and services. American firms would most likely access NAFINSA through a local Mexican partner or customer.

Environmental/export focus: The bank manages 32 trade finance credit lines funded by various governments and private entities to help small and medium enterprises finance imports. Between $5 million and $50 million is available from each of these credit lines each year. More active in the environmental area recently, NAFINSA has a $245 million loan program dedicated to water and energy conservation projects.

For more information: Nacional Financiera, S.A.; Insurgentes Sur 1971; Torre 3, Piso 13; Col. Guadalupe Inn; 01020 Mexico, DF. Tel: (525) 550-3872. Fax: (525) 325-6009.

Basics: The Compagnie Francaise d'Assurance pour le Commerce Exterieur (COFACE) provides foreign credit insurance. It also collaborates with private and national banks, mainly the Banque Francaise du Commerce Exterieur (BFCE), to finance French exports. Aid financing is available through the Ministry for Cooperation, largely to countries in sub-Saharan Africa, the Indian Ocean, and the Caribbean.

Terms: COFACE covers commercial and political risks for 85 and 90 percent of the transaction respectively, to most countries. Terms are available for up to 10 years, depending on the type of goods exported. Concessional terms are not available on short-term credits for export financing. BFCE does supply interest subsidies for medium- and long-term credits - termed stabilization procedures - on behalf of the Treasury.

Eligibility: There are policies covering consumer goods, light machinery and equipment, large capital goods, and overseas projects undertaken by French companies.

For more information: Export Credit Financing Systems in OECD Member and Nonmember Countries, Organization for Economic Cooperation and Development Publications, 2, rue Andre Pascal, 75775 PARIS CEDEX 16, France (updated annually).

United Kingdom
Basics: The United Kingdom has a long tradition of government support for exports, begun at least as far back as 1919 when the Export Credits Guarantee Department (ECGD) was established. ECGD supplies commercial and political risk coverage for exports, making it easier for the exporter to obtain financing for foreign receivables. There is no official institution in Britain for export credit financing or refinancing,
although interest subsidies are available. British aid is administered by the Department for International Development (formerly the Overseas Development Administration), which runs the Aid and Trade Provision (with the Department of Trade and Industry), including a "soft loan facility" (which provides
concessional interest rates for long-term loans to developing countries funded by commercial banks) with an annual budget of over 117 million pounds (£).

Terms: ECGD offers guarantees to banks for medium-term financing. Buyer credit guarantees are available for up to five-year terms, or longer for large projects, for transactions exceeding £250,000. Lines of credit are also offered in some cases to foreign buyers unwilling to commit to specific British exporters.

Eligibility: Guarantees are restricted to U.K. companies or those exporting U.K. goods and services. Controls govern availability of insurance on a case, country, and market basis such that if ECGD determines it is overexposed in a particular market or region, insurance may be denied.

For more information: Export Credit Financing Systems in OECD Member and Nonmember Countries, Organization for Economic Cooperation and Development Publications, 2, rue Andre Pascal, 75775 PARIS CEDEX 16, France (updated annually).
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

Loans from Multilateral Development Banks
Basics: The leading institution providing multilateral lending and technical assistance for less developed countries is the World Bank group, which includes the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance
Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). The IFC and MIGA are both described in more detail elsewhere in this report. Regional multilateral development banks (MDBs) include the European Bank for Reconstruction and Development (EBRD), the Asian Development Bank
(ADB), the Inter-American Development Bank (IDB), and the African Development Bank.

The MDBs provide loans and development assistance to their developing member countries. Loans to middle-income and creditworthy poorer countries are made at or near market rates, while in many cases, the poorest countries receive interest-free loans. To promote private-sector growth and development, each of the MDBs provides some form of debt and equity financing at market rates for commercial enterprises.

MDB financing is relevant to small or start-up environmental companies because there may be opportunities to provide goods or services to an MDB-funded project. To become familiar with the portfolio of MDB projects, follow up on the contacts provided below.

Terms: Repayment terms on IBRD loans to middle-income developing countries are generally between 15 and 20 years with a 3- to 5-year grace period. Repayment terms on IDA loans to low-income developing countries are between 35 and 40 years, including a 10-year grace period. Host country approval and sovereign guarantee (see Section 5.5) are required. The projects are located in developing countries.

Eligibility: Public-sector loans are made exclusively to governments while the IFC and the private-sector financing arms of other MDBs provide direct loans and equity financing for commercial ventures. MDBs provide many different types of financing, but concentrate on large-scale project support, as opposed to export finance. U.S. firms must compete for contracts on MDB-financed projects; MDB public-sector operations do not provide financing directly for U.S. exports.

Environmental/export focus: Environmental projects are a growing focus of MDBs' work. For example, between 1994 and 1996, IDB programmed approximately $3 billion in lending for environmental activities. To encourage environmental projects, extended grace periods are offered.

For example: In 1994, the EBRD approved a loan to the Tallin (Estonia) Water and Sewerage Municipal Enterprise (TWSME) to improve water and wastewater management. The objective of the project is to bring financial and management independence to TWSME by linking it with Helsinki Waterworks and
freeing it from state and municipal subsidies. This project provides a base for U.S. environmental exporters to sell products and services to the financially reconstituted operator, although no money will be available directly from the EBRD loan for U.S. firms.

For more information: MDBs usually award project support through international competitive bidding processes. Announcements of project opportunities can be found in the following places:

In addition, each MDB maintains its own website with detailed information on upcoming projects.

The International Trade Administration of the U.S. Department of Commerce maintains a counseling center on the MDBs and has commercial staff assigned to each of the development banks. Multilateral Development Bank Operations (MDBO) maintains and manages all commercial activities with the
MDBs. MDBO staff counsel U.S. firms on how to do business with the MDBs, help firms identify best prospects for their product or service, conduct an extensive outreach and education campaign, and provide advocacy support for U.S. firms competing on MDB-financed contracts. Contact the MDBO at tel: (202) 482-3399; fax: (202) 273-0927.
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: bil@oit.nepa.go.cn

Core features: Bonds are the major form of long-term debt. A bond is a written promise to repay borrowed money at a fixed interest rate and a fixed schedule, usually over 15 to 30 years. Both private companies and governments issue bonds as a principal means of obtaining working capital for general growth or for specific projects.

Types: Bonds come in many forms. Most relevant for environmental firms are government bonds. These bonds, usually issued by cities as municipal bonds, are the principal way of financing environmental infrastructure projects in the United States. Almost always tax-exempt, government bonds carry lower rates of interest than comparable commercial bonds; they are the major source of low-interest capital for publicly financed projects. There are two major classes of government bonds. General obligation bonds are secured by and paid for out of tax revenues. Revenue bonds, the type most in use today, are secured by and paid for out of the revenue streams of a particular project supported by the bond issue.

Limitations: Bond issues tend to be for vast sums, in the $100 million range, so their usefulness for export financing is practically nil. However, bond issues for infrastructure projects overseas may be a way for customers to obtain financing independently of the exporter. Government bonds often require voter approval, and the total amount of money that can be raised through bond issues may be capped.

Equity Capital

Core features: Equity financing entails ceding exclusive control over a company by selling an ownership interest in it to outside investors. Rather than borrowing money and adding to financial liability, equity financing creates no obligation to pay principal and interest as with a loan. Investors' returns come from their shares of the firm's profits, such as dividends or capital gains at sale. For small environmental businesses, equity may come from individuals, venture capital companies, or parent companies as well as from the public sale of stock. Equity capital can be provided in-kind, via contributions of land or buildings, personnel, and even from the use of a larger company's name, technology, business plan, or markets. Equity financing is one of the most creative and flexible ways to support a business.

Types: The key equity tools available from the private sector for financing environmental exports and projects outside the United States are share sales (including public offerings, venture capital, private placements, "angels," and depository receipts); foreign direct investment; and strategic alliances. Very
limited equity capital is available directly from public-sector institutions. Partnerships with multilateral development banks or small-business investment corporations, described below, often motivate further investment from private sources.

Limitations: By definition, an equity investor owns a piece of a company, and early-stage businesses may feel a loss of ownership if equity holders assume controlling positions. Terms for equity financing vary widely depending on the type of share issue, and outside advisors (lawyers, accountants) can be expensive for a small business. The type and time frame of returns that equity contributors demand also vary, increasing the challenges of arranging for this type of funding.

Equity Available from the Private Sector Share Sales
Sales of company shares can take many different forms depending on the type and amount of funds needed and the interests of the investors. Sellers must pay particular attention to any applicable securities regulations, particularly if they are offering the shares to the public. Below are short summaries of several different ways in which financial institutions and other investors purchase shares, including public offerings, private placements, venture capital, depository receipts, and angels.

Public Offerings
Basics: In public offerings, company shares are offered to the general public in the form of stock. Strict Securities and Exchange Commission (SEC) regulations govern such stock issues, but firms seeking to raise less than $5 million this way can follow fewer rules by using the "Small Corporate Offerings Registration." Buyers include individual investors, mutual funds (including those with an environmental focus), and other institutional investors.

Terms: Public offerings of stock require opening the company's finances to oversight from regulatory agencies, the public, the financial community, and the press.

Eligibility: For firms with a good performance history, public offerings are an excellent way to raise money.

Environmental/export focus: Funds raised through a public offering are likely to be used for working capital, because tens or even hundreds of millions of dollars need to be raised to make the offering worthwhile.

For example: Initial public offerings (IPOS) have been successful for some environmental technology firms such as Recycling of America.

For more information: Prospectus Perspective: Private Deliberations About Going Public, Lloyd Shefsky, Shefsky & Froelich Ltd., Chicago, IL. Tel: 312-836-4001. Fax: 312-527-9931.

Private Placements
Basics: Private placements are offerings of shares to preselected, large, and wealthy buyers, often institutional investors (pension funds or insurance companies). Buyers may also be specialty venture capital funds seeking investment exclusively in the environmental field.

Terms: Far fewer regulatory requirements apply to private placements than to public offerings. Unlike venture capitalists, private placement investors are often passive stakeholders, but they too often seek to cash out through a public offering in 3 to 5 years.

Eligibility: Private placements are often favored by large companies seeking to avoid the extensive requirements for public offerings. Private placements also often take the form of limited partnerships, in which the general partner runs the firm and limited partners contribute equity as "angels". Few environmental start-ups to date have been able to take advantage of funding from this source.

Environmental/export focus: Some specialty funds are environment-specific or invest only in certain parts of the globe.

For more information: How to Finance a Growing Business: An Insider's Guide to Negotiating the Capital Markets, Royce Diener, Merritt, 1995; tel: 1-800-638-7597. "The Deal," Inc. Magazine, October 1996, illustrates one company's private placement experience.
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

Venture Capital
Basics: Venture capital firms provide so-called private equity to early-stage businesses. In addition to providing capital, venture capitalists usually take an active role in setting the strategy for the business.

Terms: Venture capitalists rarely support companies valued at less than $5 million and are most interested in new technology with extremely high growth potential and return opportunities of 30 percent or more within 3 to 7 years. At the end of that period, venture capitalists usually seek to cash out, selling their stakes through various means: merger, acquisition, IPO, or liquidation.

Eligibility: Venture capitalists like new, cash-poor, and quickly growing firms. They are more persuaded by the character of the individuals involved than in the firm itself. Applicants must have detailed business plans.

Environmental/export focus: A growing number of green venture capital firms are incorporating environmental businesses in their portfolios. Venture capital investment in overseas markets is fairly new, but has increased 70 percent in the 1990s in Latin America, Eastern Europe, and Asia. In Latin America in 1996, private equity partnerships raised $1.5 billion, targeting mid-sized family-run businesses. By comparison, U.S.-based venture capital commitments were more than $33 billion that year.

For more information: The Private Equity Analyst, a trade publication. Pratt's Guide to Venture Capital Sources, Daniel Bokser, ed., Securities Data Publishing, tel: 1-800-455-5844 (updated annually). Directory of Venture Capital, Catherine E. Lister and Thomas D. Harnish, John Wiley & Sons, tel: 1-800-225-5945. The National Venture Capital Association can be found on the Web at www.nvca.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

American and Global Depository Receipts
Basics: Large, established foreign companies can tap U.S. securities markets through American depository receipts (ADRs), which enable U.S. investors to purchase their shares. The global equivalent of ADRs, global depository receipts (GDRs) include situations where the shares in one county's corporation are listed on stock exchange (s in other countries.

Terms: The SEC requirements for listing shares of foreign companies on U.S. exchanges are substantial. The regulations governing listing on exchanges of other countries could also present challenges, but are generally not as onerous as those for listing in the United States.

Eligibility: Because of the disclosure requirements, ADRs tend to be limited to the most prominent firms. Joint ventures between a U.S. firm and a foreign concern could potentially tap the GDR market.

Environmental/export focus: Generally, the environmental industry is not developed enough to tap this market.

For example: Power companies abroad have used ADRs to have used ADR's to list on U.S. exchanges.

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

Angels (Personal Investors)

Basics: Angels are individuals who buy into a business with their own money, usually at the start-up stage. They are often willing to take risks that lenders or venture capital firms would not contemplate, and they rarely seek voting control of the business they finance. Representing the largest source of risk
investment capital in the United States, 250,000 angels invest $27 billion in 30,000 ventures every year, with half going to start-ups.

Terms: Angels expect high returns, from 20 to 40 percent, and they want them quickly, usually within four years. The average angel investment is less than $50,000. It is rarely possible to raise more than $500,000 from angels, although a new class of super angel that has recently emerged is capable of putting millions behind a project, an idea, or an entrepreneur. Funds from angels are the least regulated because the source is usually informal: a business colleague, friend, or family member.

Eligibility: Based on family, work, and social connections, as Angels are a good source to look into at the start-up stage, when ideas and the character of the individuals behind them are paramount and easy for a potential angel to engage directly.

Environmental/export focus: Angels represent the greatest single source of capital for small or environmental firms in the early stages, before the firms qualify for bank loans or venture capital. Except in Asia, where family money is the most common way of starting a business, angel activity is new and only emergent in other developing economies and is less a tradition in Europe than in the United States.

For example: Several Silicon Valley companies owe their success to angels.

For more information: Environmental Investor Network, Mr. Loch McCabe. Tel: (313) 996-8387. Finding Your Wings: How to Locate Private Investors to Fund Your Venture, Gerald A. Benjamin and Joel Margulis, John Wiley & Sons, tel: 1-800-225-5945.

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/

Foreign Direct Investment
Basics: Unlike the investments by individuals or financial institutions described in the previous section, foreign direct investment (FDI) is an investment by one corporation into another company running a project or business outside the investor's home country. Usually, the firm is actively involved in the local company as (co)owner or operator of the foreign project. FDI commonly takes the form of a joint venture, such as a manufacturing facility or a private power station.

Terms: FDI is long-term funding. It is characterized by low liquidity and low volatility. Once committed, it tends to be there for the long haul.

Eligibility: FDI funds usually come out of a company's retained earnings. Thus, it is a form of self-financing in which large multinationals are most frequently engaged.

Environmental/export focus: Many U.S. multinationals have made direct environmental investments in overseas markets. Worldwide, FDI is trending away from resource extraction into manufacturing and services. Of all the private capital flows to emerging markets, FDI creates the greatest need for environmental goods and services due to its increased resource use, air emissions, water discharges, and waste generation. FDI-financed projects are often a good target for U.S. environmental exporters.

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

Strategic Alliances
Basics: A small company may enter into a strategic alliance with a larger, more established firm to undertake business activities together for mutual benefit. Commonly, the two firms have similar goals, share a market, or provide a related product. For example, such alliances are used in research contracts,
licensing, and marketing to help serve a client base that would be hard to reach otherwise.

Terms: The partner may provide financing in the form of an equity investment, a loan, or the sharing of resources such as office space or personnel.

Eligibility: Small businesses increasingly seek strategic partners in larger companies to get products to market faster, and large companies invest in small companies to guarantee a share in a promising firm's future profits. This financing approach has been popular in high-tech industries such as bioremediation

Environmental/export focus: Strategic alliances with larger, particularly multinational, companies can be an attractive way for small environmental firms to build access to international markets.
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.

Equity Available from the Public Sector

Small Business Investment Companies
Basics: Private investment firms licensed by the Small Business Administration, small business investment companies (SBICs), provide equity capital (and loans and management assistance) to small, fast-growing companies. SBICs use their own capital or capital borrowed at favorable rates through the federal government. Like venture capital firms, they are profit motivated and require a stake in the businesses in which they invest. There are 271 SBICs in the United States with $3.5 billion in private monies and $1 billion in federal funds.

For more information: U.S. Small Business Administration, 409 3rd Street, SW, Washington, DC 20416. Tel: (202) 205-6600. On the Web: www.sba.gov

Multilateral Development Banks
The overarching mission of the multilateral development banks (MDBs), including the World Bank (the International Finance Corporation, or IFC, is part of the World Bank), the European Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development

Bank, and the African Development Bank, is to spur economic and social growth in the developing member countries of the regions that bear their names.

The bulk of MDB assistance is provided to member governments in the form of loans, but to varying degrees. As official aid diminishes and the flow of private capital to developing economies continues to grow, the MDBs also participate in financing private initiatives.

All regional MDBs operate private-sector windows that can provide financing for private-sector projects in their member developing countries. The IFC is the largest and best-known source of private-sector support among MDBs.

For more information: Contact the U.S. Department of Commerce's Multilateral Development Bank operations at (202) 482-3399.
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

International Finance Corporation
Basics: The private-sector arm of the World Bank group, the IFC invests in private ventures in the developing world, always as a minority partner with other investors. The IFC committed $3.3 billion from its own account in FY1997. As a consequence of IFC's involvement, other private investors have gone into these projects in emerging and developing nations. IFC also runs 15 private equity funds with $2.4 billion in total committed capital and 53 small venture capital funds with $1.6 billion in total committed capital.

Terms: IFC finances up to 25 percent of a project's costs using various means, primarily through loan and equity financing. IFC also provides its clients with technical and advisory support, putting together financing and investors, and arranging for syndication with banks. The IFC does not conduct feasibility studies. All projects supported must meet World Bank and local environmental policies.

Eligibility: IFC investment projects range from $4 million to hundreds of millions and are conducted with the cooperation of the World Bank's member countries. A special program for small businesses (including environmental) provides loans as small as $1 million.

Environmental/export focus: Some IFC funds are environment specific, such as the Terra Capital fund for biodiversity and the Renewable Energy and Energy Efficiency Fund. In addition to investing in environmental projects, the IFC advises firms on how to attract foreign/local investment in environmental ventures; studies the role of the private sector in providing environmental goods and services to promote market opportunities; and participates in the Global Environment Facility through cofinancing of investment projects in the areas of biological diversity, global warming, water pollution, and depletion of the ozone layer, with a particular emphasis on supporting environmental programs of small and medium enterprises.

For example: The IFC participated as a 5 percent equity shareholder in the winning bid to privatize Buenos Aires' water supply and water treatment system. IFC involvement attracted further financing and motivated improving environmental performance in the venture.

For more information: IFC's Environment Division, Room I-10-157, 1818 H Street, NW, Washington, DC 20433. Tel: (202) 473-7954. On the Web: www.ifc.org

Protecting the Deal: Credit Enhancement and Guarantee Instruments

Core features: Cross-border transactions involve commercial and political risks: payments could be lost in processing from one country to another; a war might break out; a currency might become devalued. To cover the risks associated with export transactions, various forms of guarantees and insurance have
evolved. Similar protections have become important in financing the growing number of environmental projects abroad, because with the right coverage, lenders and investors are more willing to sign on.

Types: Export credit insurance covers the commercial risks of export transactions. It is frequently available from commercial banks or other private sources. For protection against social and political upheavals in the foreign buyer's country, political risk insurance is available, usually from government institutions. Sovereign guarantees are available to exporters providing credit to local companies; this guarantee ensures that the national government will assume responsibility for the debt should the local company default on repayment. These guarantees are most common for large infrastructure projects. Beyond
the import-export deal, protection is also available for investments in projects overseas.
Although the major government institutions providing guarantees are revisited in this section, most of the agencies that make loans also provide guarantees and insurance, as do many of the agencies in foreign countries described in the loan section.

Limitations: Banks and other financial institutions charge fees and premiums for insurance and guarantees, reducing the amount of retainable revenue from a sale or a project (although commonly the fees are passed on to the buyer in an export transaction). Coverage is rarely for more than 90 percent of the value of the transaction or project revenues, and often is less if the customer or project is in an economically or politically unstable part of the world, although some insurers/guarantors will provide better coverage for environmentally beneficial exports and overseas projects.

Credit Enhancement Tools Available from the Private Sector

Commercial Banks and the Letter of Credit
Basics: The most common form of protection between exporters and foreign buyers is the letter of credit (LOC). Commercial banks are the usual source for this essential instrument. An LOC is a document issued by a bank per foreign buyer's instructions, authorizing the seller to draw specific funds under specified terms, commonly the receipt by the bank of documents from the buyer by a certain date. An LOC is usually thought of as a method of payment, not a form of insurance. It is the fundamental vehicle for ensuring payment, thus forming the foundation upon which further protection (insurance, guarantees) may be offered.

Example of a typical transaction: After agreeing on the terms of sale, the foreign buyer asks his local bank to prepare an irrevocable (can be changed only by agreement of both buyer and seller) LOC, including instructions to the seller about the shipment of goods. The buyer's bank sends the LOC to a U.S. bank, requesting confirmation. The U.S. bank forwards a letter of confirmation with the LOC to the exporter. The exporter reviews all the conditions of the letter to make sure they can be met, particularly that the shipping date can be satisfied. The exporter arranges for the goods to be delivered to the appropriate port or airport. Once the goods are loaded, the freight forwarder completes the necessary documents, which are then presented to the U.S. bank by the exporter. The bank reviews the documents and airmails them to the buyer's bank if they are in order. The buyer's bank reviews them and forwards them to the buyer. The buyer receives the documents, which are necessary to claim the goods. A draft (foreign buyer's check)
is paid by the exporter's bank to the exporter at the time specified in the LOC.

For more information: A Basic Guide to Exporting, available on the Web at the National Trade Data Bank. Tel: 1-800-USA-TRAD. On the Web: www.stat-usa.gov

Government Guarantee and Insurance Programs

Export-Import Bank of the United States
Basics: Ex-Im Bank's mission is to help the private sector create and maintain American jobs by financing exports. One of Ex-Im Bank's roles is to help neutralize the effects of export credit subsidies offered by other countries and to take on credit risks the private sector avoids, enabling U.S. firms to compete more effectively in overseas markets. The bank has three guarantee programs: the Working Capital Guarantee, the Financial Guarantee, and the Credit Guarantee Facility. Secondary to its role in financing exports, Ex-Im Bank insures a wide variety of U.S. environmental exports, giving priority to small-business transactions and the expansion of the overseas presence of the U.S. environmental goods and services industry. Coverage is provided against both political and commercial risks of a foreign buyer defaulting. There are short-term single and multi-buyer policies, and medium-term policies covering U.S. capital goods. An umbrella policy is best used by a firm with minimal exporting experience and covers against loss for administrative, in addition to commercial and political, circumstances. A new-to-export policy insures short-term credit sales for companies with small volumes of exports over the previous two years.

Terms: Policies cover 90 to 100 percent of principal for political risks and commercial risks. Under the medium-term policy, coverage is for capital goods sold overseas on six-month to five-year terms.

Eligibility: Policies can cover single or repetitive export sales and leases. There are no minimum or maximum project sizes.

Environmental/export focus: Ex-Im Bank has an Environmental Exports Program that benefits foreign customers of U.S. energy efficiency and renewable energy firms.

For more information: Environmental Finance Program, Ex-Im Bank. Tel: 1-800-565-EXIM. On the Web:
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."

U.S. Small Business Administration
Basics: SBA has two programs of interest to small or start-up companies. They range from funding increases in export sales to establishing an overseas presence.

Terms: The Export Working Capital Program (EWCP) guarantees a loan up to $833,333 for a maximum guarantee of 90 percent or ($750,000) for product/service export purposes, extendable to preshipment working capital and postshipment exposure, including labor and materials for manufacturing, raw material purchases, or foreign accounts receivable. The Regular 7(a) Loan Program guarantees are the same as under the EWCP; the interest rate caps at 2.25 points above the New York prime rate for loans up to seven years.

Eligibility: Only small businesses that are independently owned and operated, not dominant in their field, and falling in specific employee and annual sales ranges (depending on the industry) are eligible.

For more information: U.S. Small Business Administration, Office of International Trade, 409 3rd Street, SW, 6th Floor, Washington, DC 20416. For regional small business development centers, which provide business assistance, including export and trade counseling/referrals, call 1-800-8-ASK SBA (1-800-827-5722). The Insider's Guide to Small Business Loans, by former SBA official Dan Koehler, Oasis, 1996. Tel: 1-800-228-2275. On the Web: www.sba.gov

Overseas Private Investment Corporation
Basics: The OPIC agency supports U.S. business investment in developing countries. It offers insurance and guarantees. OPIC's insurance department offers political risk protection for most U.S. parties involved in foreign business. OPIC insures U.S. investments abroad against three types of political risks: currency inconvertibility (including adversely discriminatory exchange rates, but not currency devaluation), expropriation, and political violence (including declared or undeclared war, revolution, and civil strife such as terrorism and sabotage). Insurance coverage is available for equity investments, loans, technical assistance agreements, and other long-term exposures. Export transaction coverage is not typically provided by OPIC. There are specialized forms of coverage for minerals and energy exploration and development.

OPIC provides loan guarantees, typically for larger projects, and direct loans, which are usually reserved for U.S. small businesses, up to $200 million per project. Guarantees are issued to U.S. financial institutions, including insurance companies, pension funds, and commercial banks. Interest rates on guaranteed loans are similar to those of other U.S. Government-guaranteed issues. For guarantees, OPIC charges a fee equal to 2.5 to 5 percent per annum on the outstanding principal amount, depending on commercial and political risk. OPIC requires the submission of a business plan to determine eligibility and terms on which the requested financing may be offered.

Terms: For investment insurance, OPIC can insure up to $200 million per project covering 90 percent of the political risks. The annual premium must be paid in advance. Base rates for manufacturing, agribusiness, and services projects range between 0.3 and 0.6 percent of cover. Policies have provisions allowing for increases in coverage up to 50 percent during the first 10 years and another increase of up to 50 percent during the second 10 years of the coverage period. For investment finance, such as all-risk guarantees, OPIC guarantees range up to $200 million and cover 100 percent of the commercial and political risks.

Eligibility: OPIC covers investments in more than 115 "less developed, friendly" countries. Investments are covered in high-income countries on a case-by-case basis for small businesses. Types of investments insured include new projects and expansions, including the acquisition of another business; equity participation; loans and funds; and goods or services provided under contractual agreements. An OPIC Registration Letter is required to qualify for OPIC insurance. Host-country approval is required. Projects must have a positive effect on U.S. employment, be financially sound, have significant developmental benefits, and meet worker rights and environmental criteria.

For more information: Overseas Private Investment Corporation, 1100 New York Avenue, NW, Washington, DC 20527. Tel: (202) 336-8400. On the Web: www.opic.gov
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.

Multilateral Investment Guarantee Agency
Basics: Part of the World Bank group, the Multilateral Investment Guarantee Agency (MIGA) offers long-term political risk insurance and advisory services. MIGA complements the activities of public and private insurance programs and the IFC. Working with member developing-country governments, MIGA advises investors of new opportunities in those nations. Typical MIGA coverage includes war, revolution, or civil disturbance; breach of contract; currency transfer; and expropriation.

Terms: Up to 90 percent of amount invested is covered, with no minimums and a ceiling of $50 million per project, for 15-year terms, extendable to 20 years. Premiums are on a project-by-project basis.

Eligibility: The investment must be located in a member country, and it must be new or associated with restructuring of an existing enterprise. Equity forms of direct investment qualify, as do technical contracts, franchising, and licensing agreements. Investments must contribute to host country development and meet local priorities. It is best to contact MIGA while still in the planning stage of a foreign venture.

For more information: Multilateral Investment Guarantee Agency. Tel: (202) 473-6165. On the Web: www.miga.org


Core features: A grant is like a gift with strings attached. Grants do not have to be repaid but are hard to obtain and require that multiple conditions be met. Because grants tend to be small compared with the amount of capital needed to grow a business overseas, grant funding is best used in the early stages of commercial expansion or project development, when feasibility studies and market evaluation are critical. For example, grant funding might support research and development for a particular technology, or a trip abroad to investigate export opportunities. In the environmental arena, funding from multilateral organizations such as the United Nations, U.S. Government agencies, and private groups is available for the early exploratory tasks associated with international expansion. Commonly, funding is available for studies and technical assistance.

Types: Most grants are made by government entities or foundations (private and corporate). For example, the National Association of State Development Agencies gives grants to demonstrate environmental technology in potential markets abroad while the Global Environment Facility funds projects in developing countries. The private-sector grant-giving landscape is broad and eclectic, but in general is increasingly supportive of environmental activities.

Limitations: Applying for grants takes time and labor, and the competition for available funds can be fierce. Although grants are attractive sources of financing because they do not require sharing control of the business (like equity) or leveraging (like debt), grants come with other conditions such as evaluations and reporting that can increase costs. Often, grants from governments entail opening up ones' books and complying with rigorous regulations. Furthermore, grants sometimes require matching funds. Generally, grants can supplement but not take the place of other types of financing.

For more information: Free Money for Small Businesses and Entrepreneurs, Laurie Blum, John Wiley & Sons, 1992. Tel: 1-800-225-5945.

Grants Available from Public Sources

U.S. Trade and Development Agency
Basics: The U.S. Trade and Development Agency (TDA) helps U.S. firms fund initial stages of major project development proposals (including environmental projects) overseas, particularly feasibility studies.

Terms: Funds some costs of feasibility studies for host-country-supported projects in the public and private sector. Grants average $320,000. TDA offers funding for feasibility studies related to major infrastructure projects that offer significant export opportunities for U.S. products and services. Studies need to determine the technical, economic, and financial feasibility of major projects and to provide detailed data for making decisions on how to proceed with project implementation. Where appropriate,
TDA may provide funding for technical seminars, conferences, and orientation visits to the United States.

Eligibility: TDA's main criterion in considering requests for feasibility study funding is the amount of probable export results from the study. All proposed projects also must have the host government's approval, meet the country's development priorities, and demonstrate the ability to attract funding for the project implementation phase.

Environmental/export focus: Energy, infrastructure, and natural resource development are among TDA's listed priorities.

For example: TDA provided $350,000 to the Thai Electrical Authority for a power plant study. The contractor selected (Black and Veatch International of Missouri) later signed a follow-on engineering services contract with the authority worth $30 million.

For more information: U.S. Trade and Development Agency, 1621 North Kent Street, Suite 300, Rosslyn, VA 22209-2131. Tel: (703) 875-4357. Fax: (703) 875-4009. On the Web: www.tda.gov

U.S. Agency for International Development
Basics: The U.S. Agency for International Development (USAID) provides U.S. bilateral assistance to developing countries through grants, loans, and technical assistance.

Terms: Financing is primarily contract- and procurement-based with the ultimate aim of supporting specific USAID-funded projects in developing countries.

Eligibility: U.S. and overseas firms, civic organizations, and governments. Funded projects must meet World Bank environmental standards.

Environmental/export focus: There are myriad projects, programs, and offices within the agency relevant to environmental firms.

For more information: USAID's Office of Small and Disadvantaged Business Utilization (OSDBU) helps U.S. firms contract with USAID-sponsored projects. OSDBU helps small and minority-owned firms on all aspects of conducting business with the agency and ensures such companies equal consideration in USAID-financed procurement. Contact OSDBU at USAID, Room 1200A, SA-14, Washington, DC 20523. Tel: (703) 875-1551.
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: usasia@usaep.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: jhallett@sandersint.com. On the Web: www.info.usaid.gov/TEST

U.S. Environmental Protection Agency
Basics: The U.S. Environmental Protection Agency (EPA) oversees pollution prevention, cleanup, and enforcement of U.S. environmental laws in the media of water, waste, and air.

Terms: Most programs are contractually based and grant funded.

Eligibility: Not-for-profit organizations. As a regulatory agency, EPA is quite limited in supporting for-profit entities.

Environmental/export focus: Remediation and cleanup are traditional foci; pollution prevention is a growing area. EPA's international focus is limited, although this area is expanding with a recent congressional mandate for EPA to focus on exports. Support for environmental export and international business activities in general has normally been limited to capacity building and training because of a lack of funding.

For more information: U.S. Environmental Protection Agency, Office of International Activities, 401 M Street, SW, Washington, DC 20460. Tel: (202) 564-6600. Fax: (202) 565-2411. Dennis Cunningham, program manager for International Technology Transfer, Tel: (202) 564-6622. On the Web: www.epa.gov/oia/itptoc.htm
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/

National Association of State Development Agencies
Basics: The National Association of State Development Agencies (NASDA) oversees a variety of funds that offer matching grants to states and other multipliers who assist American firms in addressing environmental needs in different parts of the globe. NASDA is a Washington-based national nonprofit membership organization for state economic development agencies. It is a full-service trade organization providing a wide range of technical services to its membership, including delivering export assistance to firms, building trade leads, financing small businesses, and supporting the commercialization and export of cutting-edge technologies.

Terms: Terms vary, but all grants must be matched dollar for dollar (if not more) and are generally in the range of tens of thousands of dollars. Grants can be used to finance business missions, demonstrate equipment, or run workshops, among other things.

Eligibility: Projects seeking funding must provide evidence of potential business transactions or significant market break-throughs. Also, the project should show the potential for both near- and long-term commercial results and business relationships. Applicants should be small or medium-sized U.S. companies without previous experience in the host country.

Environmental/export focus: NASDA works with both the U.S.-Asia Environmental Partnership (US-AEP) and EPA in running its grant programs in the environmental and energy-efficiency fields. At least four funds NASDA oversees target opportunities abroad: U.S.-AEP Tech Fund; US-AEP Overseas Program Fund; Latin America Fund for the Environment; and EPA Environmental Fund for China and South Africa.

For more information: National Association of State Development Agencies; 750 First Street NE, Suite 710, Washington, DC 20002. Tel: (202) 898-1302. Fax: 202-898-1312. On the Web: www.nasda.com.

US-AEP/NASDA Environmental Technology Fund
Renewable Energy Project Support Fund Network
Basics: The Renewable Energy Project Support Fund (REPSO) network is a global network of local nongovernmental organizations that support projects using commercially proven biomass, geothermal, small hydro, solar, and wind energy technologies to help catalyze the use of renewable energy technologies for rural energy supply in developing countries. Currently, REPSOs are located in Brazil, Guatemala, India, Indonesia, and the Philippines.

Terms: REPSOs offer grants to share the costs of pre-investment studies with project developers in REPSO countries. REPSO provides cost sharing in the form of an interest-free reimbursement grant to the project developer. This grant is to be repaid only if the project reaches financial closure.

Eligibility: Both host-country developers and U.S. developers working with a local country are eligible to apply. REPSOs will evaluate only solicited proposals and award grants on a competitive basis.

For more information: John Kadyszewski, Renewable Energy Pre-Investment Fund, Renewable Energy and the Environment Program, 1611 N. Kent Street, Suite 600, Arlington, VA 22209-2134. Tel: (703) 525-9430. Fax: (703) 243-1175.

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.

U.S. Export Council for Renewable Energy
Basics: The U.S. Export Council for Renewable Energy supports joint ventures, exporting, and overseas project development for renewable-energy private-sector power in developing countries. ECRE is sponsored jointly by USAID, Oak Ridge and Sandia National Labs, the Committee on Renewable Energy Commerce and Trade (CORECT), and U.S. renewable-energy trade associations.

Environmental/export focus: Renewable-energy technologies.

For example: The International Fund for Renewable Energy and Energy Efficiency (IFREE), formed by ECRE with USAID, Department of Energy, and Rockefeller Foundation support, offers conditional grants up to $50,000 to support half the cost of prefeasibility studies in renewable energy, energy efficiency and natural gas projects in developing countries, repayable if project gets financing.

For more information: International Fund for Renewable Energy and Energy Efficiency, 777 North Capitol, Washington, DC 20002. Tel: (202) 408-7916. Fax: (202) 371-5115. U.S. Export Council for Renewable Energy, 122 C Street, NW, Fourth Floor, Washington, DC 20001. Tel: (202) 383-2550. Fax: (202) 383-2555.

Environmental Enterprise Development Initiative
Basics: The Environmental Enterprise Development Initiative is a program of the Overseas Private Investment Corporation for environmental enterprises, technology transfer, and capital mobilization to stimulate investment by U.S. environmental firms in expanding markets for U.S. environmental companies overseas. This program is limited to Asia and is supported by USAID through the US-AEP.

Terms: U.S. sponsor must contribute at least 50 percent of study cost; OPIC's involvement is limited to $100,000 per project. If project proceeds, funds must be repaid. Assistance provided for feasibility studies including pre-investment analyses and pilot project implementation. Limited to projects in eligible Asian countries in which OPIC operates.

Eligibility: Majority U.S.-owned firms committing equity to proposed project.

Environmental/export focus: Supports U.S. companies planning to build or expand environmental operations in Asia.

For more information: Overseas Private Investment Corporation, 1100 New York Avenue, NW, Washington, DC 20527. Tel: (202) 336-8400.

World Bank’s Institutional Grant Facility
Basics: The World Bank's Institutional Grant Facility (IGF) is a $25 million grant facility for technical assistance projects in upstream institutional development and capacity building. It works closely with the United Nations Development Program (UNDP), the Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD) and other United Nations system agencies.
Terms: Up to $500,000, with priority to requests that are innovative or exploit a special opportunity.

For more information: Procurement Service Division, The World Bank, 1818 H Street, NW, Washington, DC 20433. Tel: (202) 458-2912. Fax: (202) 477-3129.

Global Environment Facility
Basics: Established in 1991 as a joint program among UNDP, United Nations Environment Program (UNEP), and the World Bank, the Global Environment Facility (GEF) extends loans for investment projects, technical assistance, and research. A limited number of grants are also awarded. Support is provided for projects in four areas: global warming, pollution of international waters, destruction of biological diversity, and protection of the ozone layer. More than $1.33 billion had been disbursed as of 1997 for 200 projects in 85 countries, leveraging $3.3 billion in cofinancing.

Terms: Support for projects ranges from less than $25,000 to $1 million.

Eligibility: Grants are awarded to entities in developing countries and occasionally to financial intermediaries as a vehicle for offering loans at discounted rates for qualifying services and/or goods.

Environmental/export focus: The GEF is environment specific and supports sustainable development efforts, exclusively in developing countries. Grants are not normally available to private U.S. businesses, but projects receiving funding offer procurement opportunities. In addition, the GEF gives grants to financial intermediaries who are thus enabled to loan money at reduced interest rates for providing goods and services in what would otherwise be considered excessively risky situations.

For more information: GEF Administrator, The World Bank, 1818 H Street, NW, Washington, DC 20433. Tel: (202) 473-1053 x0508. Fax: (202) 522-3240. UNDP, executive coordinator, GEF, Environment and Natural Resources Group/BPPE, One United Nations Plaza, New York, NY, 10017. Tel: (212) 906-5044. Fax: (212) 906-6947. Washington office: 1889 F Street, NW, Washington, DC 20006. Tel: (202) 289-8674. Fax: (202) 842-2998. On the Web: www.worldbank.org/html/gef
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.

Grants Available from Private Sources

Private Philanthropic and Corporate Foundations
Basics: Foundations are nonprofit organizations that manage a pool of capital out of which grants are distributed in keeping with the mission of the organization. The assets of all U.S.-based foundations total nearly $200 billion. In 1996, they gave out $10 billion in grants. U.S. foundations and corporations are a growing source of support for environmental projects.

Terms: Variable. Grantees' projects must be consistent with the philosophy of the grantor.

Eligibility: Foundations rarely support individuals or private for-profit companies, although entrepreneurship is a growing focus of support.

Environmental focus: Depends on the foundation and the program; overall, increasing. In 1995, 703 foundations awarded $425 million for environmental projects.

Export focus: Grants would not generally be available to private U.S. businesses, but projects receiving funding might need services/products available from such companies.

For more information: Environmental Data Resources, Inc., Environmental Grantmaking Foundations, Rochester, NY. Tel: 1-800-724-1857, www.environmentalgrants.com. The Foundation Center, 79 Fifth Avenue, New York, NY 10003-3076. Tel: (212) 620-4320.

Nongovernment Organizations

International Environment and Development Service
Basics: The International Environment and Development Service of the World Environment Center (WEC) provides probono assessments of policy and technology for pollution abatement in developing countries. The WEC also conducts training workshops, study tours, and internships for citizens from all sectors in developing countries, often in collaboration with U.S. and multinational firms.

Terms: WEC supports U.S. firms that are willing to participate in exchanges with officials from government and industry in developing countries.

Environmental/export focus: Offers valuable exposure for U.S. firms contemplating overseas projects; helps lay the foundation for future environmental exports.

For more information: World Environment Center, 419 Park Avenue South, Suite 1800, New York, NY 10016. Tel: (212) 683-4700. Fax: (212) 683-5053.

Winrock International
Basics: Winrock, a major philanthropy, runs the private Biomass Energy Systems and Technology (BEST) Program to assist private companies in the U.S. and developing countries to implement biomass energy projects in underdeveloped areas of the world.

Terms: BEST provides up to 50 percent of feasibility study costs on an interest-free reimbursable grant basis. It also provides industry resource assessments and country-specific pricing studies for cogeneration projects.

Eligibility: Project must be privately owned and operated in a USAID-assisted country, initiated by host or U.S. company, with local in-country collaboration. Proposers must demonstrate the financial resources to carry the project through if the feasibility study is positive.

For more information: Winrock International, 1611 North Kent Street, Suite 600, Arlington, VA 22209. Tel: (703) 525-9430. Fax: (703) 243-1175.
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: fpe@mnl.sequel.net

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: fdla@reuna.cl

Secondary Markets
Core features: Secondary markets provide a way for firms to receive immediate cash from third parties for goods or services sold on credit. They work by taking an exporter's predictable existing and future cash flows (such as export receivables, payments on loans made to buyers, or future project revenues), converting them to debt (and occasionally, equity) instruments, and selling them.

Types: (a) Securitizations, such as the bundling of future export receivables; (b) "put" options or other asset transfer arrangements ensuring exit opportunities for equity investors; and (c) factoring and forfaiting, in which export receivables are purchased on a discounted basis by financial intermediaries. Only factoring and forfaiting will be described here as they are of greatest use to small and medium-sized environmental companies considering exporting.

Limitations: Using the secondary market to obtain immediate cash comes at a cost because the debt is bought at a discount, reflecting the exchange-rate risk as well as the commercial and political risks of the underlying assets. The value of cash on hand may be more than the hefty interest charges, however, especially for small companies or start-ups that have difficulty raising funds from banks.

Factoring and Forfaiting

Exporters selling goods on credit can convert foreign accounts receivable directly into cash by entering into contracts with factoring or forfaiting houses.

Factoring houses purchase short-term (less than one year) export receivables on a discounted basis, thus providing exporters with immediate payment for goods or services sold on credit. Factoring houses purchase foreign accounts receivable over a wide discount range, anywhere from 2 percent to 25 percent below the invoice price. The discount varies depending on the country of export, the creditworthiness of the importer, and the nature of the factoring contract. Accounts receivable from large, reputable companies in Canada and Western Europe are sold at a lesser discount than those from smaller firms in Asia and Latin America. In nonrecourse factoring contracts, the exporter is not required to repay the factoring house in the event of default by the business owing money for the receivables. Nonrecourse factoring contracts carry a greater discount than recourse contracts do because the factoring house is burdened with greater risk. With recourse contracts, exporters assume the risk of nonrepayment.

Forfaiting is essentially factoring for medium-term obligations of one to five years with a guarantee issued by the buyer's bank. All forfaiting is nonrecourse. Forfaiting houses purchase longer term accounts receivable or promissory notes. As with factoring, the discount varies depending upon the country of export, the creditworthiness of the importer, and the nature of the forfaiting contract. Receivables and promissory notes guaranteed by a government agency or a customer's foreign bank will require a lesser
discount than unguaranteed obligations.

Terms: Forfaiting can be a very expensive means of financing export sales. Because of the high cost, factoring may be inappropriate for businesses with low profit margins or for small-dollar transactions.

Eligibility: Eligibility depends on the creditworthiness of the customer-importer and not the exporter. Exporters with poor credit and minimal experience in international trade can receive speedy financing from factoring and forfaiting houses.

Environmental focus: Forfaiting has not been used often in the environmental sector. Historically, the method has worked best for high-volume products such as food commodities. Forfaiting more than factoring is likely for environmental exporting.

Export focus: Forfaiting houses purchase both domestic and foreign accounts receivable. In general, producers must sell non-U.S. accounts receivable at a greater discount than U.S. accounts receivable.

For more information: Alternative Sources of Trade Financing provides contact information for factoring and forfaiting houses throughout the United States. The 1998 edition of this guide is available from the Trade Information Center, Office of Export Promotion Coordination, International Trade Administration, U.S. Department of Commerce, HCHB 7242, Washington, DC 20230. Tel: 1-800-USA-TRADE. Office of Finance, International Trade Administration, U.S. Department of Commerce. Tel: (202) 482-3050.

Currency Markets

Foreign exchange rates are in constant flux. Some currencies are relatively stable, while others undergo periodic devaluations or market crashes. Although hedging mechanisms are available to limit an exporter's exposure to currency risk, these mechanisms are often expensive and highly speculative.

As a result, many environmental firms accept payment only in U.S. dollars. Although these firms limit their exposure to currency fluctuations, they may also alienate some customers by requiring them to bear 100 percent of the foreign exchange risk.

Some environmental firms accept payment in foreign currencies. A few of these firms bear 100 percent of the risk inherent in such transactions, while other companies seek to limit exchange-rate risk through the financial instruments described in this section.

Exporters should exercise extreme caution and seek the advice of a banker or other financial professional before committing to any transactions denominated in currencies other than U.S. dollars.

Spot Transactions
A spot transaction is an agreement to purchase one currency and sell another currency for immediate delivery (within one or two business days). Spot transactions enable environmental exporters to convert a cash amount in one currency into another. This conversion may be necessary if a customer prefers to pay the exporter in a currency other than U.S. dollars.

Most large banks can assist exporters in trading all major currencies (e.g., British pounds, Canadian dollars, French francs, German marks, Swiss francs, and Japanese yen) as well as some minor currencies. Exporters receiving payment in non-U.S. currency should always check with their bank to be certain that the payments can be converted to U.S. dollars.

Because spot transactions occur at the prevailing market exchange rates, exporters receiving payments in non-U.S. currency are subject to currency risk exposure. This exposure may be relatively insignificant for stable currencies due in a short period of time. However, exporters may desire protection from currency fluctuations for longer term obligations or for obligations due in less stable currencies.

Three methods of limiting currency risk exposure over time are discussed below.

Forward Contracts
A forward contract is an agreement to purchase one currency and sell another at some date in the future. Forward contracts involve no fee, and cash does not change hands until the settlement date of the contract.

Environmental exporters receiving foreign currencies in the future can use forward contracts to lock-in an exchange rate today. Such contracts effectively eliminate the risk of exchange-rate fluctuation and guarantee that the exporter will receive the exchange rate it expects to receive.

The two primary risks of forward contracts are delay in customer repayment or customer default. If the exporter has not received payment from the customer by the forward contract settlement date, the exporter will be required to purchase the foreign currency on the spot market to honor the contractual obligation to sell the foreign currency and buy U.S. dollars.

Many major banks can arrange foreign-exchange forward contracts with settlement dates up to five years in the future. Special arrangements can be made for forward contracts up to 10 years in the future. Forward contracts are relatively easy to arrange for common currencies such as the British pound, the Canadian dollar, the French franc, the German mark, and the Japanese yen. Forwards may be more difficult to arrange for less common, minor currencies.

Options Contracts
Options contracts are a means of locking in a minimum or maximum exchange rate for the future purchase of one currency for another. Unlike forward contracts, options contracts must be purchased for a fee. By purchasing a call option, an environmental company can secure the right to buy U.S. dollars at a preestablished exchange rate at a predetermined date in the future. By purchasing a put option, an environmental firm can secure the right to sell a foreign currency at a preestablished exchange rate at a predetermined date in the future.

Options contracts are different from forward contracts in that the options do not obligate the buyer to participate in an exchange. Options buyers have the choice of whether or not to exercise their options. Thus, options are commonly used to protect against unfavorable currency rate fluctuations without forgoing the ability to benefit from favorable currency rate fluctuations.

Foreign exchange options are traded on the Philadelphia Exchange, the London Stock Exchange, and several other markets throughout the world. Most major banks or brokerages can arrange for the purchase of currency options.

Currency Swaps
Currency swaps convert streams of cash flow from one currency to another without exchange-rate risk. In a currency swap, a firm expecting to generate a cash flow in one currency but desirous of another currency agrees to exchange payments with another firm expecting and desiring cash flows in the opposite currencies.

Large commercial banks and investment banks usually serve as intermediaries, bringing the two parties together and collecting a fee for the service. Currency swaps are effectively a bundle of currency forward contracts with differing maturity dates. Swaps may be preferable to futures because they can allow hedging of longer term foreign exchange risks and because multiple exchanges are arranged as part of the same contract.

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