|Environmental Technologies Industries
|Financing Environmental Exports - A Guide to the Fundamentals and Sources|
|Chapter 2 - How to Finance Major Types of Export Deals|
|Export-Related Services Provided by the Department of Commerce|
Export Contact List Service - Provides mailing lists of prospective overseas customers from Commerce's database of foreign firms. It identifies manufacturers, distributors, retailers, service firms, and government agencies.
Trade Opportunities Program - Provides timely sales leads from overseas firms seeking to buy or represent U.S. products and services. Details such as specifications, quantities, end use, and delivery and bid deadlines are posted daily on Commerce's Economic Bulletin Board at 1-800-STAT-USA.
Agent/Distributor Service - Locates foreign import agents and distributors. It provides a custom search overseas for interested and qualified foreign representatives on behalf of a U.S. exporter.
International Company Profile - Provides background information on specific foreign firms, prepared by commercial officers overseas. International Company Profiles describe the type of organization, year established, relative size, number of employees, general reputation, territory covered, language preferred, product lines handled, principal owners, financial references, and trade references. The fee is $100 per report.
Commercial News USA - Provides worldwide exposure for U.S. products and services through an illustrated catalog-magazine and electronic bulletin boards. The catalog-magazine is distributed through U.S. embassies and consulates to business readers in 140 countries. A standard one-sixth page lists an average of 40 to 60 words and costs $250.
Trade Missions and Matchmaker Trade Delegations - Enable firms to meet prescreened prospects who are interested in their products or services in overseas markets. Matchmaker delegations usually target major markets in two countries and limit trips to a week or less. Delegation members pay their own expenses and a share of the operating costs of the event.
Major Projects Program - Helps U.S. firms win contracts for planning, engineering, and constructing large foreign infrastructure and industrial systems projects, including equipment and turnkey installations. Assistance is provided when requested by a U.S. embassy, a prospective foreign client, or a U.S. firm, either to encourage U.S. companies to bid on a particular project or to help them pursue overseas contracts. Office of International Major Projects, Room 2015B, Trade Development, International Trade Administration, U.S. Department of Commerce, Washington, DC 20230. Tel.: (202) 482-5225.
Gold Key Service - Customized matchmaking service that combines orientation briefings, market research, appointments with potential partners, interpreter service for meetings, and assistance in developing follow-up strategies. Offered throughout the world.
Other Sources of Trade Leads
USAID's Global Technology Network - Provides a free trade-lead system to U.S. companies through its extensive database of leads compiled by in-country technical representatives throughout the developing world.
The National Association of Trade Development Agencies, TradeNet, Intellibanc, Commodity Developers Trade Group, state trade development agencies, and world trade centers.
|Method||Usual Time of Payment||Goods Available to Buyer||Risk to Exporter||Risk to Importer|
|Cash in advance||before shipment||after payment||none||relies on exporter to|
|Letter of credit||after shipment, when documents complying with the letter of credit are presented||after payment||very little or none (depending on terms of the letter of credit)||relies on exporter to|
|Documentary collection sight draft||on presentation of draft to buyer||after payment||if draft is unpaid, exporter must dispose of goods||relies on exporter to|
|Documentary collection time draft||on maturity of draft||before payment||relies on buyer to pay draft; no control of goods||almost none|
|Consignment||after sale||before payment||high; goods in control of buyer||low|
|Open account||after shipment, as agreed||before payment||relies on buyer to pay the account||none|
|Case Study: American Standard Products - Export Working Capital|
American Standard Products, Inc. of Freehold, N.J. sells aquaculture feeds and medicines along with environmental and water cleaning products. The company was established in May 1994.
During its early years, American Standard Products found it difficult to obtain financing from commercial lending institutions and working capital demands proved problematic (particularly for inventory).
American Standard was able to obtain a $200,000 loan guaranteed by the U.S. Small Business Administration (SBA) through its Export Working Capital Program (the SBA provides no direct loans).
|Case Study: Tempest Environmental Systems - Short-Term Insurance|
Tempest Environmental Systems is a designer and manufacturer of state-of-the-art drinking and industrial process water purification equipment for residential, commercial, industrial, and small municipal use.
One of Tempest's clients is a large multinational trading company based in South Africa. Each month, the trading company inventories and distributes products manufactured by Tempest.
After the end of apartheid, the new government of South Africa was concerned about capital flight and the export of currency. The country placed strict limitations on payment in advance for imported goods. Funds typically could not be released to the exporter until the goods arrived on the docks of South Africa.
For a premium of 75 cents per $100 of coverage, Tempest has been able to purchase a short-term export insurance policy from the U.S. Export-Import Bank to protect against commercial risks. Applying for the export insurance policy was relatively simple and required little more than a letter of good standing from the customer's bank and a Dun and Bradstreet credit report attesting to the good credit of the customer.
With the export insurance policy in hand, Tempest was able to open a revolving line of credit with its local U.S. bank for export receivables. Because of the insurance, Tempest's bank charged a favorable interest rate of prime + 1 percent Thus, Tempest was able to extend credit to customers for 90 days without adversely affecting its cash position.
|Case Study: Ecology and Environment - TDA Consulting Contract|
Founded in 1979, Ecology and Environment is a consulting firm providing a wide range of client services from environmental impact assessment to hazardous waste management and soil remediation. Approximately 15 to 20 percent of the company's business is international. The majority of the firm's service exports go to multinational companies and projects sponsored by multilateral development banks.
In January 1997, Ecology and Environment was awarded a 12-month, $347,000 consulting contract from the U.S. Trade and Development Agency (TDA). The firm was to conduct voluntary inspections of industrial facilities in the Philippines and write 20 investment proposals for Philippine companies seeking to address air pollution from inefficient combustion processes in stationary sources.
The technical assistance project was fully funded by a grant from the U.S. Government to the Government of the Philippines. TDA provided the grant in the hope that it would generate $20 million in sales of U.S. equipment.
Although many U.S. consulting firms competed for the contract, Ecology and Environment had a distinct advantage because the firm had worked with the Philippine government to craft the initial proposal and application for the TDA grant. Ecology and Environment received no compensation for its assistance with the TDA application process. The entire project development cost was financed out of the firm's overhead budget.
The TDA contract specified a payment schedule in which 20 percent of the contract amount was paid up front, and additional disbursements occurred at various project milestones. The final 20 percent of the contract was payable on completion of the assignment.
Although TDA contracts do not pose significant credit risks, Ecology and Environment did not obtain project-related loans secured by accounts receivable from the TDA. Instead, the company financed wages and other expenses through a line of credit with its local bank. The line of credit is secured by assets of the firm.
|Case Study: Energy Service Company|
Unnamed ESCO is an energy services company (ESCO) that provides performance-based energy-efficiency projects for clients all over the world. In 1997, Unnamed ESCO received a contract to improve the energy efficiency of a large European apartment complex by upgrading the decrepit heating, ventilation, and air conditioning equipment installed in the 1950s.
Under the energy services agreement, Unnamed ESCO agreed to install new equipment in the housing complex in exchange for payments of 70 to 100 percent of the project's savings for the first six years after installation. After a fixed amount of profits was recovered, the shared savings payments would cease and ownership of the equipment would transfer to the owner of the housing complex.
Because the performance-based contract was essentially an operating lease, the new equipment did not appear on the customer's balance sheet, and the customer assumed no additional liability to finance the acquisition.
To limit its liability in the event of equipment failure or customer default, Unnamed ESCO created a shell company to purchase the equipment and hold the associated assets and liabilities. The shell company was a single-purpose entity wholly owned by Unnamed ESCO. The shell company obtained a loan from a European bank to purchase the equipment. The equipment itself served as collateral, so the loan was nonrecourse to Unnamed ESCO.
Once the equipment was installed and operating, the customer was required to pay a portion of its energy savings into an escrow account which then made loan payments to the bank. Additional shared savings were retained by the shell company and ultimately flow back to the ESCO.
|Case Study: Aguas Argentinas - Project Finance|
Until 1993, a state-owned enterprise called Obras Sanitarias de Nacion (OSN) provided municipal water supply and sanitation services to the city of Buenos Aires, Argentina. Financial performance was poor and the water company had difficulty raising the capital necessary to expand coverage to poorer neighborhoods in the outlying areas of the growing city. Only 70 percent of the city's households were connected to the drinking water network and a mere 5 percent of the city's sewerage flow was processed by the one existing wastewater treatment facility. OSN was renowned for its excessive administration costs, inadequate metering and billing, and high rates of water losses. Failure to develop sufficient sewage treatment facilities also resulted in severe pollution of the city's groundwater and the River Plate.
In the early 1990s, the government of Argentina determined that the water system could be better managed in private hands. Rather than selling the assets themselves, the government offered a 30-year concession for operating the city's water facilities. The concession was awarded on the basis of tariff level, that is, prices the concessionaire would charge customers for the services. The winning bidder would not be expected to pay for the concession directly; instead, the bidder would be required to make specific capital investments to upgrade service quality and coverage within a fixed time.
In May 1993, the concession was awarded to Aguas Argentinas, a company led by French water operator Lyonnaise des Eaux. The Aguas bid proposed a 27 percent reduction in the existing water tariffs and a $4 billion investment plan. By the end of the 30-year concession, water coverage was expected to reach 100 percent of the city's households and sewerage coverage to 90 percent.
Since taking over the concession, Aguas Argentinas has had many successes in operating efficiency, financial performance, and capital investment. Water quality and reliability have increased dramatically while average tariffs have been reduced from the levels charged by OSN.
For the first eight years of the concession, required capital investments amount to approximately $300 million per year. To date, these investments have been funded by a combination of debt and equity as well as retained earnings from operations.
A particularly creative round of debt financing occurred in the summer of 1997, when the European Investment Bank (EIB) provided Aguas Argentinas a $100 million loan facility to develop the Planta Norte wastewater treatment plant in northwest Buenos Aires. EIB's 10-year credit has several innovative features including a 5-year grace period and a floating interest rate of the London Inter-Bank Offering Rate (LIBOR) plus a 3 percent premium that will adjust over time according to project risk. The loan is secured by a syndicated guarantee from the Banque Nationale de Paris.
|Case Study: Ormat Leyte Geothermal - Project Finance|
Ormat Leyte Co., Ltd., of Sparks, Nevada, will build, own and operate four geothermal power plants about 530 kilometers from Manila at a cost of $66.5 million.
To finance this project, the U.S. Export-Import Bank (Ex-Im) will make a direct loan to Ormat on a limited-recourse project finance basis. This means that the repayment is based on project revenues and is devoid of sovereign guarantees or non-project-related cash flows from Ormat. The project will be able to repay the debt based on extensive long-term viability studies and an agreement with the Philippine National Oil Company to purchase power from the plants. The commercial obligations of the Philippine National Oil Company are fully supported by the government of the Philippines.
Most of the project's revenues are denominated in U.S. dollars to cover the dollar-based fixed charges such as debt service. The remaining revenues are denominated in Philippine pesos to cover the peso-based operating expenses.
Ormat will provide 25 percent of the project's cost in the form of equity. The remaining 75 percent of the project's cost will be financed by debt from the U.S. Ex-Im Bank, the sole senior lender. During the construction phase, loans will be provided by a syndicate of commercial banks to which the Ex-Im Bank will furnish political risk guarantees. Ex-Im will provide its debt financing when predefined conditions are met after the completion of construction or completion of the project.