Ratification of the Convention on the OECD

.

Organisation de Coopération et de Développement Economiques

___________________________________________________________________________________________

XCREDSECRETARIAT, Export Credits Division, Trade and Agriculture Directorate, OECD.

Tel: + 33 (0)1 45 24 89 10; fax + 33 (0)1 44 30 61 58. Email: xcred.secretariat@oecd.org

TAD/PG(2009)21

2

CHAPTER I: GENERAL PROVISIONS ....................................................................................................... 5

1. PURPOSE ........................................................................................................................................... 5

2. STATUS ............................................................................................................................................. 5

3. PARTICIPATION ............................................................................................................................... 5

4. INFORMATION AVAILABLE TO NON-PARTICIPANTS ............................................................ 5

5. SCOPE OF APPLICATION ................................................................................................................ 5

6. SECTOR UNDERSTANDINGS ......................................................................................................... 6

7. PROJECT FINANCE .......................................................................................................................... 6

8. WITHDRAWAL ................................................................................................................................. 6

9. MONITORING ................................................................................................................................... 7

CHAPTER II: FINANCIAL TERMS AND CONDITIONS FOR EXPORT CREDITS ............................... 7

10. DOWN PAYMENT, MAXIMUM OFFICIAL SUPPORT AND LOCAL COSTS ........................ 7

11. CLASSIFICATION OF COUNTRIES FOR MAXIMUM REPAYMENT TERMS ...................... 8

12. MAXIMUM REPAYMENT TERMS .............................................................................................. 8

13. REPAYMENT TERMS FOR NON-NUCLEAR POWER PLANTS .............................................. 9

14. REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST .............................................. 9

15. INTEREST RATES, PREMIUM RATES AND OTHER FEES ................................................... 10

16. VALIDITY PERIOD FOR EXPORT CREDITS ........................................................................... 10

17. ACTION TO AVOID OR MINIMISE LOSSES ........................................................................... 10

18. MATCHING ................................................................................................................................. 11

19. MINIMUM FIXED INTEREST RATES UNDER OFFICIAL FINANCING SUPPORT ............ 11

20. CONSTRUCTION OF CIRRs ....................................................................................................... 11

21. VALIDITY OF CIRRs ................................................................................................................... 12

22. APPLICATION OF CIRRs ............................................................................................................ 12

23. PREMIUM FOR CREDIT RISK ................................................................................................... 12

24. MINIMUM PREMIUM RATES FOR COUNTRY AND SOVEREIGN CREDIT RISK ............ 12

25. COUNTRY RISK CLASSIFICATION ......................................................................................... 13

26. CLASSIFICATION OF MULTILATERAL AND REGIONAL INSTITUTIONS ...................... 15

27. PERCENTAGE AND QUALITY OF OFFICIAL EXPORT CREDIT COVER .......................... 15

28. EXCLUSION OF SELECTED COUNTRY RISK ELEMENTS AND COUNTRY RISK

MITIGATION TECHNIQUES ................................................................................................................. 15

29. REVIEW OF THE VALIDITY OF THE MINIMUM PREMIUM RATES FOR COUNTRY

AND SOVEREIGN CREDIT RISK ......................................................................................................... 16

CHAPTER III: PROVISIONS FOR TIED AID ........................................................................................... 17

30. GENERAL PRINCIPLES .............................................................................................................. 17

31. FORMS OF TIED AID .................................................................................................................. 17

32. ASSOCIATED FINANCING ........................................................................................................ 18

33. COUNTRY ELIGIBILITY FOR TIED AID ................................................................................. 18

34. PROJECT ELIGIBILITY ............................................................................................................... 20

35. MINIMUM CONCESSIONALITY LEVEL ................................................................................. 20

TAD/PG(2009)21

3

36. EXEMPTIONS FROM COUNTRY OR PROJECT ELIGIBILITY FOR TIED AID .................. 20

37. CALCULATION OF CONCESSIONALITY LEVEL OF TIED AID .......................................... 21

38. VALIDITY PERIOD FOR TIED AID ........................................................................................... 22

39. MATCHING ................................................................................................................................. 23

CHAPTER IV: PROCEDURES ................................................................................................................... 23

40. NOTIFICATIONS .......................................................................................................................... 23

41. INFORMATION ON OFFICIAL SUPPORT ................................................................................ 23

42. PROCEDURES FOR MATCHING ............................................................................................... 23

43. SPECIAL CONSULTATIONS ...................................................................................................... 24

44. PRIOR NOTIFICATION WITH DISCUSSION ........................................................................... 24

45. PRIOR NOTIFICATION ............................................................................................................... 24

46. PRIOR NOTIFICATION ............................................................................................................... 25

47. PROMPT NOTIFICATION ........................................................................................................... 25

48. PURPOSE OF CONSULTATIONS .............................................................................................. 26

49. SCOPE AND TIMING OF CONSULTATIONS .......................................................................... 26

50. OUTCOME OF CONSULTATIONS ............................................................................................ 26

51. CONTACT POINTS ...................................................................................................................... 27

52. SCOPE OF ENQUIRIES ............................................................................................................... 27

53. SCOPE OF RESPONSES .............................................................................................................. 27

54. FACE-TO-FACE CONSULTATIONS .......................................................................................... 27

55. PROCEDURES AND FORMAT OF COMMON LINES ............................................................. 28

56. RESPONSES TO COMMON LINE PROPOSALS ...................................................................... 28

57. ACCEPTANCE OF COMMON LINES ........................................................................................ 29

58. DISAGREEMENT ON COMMON LINES .................................................................................. 29

59. EFFECTIVE DATE OF COMMON LINE .................................................................................... 29

60. VALIDITY OF COMMON LINES ............................................................................................... 29

61. COMMUNICATION OF MINIMUM INTEREST RATES .......................................................... 30

62. EFFECTIVE DATE FOR APPLICATION OF INTEREST RATES ............................................ 30

63. IMMEDIATE CHANGES IN INTEREST RATES ....................................................................... 30

64. REGULAR REVIEW OF THE ARRANGEMENT ...................................................................... 30

65. REVIEW OF MINIMUM INTEREST RATES ............................................................................. 30

66. REVIEW OF MINIMUM PREMIUM RATES AND RELATED ISSUES .................................. 31

ANNEX I SECTOR UNDERSTANDING ON EXPORT CREDITS FOR SHIPS .................................... 33

ANNEX II SECTOR UNDERSTANDING ON EXPORT CREDITS FOR…………...………………….....

NUCLEAR POWER PLANTS .................................................................................................................... 39

ANNEX III SECTOR UNDERSTANDING ON EXPORT CREDITS FOR CIVIL AIRCRAFT ............. 45

ANNEX IV SECTOR UNDERSTANDING ON EXPORT CREDITS FOR………..………………………

RENEWABLE ENERGIES AND WATER PROJECTS ............................................................................. 99

ANNEX V INFORMATION TO BE PROVIDED FOR NOTIFICATIONS ........................................... 105

TAD/PG(2009)21

4

ANNEX VI CALCULATION OF THE MINIMUM PREMIUM RATES ............................................... 111

ANNEX VII CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF………………….

COUNTRY RISK CLASSIFICATION REFLECTING A THIRD COUNTRY GUARANTOR……………

OR A MULTILATERAL OR REGIONAL INSTITUTION ..................................................................... 115

ANNEX VIII CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF………………...

COUNTRY RISK MITIGATION/EXCLUSION IN CALCULATING THE MINIMUM…………………..

PREMIUM RATES ................................................................................................................................... 119

ANNEX IX CHECKLIST OF DEVELOPMENTAL QUALITY ............................................................. 129

ANNEX X TERMS AND CONDITIONS APPLICABLE TO PROJECT FINANCE………………………

TRANSACTIONS ..................................................................................................................................... 133

ANNEX XI LIST OF DEFINITIONS ....................................................................................................... 137

TAD/PG(2009)21

5

a) The main purpose of the Arrangement on Officially Supported Export Credits, referred to

throughout this document as the Arrangement, is to provide a framework for the orderly use of

officially supported export credits.

b) The Arrangement seeks to foster a level playing field for official support, as defined in

Article 5 a), in order to encourage competition among exporters based on quality and price of

goods and services exported rather than on the most favourable officially supported financial

terms and conditions.

The Arrangement, developed within the OECD framework, initially came into effect in April 1978 and is

of indefinite duration. The Arrangement is a Gentlemen’s Agreement among the Participants; it is not an

Secretariat”).

The Participants to the Arrangement currently are: Australia, Canada, the European Community, Japan,

Korea, New Zealand, Norway, Switzerland and the United States. Other OECD Members and

non-members may be invited to become Participants by the current Participants.

a) The Participants undertake to share information with non-Participants on notifications related to

official support as set out in Article 5 a).

b) A Participant shall, on the basis of reciprocity, reply to a request from a non-Participant in a

competitive situation on the financial terms and conditions offered for its official support, as it

would reply to a request from a Participant.

The Arrangement shall apply to all official support provided by or on behalf of a government for export of

goods and/or services, including financial leases, which have a repayment term of two years or more.

a) Official support may be provided in different forms:

1) Export credit guarantee or insurance (pure cover).

TAD/PG(2009)21

6

2) Official financing support:

3) Any combination of the above.

b) The Arrangement shall apply to tied aid; the procedures set out in Chapter IV shall also apply to

trade-related untied aid.

c) The Arrangement does not apply to exports of Military Equipment and Agricultural Commodities.

d) Official support shall not be provided if there is clear evidence that the contract has been

structured with a purchaser in a country which is not the final destination of the goods, primarily

with the aim of obtaining more favourable repayment terms.

a) The following Sector Understandings are part of the Arrangement:

b) A Participant to a Sector Understanding may apply its provisions for official support for export of

goods and/or services covered by that Sector Understanding. Where a Sector Understanding does

not include a corresponding provision to that of the Arrangement, a Participant to the Sector

Understanding shall apply the provision of the Arrangement.

a) The Participants may apply the terms and conditions set out in Annex X to the export of goods

and/or services for transactions that meet the criteria set out in Appendix 1 of Annex X.

b) Paragraph a) applies to the export of goods and services covered by the Sector Understanding on

Export Credits for Nuclear Power Plants and the Sector Understanding on Export Credits for

Renewable Energies and Water Projects.

c) Paragraph a) does not apply to the export of goods and services covered by the Sector

Understanding on Export Credits for Civil Aircraft or the Sector Understanding on Export Credits

for Ships.

A Participant may withdraw by notifying the Secretariat in writing by means of instant communication,

receipt of the notification by the Secretariat.

TAD/PG(2009)21

7

The Secretariat shall monitor the implementation of the Arrangement.

Financial terms and conditions for export credits encompass all the provisions set out in this Chapter which

shall be read in conjunction one with the other.

The Arrangement sets out limitations on terms and conditions that may be officially supported. The

Participants recognise that more restrictive financial terms and conditions than those provided for by the

Arrangement traditionally apply to certain trade or industrial sectors. The Participants shall continue to

respect such customary financial terms and conditions, in particular the principle by which repayment

terms do not exceed the useful life of the goods.

a) The Participants shall require purchasers of goods and services which are the subject of official

support to make down payments of a minimum of 15% of the export contract value at or before

the starting point of credit as defined in Annex XI. For the assessment of down payments, the

export contract value may be reduced proportionally if the transaction includes goods and services

from a third country which are not officially supported. Financing/insurance of 100% of the

premium is permissible. Premium may or may not be included in the export contract value.

Retention payments made after the starting point of credit are not regarded as down payment in

this context.

b) Official support for such down payments shall only take the form of insurance or guarantee

against the usual pre-credit risks.

c) Except as provided for in paragraphs b) and d), the Participants shall not provide official support

in excess of 85% of the export contract value, including third country supply but excluding local

costs.

2008 to the 31 December 2010. During the trial period, the Participants shall review the operations of these

provisions to consider the experience gained.

b) The financial terms and conditions set out in Article 10 d) shall be discontinued at the end of the trial

period and Article 10 d) shall revert to the original text set out in document TAD/PG(2007)18 unless the

Participants agree upon one of the following:

i) to continue the trial period, with any necessary enhancements/modifications, or

ii) to cement such financial terms and conditions in the Arrangement, with any necessary

enhancements/modifications.

TAD/PG(2009)21

8

1) Official support provided for local costs shall not exceed 30% of the export contract value.

2) It shall not be provided on terms more favourable/less restrictive than those agreed for the

related exports.

3) Where official support for local cost exceeds 15% of the export contract value, such official

support shall be subject to prior notification, pursuant to Article 45, specifying the nature of

the local costs being supported.

b) The following operational criteria and procedures apply when classifying countries:

the World Bank for the purposes of the World Bank classification of borrowing countries.

data, the World Bank shall be asked to estimate whether the country in question has

according to the estimate unless the Participants decide to act otherwise.

3) If a country is reclassified in accordance with Article 11 a), the reclassification will take

effect two weeks after the conclusions drawn from the above-mentioned data from the World

Bank have been communicated to all Participants by the Secretariat.

4) In cases where the World Bank revises figures, such revisions shall be disregarded in relation

to the Arrangement. Nevertheless, the classification of a country may be changed by way of a

Common Line and Participants would favourably consider a change due to errors and

omissions in the figures subsequently recognised in the same calendar year in which the

figures were first distributed by the Secretariat.

c) A country will change category only after its World Bank category has remained unchanged for

two consecutive years.

Without prejudice to Article 13, the maximum repayment term varies according to the classification of the

country of destination determined by the criteria in Article 11.

agreeing up to eight-and-a-half years when the procedures for prior notification set out in

Article 45 are followed.

c) The Secretariat shall report on the implementation of the financial terms and conditions set out in

Article 10 d).

TAD/PG(2009)21

9

b) For Category II countries, the maximum repayment term is ten years.

c) In the event of a contract involving more than one country of destination the Participants should

seek to establish a Common Line in accordance with the procedures in Articles 55 to 60 to reach

a) For non-nuclear power plants, the maximum repayment term shall be 12 years. If a Participant

intends to support a repayment term longer than that provided for in Article 12, the Participant

shall give prior notification in accordance with the procedure in Article 45.

b) Non-nuclear power plants are complete power stations, or parts thereof, not fuelled by nuclear

power; they include all components, equipment, materials and services (including the training of

personnel) directly required for the construction and commissioning of such non-nuclear power

stations. This does not include items for which the buyer is usually responsible, in particular

costs associated with land development, roads, construction villages, power lines, and switchyard

and water supply located outside the power plant site boundary, as well as costs arising in the

loading permits), except:

1) in cases where the buyer of the switchyard is the same as the buyer of the power plant, the

maximum repayment term for the original switchyard shall be the same as that for the

2) the maximum repayment term for sub-stations, transformers and transmission lines with a

minimum voltage threshold of 100 kV shall be the same as that for the non-nuclear power

plant.

a) The principal sum of an export credit shall be repaid in equal instalments.

b) Principal shall be repaid and interest shall be paid no less frequently than every six months and

the first instalment of principal and interest shall be made no later than six months after the

starting point of credit.

c) For export credits provided in support of lease transactions, equal repayments of principal and

interest combined may be applied in lieu of equal repayments of principal as set out in

paragraph a).

d) On an exceptional and duly justified basis, export credits may be provided on terms other than

those set out in a) through c) above. The provision of such support shall be explained by an

imbalance in the timing of the funds available to the obligor and the debt service profile available

under an equal, semi-annual repayment schedule, and shall comply with the following criteria:

1) No single repayment of principal or series of principal payments within a six-month period

shall exceed 25% of the principal sum of the credit.

2) Principal shall be repaid no less frequently than every 12 months. The first repayment of

principal shall be made no later than 12 months after the starting point of credit and no less

TAD/PG(2009)21

10

than 2% of the principal sum of the credit shall have been repaid 12 months after the starting

point of credit.

3) Interest shall be paid no less frequently than every 12 months and the first interest payment

shall be made no later than six months after the starting point of credit.

4) The maximum weighted average life of the repayment period shall not exceed:

four-and-a-half years for transactions in Category I Countries and five-and-a-quarter

years for Category II Countries.

guarantee), five years for Category I Countries and six years for Category II Countries.

involving support for non-nuclear power plants according to Article 13,

six-and-a-quarter years.

5) The Participant shall give prior notification in accordance with Article 45 that explains the

reason for not providing support according to paragraphs a) through c).

e) Interest due after the starting point of credit shall not be capitalised

a) Interest excludes:

1) any payment by way of premium or other charge for insuring or guaranteeing supplier credits

or financial credits;

2) any payment by way of banking fees or commissions relating to the export credit other than

annual or semi-annual bank charges that are payable throughout the repayment period; and

3) withholding taxes imposed by the importing country.

b) Where official support is provided by means of direct credits/financing or refinancing, the

premium either may be added to the face value of the interest rate or may be a separate charge;

both components are to be specified separately to the Participants.

Financial terms and conditions for an individual export credit or line of credit, other than the validity

period for the Commercial Interest Reference Rates (CIRRs) set out in Article 21, shall not be fixed for a

period exceeding six months prior to final commitment.

The Arrangement does not prevent export credit authorities or financing institutions from agreeing to less

restrictive financial terms and conditions than those provided for by the Arrangement, if such action is

taken after the contract award (when the export credit agreement and ancillary documents have already

TAD/PG(2009)21

11

become effective) and is intended solely to avoid or minimise losses from events which could give rise to

non-payment or claims.

Taking into account a Participant’s international obligations and consistent with the purpose of the

Arrangement, a Participant may match, according to the procedures set out in Article 42, financial terms

and conditions offered by a Participant or a non-Participant. Financial terms and conditions provided in

accordance with this Article are considered to be in conformity with the provisions of Chapter I, II and,

when applicable, Annexes I, II, III, IV and X.

a) The Participants providing official financing support for fixed rate loans shall apply the relevant

CIRRs as minimum interest rates. CIRRs are interest rates established according to the following

principles:

1) CIRRs should represent final commercial lending interest rates in the domestic market of the

currency concerned;

2) CIRRs should closely correspond to the rate for first class domestic borrowers;

3) CIRRs should be based on the funding cost of fixed interest rate finance;

4) CIRRs should not distort domestic competitive conditions; and

5) CIRRs should closely correspond to a rate available to first class foreign borrowers.

b) The provision of official financing support shall not offset or compensate, in part or in full, for the

appropriate credit risk premium to be charged for the risk of non-repayment pursuant to the

provisions of Article 23.

a) Each Participant wishing to establish a CIRR shall initially select one of the following two base

rate systems for its national currency:

1) three-year government bond yields for a repayment term of up to and including five years;

five-year government bond yields for over five and up to and including eight-and-a-half years;

and seven-year government bond yields for over eight-and-a-half years; or

2) five-year government bond yields for all maturities.

Exceptions to the base rate system shall be agreed by the Participants.

b) CIRRs shall be set at a fixed margin of 100 basis points above each Participant’s base rate unless

Participants have agreed otherwise.

c) Other Participants shall use the CIRR set for a particular currency should they decide to finance in

that currency.

TAD/PG(2009)21

12

d) A Participant may change its base-rate system after giving six months’ advance notice and with

the counsel of the Participants.

e) A Participant or a non-Participant may request that a CIRR be established for the currency of a

non-Participant. In consultation with the interested non-Participant, a Participant or the Secretariat

on behalf of that non-Participant may make a proposal for the construction of the CIRR in that

currency using Common Line procedures in accordance with Articles 55 to 60.

The interest rate applying to a transaction shall not be fixed for a period longer than 120 days. A margin of

20 basis points shall be added to the relevant CIRR if the terms and conditions of the official financing

support are fixed before the contract date.

a) Where official financing support is provided for floating rate loans, banks and other financing

institutions shall not be allowed to offer the option of the lower of either the CIRR (at time of the

original contract) or the short-term market rate throughout the life of the loan.

b) In the event of a voluntary, early repayment of a loan of or any portion thereof, the borrower shall

compensate the government institution providing official financing support for all costs and losses

incurred as a result of such early repayment, including the cost to the government institution of

replacing the part of the fixed rate cash inflow interrupted by the early repayment.

of export credits. The premium rates charged by the Participants shall be risk-based, shall converge and

shall not be inadequate to cover long-term operating costs and losses.

The Participants shall charge no less than the applicable Minimum Premium Rate (MPR) for Country and

Sovereign Credit Risk, irrespective of whether the buyer/borrower is a private or public entity.

a) The applicable MPR is determined according to the following factors:

Article 25 a);

Article 27; and

TAD/PG(2009)21

13

b) MPRs are expressed in percentages of the principal value of the credit as if premium were

collected in full at the date of the first drawdown of the credit. An explanation of the mathematical

formula used to calculate the MPRs is provided in Annex VI.

c) For countries classified in Category 0 as set out in Article 25, no MPRs have been established but

the Participants shall not charge premium rates which undercut available private market pricing.

d) The “highest risk” countries in Category 7 shall, in principle, be subject to premium rates in

excess of the MPRs established for that Category; these premium rates shall be determined by the

Participant providing official support.

e) In calculating the MPR for a transaction, the applicable country risk classification to be applied

shall be the classification of the buyer's country, unless:

guarantee of the total debt repayment obligation for the entire duration of the credit is provided

by an entity, creditworthy in relation to the size of the guaranteed debt, in a third country, in

which case the applicable Country Risk Classification may be that of the country in which the

guarantor is located when the guarantee is provided for all five of the country credit risks

defined in Article 25a) or a blend of the country risk classifications of the buyer and guarantor

countries when the guarantee does not cover all country risks; or

guarantor for the transaction, in which case the applicable Country Risk Classification may be

that of the specific Multilateral or Regional Institution involved.

f) The criteria and conditions relating to the application of a country risk classification according to

buyer/borrower risk is completely excluded, the MPR is reduced by 10%; this is captured by the

mathematical formula used to calculate the MPRs in Annex VI.

h) The HOR convention used in the calculation of an MPR is one-half of the disbursement period

plus the entire repayment period and assumes a regular export credit repayment profile,

six months after the starting point of credit. For export credits with non-standard repayment

profiles, the equivalent repayment period (expressed in terms of equal, semi-annual instalments) is

calculated using the following formula: equivalent repayment period = (average weighted life of

the repayment period -0.25) / 0.5.

that leads to a premium rate below the MPR applicable to the buyer’s country shall give prior

notification according to Article 44 a). The Participant applying the MPR in the case referred to in

shall give prior notification in accordance with Article 45 a).

Countries shall be classified according to the likelihood of whether they will service their external debts

TAD/PG(2009)21

14

a) The five elements of country credit risk are:

or by that agency of a country through which repayment is effected;

Participant or legislative/administrative measures taken outside the country of the notifying

Participant which prevent or delay the transfer of funds paid in respect of the credit;

currency to be a valid discharge of the debt, notwithstanding that, as a result of fluctuations in

exchange rates, such repayments, when converted into the currency of the credit, no longer

cover the amount of the debt at the date of the transfer of funds;

repayment under a credit; and

(including civil war), expropriation, revolution, riot, civil disturbances, cyclones, floods,

earthquakes, eruptions, tidal waves and nuclear accidents.

b) Countries are classified into one of eight Country Risk Categories (0-7). MPRs have been

established for Categories 1 through 7, but not for Category 0, as the level of country risk is

considered to be negligible for countries in this Category.

virtue of its High Income status shall remain classified in Category 0 until it falls below the

High Income GNI threshold for two consecutive years, at which time the country's

classification should be reviewed according to Article 25 d) to f).

shall be classified, by definition, in Category 0. Such classification shall take effect

immediately after the Secretariat has communicated a country's status as determined by the

World Bank.

through the Country Risk Classification Methodology, which is comprised of:

of country credit risk which is based, for each country, on three groups of risk indicators: the

payment experience of the Participants, the financial situation and the economic situation. The

methodology of the Model consists of different steps including the assessment of the

credits may not be classified.

TAD/PG(2009)21

15

three groups of risk indicators, and the combination and flexible weighting of the risk indicator

groups.

the political risk and/or other risk factors not taken into account in full or in part by the Model.

If appropriate, this may lead to an adjustment to the quantitative Model assessment to reflect

the final assessment of the country credit risk.

e) Country Risk Classifications shall be monitored on an ongoing basis and reviewed at least

annually and changes resulting from the Country Risk Classification Methodology shall be

immediately communicated by the Secretariat. When a country is re-classified in a lower or higher

Country Risk Category, the Participants shall, no later than five working days after the

re-classification has been communicated by the Secretariat, charge premium rates at or above the

MPRs associated with the new Country Risk Category.

f) The applicable country risk classifications shall be made public by the Secretariat.

Multilateral and Regional Institutions shall be classified and reviewed as appropriate; such applicable

classifications shall be made public by the Secretariat.

The MPRs are differentiated to take account of the differing quality of export credit products and

percentage of cover provided by the Participants as set out in Annex VI. The differentiation is based on the

product provided to the exporter/financial institution).

a) The quality of an export credit product is a function of whether the product is insurance, guarantee

or direct credit/financing, and for insurance products whether cover of interest during the claims

date that the insurer is liable to reimburse the exporter/financial institution) is provided without a

surcharge.

b) All existing export credit products offered by the Participants shall be classified into one of the

three product categories which are:

period and insurance with cover of interest during the claims waiting period with an

appropriate premium surcharge;

an appropriate premium surcharge and direct credit/financing; and

The Participants may, in accordance with the specific criteria and conditions set out in Annex VIII, exclude

certain elements of country risk or use defined country risk mitigation techniques listed in Article 28 b)

TAD/PG(2009)21

16

resulting in lower applicable MPRs through the application of a Country Risk Mitigation/Exclusion Factor

(MEF) in the MPR formula. The MEF is determined as follows:

a) With respect to the exclusion of selected country credit risk elements from official export credit

cover:

Article 25 a), are excluded in their totality from cover, a MEF of 0.5 may be applied.

Article 25 a), are excluded in their totality from cover, a MEF of 0.2 may be applied.

b) With respect to the following country risk mitigation techniques, the applicable MPR as well as

the criteria and conditions under which the MEF may be applied are set out in Annex VIII:

c) The application of more than one of the country risk mitigation techniques described in

Article 28 b) shall not have a direct cumulative impact on the applicable MEF. The selection of an

appropriate MEF to reflect the combination of country risk mitigation techniques shall take into

account the possible overlapping impact of two or more techniques on identical country credit

risks. In the case of overlapping, only the best quality security shall normally be considered in

determining the appropriate, applicable MEF.

d) The Participant applying the MPR in the cases referred to in Article 28 a) to c) shall give prior

notification according to Article 44 a).

e) The list of country risk mitigation techniques in Article 28 b) is not intended to be a closed list; in

accordance with Article 66, the Participants shall monitor and review the body of experience with

the use of these techniques including the applicable criteria, conditions, circumstances and MEFs

set forth in Annex VIII.

a) To assess the adequacy of MPRs and to allow, if necessary, for adjustments, either upwards or

downwards, three Premium Feedback Tools (PFTs), shall be used in parallel to monitor and adjust

the MPRs.

b) The Cash Flow PFT and the Accruals PFT are accounting approaches that assess the validity of

the MPRs on an aggregate, Country Risk Category and Horizon of Risk basis according to the

TAD/PG(2009)21

17

Participants' actual results in relation to the country and sovereign credit risk of export credits

subject to the MPRs.

on market's pricing of country and sovereign credit risk.

a) The Participants have agreed to have complementary policies for export credits and tied aid.

Export credit policies should be based on open competition and the free play of market forces.

Tied aid policies should provide needed external resources to countries, sectors or projects with

little or no access to market financing. Tied aid policies should ensure best value for money,

minimise trade distortion, and contribute to developmentally effective use of these resources.

b) The tied aid provisions of the Arrangement do not apply to the aid programmes of multilateral or

regional institutions.

c) These principles do not prejudge the views of the Development Assistance Committee (DAC) on

the quality of tied and untied aid.

d) A Participant may request additional information relevant to the tying status of any form of aid. If

there is uncertainty as to whether a certain financing practice falls within the scope of the

definition of tied aid set out in Annex XI, the donor country shall furnish evidence in support of

any claim to the effect that the aid is in fact “untied” in accordance with the definition in

Annex XI.

Tied aid can take the form of:

a) Official Development Assistance (ODA) loans as defined in the “DAC Guiding Principles for

Associated Financing and Tied and Partially Untied Official Development Assistance (1987)”;

b) ODA grants as defined in the “DAC Guiding Principles for Associated Financing and Tied and

Partially Untied Official Development Assistance (1987)”; and

c) Other Official Flows (OOF), which includes grants and loans but excludes officially supported

export credits that are in conformity with the Arrangement; or

borrower involving two or more of the preceding, and/or the following financing components:

TAD/PG(2009)21

18

1) an export credit that is officially supported by way of direct credit/financing, refinancing,

interest rate support, guarantee or insurance to which the Arrangement applies; and

2) other funds at or near market terms, or down payment from the purchaser.

a) Associated financing may take various forms including mixed credits, mixed financing, joint

financing, parallel financing or single integrated transactions. The main characteristics are that

they all feature :

accepted by the recipient.

b) Association or linkage “in fact” is determined by such factors as:

of ODA;

transaction; or

between two or more financing components.

c) The following practices shall not prevent the determination of an association or linkage “in fact”:

is above the upper limit for lower middle income countries. The World Bank recalculates this

TAD/PG(2009)21

19

has been unchanged for two consecutive years.

b) The following operational criteria and procedures apply when classifying countries:

the World Bank for the purposes of the World Bank classification of borrowing countries;

this classification shall be made public by the Secretariat.

data, the World Bank shall be asked to estimate whether the country in question has

according to the estimate unless the Participants decide to act otherwise.

3) If a country’s eligibility for tied aid does change in accordance with Article 33 a), the

reclassification shall take effect two weeks after the conclusions drawn from the above

mentioned World Bank data have been communicated to all Participants by the Secretariat.

Before the effective date of reclassification, no tied aid financing for a newly eligible country

may be notified; after that date, no tied aid financing for a newly promoted country may be

notified, except that individual transactions covered under a prior committed credit line may

be notified until the expiry of the credit line (which shall be no more than one year from the

effective date).

4) In cases where the World Bank revises figures such revisions shall be disregarded in relation

to the Arrangement. Nevertheless, the classification of a country may be changed by way of a

Common Line, in accordance with the appropriate procedures in Articles 55 to 60, and the

Participants would favourably consider a change due to errors and omissions in the figures

subsequently recognised in the same calendar year as the figures that were first distributed by

the Secretariat.

5) Notwithstanding the classifications of countries ineligible or eligible to receive tied aid, the

Participants should avoid providing any tied aid credit, other than outright grants, food and

humanitarian aid as well as aid designed to mitigate the effects of nuclear or major industrial

of any of these countries exceed, for three consecutive years, the upper limit for lower middle

income countries, country eligibility for such credits would be subject to Articles 33 a) and

Income (GNI) threshold will be used for the purpose of tied aid eligibility; such threshold is available on

the OECD website (www.oecd.org/ech/xcred).

humanitarian aid.

In case of nuclear or major industrial accident that causes serious transfrontier pollution, any affected

Participant may provide tied aid to eliminate or mitigate its effects. In case of significant risk that such an

accident may occur, any potentially affected Participant intending to provide aid to prevent its occurrence

shall give prior notification in accordance with Article 46. Other Participants shall give favourable

consideration to an acceleration of tied aid procedures in line with the specific circumstances.

TAD/PG(2009)21

20

a) Tied aid shall not be extended to public or private projects that normally should be commercially

viable if financed on market or Arrangement terms.

b) The key tests for such aid eligibility are:

appropriate pricing determined on market principles, to generate cash flow sufficient to cover

test. In respect of projects larger than 50 million SDRs special weight shall be given to the

expected availability of financing at market or Arrangement terms when considering the

appropriateness of such aid.

c) The key tests under sub-paragraph b) above are intended to describe how a project should be

evaluated to determine whether it should be financed with such aid or with export credits on

market or Arrangement terms. Through the consultation process described in Articles 48 to 50, a

body of experience is expected to develop over time that will more precisely define, for both

projects.

The Participants shall not provide tied aid that has a concessionality level of less than 35%, or 50% if the

beneficiary country is a Least Developed Country (LDC), except for the cases set out below, which are

also exempt from the notification procedures set out in Article 47 a):

a) Technical assistance: tied aid where the official development aid component consists solely of

technical co-operation that is less than either 3% of the total value of the transaction or

one million Special Drawing Rights (SDRs), whichever is lower; and

b) Small projects: capital projects of less than one million SDRs that are funded entirely by

development assistance grants.

a) The provisions of Articles 33 and 34 do not apply to tied aid where the concessionality level is

80% or more except for tied aid that forms part of an associated financing package, described in

Article 32.

b) The provisions of Article 34 do not apply to tied aid with a value of less than two million SDRs

except for tied aid that forms part of an associated financing package, described in Article 32.

c) Tied aid for LDCs as defined by the United Nations is not subject to the provisions of Articles 33

and 34.

TAD/PG(2009)21

21

d) Notwithstanding Articles 33 and 34, a Participant may, exceptionally, provide support by one of

the following means:

described in Articles 48 and 49; or

which the Participants expect will be unusual and infrequent.

The concessionality level of tied aid is calculated using the same method as for the grant element used by

the DAC, except that:

Differentiated Discount Rate (DDR), is subject to annual change on 15 January and is calculated

as follows:

Margin (M) depends on the repayment term (R) as follows:

R M

less than 15 years 0.75

from 15 years up to, but not including 20 years 1.00

from 20 years up to but not including 30 years 1.15

from 30 years and above 1.25

CIRRs valid during the six-month period between 15 August of the previous year and

14 February of the current year. The calculated rate, including the Margin, is rounded to the

nearest ten basis points. If there is more than one CIRR for the currency, the CIRR for the

longest maturity as set out in Article 20 a), shall be used for this calculation.

b) The base date for the calculation of the concessionality level is the starting point of credit as set

out in Annex XI.

c) For the purpose of calculating the overall concessionality level of an associated financing

package, the concessionality levels of the following credits, funds and payments are considered

to be zero:

Article 35 except in cases of matching; and

TAD/PG(2009)21

22

Payments on or before the starting point of credit that are not considered down payment shall be

included in the calculation of the concessionality level.

d) The discount rate in matching: in matching aid, identical matching means matching with an

identical concessionality level that is recalculated with the discount rate in force at the time of

matching.

e) Local costs and third country procurement shall be included in the calculation of concessionality

level only if they are financed by the donor country.

f) The overall concessionality level of a package is determined by multiplying the nominal value of

each component of the package by the respective concessionality level of each component,

adding the results, and dividing this total by the aggregate nominal value of the components.

g) The discount rate for a given aid loan is the rate in effect at the time of notification. However, in

cases of prompt notification, the discount rate is the one in effect at the time when the terms and

conditions of the aid loan were fixed. A change in the discount rate during the life of a loan does

not change its concessionality level.

h) If a change of currency is made before the contract is concluded, the notification shall be revised.

The discount rate used to calculate the concessionality level will be the one applicable at the date

of revision. A revision is not necessary if the alternative currency and all the necessary

information for calculation of the concessionality level are indicated in the original notification.

i) Notwithstanding sub-paragraph g), the discount rate used to calculate the concessionality level of

individual transactions initiated under an aid credit line shall be the rate that was originally

notified for the credit line.

a) The Participants shall not fix terms and conditions for tied aid, whether this relates to the

financing of individual transactions or to an aid protocol, an aid credit line or to a similar

agreement, for more than two years. In the case of an aid protocol, an aid credit line or similar

agreement, the validity period shall commence at the date of its signature, to be notified in

accordance with Article 47; the extension of a credit line shall be notified as if it were a new

transaction with a note explaining that it is an extension and that it is renewed at terms allowed at

the time of the notification of the extension. In the case of individual transactions, including those

notified under an aid protocol, an aid credit line or similar agreement, the validity period shall

commence at the date of notification of the commitment in accordance with Article 46 or 47, as

appropriate.

b) When a country has become ineligible for 17-year World Bank Loans for the first time, the

validity period of existing and new tied aid protocols and credit lines notified shall be restricted

to one year after the date of the potential reclassification in accordance with procedures in

Article 33 b).

c) Renewal of such protocols and credit lines is possible only on terms which are in accordance with

the provisions of Articles 33 and 34 of the Arrangement following:

TAD/PG(2009)21

23

In these circumstances, the existing terms and conditions can be maintained notwithstanding a

change in the discount rate set out in Article 37.

Taking into account a Participant’s international obligations and consistent with the purpose of the

Arrangement, a Participant may match, according to the procedures set out in Article 42, financial terms

and conditions offered by a Participant or a non-Participant.

The notifications set out by the procedures in the Arrangement shall be made in accordance with, and

include the information contained in Annex V, and shall be copied to the Secretariat.

a) As soon as a Participant commits the official support which it has notified in accordance with the

procedures in Articles 44 to 47, it shall inform all other Participants accordingly by including the

notification reference number on the relevant Creditor Reporting System (CRS) Form 1C.

b) In an exchange of information in accordance with Articles 52 to 54, a Participant shall inform the

other Participants of the credit terms and conditions that it envisages supporting for a particular

transaction and may request similar information from the other Participants.

a) Before matching financial terms and conditions assumed to be offered by a Participant or a

non-Participant pursuant to Articles 18 and 39, a Participant shall make every reasonable effort,

including as appropriate by use of the face-to-face consultations described in Article 54, to verify

that these terms and conditions are officially supported and shall comply with the following:

1) The Participant shall notify all other Participants of the terms and conditions it intends to

support following the same notification procedures required for the matched terms and

conditions. In the case of matching a non-Participant, the matching Participant shall follow the

same notification procedures that would have been required had the matched terms been

offered by a Participant.

2) Notwithstanding 1) above, if the applicable notification procedure would require the matching

Participant to withhold its commitment beyond the final bid closing date, then the matching

Participant shall give notice of its intention to match as early as possible.

TAD/PG(2009)21

24

3) If the initiating Participant moderates or withdraws its intention to support the notified terms

and conditions, it shall immediately inform all other Participants accordingly.

b) A Participant intending to offer identical financial terms and conditions to those notified

according to Articles 44 and 45 may do so once the waiting period stipulated therein has expired.

This Participant shall give notification of its intention as early as possible.

a) A Participant that has reasonable grounds to believe that financial terms and conditions offered

by another Participant (the initiating Participant) are more generous than those provided for in the

Arrangement shall inform the Secretariat; the Secretariat shall immediately make available such

information.

b) The initiating Participant shall clarify the financial terms and conditions of its offer within

two working days following the issue of the information from the Secretariat.

c) Following clarification by the initiating Participant, any Participant may request that a special

consultation meeting of the Participants be organised by the Secretariat within five working days

to discuss the issue.

d) Pending the outcome of the special consultation meeting of the Participants, financial terms and

conditions benefiting from official support shall not become effective.

a) A Participant shall notify all other Participants at least ten calendar days before issuing any

commitment if the Minimum Premium Rate applied has been determined according to the first

tiret of Article 24 e) or Article 28 in accordance with Annex V of the Arrangement. If any other

Participant requests a discussion during this period, the initiating Participant shall wait an

additional ten calendar days. If the applicable MPR after risk mitigation/exclusion is less than or

equal to 75% of the MPR which would result from the application of the buyer country's country

risk classification without any risk mitigation or exclusion, the notifying Participant shall notify

all other Participants at least 20 calendar days before issuing any commitment.

b) A Participant shall inform all other Participants of its final decision following a discussion to

facilitate the review of the body of experience in Accordance with Article 66. The Participants

shall maintain records of their experience with regard to premium rates notified in accordance

with paragraph a) above.

a) A Participant shall, in accordance with Annex V of the Arrangement, notify all other Participants

at least ten calendar days before issuing any commitment if it intends:

1) To support a repayment term of more than five years to a Category I Country.

2) To provide support in accordance with Article 10 d) 3).

3) To provide support in accordance with Article 13 a).

TAD/PG(2009)21

25

4) To provide support in accordance with Article 14 d).

6) To apply a premium rate in accordance with Article 24 g).

b) If the initiating Participant moderates or withdraws its intention to provide support for such

transaction, it shall immediately inform all other Participants.

a) A Participant shall give prior notification if it intends to provide official support for:

level of less than 80%;

defined by the DAC) of less than 50%;

less than 80%; or

of less than 50%, except for the cases set out in Article 35 a) and b).

b) Prior notification shall be made at the latest 30 working days before the bid closing or

commitment date, whichever is the earlier.

c) If the initiating Participant moderates or withdraws its intention to support the notified terms and

conditions, it shall immediately inform all other Participants accordingly.

d) The provision of this Article shall apply to tied aid that forms part of an associated financing

package, as described in Article 32.

commitment, if it provides official support for tied aid with a value of either:

out in Article 35 a) and b).

b) A Participant shall also promptly notify all other Participants when an aid protocol, credit line or

similar agreement is signed.

c) Prior notification need not be given if a Participant intends to match financial terms and

conditions that were subject to a prompt notification.

TAD/PG(2009)21

26

a) A Participant seeking clarification about possible trade motivation for tied aid may request that a

full Aid Quality Assessment (detailed in Annex IX) be supplied.

b) Furthermore, a Participant may request consultations with other Participants, in accordance with

Article 49. These include face-to-face consultations as outlined in Article 54 in order to discuss:

not met.

a) During consultations, a Participant may request, among other items, the following information:

supplier is the lowest evaluated bid;

concessional or aid credits.

b) The consultation shall be completed and the findings on both questions in Article 48 notified by

the Secretariat to all Participants at least ten working days before the bid closing date or

commitment date, whichever comes first. If there is disagreement among the consulting parties,

the Secretariat shall invite other Participants to express their views within five working days. It

shall report these views to the notifying Participant, which should reconsider going forward if

there appears to be no substantial support for an aid offer.

a) A donor which wishes to proceed with a project despite the lack of substantial support shall

provide prior notification of its intentions to other Participants, no later than 60 calendar days

shall also write a letter to the Secretary-General of the OECD outlining the results of the

TAD/PG(2009)21

27

consultations and explaining the overriding non-trade related national interest that forces this

action. The Participants expect that such an occurrence will be unusual and infrequent.

b) The donor shall immediately notify the Participants that it has sent a letter to the

Secretary-General of the OECD, a copy of which shall be included with the notification. Neither

the donor nor any other Participant shall make a tied aid commitment until ten working days

after this notification to Participants has been issued. For projects for which competing

commercial offers were identified during the consultation process, the aforementioned

ten-working-day period shall be extended to 15 days.

c) The Secretariat shall monitor the progress and results of consultations.

All communications shall be made between the designated contact points in each country by means of

a) A Participant may ask another Participant about the attitude it takes with respect to a third

country, an institution in a third country or a particular method of doing business.

b) A Participant which has received an application for official support may address an enquiry to

another Participant, giving the most favourable credit terms and conditions that the enquiring

Participant would be willing to support.

c) If an enquiry is made to more than one Participant, it shall contain a list of addressees.

d) A copy of all enquiries shall be sent to the Secretariat.

a) The Participant to which an enquiry is addressed shall respond within seven calendar days and

provide as much information as possible. The reply shall include the best indication that the

Participant can give of the decision it is likely to take. If necessary, the full reply shall follow as

soon as possible. Copies shall be sent to the other addressees of the enquiry and to the Secretariat.

b) If an answer to an enquiry subsequently becomes invalid for any reason, because for example:

a reply shall be made without delay and copied to all other addressees of the enquiry and to the

Secretariat.

a) A Participant shall agree within ten working days to requests for face-to-face consultations.

TAD/PG(2009)21

28

b) A request for face-to-face consultations shall be made available to Participants and

non-Participants. The consultations shall take place as soon as possible after the expiry of the

ten-working-day period.

c) The Chairman of the Participants shall co-ordinate with the Secretariat on any necessary

outcome of the consultation.

a) Common Line proposals are addressed only to the Secretariat. A proposal for a Common Line

shall be sent to all Participants and, where tied aid is involved, all DAC contact points by the

Secretariat. The identity of the initiator is not revealed on the Common Line Register on the

Bulletin Board of the OLIS. However, the Secretariat may orally reveal the identity of the

initiator to a Participant or DAC member on demand. The Secretariat shall keep a record of such

requests.

b) The Common Line proposal shall be dated and shall be in the following format:

studies of the project and/or special circumstances.

c) A Common Line proposal put forward in accordance with Article 33 b) 4) shall be addressed to

the Secretariat and copied to other Participants. The Participant making the Common Line

proposal shall provide a full explanation of the reasons why it considers that the classification of

a country should differ from the procedure set out in Article 33 b).

d) The Secretariat shall make publicly available the agreed Common Lines.

a) Responses shall be made within 20 calendar days, although the Participants are encouraged to

respond to a Common Line proposal as quickly as possible.

b) A response may be a request for additional information, acceptance, and rejection, a proposal for

modification of the Common Line or an alternative Common Line proposal.

TAD/PG(2009)21

29

c) A Participant which advises that it has no position because it has not been approached by an

exporter, or by the authorities in the recipient country in case of aid for the project, shall be

deemed to have accepted the Common Line proposal.

a) After a period of 20 calendar days, the Secretariat shall inform all Participants of the status of the

Common Line proposal. If not all Participants have accepted the Common Line, but no

Participant has rejected it, the proposal shall be left open for a further period of eight calendar

days.

b) After this further period, a Participant which has not explicitly rejected the Common Line

proposal shall be deemed to have accepted the Common Line. Nevertheless, a Participant,

including the initiating Participant, may make its acceptance of the Common Line conditional on

the explicit acceptance by one or more Participants.

c) If a Participant does not accept one or more elements of a Common Line it implicitly accepts all

other elements of the Common Line. It is understood that such a partial acceptance may lead

other Participants to change their attitude towards a proposed Common Line. All Participants are

free to offer or match terms and conditions not covered by a Common Line.

d) A Common Line which has not been accepted may be reconsidered using the procedures in

Articles 55 and 56. In these circumstances, the Participants are not bound by their original

decision.

If the initiating Participant and a Participant which has proposed a modification or alternative cannot agree

on a Common Line within the additional eight-calendar day period, this period can be extended by their

mutual consent. The Secretariat shall inform all Participants of any such extension.

The Secretariat shall inform all Participants either that the Common Line will go into effect or that it has

been rejected; the Common Line will take effect three calendar days after this announcement. The

Secretariat shall make available on OLIS a permanently updated record of all Common Lines which have

been agreed or are undecided.

a) A Common Line, once agreed, shall be valid for a period of two years from its effective date,

unless the Secretariat is informed that it is no longer of interest, and that this is accepted by all

Participants. A Common Line shall remain valid for a further two-year period if a Participant

seeks an extension within 14 calendar days of the original date of expiry. Subsequent extensions

may be agreed through the same procedure. A Common Line agreed in accordance with

Article 33 b) 4) shall be valid until World Bank data for the following year is available.

b) The Secretariat shall monitor the status of Common Lines and shall keep the Participants

informed accordingly, through the maintenance of the listing “The Status of Valid Common

Lines” on OLIS. Accordingly, the Secretariat, inter alia, shall:

TAD/PG(2009)21

30

a) CIRRs for currencies that are determined according to the provisions of Article 20 shall be sent

by means of instant communication at least monthly to the Secretariat for circulation to all

Participants.

b) Such notification shall reach the Secretariat no later than five days after the end of each month

covered by this information. The Secretariat shall then inform immediately all Participants of the

applicable rates and make them publicly available.

Any changes in the CIRRs shall enter into effect on the fifteenth day after the end of each month.

When market developments require the notification of an amendment to a CIRR during the course of a

month, the amended rate shall be implemented ten days after notification of this amendment has been

received by the Secretariat.

a) The Participants shall review regularly the functioning of the Arrangement. In the review, the

Participants shall examine, inter alia, notification procedures, implementation and operation of

the DDR system, rules and procedures on tied aid, questions of matching, prior commitments and

possibilities of wider participation in the Arrangement.

b) This review shall be based on information of the Participants' experience and on their suggestions

for improving the operation and efficacy of the Arrangement. The Participants shall take into

account the objectives of the Arrangement and the prevailing economic and monetary situation.

The information and suggestions that Participants wish to put forward for this review shall reach

the Secretariat no later than 45 calendar days before the date of review.

a) The Participants shall periodically review the system for setting CIRRs in order to ensure that the

notified rates reflect current market conditions and meet the aims underlying the establishment of

the rates in operation. Such reviews shall also cover the margin to be added when these rates are

applied.

TAD/PG(2009)21

31

b) A Participant may submit to the Chairman of the Participants a substantiated request for an

extraordinary review in case this Participant considers that the CIRR for one or more than one

currency no longer reflect current market conditions.

The Participants shall regularly monitor and review all aspects of the premium rules and procedures. This

shall include:

a) the methodology for the Country Risk Assessment Model to review its validity in the light of

experience;

b) the Minimum Premium Rates for country and sovereign credit risk to adjust them over time to

ensure that they remain an accurate measure of risk, taking into account the three PFTs: the cash

flow and accruals approaches and, where appropriate, private market indicators;

c) the differentiations in the MPRs which take account of the differing quality of export credit

products and percentage of cover provided; and

d) the body of experience related to the use of risk mitigation and/or exclusion as set out in

Article 28 and the continued validity and appropriateness of the specific allowable Risk

Mitigation/Exclusion Factors. To assist the review the Secretariat shall provide reports of all

notifications.

TAD/PG(2009)21

32

TAD/PG(2009)21

33

TAD/PG(2009)21

34

The Participants to the Sector Understanding are: Australia, the European Community, Japan, Korea,

New Zealand and Norway.

This Sector Understanding, which complements the Arrangement, sets out specific guidelines for officially

supported export credits relating to export contracts of:

a) Any new sea-going vessel of 100 gt and above used for the transportation of goods or persons, or

for the performance of a specialised service (for example, fishing vessels, fish factory ships, ice

breakers and as dredgers, that present in a permanent way by their means of propulsion and

direction (steering) all the characteristics of self-navigability in the high sea), tugs of 365 kw and

over and to unfinished shells of ships that are afloat and mobile. The Sector Understanding does

not cover military vessels. Floating docks and mobile offshore units are not covered by the Sector

Understanding, but should problems arise in connection with export credits for such structures,

the Participants to the Sector Understanding (hereinafter the “Participants”), after consideration of

substantiated requests by any Participant, may decide that they shall be covered.

b) Any conversion of a ship. Ship conversion means any conversion of sea-going vessels of more

than 1 000 gt on condition that conversion operations entail radical alterations to the cargo plan,

the hull or the propulsion system.

c) 1) Although hovercraft-type vessels are not included in the Sector Understanding, Participants

are allowed to grant export credits for hovercraft vessels on equivalent conditions to those

prevailing in the Sector Understanding. They commit themselves to apply this possibility

moderately and not to grant such credit conditions to hovercraft vessels in cases where it is

established that no competition is offered under the conditions of the Sector Understanding.

2) In the Sector Understanding, the term "hovercraft" is defined as follows: an amphibious

vehicle of at least 100 tons designed to be supported wholly by air expelled from the vehicle

forming a plenum contained within a flexible skirt around the periphery of the vehicle and the

ground or water surface beneath the vehicle, and capable of being propelled and controlled by

airscrews or ducted air from fans or similar devices.

3) It is understood that the granting of export credits at conditions equivalent to those prevailing

in this Sector Understanding should be limited to those hovercraft vessels used on maritime

routes and non-land routes, except for reaching terminal facilities standing at a maximum

distance of one kilometre from the water.

TAD/PG(2009)21

35

The maximum repayment term, irrespective of country classification, is 12 years after delivery.

The Participants shall require a minimum cash payment of 20% of the contract price by delivery.

a) The principal sum of an export credit shall be repaid in equal installments at regular intervals of

normally six months and a maximum of 12 months.

b) Interest shall be paid no less frequently than every six months and the first payment of interest

shall be made no later than six months after the starting point of credit.

c) For export credits provided in support of lease transactions, equal repayments of principal and

interest combined may be applied in lieu of equal repayments of principal as set out in

paragraph a).

d) Interest due after the starting point of credit shall not be capitalised.

e) A Participant to this Sector Understanding intending to support a payment of interest on different

terms than those set out in paragraph b) shall give prior notification at least ten calendar days

before issuing any commitment, in accordance with Annex V of the Arrangement.

The provisions of the Arrangement in relation to minimum premium benchmarks shall not be applied until

such provisions have been further reviewed by the Participants to this Sector Understanding.

The provisions of Article 7 and of Annex X to the Arrangement shall not be applied until such provisions

have been further reviewed by the Participants to this Sector Understanding.

Any Participant desiring to provide aid must, in addition to the provisions of the Arrangement, confirm that

the ship is not operated under an open registry during the repayment term and that appropriate assurance

has been obtained that the ultimate owner resides in the receiving country, is not a non-operational

subsidiary of a foreign interest and has undertaken not to sell the ship without his government’s approval.

TAD/PG(2009)21

36

For the purpose of transparency each Participant shall, in addition to the provisions of the Arrangement and

the IBRD/Berne Union/OECD Creditor Reporting System, provide annually information on its system for

the provision of official support and of the means of implementation of this Sector Understanding,

including the schemes in force.

a) The Sector Understanding shall be reviewed annually or upon request by any Participant within

the context of the OECD Working Party on Shipbuilding, and a report made to the Participants to

the Arrangement.

b) To facilitate coherence and consistency between the Arrangement and this Sector Understanding

and taking into account the nature of the shipbuilding industry, the Participants to this Sector

Understanding and to the Arrangement will consult and co-ordinate as appropriate.

c) Upon a decision by the Participants to the Arrangement to change the Arrangement, the

Participants to this Sector Understanding (the Participants) will examine such a decision and

consider its relevance to this Sector Understanding. Pending such consideration the amendments

to the Arrangement will not apply to this Sector Understanding. In case the Participants can

accept the amendments to the Arrangement they shall report this in writing to the Participants to

the Arrangement. In case the Participants cannot accept the amendments to the Arrangement as

far as their application to shipbuilding is concerned they shall inform the Participants to the

Arrangement of their objections and enter into consultations with them with a view to seeking a

resolution of the issues. In case no agreement can be reached between the two groups, the views

of the Participants as regards the application of the amendments to shipbuilding shall prevail.

d) Upon entry into force of the "Agreement Respecting Normal Competitive Conditions in the

Commercial Shipbuilding and Repair Industry" this Sector Understanding shall cease to apply for

those Participants who are legally required to apply the 1994 Understanding on Export Credits

for Ships [C/WP6(94)6]. Such Participants shall work for an immediate review to bring the

1994 Understanding in accordance with this Sector Understanding.

TAD/PG(2009)21

37

In addition to the Future Work of the Arrangement, the Participants to this Sector Understanding agree:

a) To develop an illustrative list of types of ships which are generally considered non-commercially

viable, taking into account the disciplines on tied aid set out in the Arrangement.

b) To review the provisions of the Arrangement in relation to minimum premium benchmarks with

a view to incorporating them into this Sector Understanding.

c) To discuss, subject to the developments in relevant international negotiations, the inclusion of

other disciplines on minimum interest rates including a special CIRR and floating rates.

d) To review the applicability to this Sector Understanding of provisions of the Arrangement in

relation to Project Finance.

e) To discuss whether:

- the date of the first instalment of principal

- the Weighted Average Life concept

may be used in relation to the repayment profile contained in Article 5 of this Sector

Understanding.

TAD/PG(2009)21

38

TAD/PG(2009)21

39

TAD/PG(2009)21

40

a) This Sector Understanding sets out the provisions which apply to officially supported export

credits relating to contracts for:

1) The export of complete nuclear power stations or parts thereof, comprising all components,

equipment, materials and services, including the training of personnel directly required for

the construction and commissioning of such nuclear power stations.

2) The modernisation of existing nuclear power plants in cases where both the overall value of

the modernisation is at or above 80 million SDRs and the economic life of the plant is likely

to be extended by at least the repayment period to be awarded. If either of these criteria is not

met, the terms of the Arrangement apply.

3) The supply of nuclear fuel and enrichment.

4) The provision of spent fuel management.

b) This Sector Understanding does not apply to:

1) Items located outside the nuclear power plant site boundary for which the buyer is usually

responsible, in particular costs associated with land development, roads, construction village,

2) Sub-stations, transformers and transmission lines located outside the nuclear power plant site

boundary.

3) Official support provided for the decommissioning of a nuclear power plant.

contract is concluded in relation to the original switchyard for that power plant, the terms and conditions

for the original switchyard shall not be more generous than those for the nuclear power plant.

TAD/PG(2009)21

41

a) The maximum repayment term for goods and services included in the provisions of Article 1 a) 1)

and 2) is 18 years.

b) The maximum repayment term for the initial fuel load is four years from delivery. The maximum

repayment term for subsequent reloads of nuclear fuel is two years from delivery.

c) The maximum repayment term for spent fuel disposal is two years.

d) The maximum repayment term for enrichment and spent fuel management is five years.

a) The Participants shall apply a profile of repayment of principal and payment of interest as

specified in sub-paragraphs 1) or 2) below:

1) Repayment of principal shall be made in equal instalments.

2) Repayment of principal and payment of interest combined shall be made in equal instalments.

b) Principal shall be repaid and interest shall be paid no less frequently than every six months and

the first instalment of principal and interest shall be made no later than six months after the

starting point of credit.

c) On an exceptional and duly justified basis, official support for goods and services mentioned in

Article 1) a) 1) and 2) of this Understanding may be provided on terms other than those set out in

a) and b) above. The provision of such support shall be explained by an imbalance in the timing

of the funds available to the obligor and the debt service profile available under an equal,

semi annual repayment schedule, and shall comply with the following criteria:

1) The maximum repayment term shall be 15 years.

2) No single repayment of principal or series of principal payments within a six-month period

shall exceed 25% of the principal sum of the credit.

3) Principal shall be repaid no less frequently than every 12 months. The first repayment of

principal shall be made no later than 12 months after the starting point of credit and no less

than 2% of the principal sum of the credit shall have been repaid 12 months after the starting

point of credit.

4) Interest shall be paid no less frequently than every 12 months and the first interest payment

shall be made no later than six months after the starting point of credit.

5) The maximum weighted average life of the repayment period shall not exceed 9 years.

d) Interest due after the starting point of credit shall not be capitalised

TAD/PG(2009)21

42

The applicable CIRRs for official financing support provided in accordance with the provisions of this

Sector Understanding are constructed using to the following base rates and margins:

Repayment

Term (years)

Base Rate

(Government bonds)

Margin

(bps)

Base Rate

(Government bonds)

Margin

(bps)

< 11 Relevant CIRR in accordance with Article 20 of the Arrangement

11 to 12 7 years 100 7 years 100

13 8 years 120 7 years 120

14 9 years 120 8 years 120

15 9 years 120 8 years 120

16 10 years 125 9 years 120

17 10 years 130 9 years 120

18 10 years 130 10 years 120

The currencies that are eligible for official financing support are those which are fully convertible and for

which data are available to construct the minimum interest rates mentioned in Article 4 above, and

Article 20 of the Arrangement for repayment terms less than 11 years.

Without prejudice to the provisions of Article 7 below, the Participants shall not provide free nuclear fuel

or services.

The Participants shall not provide aid support, except for humanitarian purposes in accordance with

footnote 8 of the Arrangement, in which case a Common Line procedure shall be used.

TAD/PG(2009)21

43

a) A Participant shall give prior notification in accordance with Article 45 of the Arrangement at

least ten calendar days before issuing any commitment if it intends to provide support in

accordance with the provisions of this Sector Understanding.

b) If the notifying Participant intends to provide support with a repayment term in excess of

15 years and/or in accordance with Article 3. c) above, it shall wait an additional ten calendar

days if any other Participant requests a discussion during the initial ten calendar days.

c) A Participant shall inform all other Participants of its final decision following a discussion, to

facilitate the review of the body of experience.

The Participants agree to examine the following issues before the end of 2009:

a) A minimum floating interest rate regime.

b) The maximum amount of official support for local costs.

The Participants shall review regularly the provisions of the Sector Understanding and at the latest by the

TAD/PG(2009)21

44

TAD/PG(2009)21

45

TAD/PG(2009)21

46

1. PURPOSE ......................................................................................................................................... 51

2. STATUS ........................................................................................................................................... 49

3. PARTICIPATION ............................................................................................................................. 50

4. SCOPE OF APPLICATION .............................................................................................................. 50

5. INFORMATION AVAILABLE TO NON-PARTICIPANTS .......................................................... 50

6. AID SUPPORT ................................................................................................................................. 51

7. ACTIONS TO AVOID OR MINIMISE LOSSES ............................................................................. 51

CHAPTER I: COVERAGE .......................................................................................................................... 52

8. NEW AIRCRAFT .............................................................................................................................. 52

9. CATEGORIES OF AIRCRAFT ........................................................................................................ 52

CHAPTER II: FINANCIAL TERMS AND CONDITIONS ........................................................................ 53

10. ELIGIBLE CURRENCIES ............................................................................................................ 53

11. DOWN PAYMENT AND MAXIMUM OFFICIAL SUPPORT ................................................... 53

12. MINIMUM PREMIUM RATES .................................................................................................... 53

13. MAXIMUM REPAYMENT TERM .............................................................................................. 53

14. REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST ............................................ 54

15. MINIMUM INTEREST RATES ................................................................................................... 55

16. INTEREST RATE SUPPORT ....................................................................................................... 55

17. FEES.............................................................................................................................................. 55

18. CO-FINANCING ........................................................................................................................... 56

CHAPTER I: COVERAGE .......................................................................................................................... 57

19. USED AIRCRAFT AND OTHER GOODS AND SERVICES ..................................................... 57

CHAPTER II: FINANCIAL TERMS AND CONDITIONS ........................................................................ 57

20. USED AIRCRAFT ......................................................................................................................... 57

21. SPARE ENGINES AND SPARE PARTS ..................................................................................... 58

22. CARGO CONVERSION/MAJOR MODIFICATION/REFURBISHING .................................... 58

23. MAINTENANCE AND SERVICE CONTRACTS ....................................................................... 58

24. ENGINE KITS ............................................................................................................................... 58

25. INFORMATION ON OFFICIAL SUPPORT ................................................................................ 59

26. REQUESTS FOR INFORMATION .............................................................................................. 59

27. FACE-TO-FACE CONSULTATIONS .......................................................................................... 60

28. SPECIAL CONSULTATIONS ...................................................................................................... 60

TAD/PG(2009)21

47

29. PROCEDURES AND FORMAT OF COMMON LINES ............................................................. 60

30. RESPONSES TO COMMON LINE PROPOSALS ...................................................................... 61

31. ACCEPTANCE OF COMMON LINES ........................................................................................ 61

32. DISAGREEMENT ON COMMON LINES .................................................................................. 61

33. EFFECTIVE DATE OF COMMON LINE .................................................................................... 61

34. VALIDITY OF COMMON LINES ............................................................................................... 62

35. MATCHING ................................................................................................................................. 62

36. MONITORING .............................................................................................................................. 63

37. REVIEW ....................................................................................................................................... 63

38. ENTRY INTO FORCE AND TRANSITIONAL ARRANGEMENTS ......................................... 64

39. WITHDRAWAL ............................................................................................................................ 64

APPENDIX I PARTICIPATION IN THE AIRCRAFT SECTOR UNDERSTANDING ......................... 65

APPENDIX II LISTS OF AIRCRAFT AS OF 24 SEPTEMBER 2008 .................................................... 66

LIST 1: CATEGORY 1 AIRCRAFT ........................................................................................................... 66

LIST 2: CATEGORY 2 AIRCRAFT ........................................................................................................... 67

LIST 3: CATEGORY 3 AIRCRAFT ........................................................................................................... 69

APPENDIX III MINIMUM PREMIUM RATES ...................................................................................... 75

I. ESTABLISHMENT OF THE LIST OF RISK CLASSIFICATIONS ........................................... 75

II. UPDATE OF THE LIST OF RISK CLASSIFICATIONS ............................................................ 76

III. RESOLUTION OF DISAGREEMENTS ....................................................................................... 77

IV. VALIDITY PERIOD OF CLASSIFICATIONS ............................................................................ 77

V. BUYER/BORROWER RISK CLASSIFICATION REQUEST .................................................... 78

ANNEX 1: QUALIFYING DECLARATIONS ........................................................................................... 88

APPENDIX IV MINIMUM INTEREST RATES ...................................................................................... 89

1. MINIMUM FIXED INTEREST RATE ......................................................................................... 90

2. CONSTRUCTION OF CIRR-1 ..................................................................................................... 90

3. VALIDITY PERIOD OF CIRR-1 .................................................................................................. 90

4. EARLY REPAYMENT OF CIRR-1 .............................................................................................. 91

5. IMMEDIATE CHANGES IN INTEREST RATES ....................................................................... 91

TAD/PG(2009)21

48

6. MINIMUM FLOATING INTEREST RATE ................................................................................. 91

7. MINIMUM FIXED INTEREST RATE ......................................................................................... 91

8. CONSTRUCTION OF CIRR-2 ..................................................................................................... 92

9. VALIDITY PERIOD OF CIRR-2 .................................................................................................. 92

10. APPLICATION OF CIRR-2 .......................................................................................................... 93

11. IMMEDIATE CHANGES IN INTEREST RATES ....................................................................... 93

APPENDIX V REPORTING FORM ......................................................................................................... 94

APPENDIX VI LIST OF DEFINITIONS .................................................................................................. 96

TAD/PG(2009)21

49

a) The purpose of this Sector Understanding is to provide a framework for the predictable, consistent

and transparent use of officially supported export credits for the sale or lease of aircraft and other

goods and services specified in Article 4 a) below. This Sector Understanding seeks to foster a

level playing field for such export credits, in order to encourage competition among exporters

based on quality and price of goods and services exported rather than on the most favourable

officially supported financial terms and conditions.

b) This Sector Understanding sets out the most favourable terms and conditions on which officially

supported export credits may be provided.

c) To this aim, this Sector Understanding seeks to establish a balanced equilibrium that, on all

markets:

1) equalises competitive financial conditions between the Participants,

2) neutralises official support among the Participants as a factor in the choice among competing

goods and services specified in Article 4 a) below and

3) avoids distortion of competition among the Participants to this Sector Understanding and any

other sources of financing.

d) The Participants to this Sector Understanding (the Participants) acknowledge that the provisions

included in this Sector Understanding have been developed for the sole purpose of this Sector

Understanding and such provisions do not prejudice the other parts of the Arrangement on

Officially Supported Export Credits (the Arrangement) and their evolution.

This Sector Understanding is a Gentlemen’s Agreement among its Participants and is Annex III to the

Arrangement; it forms an integral part of the Arrangement and it succeeds the Sector Understanding which

came into effect in March 1986.

TAD/PG(2009)21

50

The Participants currently are: Australia, Brazil, Canada, the European Community, Japan, Korea,

New Zealand, Norway, Switzerland and the United States. Any non-Participant may become a Participant

in accordance with the procedures set out in Appendix I.

a) This Sector Understanding shall apply to all official support provided by or on behalf of a

government, and which has a repayment term of two years or more, for the export of:

1) New civil aircraft listed in Appendix II and engines installed thereon, including buyer

furnished equipment.

2) Used, converted, and refurbished civil aircraft and engines installed thereon, including, in

each case, buyer furnished equipment.

3) Spare engines.

4) Spare parts for civil aircraft and engines.

5) Maintenance and service contracts for civil aircraft and engines.

6) Cargo conversion, major modifications and refurbishment of civil aircraft.

7) Engine kits.

b) Official support may be provided in different forms:

1) Export credit guarantee or insurance (pure cover).

2) Official financing support:

- direct credit/financing and refinancing or

- interest rate support.

3) Any combination of the above.

c) This Sector Understanding shall not apply to official support for:

1) The exports of new or used military aircraft and related goods and services listed in

paragraph 4 a) above, including when used for military purposes.

2) New or used flight simulators.

A Participant shall, on the basis of reciprocity, reply to a request from a non-Participant in a competitive

situation on the financial terms and conditions offered for its official support as it would reply to a request

from a Participant.

TAD/PG(2009)21

51

The Participants shall not provide aid support, except for humanitarian purposes through a Common Line

procedure.

This Sector Understanding does not prevent its Participants from agreeing to less restrictive financial terms

and conditions than those provided for by this Sector Understanding, if such action is taken after the export

credit agreement and ancillary documents have already become effective and is intended solely to avoid or

minimise losses from events which could give rise to non-payment or claims. A Participant shall notify all

other Participants and the OECD Secretariat (the Secretariat), within 20 working days following the

Participant's agreement with the buyer/borrower, of the modified financial terms and conditions. The

notification shall contain information, including the motivation, on the new financial terms and conditions,

using the reporting form set out in Appendix V.

TAD/PG(2009)21

52

a) For the purpose of this Sector Understanding, a new aircraft is:

1) an aircraft, including buyer furnished equipment, and the engines installed in such aircraft

owned by the manufacturer and not delivered nor previously used for its intended purpose of

carrying passengers and/or freight and

2) spare engines and spare parts when contemplated as part of the original aircraft order in

accordance with the provisions of Article 21 a) below.

b) Notwithstanding the provisions of paragraph a) above, a Participant may support terms

appropriate to new aircraft for transactions where, with the prior knowledge of that Participant,

interim financing arrangements had been put in place because the provision of official support

had been delayed; such delay shall not be longer than 18 months. In such cases, the repayment

term and the final repayment date shall be the same as if the sale or lease of the aircraft would

have been officially supported from the date the aircraft was originally delivered.

a) Aircraft shall be classified according to the following three categories:

1) Category 1 aircraft, as categorised in List 1 of Appendix II.

2) Category 2 aircraft, as categorised in List 2 of Appendix II.

3) Category 3 aircraft, as categorised in List 3 of Appendix II.

b) A Participant intending to introduce a new model of aircraft in the market shall bring forward a

proposal for classification of that aircraft to be added to one of the Lists in Appendix II by

decision of the Participants; such decision shall be taken within 90 calendar days after the

proposal has been brought forward. This process shall also apply for a transaction supporting an

existing model of aircraft that is not included on any of the Lists, except that for an export value

of $5 million or less, the aircraft model is presumed to be a Category 3 aircraft and the

Participant supporting the aircraft shall notify the Participants to add the aircraft model to the

Category 3 list in Appendix II within 30 calendar days after approval of the transaction.

c) Any non-Participant seeking to apply the terms and conditions of this Sector Understanding may

request that any model of its aircraft be added to one of the Lists in Appendix II. Such request

shall be decided upon jointly by the Participants and the non-Participant within 90 calendar days.

TAD/PG(2009)21

53

d) The Secretariat shall make publicly available the Lists in Appendix II.

Financial terms and conditions for export credits encompass all the provisions set out in this Chapter,

which shall be read in conjunction one with the other.

The currencies which are eligible for official financing support are euros, Japanese yen, UK sterling

pounds, US dollars and other fully convertible currencies for which data are available to construct the

minimum interest rates mentioned in Appendix IV.

a) The Participants shall require a minimum down payment of 15% of the net price of the aircraft at

or before the starting point of credit. Consequently, the Participants shall not provide official

support in excess of 85% of the net price of the aircraft.

b) A Participant which applies Article 8 b) above shall reduce the maximum amount of official

support by the amount of principal of the instalments deemed due from the starting point of the

credit so as to ensure that, at the time of disbursement, the amount outstanding is the same as if

such an officially supported export credit was provided at the time of delivery. In such

circumstances, prior to delivery the Participant shall have received an application for official

support.

a) The Participants providing official support shall charge, for the credit amount officially supported,

no less than the minimum premium rate set out in accordance with the provisions of Appendix III.

b) The Participants shall use, whenever necessary, the Premium Rate Conversion Model to convert

between single up-front premium rates calculated on the original amount of the official support

Participants.

a) The maximum repayment term shall be:

1) 12 years for Category 1 aircraft.

2) 15 years for Category 2 aircraft.

3) 10 years for Category 3 aircraft.

TAD/PG(2009)21

54

b) There shall be no extension of the repayment term by way of sharing of rights in the security on a

a) The Participants shall apply a profile of repayment of principal and payment of interest as

specified in sub-paragraph 1) or 2) below.

1) Repayment of principal and payment of interest combined shall be made in equal instalments:

- For Category 1 aircraft, instalments shall be made no less frequently than every three

months and the first instalment shall be made no later than three months after the starting

point of credit.

- For Category 2 and Category 3 aircraft, instalments shall be made no less frequently than

every six months and the first instalment shall be made no later than six months after the

starting point of credit.

- In the case of a floating rate transaction, the principal amortising profile shall be set for

the entire term, no more than five working days prior to the disbursement date, based on

the floating rate of interest at that time.

2) Repayment of principal shall be made in equal instalments:

- For Category 1 aircraft, repayment of principal and payment of interest shall be made no

less frequently than every three months and the first repayment of principal and payment

of interest shall be made no later than three months after the starting point of credit.

- For Category 2 and Category 3 aircraft, repayment of principal and payment of interest

shall be made no less frequently than every six months and the first repayment of

principal and payment of interest shall be made no later than six months after the starting

point of credit.

b) Notwithstanding paragraph a) above, for Category 2 and Category 3 aircraft, in the case of

indirect loans, official support may be provided on the following terms:

1) The maximum amount of a single repayment of principal or series of principal payments

within a six-month period shall, in the case of each transaction, be calculated as a percentage

of the principal sum of the credit, equal to 100 divided by the repayment term (expressed in

years).

2) Principal shall be repaid no less frequently than every six months. The first repayment of

principal shall be made no later than 12 months after the starting point of credit.

3) Interest shall be paid no less frequently than every six months and the first interest payment

date shall be made no later than six months after the starting point of credit.

4) The maximum weighted average life of the repayment period shall not exceed two thirds of

the repayment term.

c) Interest due after the starting point of credit shall not be capitalised.

TAD/PG(2009)21

55

a) The standard form of official support for Category 1 aircraft shall be pure cover.

borrower) and with prior notification in accordance with Article 25 b) below, provide official

financing support for Category 1 aircraft; in this case, a minimum fixed interest rate in

accordance with the provisions of Section 1 of Appendix IV shall be applied.

c) For Category 2 and Category 3 aircraft, the Participants providing official financing support shall

apply either a minimum floating interest rate or a minimum fixed interest rate, in accordance

with the provisions of Section 2 of Appendix IV.

d) Interest rate excludes any payment by way of premium referred to in Article 12 and fees referred

to in Article 17 below.

The Participants providing interest rate support shall comply with the financial terms and conditions of this

Sector Understanding and shall require any bank or any other financial institution which is a party to the

interest supported transaction to participate in that transaction only on terms that are consistent in all

respects with the financial terms and conditions of this Sector Understanding.

a) The Participants providing official support in the form of pure cover shall charge a premium

holding fee on the un-drawn portion of the official support during the premium holding period,

as follows:

b) The Participants providing official support in the form of direct credit/ financing shall charge the

following fees:

1) Arrangement / Structuring fee: 25 basis points on the disbursed amount payable at the time of

each disbursement.

the officially supported export credit to be disbursed, during the premium holding period,

payable in arrears.

payable in arrears. Alternatively, the Participants may elect to have this fee payable as an

up-front fee, on the amount disbursed, at the time of each disbursement pursuant to the

provisions of Article 12 b) above.

TAD/PG(2009)21

56

Notwithstanding Articles 15 and 17 above, in a co-financing where official support is provided by way of

direct credit and pure cover, and where pure cover represents at least 35% of the officially supported

amount, the Participant providing direct credit shall apply the same financial terms and conditions,

including fees, as those provided by the financial institution under pure cover, to generate an all-in cost

equivalence between the pure cover provider and the direct lender. In such circumstances, the Participant

providing such support shall report the financial terms and conditions supported, including fees, in

accordance with the reporting form set out in Appendix V.

TAD/PG(2009)21

57

This Part of the Sector Understanding shall apply to used aircraft and to spare engines, spare parts, cargo

conversion, major modification, refurbishing, maintenance and service contracts in conjunction with both

new and used aircraft and engine kits.

The financial terms and conditions to be applied, other than the maximum repayment term, shall be in

accordance with the Category of aircraft and the repayment term set out in Part 2 of this Sector

Understanding.

a) No official support shall be provided for used Category 1 aircraft of less than four years old.

b) The maximum repayment term for used aircraft, including converted, refurbished or modified

aircraft, shall be:

1) Five years for Category 1 Aircraft of at least four years and less than 15 years old.

2) For Category 2 and Category 3 Aircraft, as set out below:

Age of Aircraft

(years) Category 2 Aircraft Category 3 Aircraft

1 13 8

2 12 7

3 11 6

4 10 6

5 – 8 9 6

Over 8 8 5

TAD/PG(2009)21

58

a) When purchased, or ordered in connection with the engines to be installed on a new aircraft, the

official support for spare engines may be provided on the same terms and conditions as for the

aircraft. When purchased with new aircraft, the official support for spare parts may be provided

on the same terms and conditions as for the aircraft up to a maximum 5% of the net price of the

new aircraft and installed engines; Article 21 c) below shall apply to spare parts that exceed the

5% limit.

b) When spare engines are not purchased with a new aircraft, the maximum repayment term shall

be:

1) Eight years for Category 1 aircraft.

2) Seven years for Category 2 and Category 3 aircraft.

c) When other spare parts are not purchased with a new aircraft, the maximum repayment term

shall be:

1) Five years with a contract value of USD 5 million or more.

2) Two years with a contract value of less than USD 5 million.

The Participants may offer official support with a repayment term of up to:

a) Five years with a contract value of USD 5 million or more.

b) Two years with a contract value of less than USD 5 million.

The Participants may offer official support with a repayment term of up to three years.

The Participants may offer official support with a repayment term of up to five years.

TAD/PG(2009)21

59

All communications shall be made between the designated contact points in each Participant country by

agreed, all information exchanged under this Part of the Sector Understanding shall be treated by all

Participants as confidential.

a) Within one month after the date of a final commitment, a Participant shall submit the information

required in Appendix V to all other Participants, with a copy to the Secretariat.

b) A Participant intending to provide official financing support for Category 1 aircraft, pursuant to

Article 15 b) above, shall notify all other Participants at least 20 calendar days before

commitment, explaining the exceptional character of the transaction and identifying the borrower.

c) A Participant intending to provide official support for non-sovereign non-asset backed exports of

aircraft shall notify all other Participants at least 20 calendar days before commitment, explaining

the exceptional character of the transaction and identifying the borrower. The terms and

conditions of the official support shall be determined in accordance with the Common Line

procedures of Articles 29 to 34.

d) Notwithstanding paragraph c) above, a Participant intending to provide official support for

non-sovereign non-asset backed exports of aircraft under Article 30 of Appendix III shall

explaining the character of the transaction and identifying the borrower.

a) A Participant may ask another Participant for information about the use of its officially supported

export credits for the sale or lease of aircraft covered by this Sector Understanding.

b) A Participant which has received an application for official support may address an enquiry to

another Participant, giving the most favourable credit terms and conditions that the enquiring

Participant would be willing to support.

c) The Participant to which such an enquiry is addressed shall respond within seven calendar days

and provide reciprocal information to the fullest extent possible. The reply shall include the best

indication that the Participant can give of the decision it is likely to take. If necessary, the full

reply shall follow as soon as possible.

d) Copies of all enquiries and responses shall be sent to the Secretariat.

TAD/PG(2009)21

60

a) In a competitive situation, a Participant may request face-to-face consultations with one or more

Participants.

b) Any Participant shall agree within ten working days to such requests.

c) The consultations shall take place as soon as possible after the expiry of the ten working-day

period.

d) The Chairman of the Participants shall co-ordinate with the Secretariat on any necessary

follow-up action. The Secretariat shall promptly make available to all Participants the outcome

of the consultation.

a) A Participant (the initiating Participant) that has reasonable grounds to believe that financial

terms and conditions offered by another Participant (the responding Participant) are more

generous than those provided for in this Sector Understanding shall inform the Secretariat; the

Secretariat shall immediately make available such information to the responding Participant.

b) The responding Participant shall clarify the financial terms and conditions of the official support

being considered within five working days following the issue of the information from the

Secretariat.

c) Following clarification by the responding Participant, the initiating Participant may request that a

special consultation with the responding Participant be organised by the Secretariat within

five working days to discuss the issue.

d) The responding Participant shall wait for the outcome of the consultation which shall be

determined on the day of such consultation before proceeding any further with the transaction.

a) Common Line proposals shall be addressed to the Secretariat only. The identity of the initiator is

not revealed on the Common Line register on the OLIS. However, the Secretariat may orally

reveal the identity of the initiator to a Participant on demand. The Secretariat shall keep a record

of such requests.

b) The Common Line proposal shall be dated and shall be in the following format:

1) Reference number, followed by Common Line.

2) Name of the importing country and buyer/borrower.

3) Name or description of the transaction as precise as possible to clearly identify the

transaction.

4) Common Line proposal for the most generous terms and conditions to be supported.

TAD/PG(2009)21

61

5) Nationality and names of known competing bidders.

6) Bid closing date and tender number to the extent it is known.

7) Other relevant information, including reasons for proposing the Common Line and as

appropriate, special circumstances.

a) Responses shall be made within 20 calendar days, although the Participants are encouraged to

respond to a Common Line proposal as quickly as possible.

b) A response may be acceptance, rejection, a request for additional information, a proposal for

modification of the Common Line or an alternative Common Line proposal.

c) A Participant which remains silent or advises that it has no position shall be deemed to have

accepted the Common Line proposal.

a) After a period of 20 calendar days, the Secretariat shall inform all Participants of the status of the

Common Line proposal. If not all Participants have accepted the Common Line, but no

Participant has rejected it, the proposal shall be left open for a further period of eight calendar

days.

b) After this further period, a Participant which has not explicitly rejected the Common Line

proposal shall be deemed to have accepted the Common Line. Nevertheless, a Participant,

including the initiating Participant, may make its acceptance of the Common Line conditional on

the explicit acceptance by one or more Participants.

c) If a Participant does not accept one or more elements of a Common Line it implicitly accepts all

other elements of the Common Line.

a) If the initiating Participant and a Participant which has proposed a modification or alternative

cannot agree on a Common Line within the additional eight calendar-day period mentioned in

Article 31 above, this period can be extended by their mutual consent. The Secretariat shall

inform all Participants of any such extension.

b) A Common Line which has not been accepted may be reconsidered using the procedures in

Articles 29 to 31 above. In these circumstances, the Participants are not bound by their original

decision.

The Secretariat shall inform all Participants either that the Common Line will go into effect or that it has

been rejected; the agreed Common Line will take effect three calendar days after this announcement.

TAD/PG(2009)21

62

a) Unless agreed otherwise, a Common Line, once agreed, shall be valid for a period of two years

from its effective date, unless the Secretariat is informed that it is no longer of interest, and that

such situation is accepted by all Participants.

b) If a Participant seeks an extension within 14 calendar days of the original date of expiry and in

the absence of disagreement, a Common Line shall remain valid for a further two-year period;

subsequent extensions may be agreed through the same procedure.

c) The Secretariat shall monitor the status of Common Lines and shall keep the Participants

informed accordingly, through the maintenance of the listing “The Status of Valid Common

Common Lines due to expire in the following quarter.

d) Upon the request of a non-Participant which produces competing aircraft, the Secretariat shall

make available valid Common Lines to that non-Participant.

a) Taking into account a Participant’s international obligations, a Participant may match financial

terms and conditions of official support offered by a non-Participant.

b) In the event of matching non-conforming terms and conditions offered by a non-Participant:

1) The matching Participant shall make every effort to verify such terms and conditions.

2) The matching Participant shall inform the Secretariat and all other Participants of the nature

and outcome of such efforts, as well as of the terms and conditions it intends to support, at

least ten calendar days before issuing any commitment.

3) If a competing Participant requests a discussion during this ten calendar-day period, the

matching Participant shall wait an additional ten calendar days before issuing any

commitment on such terms.

c) If a matching Participant modifies or withdraws its intention to support the notified terms and

conditions, it shall immediately inform all other Participants accordingly.

TAD/PG(2009)21

63

The Secretariat shall monitor the implementation of this Sector Understanding and report to the

Participants on an annual basis.

The Participants shall review the procedures and provisions of this Sector Understanding, against the

criteria, and at the times, set out in paragraphs a) and b) below.

a) The Participants shall undertake the review of this Sector Understanding as follows:

1) In the fourth calendar year following the effective date of this Sector Understanding and,

regularly thereafter, in each case with three months prior notice given by the Secretariat.

2) At the request of a Participant after due consultation, provided that three months prior notice

has been given by the Secretariat and the requesting Participant provides a written

explanation of the reason for, and objectives of, the review as well as a summary of the

consultations preceding its request.

3) For Category 2 and Category 3 aircraft, annually, with a view to review and update

minimum premium rates (the annual premium update) and fees; to this end, a reset model

should be established in the first calendar year following the effective date of this Sector

Understanding.

b) The review set out in sub-paragraph a) 1) above shall consider:

1) The extent to which the purposes of this Sector Understanding, as set out in Article 1 above,

have been achieved and any other issue a Participant may wish to bring forward for

discussion.

2) In view of the elements in sub-paragraph b) 1) above, whether amendments to any aspect of

this Sector Understanding are justified.

c) In recognition of the importance of the review process, to ensure that the terms and conditions of

this Sector Understanding continue to meet the needs of the Participants, each Participant

reserves the right to withdraw from this Sector Understanding in accordance with Article 39

below.

TAD/PG(2009)21

64

a) The effective date of this Sector Understanding is 1 July 2007.

b) Notwithstanding paragraph a) above, for Category 1 aircraft:

1) The Participants may provide officially supported export credits on the terms and conditions

set out in the Aircraft Sector Understanding prevailing prior to the effective date of this

Sector Understanding, for deliveries of goods (including engines and spare engines) or

provision of services scheduled to occur on or prior to 31 December 2010, in accordance

with firm contracts concluded not later than 30 April 2007 and notified to the Secretariat not

later than30 June 2007.

2) In respect of the deliveries of goods (including engines and spare engines) or provision of

services referred to in sub-paragraph 38 b) 1) above, co-financing provided by a direct lender

may be provided on the same terms and conditions as those provided by the financial

institution under pure cover, to generate an all-in-cost equivalence between the pure cover

provider and the direct lender.

c) For Category 2 and Category 3 aircraft, the Participants may provide officially supported export

credits on the terms and conditions applicable prior to the effective date of the Sector

Understanding, provided that a commitment existed prior to the effective date of this Sector

Understanding for deliveries of goods (including engines and spare engines) or provision of

services scheduled to occur on or prior to 31 December 2009, and was notified to the Secretariat

not later than 30 June 2007.

A Participant may withdraw from this Sector Understanding by notifying the Secretariat in writing by

notification by the Secretariat. Withdrawal will not affect agreements reached on individual transactions

entered into prior to the effective date of the withdrawal.

TAD/PG(2009)21

65

1. The Secretariat should ensure that a non-Participant interested in participating in this Sector

Understanding is provided with full information on the terms and conditions associated with becoming a

Participant to this Sector Understanding.

2. The non-Participant concerned would confirm, at an appropriate level, that it would agree to

provisionally apply the disciplines of this Sector Understanding.

3. The non-Participant would then be invited by the Participants to take part in the activities in

pursuance of this Sector Understanding and to attend, as an observer, the relevant meetings. Such an

invitation would be for a maximum of two years and could be renewed once.

4 At the end of that period, the non-Participant shall indicate whether it wishes to become a

Participant in this Sector Understanding and to follow its disciplines; in the case of such confirmation, the

non-Participant shall contribute, on an annual basis, to the costs associated with the implementation of this

Sector Understanding.

5. The interested non-Participant shall be considered a Participant 30 working days after the

confirmation referred to in Article 4 of this Appendix.

TAD/PG(2009)21

66

Note: Models no longer in production are shown with an asterisk.

Airbus A 300

Airbus A 319

Airbus A 320

Airbus A 321

Airbus A 330

Airbus A 340

Airbus A 350

Airbus A 380

Boeing B 707*, 717*, 727*

Boeing B 737-700, 800, 900

Boeing B 747

Boeing B 757

Boeing B 767

Boeing B 777

Boeing B 787

British Aerospace BAe146*

Lockheed L-100*

Lockheed L-1011*

McDonnell Douglas DC-9*

McDonnell Douglas DC-10*

McDonnell Douglas MD-11*

McDonnell Douglas MD-80 series*

McDonnell Douglas MD-90 series*

Ramaero 1.11-495

TAD/PG(2009)21

67

Note: Models no longer in production are shown with an asterisk.

Airbus A 318

Alenia C27J

Alenia G222

Alenia/Sukhoi Superjet 100

ATR ATR 42-300*

ATR ATR 42-320*

ATR ATR 42-400*

ATR ATR 42-500

ATR ATR 72-200*

ATR ATR 72-210*

ATR ATR 72-500

Boeing 737-600

Bombardier CRJ 100 *

Bombardier CRJ 200*

Bombardier CRJ 440*

Bombardier CRJ 700

Bombardier CRJ 705

Bombardier CRJ 900

Bombardier CRJ 1000

Bombardier Multi-Mission Q Series

Bombardier Q 200

Bombardier Q 300

Bombardier Q 400

British Aerospace BAe ATP*

British Aerospace BAe Jetstream 41*

British Aerospace BAe 748*

British Aerospace RJ70*

British Aerospace RJ85*

British Aerospace RJ100*

British Aerospace RJ115*

Broman (U.S.) BR 2000

Casa CN235

De Havilland Dash 8 – 100 *

EADS/MBB C160 Transall

Embraer EMB 120

Embraer Embraer 170

Embraer Embraer 175

Embraer Embraer 190

Embraer Embraer 195

Embraer ERJ 135

Embraer ERJ 140

Embraer ERJ 145

Embraer ERJ 145 XR

TAD/PG(2009)21

68

Fokker F 27*

Fokker F 28*

Fokker F 50*

Fokker F 70*

Fokker F 100*

Gulfstream America Gulfstream I-4

Mitsubishi MRJ-70

Mitsubishi MRJ-90

Saab SF 340

Saab 2000

Short SD 3-30*

Short SD 3-60*

TAD/PG(2009)21

69

Notes: 1. Models no longer in production are shown with an asterisk.

2. Helicopters are listed in this Category.

Adam Aircraft A700

AERO AT3

Agusta Westland A109K2

Agusta Westland A 109 GRAND

Agusta Westland A 109 POWER

Agusta Westland A 119 KOALA

Agusta Westland EH 101

Agusta Westland AB 139

Agusta Westland AB 412

Agusta Westland AW 139

Airbus A318-112

Airbus A319-133 (ACJ)

Airbus A319-133 (Executive)

Aircraft Investor Resources Escape

Aircraft Investor Resources Victory

Avcraft Envoy 3

Aviation Technology Group MK-10

Beech 1900

Beech Super King Air 300

Beech Starship 1

Bell/Agusta Aerospace BA609

Bell Helicopter 206 series

Bell Helicopter 212, 206T *

Bell Helicopter 214 *

Bell Helicopter 230 *

Bell Helicopter 407

Bell Helicopter 412 series

Bell Helicopter 430

Bell Helicopter Textron Bell Eagle Eye UAS

Bell Helicopter Textron UN-IN Twin Huey

Bell Helicopter Textron 427

Bell Helicopter Textron 429

Boeing 717-200* (Business Express)

Boeing 737-700 (BBJ)

Boeing 737-800 (BBJ 2)

Boeing Vertol 234 Chinook

TAD/PG(2009)21

70

Bombardier BD-700

Bombardier Challenger 300

Bombardier Challenger 600 *

Bombardier Challenger 601 *

Bombardier Challenger 601-3A*

Bombardier Challenger 601-3R*

Bombardier Challenger 604*

Bombardier Challenger 605

Bombardier Challenger 800

Bombardier Challenger 850

Bombardier Challenger 870

Bombardier Challenger 890

Bombardier Challenger SE

Bombardier Global 5000

Bombardier Global Express XRS

Bombardier Learjet 40 / 40XR

Bombardier Learjet 45 / 45XR

Bombardier Learjet 60 / 60XR

Bombardier 215T

Bombardier 415

Bombardier 417

Brandtly B-2B

British Aerospace BAe Jetstream 31*

British Aerospace BAe Jetstream Super 31*

British Aerospace BAe 125*

British Aerospace BAe 1000*

Britten Norman BN2AMkIII - Trislander

Britten Norman BN2B Islander

Britten Norman BN2T Islander

Britten Norman BN2T-4S Defender 4000

Bush Caddy Canada L160

Bush Caddy Canada L162

Bush Caddy Canada L164

Bush Caddy Canada R80

Bush Caddy Canada R120

Canadair CL-44 *

Canadair CL-215 *

Casa C 212 series

Cessna C-208B

Cessna CE-208

Cessna CE-525

Cessna CE-525A

Cessna CE-525B

Cessna CE-550

TAD/PG(2009)21

71

Cessna CE-560XL

Cessna CE-750

Cessna Citation - Encore

Cessna Citation - Sovereign

Cessna Citation - XLS

Cessna Mustang

Cessna 441 Conquest III and Caravan

208 series

Chichester-Miles Consultants Leopard SIX

Claudius Dornier CD2

Convair 5800 *

CSL-T Krosno FK-9 Mark

CSL-T Krosno FK-12 Comet

CSL-T Krosno FK-14 Polaris

Dassault Falcon 7X

Dassault Falcon 50*

Dassault Falcon 50 EX

Dassault Falcon 900 A, B, C*

Dassault Falcon 900 DX

Dassault Falcon 900 EX

Dassault Falcon 2000

Dassault Falcon 2000 DX

Dassault Falcon 2000 EX

Dassault Falcon 2000 LX

De Havilland Dash 6 *

De Havilland Dash 7 *

De Havilland DHC4 –Caribou *

De Havilland DHC5 – Buffalo *

De Havilland DHC6 – Twin Otter *

De Havilland DHC1 – Chipmunk*

De Havilland DHC2 – Beaver *

De Havilland DHC3 – Otter *

De Havilland DH.82 Tiger Moth *

De Havilland DH.104 Dove *

De Havilland DH.114 Heron *

Diamond Aircraft DA20

Diamond Aircraft DA40

Diamond Aircraft DA42

Diamond Aircraft D-Jet

Diamond Aircraft HK36 Super Dimona

Dornier DO 228-200*

EADS PZL Okecie PZL-104MA “Wilga” 2000

EADS PZL Okecie PZL-106 BT 601 Turbo

EADS PZL Okecie PZL-106 BTU-34 Turbo

EADS PZL Okecie PZL-130 “Orlik” TC II

Eclipse Eclipse 500

Embraer EMB 110

Embraer Legacy 450

TAD/PG(2009)21

72

Embraer Legacy 500

Embraer Legacy 600

Embraer Lineage 1000

Embraer Phenom 100

Embraer Phenom 300

Embraer/FAMA EMB 121

Enstrom F-28F

Enstrom 280FX

Enstrom 480

Epic Air Dynasty *

Epic Air Elite *

Epic Air LT *

Eurocopter AS 332

Eurocopter AS 350

Eurocopter AS 355

Eurocopter AS 365

Eurocopter EC120

Eurocopter EC130

Eurocopter EC 135

Eurocopter EC 145

Eurocopter EC 155

Eurocopter EC 225

Eurocopter EC 635 P2

Eviation EV-20

EWS Manufacturing Flight Design CT

Fairchild Merlin/300

Fairchild Merlin IVC-41

Fairchild Metro 25

Fairchild Metro III

Fairchild Metro III A

Fairchild Metro III V

Found Aircraft Bush Hawk XP

Found Aircraft E350 *

Found Aircraft E350 XC *

Grob G 160

Grob G 180 SP

Gulf Aircraft Partnership JP-100

Gulfstream G100

Gulfstream G150

Gulfstream G200

Gulfstream G300/400

Gulfstream G350/450

Gulfstream G500/550

Gulfstream G-1159C

Gulfstream America Gulfstream II, III, IV and V

Hawker Beechcraft Beechjet 400 series

TAD/PG(2009)21

73

Hawker Beechcraft Hawker 400XP

Hawker Beechcraft Hawker 450

Hawker Beechcraft Hawker 800

Hawker Beechcraft Hawker 850 XP

Hawker Beechcraft Hawker 900 XP

Hawker Beechcraft Hawker 1000

Hawker Beechcraft Hawker 4000

Hawker Beechcraft King Air B200

Hawker Beechcraft King Air 350

Hawker Beechcraft King Air C90B

Hawker Beechcraft King Air C90GT

Hawker Beechcraft Starship 2000A

Hiller UH-12E3

Hiller UH-12E3T

Honda HA-420

IAI Arava 101 B

IAI Astra SP and SPX

Ibis Aerospace Ae 270 series

Kaman K-1200

KARI Firefly

Learjet 31 *

Learjet 35 *

LET 410

LET 420

Marganski & Myslowski EM-11 Orka

Marganski & Myslowski EM-10 Bielik

MBB BK 117 C*

MBB BO 105 *

MBB BO 105 CBS*

McDonnell Helicopter MD 902, MD 520, MD 600

Mitsubishi Mu2 Marquise

Piaggio P 180

Pilatus PC-12

Piper Cheyenne II

Piper PA-42-100 (Cheyenne 400)

Piper PA-42-720 (Cheyenne III A)

Piper PA-46-500TP

Piper PiperJet

Piper T 1040

Piper 400 LS

PZL-Mielec PZL M18 Dromader

PZL-Mielec PZL M26 Iskierka

PZL-Mielec PZL M28 Bryza

PZL-Mielec PZL M28 Skytruck

PZL-Swidnik PZL-Kania

TAD/PG(2009)21

74

PZL-Swidnik PZL-Mi-2

PZL-Swidnik PZL-Sokol

PZL-Swidnik PZL SW-4

PZL-Swidnik PZL SW-5

PZL-Swidnik / Instytut

Lotnictwa

I-23 Manager

Quest Kodiak 100

Reims Cessna-Caravan II

Reims F406

Robinson R-22

Robinson R-44

Saunders ST-27*

Safire S-26

Schweizer 330

Schweizer 333

Schweizer 3000C series

SIAI-Marchetti SF 600 Canguro*

Sikorsky S-64

Sikorsky S-69

Sikorsky S-76 series

Sikorsky S-92

Sino Sweringen SJ30-2

Socata TB20

Socata TBM 700 series

Socata TBM 850

Symphony S-160 *

Viking Beaver *

Viking DHC-2T Turbo Beaver

Viking DHC-6 Twin Otter 400

Watson Flight Services Yukon

Westland W30*

3Xtrim 450 Ultra

3Xtrim 495 Ultra Plus

3Xtrim 550 Trener

TAD/PG(2009)21

75

This Appendix sets out the procedures to be used when determining the pricing of official support for a

transaction subject to this Sector Understanding. Section 1 sets out the risk classification procedures;

Section 2 sets out the minimum premium rates to be charged for Category 1 aircraft, Section 3 sets out the

minimum premium rates to be charged for Category 2 and Category 3 aircraft and Section 4 sets out the

minimum premium rates to be charged for used aircraft, spare engines, spare parts, cargo conversion/major

modification/refurbishing, maintenance and service contracts, and engine kits.

1. The Participants have agreed to establish a list of risk classifications (the List) for

buyers/borrowers; such risk classifications reflect the senior unsecured credit rating of buyers/borrowers

using a common rating scale such as that of one of the credit rating agencies (CRA).

2. The risk classifications will be made by experts nominated by the Participants against the risk

classification scales set out in Table 1 (Category 1 aircraft) and Table 2 (Category 2 and Category 3

aircraft) of this Appendix.

the provisions of Article 18 of this Appendix.

4. The List shall be developed and agreed among the Participants prior to the entry into force of this

Sector Understanding; it shall be maintained by the Secretariat and made available to all the Participants on

a confidential basis.

5. Upon request, the Secretariat may, on a confidential basis, inform an aircraft-producing

non-Participant of the risk classification of a buyer/borrower; in this case, the Secretariat shall inform all

Participants of the request. A non-Participant may, at any time, propose additions to the List to the

Secretariat. A non-Participant proposing an addition to the List may participate in the risk-classification

procedure as if it were an interested Participant.

TAD/PG(2009)21

76

6. For risk classification for buyers/borrowers of Category 1 aircraft, the List will be updated on an

on-going basis in order:

a) To respond to proposals for additions to the List of a new buyer/borrower in respect of which

Participants are approached to provide an indication or commitment of premium rates.

b) To respond to proposals for a change to the risk classification of a buyer/borrower on the List.

c) To reflect the results of a Participant’s revalidation of an existing buyer/borrower’s risk

7. Any Participant may propose changes to the List of buyers/borrowers for Category 1 aircraft at

any time. A period of ten working days is allowed for interested Participants either to agree to or to

challenge any proposed change to the List; a failure to respond within this period is considered as an

agreement to the proposal. If at the end of the ten-day period, no challenge has been made to the proposal,

the proposed change in the List is deemed to have been agreed. The Secretariat will modify the List

accordingly and send an OLIS message within five working days; the revised List shall be binding from

the date of that message.

8. For risk classification for buyers/borrowers of Category 2 and Category 3 aircraft, the List shall

be updated by the Secretariat every six months; to this end, the Participants may, no later than the end of

June and December each year, submit proposals for new risk classifications for existing and new

buyers/borrowers.

9. In the absence of objections by an interested Participant within the ten working-day period which

follows the circulation by the Secretariat of the proposed revised List, such revised List shall be considered

as accepted. The Secretariat shall adjust the List of buyers/borrowers for Category 2 and Category 3

aircraft accordingly and send an OLIS message in the following five working days. The adjusted List shall

be binding from the date of that message.

10. Subject to the provisions of Article 18 of this Appendix, in addition to the regular updates, for

Participant intends to signal, in any form, its intention to apply another risk classification than that on the

Participant shall, before any use of the new risk classification, send a request to the Secretariat for updating

the List on the basis of an alternative or new risk classification; the Secretariat will circulate this request to

all Participants within five working days, without mentioning the identity of the Participant who submitted

the request.

than USD 5 million, a Participant not wishing to follow the risk classification procedure set out in Articles 10

and 11 of this Appendix shall apply the risk classification “C” for the buyer/borrower which is the subject of the

transaction and shall notify the transaction in accordance with Article 25 a) of this Sector Understanding.

TAD/PG(2009)21

77

follows the circulation by the Secretariat of this request with respect to Category 2 and Category 3 aircraft,

such revised List shall be considered as accepted. The Secretariat shall adjust the List accordingly and send

an OLIS message in the following five working days. The adjusted List shall be binding from the date of

that message.

12. In the event of a challenge to a proposed risk classification, interested Participants shall, at an

expert level, make their best efforts to come to an agreement on the risk classification within a further

period of ten working days after notification of a disagreement. All means necessary to resolve the

or face-to-face consultations). If the Participants agree to a risk classification within this ten working-day

period, they shall inform the Secretariat of the outcome upon which the Secretariat will update the List

accordingly and send an OLIS message in the following five working days. The adjusted List shall be

binding from the date of that message.

13. In case the disagreement is not resolved among the experts within ten working days, the issue

will be referred to the Participants for advice on an appropriate risk classification, in a period that shall not

exceed five working days.

14. In the absence of a final agreement, a Participant may have recourse to a CRA to determine the

risk classification of the buyer/borrower. In such cases, the Chairman of the Participants shall address a

communication on behalf of the Participants to the buyer/borrower, within ten working days. The

communication shall include the terms of reference for the risk assessment consultation as agreed among

the Participants. The resulting risk classification will be registered in the List and become binding

immediately following the Secretariat’s OLIS message to finalise the update procedure within five working

days.

15. Unless otherwise agreed, the cost of such recourse to a CRA shall be borne by the interested

buyer/borrower.

16. During the procedures set out in Articles 12 to 14 of this Appendix, the prevailing risk

classification shall remain applicable.

17. For Category 1 aircraft, the valid risk classifications are the prevailing risk classifications as

recorded in the List maintained by the Secretariat; indications and commitments of premium rates shall

only be made in accordance with those risk classifications.

18. For Category 2 and Category 3 aircraft, risk classifications have a 12-month validity period from

the date recorded in the List by the Secretariat for the purpose of the Participants providing indications and

final commitments of premium rates; the validity period for a specific transaction may be extended by an

additional 18 months once a final commitment has occurred and premium holding fees are charged. Except

in cases of a bankruptcy filing or insolvency (or an equivalent event in the relevant jurisdiction),

classification shall not be changed during the 12-month validity period. If a different classification is

introduced for a given buyer/borrower within that period pursuant to the provisions of Articles 6 and 7 of

than USD 5 million, a five working-day period shall apply.

TAD/PG(2009)21

78

this Appendix, the classification applicable to Category 2 and Category 3 aircraft may, upon agreement by

interested Participants, be updated accordingly.

19. If, at the campaign stage, a buyer/borrower requests an indication of its risk classification and if it

is not yet on the List, that buyer/borrower may ask for an indicative risk classification from a CRA at its

own expense. This risk classification shall not be included in the List; it may be used by the Participants as

a basis for their own risk assessment.

20. This Section determines the minimum premium rates for officially supported export credits for

Category 1 aircraft.

a) Article 21 of this Appendix sets out the conditions for establishing the base premium

corresponding to the senior unsecured credit rating of a buyer/borrower (or, if a different entity,

the primary source of repayment of the transaction).

b) Articles 22 to 24 below and Annex I of this Appendix describe the conditions for establishing the

use of the Cape Town Convention discount.

c) Table 1 a) sets out the minimum premium rates to apply, either as base premium or after the Cape

Town Convention discount.

d) Articles 25 and 26 of this Appendix set out the conditions for establishing the non-asset-backed

premium corresponding to the risk category of the sovereign buyers/borrowers.

21. The Participants may provide official support at or above the base premium only if all the

conditions below are fulfilled:

a) For Risk Category 1:

1) An asset-backed transaction.

2) A first priority security interest on the aircraft.

3) No more than 85% advance rate of net price of the aircraft.

4) No less frequently than quarterly mortgage-style payments.

b) For Risk Category 2 and Risk Category 3, the conditions set out in paragraph a) above, plus one

of the risk mitigants listed in paragraph e) below.

c) For Risk Category 4, the conditions set out in paragraph a) above, plus two of the risk mitigants

listed in paragraph e) below.

d) For Risk Category 5, the conditions set out in paragraph a) above, plus three of the risk mitigants

listed in paragraph e) below.

e) For purposes of this Article, the Participant may select from the following risk mitigants:

TAD/PG(2009)21

79

1) Each 5% reduction from the 85% of net price advance rate referred to in paragraph 21 a) 3) of

this case, the Participant shall not provide official support in any form in excess of the reduced

advance rate.

2) A straight line amortisation, in accordance with the provisions of Article 14 a) 2) of this

Sector Understanding.

3) A repayment term which does not exceed ten years.

22. A Cape Town Convention discount from the base premium set out in Article 21 of this Appendix

shall be allowed if all of the following conditions are fulfilled:

a) The operator of the aircraft (and, if different, the borrower/buyer or lessor, if warranted, in the

view of the Participant, given the structure of the transaction) is based in a State which is a

Contracting Party to the Cape Town Convention, and to whose territorial units applicable to the

transaction the Cape Town Convention applies.

b) The qualifying declarations have been made by, and apply in, the State(s) referred to in

paragraph a) above.

c) The State referred to in paragraph a) above is on the agreed list of States qualifying for Cape

Town Convention discount (qualifying States).

23. An initial agreed list of qualifying States shall be provided by the Participants to the Secretariat

prior to the entry into force of this Sector Understanding. The Participants shall agree to any proposed

changes in the list of qualifying States within 30 working days of the proposal. The Participants shall

notify the Secretariat whenever additional States have met the conditions of Article 22 a) and b) of this

Appendix, or when States already on the list no longer meet the conditions set out in Article 22 a) or b) of

this Appendix, or have breached their obligations under the Cape Town Convention. States no longer

meeting the conditions set out in Article 22 a) or b) of this Appendix shall be deleted from the list.

24. The Secretariat shall, based on notifications from the Participants, maintain the list of States

qualifying for Cape Town Convention discounts.

25. In the case of non-asset backed transactions with a sovereign or secured by a sovereign guarantee,

the Participants may provide official support at or above the minimum premium rates set out in Article 26

of this Appendix, provided all the conditions set out in Article 21 of this Appendix, except for Article 21 a)

1) and 2), are fulfilled. Table 1 c) sets out the conversions from the OECD Country Risk Classification to

the Risk Classification of this Understanding in the case where a rating from the CRA Standard and Poors

is not available for a sovereign buyer/borrower.

26. Table 1 b) sets out the minimum premium rates to apply to non-asset backed transactions with a

sovereign or secured by a sovereign guarantee.

TAD/PG(2009)21

80

(Up-front, % of officially supported export credit amount)

Risk Category

Base Premium Without

Cape Town Convention

Discount

Premium With Cape Town

Convention Discount

1 (AAA) 4.00 3.80

1 (AA) 4.00 3.80

1 (A) 4.00 3.80

1 (BBB+) 4.00 3.80

1 (BBB) 4.00 3.80

1 (BBB-) 4.00 3.80

2 (BB+) 4.75 4.27

2 (BB) 4.75 4.27

3 (BB-) 5.50 4.95

3 (B+) 5.50 4.95

4 (B) 6.25 5.31

4 (B-) 6.25 5.31

5 (CCC) 7.50 6.00

5 (CC) 7.50 6.00

5 (C) 7.50 6.00

TAD/PG(2009)21

81

(Up-front, % of officially supported export credit amount)

Risk Category Minimum Premium Rate

1 (AAA) 4.80

1 (AA) 4.80

1 (A) 4.80

1 (BBB+) 5.20

1 (BBB) 5.20

1 (BBB-) 5.20

2 (BB+) 6.40

2 (BB) 6.40

3 (BB-) 7.70

3 (B+) 7.70

4 (B) 9.40

4 (B-) 9.40

5 (CCC) 12.40

5 (CC) 12.40

5 (C) 12.40

TAD/PG(2009)21

82

OECD Risk

Category

Classification

Buyer/Borrower Risk

Category

Category 1 Aircraft Risk

Category

0 (AAA) 1

1 (AA) 1

2 (A) 1

3 (BBB+) 1

3 (BBB) 1

3 (BBB-) 1

4 (BB+) 2

4 (BB) 2

5 (BB-) 3

5 (B+) 3

6 (B) 4

6 (B-) 4

7 (CCC) 5

7 (CC) 5

7 (C) 5

TAD/PG(2009)21

83

27. This Section determines the minimum premium rates for officially supported export credits for

Category 2 and Category 3 aircraft.

a) Article 28 of this Appendix sets out the conditions for establishing the minimum premium rates

corresponding to the senior unsecured credit rating of a buyer/borrower (or, if a different entity,

the primary source of repayment of the transaction; the borrower or such different entity).

b) Articles 22 to 24 of this Appendix describe the methodology for adjusting the minimum premium

rates set out in paragraph a) above for a transaction based on the applicability thereto of the Cape

Town Convention, where implemented with the qualifying declarations set out in Annex 1 of this

Appendix.

c) A downward adjustment to the minimum premium rate shall be permitted for buyers/borrowers in

countries that have fulfilled the conditions of Article 22 of this Appendix or are located in a

Participant’s jurisdiction.

d) Table 2 a) below sets out the minimum premium rates to apply without any adjustment referred to

in paragraph c) above.

e) Table 2 b) below sets out the minimum premium rates to apply after the adjustment referred to in

paragraph c) above.

28. In addition to the compliance with the relevant provisions of Part 2 of this Sector Understanding,

secured by a sovereign guarantee, or both.

29. The minimum premium rates applicable to Category 3 aircraft are those in Tables 2 a) and 2 b)

below with a repayment term of ten years.

30. Notwithstanding the provisions of Article 28 of this Appendix, the Participants may provide

officially supported export credits for non-sovereign transactions involving Category 3 aircraft that do not

include a first priority security interest in the aircraft or transactions that are not backed by the full faith

and credit of a sovereign government, provided the following conditions are fulfilled:

a) The maximum value of the export contract receiving official support is USD 15 million or less.

b) The maximum repayment term is 8.5 years or less.

c) No third party has a security interest in the aircraft being financed.

d) A minimum surcharge of the lesser of 30% or 30 basis points shall be applied to the ten-year

minimum premium rates set out in Table 2 a) below.

TAD/PG(2009)21

84

Risk

Classification

Repayment Term

10 years 12 years 15 years

AAA 13 18 31

AA 24 33 51

A 34 43 61

BBB+ 42 52 72

BBB 50 61 84

BBB- 61 73 97

BB+ 74 87 111

BB 91 106 131

BB- 114 128 154

B+ 134 147 172

B 155 166 190

B- 179 189 211

CCC 201 209 231

CC 228 232 252

C 273 274 288

TAD/PG(2009)21

85

Risk

Classification

Repayment Term

10 years 12 years 15 years

AAA 12 16 28

AA 22 30 46

A 31 39 55

BBB+ 38 47 65

BBB 45 55 76

BBB- 55 66 88

BB+ 67 79 101

BB 83 96 119

BB- 104 116 140

B+ 122 134 156

B 141 151 173

B- 163 171 192

CCC 183 190 210

CC 207 211 229

C 248 249 262

TAD/PG(2009)21

86

31. The following adjustments to the minimum premium rates set out in Table 2 a) and 2 b) above

may be applied:

a) A discount of five basis points to the minimum premium rates set out in Tables 2 a) and 2 b)

above may be applied for officially supported transactions in the form of conditional insurance

cover.

b) The minimum premium rates shall be applied on the covered principal amount.

32. When providing official support for used Category 2 aircraft covered by Part 3 of this Sector

Understanding, the Participants shall apply the following minimum premium rates:

a) In the case where a buyer/borrower is classified in one of the risk-categories in Table 2 a) above,

the Participants shall apply the minimum premium rates set out in that Table.

b) In the case where a buyer/borrower is not classified in one of the risk-categories in Table 2 a)

above and is classified in one of the five risk categories set out in Table 1 a) above, the

Participants shall apply the minimum premium rates set out in Table 3 below.

Risk Category

as set out in

Table 1 a)

Minimum Premium Rates

Repayment Terms

up to and including

10 years

Repayment Terms

above 10 years and

up to and including

12 years

Repayment Terms

above 12 years and up

to and including 13

years

1 35 43 62

2 77 91 116

3 117 130 156

4 157 168 192

5 221 226 246

TAD/PG(2009)21

87

33. When providing official support for all goods and services other than used Category 2 aircraft

covered by Part 3 of this Sector Understanding, the minimum premium rates set out in Table 4 below shall

apply.

34. Except for the official support for used Category 1 aircraft, a discount of five basis points to the

minimum premium rates referred to in Articles 32 and 33 above may be applied for officially supported

transactions in the form of conditional insurance cover.

Risk Category as

set out in

Table 1 a)

Minimum Premium

Rate

1 35

2 77

3 117

4 157

5 221

TAD/PG(2009)21

88

1. The term “qualifying declarations” for the purpose of Section 2 of Appendix III, and all other

references thereto in this Sector Understanding, means that a Contracting party to the Cape Town

Convention (Contracting Party):

a) has made the declarations in Article 2 of this Annex, and

b) has not made the declarations in Article 3 of this Annex.

2. The declarations referred to in Article 1 a) of this Annex are the following, provided that, while

both of the declarations specified in Article 2 d) and e) of this Annex shall be encouraged, the making of

either one of them (together with the making of the declarations in Article 2 a) to c) of this Annex and the

non-declarations under Article 3 of this Annex) may permit application of the Cape Town Convention

discount:

a) Insolvency: State Party declares that it will apply the entirety of Alternative A under Article XI of

the Aircraft Protocol to all types of insolvency proceeding and that the waiting period for the

purposes of Article XI (3) of that Alternative shall be no more than 60 calendar days.

b) Deregistration: State Party declares that it will apply Article XIII of the Aircraft Protocol.

c) Choice of Law: State Party declares that it will apply Article VIII of the Aircraft Protocol.

d) Method for Exercising Remedies: State Party declares under Convention Article 54 (2) that any

remedies available to the creditor under any provision of the Convention which are not expressed

under the relevant provisions thereof to require application to a court may be exercised without

leave of the court (the insertion “without court action and” to be recommended (but not required)

before the words “leave of the court”).

e) Timely Remedies: State Party declares that it will apply Article X of the Aircraft Protocol in its

entirety and that the number of working days to be used for the purposes of the time-limit laid

down in Article X (2) of the Aircraft Protocol shall be in respect of:

1) the remedies specified in Articles 13 (1) (a), (b) and (c) of the Convention (preservation of

the aircraft objects and their value; possession, control or custody of the aircraft objects; and

immobilisation of the aircraft objects), not more than that equal to ten calendar days, and

2) the remedies specified in Articles 13 (1) (d) and (e) of the Convention (lease or management

of the aircraft objects and the income thereof and sale and application of proceeds from the

aircraft equipment), not more than that equal to 30 calendar days.

TAD/PG(2009)21

89

3. The declarations referred to in Article 1 b) of this Annex are the following:

a) Relief Pending Final Determination: State Party shall not have made a declaration under Article

55 of the Convention opting out of Article 13 or Article 43 of the Convention; provided, however,

that, if State Party made the declarations set out under Article 2 d) of this Annex, the making of a

declaration under Article 55 of the Convention shall not prevent application of the Cape Town

Convention discount.

b) Rome Convention: State Party shall not have made a declaration under Article XXXII of the

Aircraft Protocol opting out of Article XXIV of the Aircraft Protocol.

c) Lease Remedy: State Party shall not have made a declaration under Article 54 (1) of the

Convention preventing lease as a remedy.

4. Regarding Article XI of the Aircraft Protocol, for Member States of the European Community,

the qualifying declaration set out in Article 2 a) of this Annex shall be deemed made by a Member State,

for purposes hereof, if the national law of such Member State was amended to reflect the terms of

Alternative A under Article XI of the Aircraft Protocol (with a maximum 60 calendar days waiting period).

As regards the qualifying declarations set out in Article 2 c) and d) of this Annex, these shall be deemed

satisfied, for the purpose of this Sector Understanding, if the laws of the European Community or the

relevant Member States are substantially similar to that set out in such Articles of this Annex.

TAD/PG(2009)21

90

a) The minimum fixed interest rate shall be the Commercial Interest Reference Rate for Category 1

aircraft (CIRR-1) established according to the provisions set out in Articles 2 to 5 of this

Appendix.

b) The provision of official financing support shall not offset or compensate, in part or in full, for

the appropriate premium rate to be charged for the risk of non-repayment pursuant to the

provisions of Appendix III.

a) A CIRR-1 is established for any of the eligible currencies set out in Article 10 of this Sector

Understanding by adding a fixed margin of 120 basis points to a base rate of seven-year

government bond yields.

b) A CIRR-1 shall be calculated monthly using data from the previous month and notified

electronically to the Secretariat, no later than five days after the end of each month. The

Secretariat shall then inform immediately all Participants of the applicable rates and make them

publicly available. CIRR-1s shall take effect on the 15th day of each month.

c) A Participant or a non-Participant may request that a CIRR-1 be established for the currency of a

non-Participant. In consultation with the non-Participant, a Participant or the Secretariat, on

behalf of that non-Participant, may make a proposal for the construction of the CIRR-1 in that

currency using Common Line procedures in accordance with Articles 29 to 34 of this Sector

Understanding.

a) Holding the CIRR-1: the CIRR-1 applying to a transaction shall not be held for a period longer

than three months from its selection (export contract date or any application date thereafter) to the

credit agreement date. If the credit agreement is not signed within that limit, and the CIRR-1 is

reset for an additional three months, the new CIRR-1 shall be committed at the rate prevailing at

the date of reset.

b) After the credit agreement date, the CIRR-1 shall be applied for drawing periods which do not

exceed three months. After the first three months drawing period, the CIRR-1 is reset for the next

three months; the new CIRR-1 shall be the one prevailing at the first day of the new three-month

period (procedure to be replicated for each subsequent three-month period of drawings).

TAD/PG(2009)21

91

In the event of a voluntary, early repayment of a loan or any portion thereof, the borrower shall

compensate the institution providing official financing support for all costs and losses incurred as a result

of such actions, including the cost to the government institution of replacing the part of the fixed rate cash

inflow interrupted by the early repayment.

When market developments require the notification of an amendment to a CIRR-1 during the course of a

month, the amended rate shall be implemented ten working days after notification of this amendment has

been received by the Secretariat.

compiled by the British Bankers’ Association (BBA) with the currency and the maturity

corresponding to the frequency of interest payment of officially supported export credit.

b) The floating interest rate setup mechanism shall vary according to the repayment profile chosen,

as follows:

1) When the repayment of principal and the payment of interest are combined in equal

instalments, the relevant LIIBOR effective two business days prior to the loan drawdown date,

according to the relevant currency and payment frequency shall be used to calculate the entire

payment schedule, as if it were a fixed rate. The principal payment schedule shall then be

fixed as well as the first interest payment. The second interest payment, and so on, shall be

calculated based on the relevant LIBOR effective two business days before the prior payment

date over the outstanding principal balance initially established.

2) When the repayment of principal is made in equal instalments, the relevant LIBOR, according

to the relevant currency and payment frequency, effective two business days before the loan

drawdown date and prior to each payment date shall be used to calculate the following interest

payment over the outstanding principal balance.

c) Where official financing support is provided for floating rate loans, banks and other financing

institutions shall not be allowed to offer the option of the lower of the CIRR-2 (at time of the

original contract) or the short-term market rate throughout the life of the loan

a) The minimum fixed interest rate shall be either:

1) the swap rate, concerning the relevant currency of the officially supported export credit and

with a maturity according to Table 5 below, to be set two business days prior to each

drawdown date, or

TAD/PG(2009)21

92

Table 5

Repayment Term Swap Rate Maturity

Up to 8 years 5 years

Up to 10 years 6 years

Up to 12 years 7 years

Up to 15 years 9 years

2) the Commercial Interest Reference Rate for Category 2 and Category 3 aircraft (CIRR-2)

established according the provisions set out in Articles 8 to 11 of this Appendix.

b) The provision of official financing support shall not offset or compensate, in part or in full, for

the appropriate premium rate to be charged for the risk of non-repayment pursuant to the

provisions of Appendix III.

a) A CIRR-2 is established for any of the eligible currencies set out in Article 10 of this Sector

Understanding and calculated by adding a fixed margin of 100 basis points to either of the

following two yields (the base rates):

1) five-year government bond yields for a repayment term up to and including ten years, or

2) seven-year government bond yields for over ten and up to and including 15 years.

b) CIRR-2 shall be calculated monthly using data from the previous month and notified

electronically to the Secretariat, no later than five days after the end of each month. The

Secretariat shall then inform immediately all Participants of the applicable rates and make them

publicly available. CIRR-2s shall take effect on the 15th day of each month.

c) A Participant or a non-Participant may request that a CIRR-2 be established for the currency of a

non-Participant. In consultation with the non-Participant, a Participant or the Secretariat on behalf

of that non-Participant may make a proposal for the construction of the CIRR-2 in that currency

using the Common Line procedures set out in Articles 29 to 34 of this Sector Understanding.

a) Holding the CIRR-2: the CIRR-2 applying to a transaction shall not be held for a period longer

than 180 days from its selection (export contract date or any application date thereafter) to the

credit agreement date. If the credit agreement is not signed within that limit, and the CIRR-2 is

reset for an additional six months, the new CIRR-2 shall be committed at the rate prevailing at the

date of reset.

b) After the credit agreement date, the CIRR-2 shall be applied for drawing periods which do not

exceed six months. After the first six-month drawing period, the CIRR-2 is reset for the next

six months; the new CIRR-2 shall be the one prevailing at the first day of the new six-month

period and cannot be lower than the CIRR-2 originally selected (procedure to be replicated for

each subsequent six-month period of drawings).

TAD/PG(2009)21

93

a) Within the provisions of the credit agreement the borrower shall not be allowed an option to

switch from an officially supported floating rate financing to a pre-selected CIRR-2 financing,

nor be allowed to switch between a pre-selected CIRR-2 and the short term market rate quoted on

any interest payment date throughout the life of the loan.

b) In the event of a voluntary, early repayment of a loan or any portion thereof or when the CIRR-2

applied under the credit agreement is modified into a floating or a Swap rate, the borrower shall

compensate the institution providing official financing support for all costs and losses incurred as

a result of such actions, including the cost to the government institution of replacing the part of

the fixed rate cash inflow interrupted by the early repayment.

When market developments require the notification of an amendment to a CIRR-2 during the course of a

month, the amended rate shall be implemented ten working days after notification of this amendment has

been received by the Secretariat.

TAD/PG(2009)21

94

1. Notifying country

2. Notification date

3. Name of notifying authority/agency

4. Identification number

5. Name and country of buyer

6. Name and country of borrower

7. Name and country of guarantor

9. Risk classification of buyer/borrower/guarantor

11. If official financing support is provided, is it a direct credit/refinancing/interest rate support

12. Description of the transaction supported, including aircraft Category, manufacturer and

number of aircraft

13. Final commitment date

14. Currency of credit

TAD/PG(2009)21

95

15. Credit amount, according to the following scale in USD millions:

Credit Amount

Category

Category 1 and

Category 2 Aircraft

Category 3 Aircraft

I 0-200 0-100

II 200-400 100-200

III 400-600 200-300

IV 600-900 300-400

V 900-1200 400-500

VI 1200-1500 500-600

VII 1500-2000* 600-*

* Indicate the number of USD 300 million multiples in excess of USD 2000 million

(Category 1 and Category 2 aircraft) and USD 100 million multiples in excess of

USD 600 million (Category 3 aircraft).

16. Percentage of official support

17. Repayment term

18. Repayment profile and frequency – including, where appropriate, weighted average life

19. Length of time between the starting point of credit and the first repayment of principal

20. Interest rate applied

21. Total premium charged by way of:

- up-front fees (in percentage of the credit amount) or

22. In the case of direct credit/financing, fees charged by way of:

- Arrangement/Structuring fee

- Commitment/Premium holding fee

- Administration fee

23. Premium holding period

24. In the case of pure cover, premium holding fees

25. Transaction structuring terms: risk mitigants

TAD/PG(2009)21

96

direct credit as a percentage of the direct credit amount is equal to the net present value of the sum of

premium rates, interest rate costs and fees charged under pure cover as a percentage of the credit amount

under pure cover.

as sovereign entities (or if a different entity, the primary source of repayment of the transaction).

the manufacture/refurbishment process, on or before delivery, as evidenced by the Bill of Sale from the

manufacturer.

Equipment and the Protocol thereto on Matters specific to Aircraft Equipment.

support is communicated to the recipient country, the buyer, the borrower, the exporter or the financial

institution, including without limitation, eligibility letters, marketing letters.

specific financial terms and conditions for official support; such common line shall prevail over the

relevant provisions of this Sector Understanding only for the transaction or in the circumstances specified

in the common line.

provides indemnification to the beneficiary after a specified waiting period; during the waiting period the

beneficiary does not have the right to payment from the Participant. Payment under conditional insurance

cover is subject to the validity and the exceptions of the underlying documentation and of the underlying

transaction.

Arrangement on Officially Supported Export Credits as published on the OECD website.

is acceptable to the Participants.

procurement through introduction of technology.

TAD/PG(2009)21

97

exported goods and/or services to defer payment over a period of time; an export credit may take the form

of a supplier credit extended by the exporter, or of a buyer credit, where the exporter’s bank or other

financial institution lends to the buyer (or his bank).

financial terms and conditions, either through a reciprocal agreement or by a unilateral act.

engines as buyer, or, in connection with a sale-leaseback arrangement, as lessee under a lease with a term

of at least five years, setting forth a binding commitment (excluding those relating to then unexercised

options), where non-performance entails legal liability.

financial institution for the purpose of purchasing an aircraft for the sole benefit of an airline and the

private financial institution. Such SPC would retain legal title/ownership of the aircraft and act as

mortgagee.

experience with the buyer/borrower concerned or has been requested by a manufacturer/exporter to provide

official support.

institution acting for or on behalf of a government and, on the other hand, banks or other financial

institutions which allows the provision of fixed rate export finance at or above the relevant minimum fixed

interest rate.

cargo aircraft.

price discounts and other cash credits, less all other credits or concessions of any kind related or fairly

allocable thereto, as stated in a binding representation by each of the aircraft and engine manufacturers – in

the case of Category 2 and Category 3 aircraft, the engine manufacturer representation is required only

when it is relevant according to the form of the purchase agreement – or service provider, as the case may

discount rate used shall be the relevant CIRR base rate in the currency of the transaction.

the reporting form set out in Annex V.

TAD/PG(2009)21

98

of the final repayment of principal.

date when the buyer takes physical possession of the goods, or the weighted mean date when the buyer

takes physical possession of the goods. For services, the latest starting point of credit is the date of the

submission of the invoices to the client or acceptance of service by the client.

side), posted on any independent market index provider, such as Telerate, Bloomberg, Reuters, or its

equivalent, at 11:00 am New York time, two business days prior to the loan drawdown date.

the full faith and credit of the sovereign government.

the sum of time (in years) between the starting point of credit and each principal repayment weighted by

the portion of principal repaid at each repayment date.

TAD/PG(2009)21

99

TAD/PG(2009)21

100

a) This Sector Understanding, which complements the Arrangement, sets out the financial terms

and conditions which may apply to officially supported export credits relating to contracts for:

1) The export of complete renewable energies and water plants or parts thereof, comprising all

components, equipment, materials and services (including the training of personnel) directly

required for the construction and commissioning of such plants. The scope of eligible sectors

is set out in Appendix 1.

2) The modernisation of existing renewable energies and water plants in cases where the

economic life of the plant is likely to be extended by at least the repayment period to be

awarded. If this criterion is not met, the terms of the Arrangement apply.

b) This Sector Understanding does not apply to items located outside the power plant site boundary

for which the buyer is usually responsible, in particular, water supply not directly linked to the

power production plant, costs associated with land development, roads, construction villages,

power lines and switchyard, as well as costs arising in the buyer’s country from official approval

1) In cases where the buyer of the switchyard is the same as the buyer of the power plant and

the contract is concluded in relation to the original switchyard for that power plant, the terms

and conditions for the original switchyard shall not exceed those for the renewable energies

power plant; and

2) The terms and conditions for sub-stations, transformers and transmission lines with a

minimum voltage threshold of 60kV located outside the renewable energies power plant site

boundary shall not be more generous than those for the renewable energies power plant.

TAD/PG(2009)21

101

The maximum repayment term is 18 years.

a) The Participants shall apply a profile of repayment of principal and payment of interest as

specified in sub-paragraphs 1) or 2) below:

1) Repayment of principal shall be made in equal instalments.

2) Repayment of principal and payment of interest combined shall be made in equal instalments.

b) Principal shall be repaid and interest shall be paid no less frequently than every six months and

the first instalment of principal and interest shall be made no later than six months after the

starting point of credit.

c) On an exceptional and duly justified basis, official support may be provided on terms other than

those set out in a) and b) above. The provision of such support shall be explained by an

imbalance in the timing of the funds available to the obligor and the debt service profile

available under an equal, semi-annual repayment schedule, and shall comply with the following

criteria:

1) No single repayment of principal or series of principal payments within a six-month period

shall exceed 25% of the principal sum of the credit.

2) Principal shall be repaid no less frequently than every 12 months. The first repayment of

principal shall be made no later than 18 months after the starting point of credit and no less

than 2% of the principal sum of the credit shall have been repaid 18 months after the starting

point of credit.

3) Interest shall be paid no less frequently than every 12 months and the first interest payment

shall be made no later than six months after the starting point of credit.

4) The maximum weighted average life of the repayment period shall not exceed:

- Nine years, for repayment terms up to and including 15 years.

- Eleven years, for repayment terms greater than 15 years and up to and including 18 years.

d) Interest due after the starting point of credit shall not be capitalised.

TAD/PG(2009)21

102

The applicable CIRRS for official financing support provided in accordance with the provisions of this

Sector Understanding are constructed using the following base rates and margins:

Repayment

Term (years)

Base Rate

(Government bonds)

Margin

(bps)

Base Rate

(Government bonds)

Margin

(bps)

< 11 Relevant CIRR in accordance with Article 20 of the Arrangement

11 to 12 7 years 100 7 years 100

13 8 years 120 7 years 120

14 9 years 120 8 years 120

15 9 years 120 8 years 120

16 10 years 125 9 years 120

17 10 years 130 9 years 120

18 10 years 130 10 years 120

The currencies that are eligible for official financing support are those which are fully convertible and for

which data are available to construct the minimum interest rates mentioned in Article 4 above, and

Article 20 of the Arrangement for repayment terms less than 11 years.

The provisions of Article 10 of the Arrangement apply, except that the official support provided for local

costs shall not exceed 30% of the export contract value.

dam as a dam with a height of 15m or more from the foundation. Dams that are between 5 and 15m high

TAD/PG(2009)21

103

a) A Participant shall give prior notification in accordance with Article 45 of the Arrangement at

least ten calendar days before issuing any commitment if it intends to provide support in

accordance with the provisions of this Sector Understanding.

b) If the notifying Participant intends to provide support with a repayment term in excess of

15 years and/or in accordance with Article 3. c) above, it shall wait an additional ten calendar

days if any other Participant requests a discussion during the initial ten calendar days.

c) A Participant shall inform all other Participants of its final decision following a discussion, to

facilitate the review of the body of experience.

The Participants agree to examine the following issues before the end of 2009:

a) A minimum floating interest rate regime.

b) The maximum amount of official support for local costs.

c) The scope of the Sector Understanding.

a) The Secretariat shall report annually on the implementation of these financial terms and

conditions.

b) The Participants shall review regularly the provisions of the Sector Understanding and at the

Understanding.

TAD/PG(2009)21

104

The following renewable energies and water sectors shall be eligible for the financial terms and conditions

set out in this Sector Understanding provided that their impacts are addressed in accordance with the

2007 Revised Council Recommendation on Common Approaches to the Environment and Officially

a) Wind energy.

b) Geothermal energy.

c) Tidal and tidal stream power.

d) Wave power.

e) Solar photovoltaic power.

f) Solar thermal energy.

g) Ocean thermal energy.

h) Bio-energy: all sustainable biomass, landfill gas, sewage treatment plant gas and biogas energy

installations. ‘Biomass’ shall mean the biodegradable fraction of products, waste and residues

from agriculture (including vegetal and animal substances), forestry and related industries, as

well as the biodegradable fraction of industrial and municipal waste.

i) Projects related to the supply of water for human use and wastewater treatment facilities:

purpose of obtaining drinking water and distribution network (including leakage control);

industrial wastewater and sewage, including processes for the re-use or recycling of water

and the treatment of sludge directly associated with these activities.

j) Hydro power.

k) Energy efficiency in Renewable Energies projects.

financial terms and conditions.

TAD/PG(2009)21

105

TAD/PG(2009)21

106

The information listed in Section I below shall be provided for all notifications made under the

Arrangement (including its Annexes). In addition, the information specified in Section II shall be provided,

as appropriate, in relation to the specific type of notification being made.

1. Notifying country

2. Notification date

3. Name of notifying authority/agency

4. Reference number

5. Original notification or revision to previous notification (revision number as relevant)

6. Tranche number (if relevant)

7. Reference number of credit line (if relevant)

8. Arrangement Article(s) under which the notification is being made

9. Reference number of notification being matched (if relevant)

10. Description of support being matched (if relevant)

11. Buyer/borrower Country

12. Buyer/borrower Name

13. Buyer/borrower Location

14. Buyer/borrower Status

15. Guarantor Country (if relevant)

16. Guarantor Name (if relevant)

17. Guarantor Location (if relevant)

18. Guarantor Status (if relevant)

19. Description of the goods and/or services being exported

20. Description of the project (if relevant)

21. Location of the project (if relevant)

22. Tender closing date (if relevant)

23. Expiry date of credit line (if relevant)

TAD/PG(2009)21

107

24. Value of contract(s) supported, either the actual value (for all lines of credit and project finance

transactions or for any individual transaction on a voluntary basis) or according to the following scale

in millions of SDRs:

Category From To

I: 0 1

II: 1 2

III: 2 3

IV: 3 5

V: 5 7

VI: 7 10

VII: 10 20

VIII: 20 40

IX: 40 80

X: 80 120

XI: 120 160

XII: 160 200

XIII: 200 240

XIV: 240 280

XV: 280 *

25. Currency of contract(s)

26. Credit value; the actual value for notifications involving lines of credit and project finance transactions

or for any individual transaction on a voluntary basis, or according to the SDR scale

27. Currency of credit

28. Down payment (percentage of the total value of the contracts supported)

29. Local Costs (percentage of the total value of the contracts supported)

30. Starting point of credit and reference to the applicable sub-paragraph of Article 10

31. Length of the repayment period

32. Interest rate base

33. Interest rate or margin

1. Repayment profile

2. Repayment frequency

3. Length of time between the starting point of credit and the first repayment of principal

4. Amount of interest capitalised before the starting point of credit

5. Weighted average life of the repayment period

6. Explanation of the reason for not providing support according to Article 14 paragraphs a) through c)

TAD/PG(2009)21

108

1. Country risk classification of the buyer/borrower country or multilateral/regional institution

2. Length of the disbursement period

3. Percentage of cover for country risk

5. MPR based on the country risk classification of the buyer/borrower country absent any third country

guarantee, involvement of a multilateral/regional institution and/or risk mitigation/exclusion

6. Applicable MPR

7. Actual premium rate charged (expressed in MPR format as a percentage of the principal)

1. Country risk classification of the guarantor country

2. Confirmation that the guarantee covers all five country risks listed in Article 25 a) for the entire

duration of the credit

4. Confirmation that the guarantor is creditworthy in relation to the size of the guaranteed debt

5. Confirmation that the guarantee is legally valid and capable of being enforced in the third country

jurisdiction

6. Indication as to whether any financial relationship exists between the guarantor and the buyer/borrower

7. In the case that there is a relationship between the guarantor and the buyer/borrower:

buyer/borrower’s payment obligation

intervention in the buyer/borrower’s country

1. Risk mitigation/exclusion technique used

2. MEF applied

3. Full explanation of what country credit risks have either been externalised/removed or limited/excluded

in the individual transaction, as well as an explanation of how such externalisation/removal or

limitation/exclusion of the country credit risks justify the MEF applied.

2. Overall concessionality level of the tied and partially untied aid financing calculated in accordance

with Article 37

3. DDR used for concessionality calculation

4. Treatment of cash payments in the calculation of the concessionality level

5. Restrictions on use of credit lines

TAD/PG(2009)21

109

existing nuclear power plant, supply of nuclear fuel and enrichment, or provision of spent fuel

management.

2. Repayment of principal and payment of interest according to: Article 3 a) 1), Article 3 a) 2) or Article

3 c) of Annex II.

3. Where official support is provided in accordance with Article 3 c) of Annex II, please provide:

4. Minimum interest rate applied in accordance with Article 4 of Annex II.

an existing renewable energies and water plant, including the specific sector as listed in Appendix 1 of

Annex IV and, if a hydro-power project, whether a new large hydro-power project (as defined in

Footnote 1 of Annex IV).

2. Repayment profile of principal and payment of interest according to: Article 3 a) 1), Article 3 a) 2) or

Article 3 c) of Annex IV.

3. Where official support is provided in accordance with Article 3 c) of Annex IV, please provide:

4. Minimum interest rate applied in accordance with Article 4 of Annex IV.

1. Explanation of why project finance terms are being provided

2. Contract value in relation to turnkey contract, portion of sub-contracts, etc.

3. Enhanced project description

4. Type of cover provided prior to the starting point of credit

5. Percentage of cover for political risk prior to the starting point of credit

6. Percentage of cover for commercial risk prior to the starting point of credit

7. Type of cover provided after the starting point of credit

8. Percentage of cover for political risk after the starting point of credit

9. Percentage of cover for commercial risk after the starting point of credit

10. Length of the construction period (if applicable)

11. Length of the disbursement period

12. Weighted average life of the repayment period

13. Repayment profile

14. Repayment frequency

15. Length of time between the starting point of credit and the first repayment of principal

TAD/PG(2009)21

110

16. Percentage of principal repaid by the mid-point of credit

17. Amount of interest capitalised before the starting point of credit

with buyers in High Income OECD Countries)

19. Premium rate (optional, except in the case of projects in High Income OECD Countries)

20. Confirmation (and explanation as necessary) that the transaction involves/is characterised by:

and earnings of that economic unit as the source of funds from which a loan will be repaid and to

the assets of the economic unit as collateral for the loan.

shareholders, exporters, creditors, off-takers, including adequate equity.

service for outside funds.

accounts;

after completion

1. Total debt syndication amount for the project, including official and private lenders

2. Total amount of the debt syndication from private lenders

3. Percentage of the debt syndication provided by the Participants

4. Confirmation that:

throughout the life of the loan.

financing and is commensurate with the corresponding rates being charged by other private

financial institutions that are participating in the syndication.

TAD/PG(2009)21

111

TAD/PG(2009)21

112

The formula for calculating the applicable MPR for an export credit is:

MPR = ( (a * HOR )+b) * (PC/0.95) * QPF * PCF * (1-MEF) * BRF

where:

- a and b are coefficients associated with the applicable Country Risk Category

- HOR is the horizon of risk

- PC is the percentage of cover

- QPF is the quality of product factor

- PCF is the percentage of cover factor

- MEF is the country risk mitigation/exclusion factor

- BRF is the buyer risk cover factor

The values for coefficients a and b are obtained from the following table:

a n/a 0.100 0.225 0.392 0.585 0.780 0.950 1.120

b n/a 0.350 0.350 0.400 0.500 0.800 1.200 1.800

HOR = (length of the disbursement period * 0.5) + the length of the repayment period

For non-standard repayment profiles, the equivalent repayment period (expressed in terms of equal,

semi-annual instalments) is calculated using the following formula:

the length of the repayment period = (weighted average life of the repayment period -0.25) / 0.5

TAD/PG(2009)21

113

below standard n/a 0.9965 0.9935 0.9850 0.9825 0.9825 0.9800 0.9800

standard n/a 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000

above standard n/a 1.0035 1.0065 1.0150 1.0175 1.0175 1.0200 1.0200

For PC <= 0.95, PCF = 1

For PC > 0.95, PCF = 1 + ( (PC - 0.95) / 0.05 ) * percentage of cover coefficient )

percentage of cover

coefficient

n/a 0.00000 0.00337 0.00489 0.01639 0.03657 0.05878 0.08598

For export credits with no country risk mitigation, MEF = 0

For export credits with country risk mitigation, the MEF is determined according to the criteria set out

in Annex VIII.

When cover for buyer risk is excluded completely, BRF = 0.90

When cover for buyer risk is not excluded, BRF = 1

TAD/PG(2009)21

114

TAD/PG(2009)21

115

TAD/PG(2009)21

116

This Annex provides the criteria and conditions that govern the application of a country risk classification

reflecting a third country guarantor or a multilateral or regional institution according to the situations

Case 1: Guarantee for the Total Amount at Risk

When security in the form of a guarantee from an entity which is located outside of the country of the

Risk Classification may be that of the country in which the guarantor is located when the following criteria

are met:

located.

If the guarantor is a subsidiary/parent of the guaranteed entity, Participants shall, on a case-by-case basis,

determine whether: (1) in consideration of the relationship between the subsidiary/parent and the degree of

legal commitment of the parent, the subsidiary/parent is legally and financially independent and could

fulfil its payment obligations; (2) the subsidiary/parent could be affected by local events/regulations or

sovereign intervention; and (3) the Head Office would in the event of a default regard itself as being liable.

When the guarantee is provided for all five of the country credit risks defined in Article 25 a), the country

risk classification of the guarantor’s country shall be used to determine the applicable MPR.

When the guarantee is provided only for the first three country risks defined in Article 25 a), the country

risk classification of the guarantor’s country shall be used to determine 50% of the applicable MPR, and

the country risk classification of the buyer’s country shall determine 50% of the applicable MPR.

When the guarantee is provided only for the last two country risks defined in Article 25 a), the country risk

classification of the guarantor’s country shall be used to determine 20% of the applicable MPR, and the

country risk classification of the buyer’s country shall determine 80% of the applicable MPR.

Case 2: Guarantee Limited in Amount

TAD/PG(2009)21

117

When security in the form of a guarantee from an entity which is located outside of the country of the

Risk Classification may be that of the country in which the guarantor is located for the portion of the credit

subject to the guarantee. In addition to the criteria listed for Case 1, the guarantor's country classification

may be applied only when either the guaranteed amount (principal amount plus the related interest) is

either: (1) greater than or equal to 10% of the principal plus the related interest; or (2) five million SDRs

principal plus the related interest if the transaction exceeds 50 million SDRs.

For the unguaranteed portion, the applicable Country Risk Classification is that of the buyer country.

Case 1: Guarantee for the Total Amount at Risk

When security in the form of a guarantee from a classified multilateral or regional institution is provided

that of the multilateral or regional institution when the following criteria are met:

Case 2: Guarantee Limited in Amount

When security in the form of a guarantee from a classified multilateral or regional institution is provided

that of the multilateral or regional institution for the portion of the credit subject to the guarantee. In

addition to the criteria listed for Case 1, the multilateral or regional institution's classification may be

applied only when either the guaranteed amount (principal amount plus the related interest) is either:

(1) greater than or equal to 10% of the principal plus the related interest; or (2) five million SDRs principal

plus the related interest if the transaction exceeds 50 million SDRs.

For the unguaranteed portion, the applicable Country Risk Classification is that of the buyer country.

Case 3: Multilateral or Regional Institution as the Borrower

When a classified multilateral or regional institution is the borrower, the applicable Country Risk

Classification may be that of the multilateral or regional institution.

TAD/PG(2009)21

118

Classification of Multilateral or Regional Institutions

Multilateral and regional institutions shall be eligible for classification if the institution is generally exempt

from the monetary control and transfer regulations of the country in which it is located. Such institutions

shall be classified in Country Risk Categories 0 through 7 on a case-by-case basis according to an

assessment of the risk of each on its own merits and in consideration of whether:

obligations.

The assessment should also take into consideration the historical payment record in situations of country

credit risks default either in the country where it is located or in a buyer/borrower country; and any other

factors which may be deemed appropriate in the assessment process.

The list of classified multilateral and regional institutions is not closed and a Participant may nominate an

institution for review according to the above-listed considerations. The classifications of multilateral and

regional institutions shall be made public by the Participants.

TAD/PG(2009)21

119

TAD/PG(2009)21

120

This Annex provides detail on the use of country credit risk mitigation/exclusion techniques listed in

Article 28 b) of the Arrangement; this includes the criteria, conditions and specific circumstances which

apply to their use as well as the applicable MEFs.

For all country credit risk mitigation/exclusion techniques listed in Article 28 b) of the Arrangement:

justified on a case-by-case basis.

legal/judicial environment.

undercut private market pricing under similar circumstances.

sources.

A written document, such as a deed or a release or trustee arrangement, sealed and delivered to a third

conditions and then to be delivered by him to the other party to take effect. If the following criteria are

satisfied subject to consideration of the additional factors listed, this technique can reduce or eliminate the

transfer risks, mainly in the higher risk country categories.

account are generated by the project itself and/or by other offshore export receivables.

interests of the buyer/borrower or by the country of the buyer/borrower.

TAD/PG(2009)21

121

of the buyer/borrower flowing through the account are in hard currency and can reasonably be

expected to be collectively sufficient for the service of the debt for the entire duration of the credit, and

come from one or more creditworthy foreign customers located in better risk countries than the country

payments are not forwarded through an account controlled by the buyer/borrower or through its

country).

Where flexible repayment terms are being applied under a project finance structure, an amount

equivalent to the actual six months debt service under such flexible terms are to be kept within the

account; this amount may vary over time depending on the debt service profile.

under the credit).

of the credit.

other appropriate authorities.

limited in duration.

with regard to:

the commodities or services involved, including their availability for the entire duration of the credit,

the customers;

buyer/borrower or its country;

provision;

TAD/PG(2009)21

122

The maximum applicable MEF is 0.20 unless:

Specific Case 1: The maximum applicable MEF is 0.40 if all of the following additional criteria are met:

LLCR averages at least 2.0:1 and the projected Annual Debt Service Coverage Ratio (ADSCR) is

each call on the pre-funded amount.

Specific Case 2: The maximum applicable MEF is 0.30 if all of the following additional criteria are met:

pre-funding in escrow, which shall be replenished after each call on the pre-funded amount.

Security in the form of offshore first or second priority pledges or assignments of securities held offshore

by a shareholder of the buyer/borrower or by the buyer/borrower itself, or cash on deposit in an offshore

account.

risk country located outside the buyer/borrower country and traded on exchanges in countries

classified in Category 0.

in such hard currencies issued by countries classified in Category 0.

and would normally be a country classified in Category 0.

applied by prudent international lenders to establish an agreed (central scenario) banking case at or near

financial close, after completion of full (technical and economic) due diligence.

TAD/PG(2009)21

123

repayment period to the amount of the outstanding debt covered by the security.

Principal and Interest) shall be for (1) not less than 10% of the Principal amount plus the related

Interest, or (2) five million SDRs Principal plus the related Interest if the transaction exceeds

50 million SDRs.

credit risks in the buyer/borrower country).

the credit or in another hard currency.

paid directly to the creditor for the appropriate amount.

The technique applies normally to all countries, buyers/borrowers and sectors, subject to a case-by-case

sector and the country from which they originate.

The specific MEF to be applied shall:

assets, as well as the possible uncertainties with regard to the realisation of the security;

relation to the principal value of the credit and the applicable country risk classification of the

country in which the security is located.

The value of cash security shall be taken at no more than 80% and the value of stocks or bonds shall be

taken at no more than 35% of its prudential valuation.

TAD/PG(2009)21

124

substantial equity stake. This projected value corresponds throughout the repayment period with

the amount of the outstanding debt on the buyer/borrower.

credit risks in the buyer/borrower country).

The technique applies normally to all countries, buyers/borrowers and sectors, subject to a case-by-case

the likelihood of the realisation of this security in case of public owners.

the likelihood of realisation.

The specific MEF to be applied shall:

assets, as well as the possible uncertainties with regard to the realisation of the security; and

relation to the principal value of the credit and the applicable country risk classification of the

country in which the security is located.

The difference between the MPR resulting from the application of this technique and the MPR which

would apply absent mitigation shall be no greater than 15% of the difference between the MPR which

would apply absent risk mitigation and the MPR which would result from the application of the country

risk classification of the country in which the asset is located.

In the following circumstances, the pricing implications apply on a basis as outlined below:

basis for the entire duration of the credit and for (1) not less than 10% of the Principal amount

plus the related Interest, or (2) five million SDRs Principal plus the related Interest if the

TAD/PG(2009)21

125

transaction exceeds 50 million SDRs; in this case the pricing implication applies on a pro-rata

basis to the guaranteed Principal/the Principal amount of the credit.

non-uniform basis for the entire duration of the credit and for (1) not less than 10% of the

Principal amount plus the related Interest or (2) five million SDRs Principal plus the related

Interest if the transaction exceeds 50 million SDRs. In this case the pricing implication applies on

a pro-rata basis derived from the use of the average weighted life concept.

Security in the form of an offshore lease or a first priority mortgage on movable assets which is not

(2) mainly related to the buyer/borrower or the lessor risks.

repossessed/seized by the creditor, its agent or nominee outside the country of the buyer/borrower

or lessee.

repayment period to the amount of the outstanding debt.

buyer/borrower or lessee.

used outside the country of the buyer/borrower or lessee, however it may be applied to all countries,

them outside the country of the buyer/borrower or lessee and their projected commercial market

value.

costs accruing until re-sale.

TAD/PG(2009)21

126

environment.

The specific MEF to be applied shall:

continuing value of the assets as well as the possible uncertainties with regard to their

international recoverability;

In the case where the security (which should cover both Principal and Interest) is limited in amount on a

uniform basis for the entire duration of the credit and for: (1) not less than 10% of the Principal amount

plus the related Interest, or (2) five million SDRs Principal plus the related Interest if the transaction

exceeds 50 million SDRs, the MEF shall be calculated on a basis reflecting the amount of the security in

comparison with the guaranteed Principal/the Principal amount of the credit.

Participants for premium purposes.

environment.

The technique applies to all countries/buyers/borrowers and sectors where the IFI may intervene in

accordance with its status and policy subject to a case-by-case consideration of the above characteristics

process of the project and of its financing;

entire amount and duration of the credit;

maturity schedule of the two credits is not parallel; and

TAD/PG(2009)21

127

The maximum applicable MEF shall be no greater than 0.05.

Contract and financing negotiated in convertible and available local, other than hard, currencies and

financed locally that eliminates or mitigates the transfer risk. The primary debt obligation in local currency

would, in principle, not be affected by the occurrence of the first two country credit risks.

throughout in local currency.

converted into hard currency.

loan obligation.

rate movements.

obligations, which would remain in local currency.

claim is translated, as explicitly set out in the loan agreement, into an equivalent hard currency

amount. Recovery of the claims payment would be in local currency as a counter value of the hard

currency value of the claims payment at the time of the claims payment.

by the insured party who would also carry the exchange risk of devaluation or appreciation of

local currency receipts. (Whilst a Direct Lender may have a direct exposure to currency

fluctuations it is not related to country risks or buyer/borrower risks).

TAD/PG(2009)21

128

The technique applies on a selective basis in respect of convertible and transferable currencies, where the

underlying economy is sound. The Participant ECA should be in a position to meet its obligations to pay

claims expressed in its own currency in the event that the local currency becomes either ‘non-transferable’

or ‘non-convertible’ after the ECA takes on liability. (A Direct Lender would however carry this exposure.)

Translation of a defaulted amount (not the whole loan value) into an equivalent hard currency amount

would still leave the borrower with a continuing local currency obligation, albeit of an ‘open-ended’ value,

in relation to the equivalent hard currency value of the defaulted amount. The eventual payment in local

currency by the borrower of its outstanding indebtedness would need to be equivalent to the hard currency

value of the claims payment at the time of the claims payment.

The specific MEF to be applied shall be determined case-by-case basis, however, if the first three country

explicitly excluded, the maximum MEF is 0.35.

The use of techniques 7 and 8 of this Annex is subject to further discussions among the Participants.

TAD/PG(2009)21

129

TAD/PG(2009)21

130

A number of criteria have been developed in recent years by the DAC to ensure that projects in developing

countries that are financed totally or in part by Official Development Assistance (ODA) contribute to

development. They are essentially contained in the:

Development Assistance, 1987; and

Is the project part of investment and public expenditure programmes already approved by the central

financial and planning authorities of the recipient country?

country.)

Is the project being co-financed with an international development finance institution?

Does evidence exist that the project has been considered and rejected by an international development

finance institution or another DAC Member on grounds of low developmental priority?

In the case of a private sector project, has it been approved by the government of the recipient country?

Is the project covered by an intergovernmental agreement providing for a broader range of aid activities by

the donor in the recipient country?

Has the project been prepared, designed and appraised against a set of standards and criteria broadly

consistent with the DAC Principles for Project Appraisal (PPA)? Relevant principles concern project

appraisal under:

a) Economic aspects (paragraphs 30 to 38 PPA).

b) Technical aspects (paragraph 22 PPA).

c) Financial aspects (paragraphs 23 to 29 PPA).

In the case of a revenue producing project, particularly if it is producing for a competitive market, has the

concessionary element of the aid financing been passed on to the end-user of the funds?

(paragraph 25 PPA).

TAD/PG(2009)21

131

a) Institutional assessment (paragraphs 40 to 44 PPA).

b) Social and distributional analysis (paragraphs 47 to 57 PPA).

c) Environmental assessment (paragraphs 55 to 57 PPA).

What procurement mode will be used among the following? (For definitions, see Principles listed in Good

Procurement Practices for ODA).

a) International competitive bidding (Procurement Principle III and its Annex 2: Minimum

conditions for effective international competitive bidding).

b) National competitive bidding (Procurement Principle IV).

c) Informal competition or direct negotiations (Procurement Principles V A or B).

Is it envisaged to check price and quality of supplies (paragraph 63 PPA)?

TAD/PG(2009)21

132

TAD/PG(2009)21

133

TAD/PG(2009)21

134

a) This Annex sets out terms and conditions that Participants may support for project finance

transactions that meet the eligibility criteria set out in Appendix 1.

b) Where no corresponding provision exists in this Annex, the terms of the Arrangement shall

apply.

The maximum repayment term is 14 years.

The principal sum of an export credit may be repaid in unequal instalments, and principal and interest may

be paid in less frequent than semi-annual instalments, as long as the following conditions are met:

a) No single repayment of principal or series of principal payments within a six-month period shall

exceed 25% of the principal sum of the credit.

b) The first repayment of principal shall be made no later than 24 months after the starting point of

credit and no less than 2% of the principal sum of the credit shall have been repaid 24 months

after the starting point of credit.

commitment is issued on or before 31 January 2010.

b) After 31 January 2010, the financial terms and conditions set out in Articles 2 and 3 d) shall be

discontinued unless the Participants agree otherwise.

c) If discontinued, the provisions of Articles 2 and 3 d) will be replaced by the following :

Article 2 - The maximum repayment term is 14 years, except when official export credit support provided

by the Participants comprises more than 35% of the syndication for a project in a High Income OECD

country, the maximum repayment term is ten years.

Article 3 d) - The weighted average life of the repayment period shall not exceed seven-and-a-quarter years,

except when official export credit support provided by the Participants comprises more than 35% of the

syndication for a project in a High Income OECD country, the weighted average life of the repayment

period shall not exceed five-and-a-quarter years.

TAD/PG(2009)21

135

c) Interest shall be paid no less frequently than every 12 months and the first interest payment shall

be made no later than six months after the starting point of credit.

d) The weighted average life of the repayment period shall not exceed seven-and-a-quarter years.

e) The Participant shall give prior notification according to Article 5 of this Annex.

Where Participants are providing official financing support for fixed rate loans:

a) For repayment terms of up to and including 12 years, Participants shall apply the relevant

Commercial Interest Reference Rates (CIRRs) constructed in Accordance with Article 20 of the

Arrangement.

b) For repayment terms in excess of 12 years, a surcharge of 20 basis points on the CIRR shall

apply for all currencies.

A Participant shall notify all Participants of the intent to provide support according to the terms and

conditions of this Annex at least ten calendar days before issuing any commitment. The notification shall

be provided in accordance with Annex V of the Arrangement. If any Participant requests an explanation in

respect of the terms and conditions being supported during this period, the notifying Participant shall wait

an additional ten calendar days before issuing any commitment.

TAD/PG(2009)21

136

The transaction involves/is characterised by:

a) The financing of a particular economic unit in which a lender is satisfied to consider the cash

flows and earnings of that economic unit as the source of funds from which a loan will be repaid

and to the assets of the economic unit as collateral for the loan.

b) Financing of export transactions with an independent (legally and economically) project

revenues.

shareholders, exporters, creditors, off-takers, including adequate equity.

d) Project cash flow sufficient during the entire repayment period to cover operating costs and debt

service for outside funds.

e) Priority deduction from project revenues of operating costs and debt service.

f) A non-sovereign buyer/borrower with no sovereign repayment guarantee (not including

accounts;

h) Limited or no recourse to the sponsors of the private sector shareholders/sponsors of the project

after completion.

The transaction involves/is characterised by:

a) Participation in a loan syndication with private financial institutions that do not benefit from

Official Export Credit Support, whereby:

1) The Participant is a minority partner with pari passu status throughout the life of the loan and;

2) Official export credit support provided by the Participants comprises less than 50% of the

syndication.

b) Premium rates for any official support that do not undercut available private market financing

and that are commensurate with the corresponding rates being charged by other private financial

institutions that are participating in the syndication.

TAD/PG(2009)21

137

TAD/PG(2009)21

138

For the purpose of the Arrangement:

official support is communicated to the recipient country, the buyer, the borrower, the exporter or

the financial institution.

special circumstances, on specific financial terms and conditions for official support. The rules of

an agreed Common Line supersede the rules of the Arrangement only for the transaction or in the

circumstances specified in the Common Line.

case of loans, the concessionality level is the difference between the nominal value of the loan and

the discounted present value of the future debt service payments to be made by the borrower. This

difference is expressed as a percentage of the nominal value of the loan.

excludes the portion of the lease payment that is equivalent to interest.

line of credit), a final commitment exists when the Participant commits to precise and complete

financial terms and conditions, either through a reciprocal agreement or by a unilateral act.

core plus two subsequent reloads, together consisting of up to two-thirds of a nuclear core.

institutions which allows the provision of fixed rate export finance at or above the CIRR.

transactions which may or may not be linked to a specific project.

executing the exporter's contract or for completing the project of which the exporter's contract

forms a part. These exclude commission payable to the exporter's agent in the buying country.

and ending on the contractual date of the final repayment of principal.

TAD/PG(2009)21

139

components, the starting point of credit is not later than the actual date of acceptance of the

goods or the weighted mean date of acceptance of the goods (including services, if applicable)

by the buyer or, for services, the date of the submission of the invoices to the client or

acceptance of services by the client.

the actual date of acceptance of the goods or the weighted mean date of acceptance of the goods

by the buyer or, if the exporter has responsibilities for commissioning, then the latest starting

point is at commissioning, or for services, the date of the submission of the invoices to the

client or acceptance of the service by the client. In the case of a contract for the supply of

services where the supplier has responsibility for commissioning, the latest starting point is

commissioning.