Speech

Linda Conlin
Board Member
Export-Import Bank of the United States

2005 Hydro Finance Forum
Washington, D.C.
Thursday, April 21, 2005

Introduction

Thank you, Philip. I am delighted to participate in this discussion on behalf of the U.S. Export-Import Bank. I welcome the opportunity to share this opportunity with my fellow panelists, Mary Sue Shore from OPIC and Leocadia Zak from TDA.

We are eager to talk to you about how federal trade agencies can help finance U.S. participation in international hydro rehabilitation projects - a relatively new and growing niche for U.S. companies.

By the end of our discussion, I hope that you will have a clearer sense of how our agencies, each with its distinct mission, can help you participate in these projects and maximize your opportunities.

I am especially pleased to have this opportunity to talk about what Ex-Im Bank can offer because I serve as the Director responsible for the Bank's Environmental Exports portfolio.

Hydro, of course, is a renewable source of energy. And Ex-Im Bank is currently renewing its initiative to support U.S. exports of environmentally beneficial goods and services - including exports related to renewable energy production.

I will say more about our environmental initiative in a few minutes, but first I would like to talk about hydro projects and Ex-Im Bank's long experience in providing financing for these projects.

As most of you probably know, Ex-Im Bank is among the most experienced financiers of international hydro projects in the world. From the 1960s through the 1980s, Ex-Im Bank provided assistance to exporters involved in the construction of numerous large hydroelectric power plants.

For example, we helped to finance portions of projects in Argentina, Brazil, Paraguay and other countries. Notable among these transactions was our financing of engineering design services for the 12,600-megawatt capacity Itaipu hydro project in Brazil and Paraguay. At the time that it was built, this hydro power plant had the largest installed electrical generation capacity in world. Today it remains second only to the Three Gorges project in China.

In this same period, we also supported the construction of the Guri and Macagua hydroelectric power plants on the Caroni River in Venezuela.

In 2002, we also supported the new Caruachi hydro plant, also in Venezuela. Our financing supported exports from Harza Engineering Company, now MWH.

These three hydro plants - Guri, Macagua and Caruachi - are part of a larger system of hydroelectric power plants that are still under construction. Currently, these hydro plants generate 72 percent of Venezuela's electrical production.

Other recent hydro projects that we supported include our 1996 financing for exports to the Xiaolangdi project in China. Ex-Im Bank's portion was approximately $58 million in financing to support the export of electromechanical equipment by Voith Hydro Inc. This project has a total electrical generation capacity of 1,800 megawatts. It also received support from the World Bank.

In Turkey in 2002, we provided medium-term support related to the construction of the Cine hydroelectric power plant, which as an electrical generation capacity of 47.2 megawatts. Our financing supported sales of electrical equipment by North American Hydro Inc.

Ex-Im Bank is proud to have played a significant role in helping U.S. exporters construct or contribute to these hydroelectric power plants.

Opportunities in Hydro Rehab Projects

Of course, the hydro projects that I have mentioned are all construction projects, and the focus of our discussion today is on financing for hydro rehabilitation.

Yet I think it is worthwhile to note that Ex-Im Bank has extensive experience with hydro projects - not only in structuring the financing but also in evaluating the projects themselves. Ex-Im Bank employs a staff of engineers that includes an expert on hydroelectric power plants.

I am delighted to have with me today at the forum the vice president of our Engineering and Environment Division, Mr. Jim Mahoney. Jim and his staff have a tremendous amount of expertise in the hydro area and a great enthusiasm for these projects as well.

Although we haven't done a lot of business yet in financing hydro rehabilitation projects, we are very open to these transactions and would be happy to start doing them.

One of the great advantages to hydro rehab projects is that they don't usually present new problems. With these projects, the major environmental impact has already occurred, so generally they don't give rise to the kinds of environmental and other public interest concerns that new hydro projects can create. Moreover, these rehab projects often provide substantial environmental benefits, which of course, would make it even easier for Ex-Im Bank to support them.

As you know, many of the older hydroelectric power plants that were built 30 or 40 years ago are showing signs of aging and are in need of repair and rehabilitation. Hydro rehab projects can significantly increase the electrical generation capacity of these plants without increasing the dam water levels more than a meter or two. The additional flooded area is usually farmland or vacant land. Furthermore, these rehab projects usually involve the installation of new turbines that are much more efficient.

There are a lot of opportunities for hydro rehab projects throughout the world. Many dams are quite old, and they originally involved construction techniques that today are regarded as sub-par.

For example, I understand that a hydro dam on the Tigris River in northern Iraq is leaking water through a sidewall. Of course, this is a potentially dangerous situation. Rehabilitation of this dam will certainly be needed to save the reservoir and upgrade it for the hydro plant to safely meet the region's future power demands.

Ex-Im Bank has some experience in assisting with dam rehabilitation. Some of you may remember the national disaster that Venezuela faced in December 1999 when widespread flooding occurred. Ex-Im Bank provided financing to support the reconstruction of the El Guapo water supply dam in 2000, which was damaged by the flooding. The reservoir created by the original dam supplied drinking water for 350,000 people.

Our support for the rehab project involved the reassignment of financing that had previously been approved in 1997 for the construction of the Las Mayas water supply dam. Our financing supported more than $33 million in sales of construction and water supply equipment by MWH.

We anticipate that there will be growing opportunities for U.S. companies to participate in rehab hydro and dam projects in a number of international markets, including Venezuela, Brazil, the Dominican Republic, India and Africa. We are open for business in almost all of these markets.

And many of these developing markets are looking at these rehab projects not only to increase their energy projection but also as potable water supplies. And as I mentioned, Ex-Im Bank is particularly happy to support these kinds of environmental projects.

Ex-Im Bank's Environmental Exports Program is one of three special initiatives - along with medical equipment and transportation security exports - for which we provide enhanced financing for U.S. exports beyond what is offered through our regular financing.

As you may know, Ex-Im Bank has a congressional mandate to support U.S. exports of environmentally beneficial goods and services. We support these exports with enhanced financing.

Ex-Im Bank can provide financing for most hydroelectric power plants on 12-year repayment terms. Traditionally, most of this financing, particularly for larger projects, has been done in the sovereign sector.

However, under our Environmental Exports Program, hydro projects are eligible for financing of interest during construction. And of course, this is a bigger concern with hydro projects than with other kinds of projects, so the advantages of this feature are greater.

I would also like to mention that the pre-project services associated with these hydro rehab projects are eligible for our Engineering Multiplier Program, which provides financing for feasibility studies or design work up to $10 million. We can support this kind of work with our medium-term loan guarantees or insurance.

However, I would like to point out - as my TDA colleague can tell you more about - TDA provides grants for feasibility studies. Therefore, Ex-Im Bank recommends that exporters first explore the possibilities for financing these studies through TDA. Obviously, a grant is a better deal than a loan, which has to be paid back. Ex-Im Bank always requires repayment of our financing. So we suggest that you check with TDA first on funding of feasibility studies. But if a TDA grant isn't available, please know that Ex-Im Bank can still help you.

Renewed Environmental Exports Initiative

Before I close my remarks, I would like to add a few words about Ex-Im Bank's renewed emphasis on environmental exports.

Since 1994, Ex-Im Bank has approved financing to support over $2 billion of U.S. exports under our Environmental Exports Program. But we would like to see a lot more use of this program.

We have a new Environmental Exports Team of professionals drawn from all of the major divisions of the Bank. For the past several months, our Environmental Exports Team has been looking into how we can further enhance the program.

We're studying the economics of the environmental sector to gain a better understanding of how to evaluate and process these credits more effectively. We are also working with the OECD to allow for longer repayment terms, which will make these transactions more commercially viable.

At our annual conference last week, we held a couple of workshops for environmental exporters that I think provided good information and helped us to learn more from our exporters about how we can help.

I want to emphasize that Ex-Im Bank is serious about enhancing this program and expanding its use among U.S. companies.

Conclusion

Ex-Im Bank wants to help finance U.S. exports to hydroelectric rehab and water supply projects. We know that there are great opportunities for U.S. companies in these fields. We also know that U.S. companies are the best in the world in developing these projects.

We welcome your interest in Ex-Im Bank's financing and we want to hear from you. Bring us your hydro rehab and water supply projects. We'd love to do them.

Thank you for the opportunity to participate in this important forum. I look forward to meeting many of you.