Final Presentation Version

1
The Role of OPIC and Ex-Im Bank in Supporting
Pipeline Investments by Michele
Smith Investment Services Manager Overseas
Private Investment Corporation U.S. Russia Oil
Transportation and Markets Seminar Center for
Strategic Research U.S. Department of
Energy Moscow, Russia September 22, 2004
2
The Role of OPIC and Ex-Im Bank in Supporting
Pipeline Investments

• Fundamental Questions to Answer
• What are Ex-Im Bank and OPIC?
• How do Ex-Im and OPIC Participate in Pipeline
  Projects?
• What Financial/Risk Factors do OPIC and Ex-Im
  Consider Important in a Pipeline Project?

3
OPIC and Ex-Im Bank are Independent Financial
Agencies of the U.S. Government

• Ex-Im
• Established in 1934
• Mission
• Support U.S. exports in order to create and
  sustain U.S. jobs
• Financed 3 pipeline projects Chad-Cameroon,
  Mexico, BTC (2000s)

• OPIC
• Established in 1971
• Mission
• Support U.S. Private Investment Abroad
• Promote Economic Growth in Emerging Markets
• Insured 5 pipeline projects - Argentina, Bolivia,
  Algeria, Colombia, BTC (1994-2004)
• Financed 2 pipeline projects - Yemen, Sudan
  (1980s)

4
OPIC Ex-Ims Products Mitigate Risks Associated
with Overseas Trade Investment

• OPICs Products
• Political Risk Insurance
• Finance
• Equity Investment Funds

• Ex-Ims Products
• Working Capital Guarantees
• Export Credit Insurance
• Loans and Guarantees for Russian Importers
• Limited Recourse Project Finance

5
OPIC Ex-Im May Minimize Several Risks
Associated with Midstream Pipeline Projects
Oil Production Company
Midstream Credit Risk
Midstream Political Risk
Lenders
Shareholders
Pipeline Company
Construction Companies
Operating Companies
Host Country A
Transit Country B
Transit Country C
Shippers/ Off takers
6
Some of These Risks Are Tied to Upstream
Activities that a Pipeline Project Inherits

• Reserves or supply arrangements become
  insufficient
• Technical failures prevent or reduce extraction
• Production volumes fall short of projections
• Laws change and reduce oil exports
• Oil prices fall
• Oil produced upstream is expropriated or shipment
  is prevented by host or transit governments

Remaining risks are largely mitigated by strength
and size of upstream producer
7
Other Project Risks Are Associated with the
Midstream Company Itself

• Large investment size represents unhealthy
  concentration of assets/overexposure for private
  sector lenders/sponsors
• Host or transit governments expropriates rights
  to lands facilities
• Laws change and/or host/transit governments
  breach contract agreements
• Tariff rights levels change
• Shipper is unable or unwilling ship or pay for
  oil
• Oil shipments are diverted to competing pipelines
  
• Physical security of the pipeline is threatened
  by political violence

Many of these risks are mitigated by a
combination of OPIC/Ex-Im Products, Legal
Contracts, and Leverage of Private Sector Partners
8
Minimizing Risks Helps Brings Private Debt
Equity Partners to the Table
OPIC Political Risk Insurance
ExIm or OPIC Finance
Oil Production Company
Lenders
Shareholders
U.S. Financial Participation Adds Needed Capital
and Signals Security to Other Lenders
PRI Minimizes Risks of Expropriation, Political
Violence, Currency Inconvertibility
Pipeline Company
Construction Companies
Operating Companies
Host Country A
Transit Country B
Transit Country C
Shippers/ Off takers
9
OPIC Ex-Im Limited Recourse Finance is
Available for Projects with U.S. Participation

• Ex-Im
• Ex-Im guarantees debt if project includes the
  purchase of U.S. exports
• Long term tenors offered
• Market rates charged
• No country or project funding limits
• May be involved in public sector transactions

• OPIC
• OPIC guarantees debt if project involves U.S.
  investment
• Long term tenors offered
• Market rates charged
• Maximum guarantee amount up to 400 million
• Does not participate in transactions with gt 50
  public sector participation

10
OPIC Political Risk Insurance Offers Coverage
Tailored to the U.S. Oil Gas Investors

• Insurance Coverages
• Total expropriation, including outright or
  creeping
• Partial expropriation/confiscation of funds or
  assets
• Lost or damaged assets due to political violence
• Forced abandonment due to political violence
• Currency inconvertibility
• Coverage Amounts
• Up to 250 million of either insurance or
  financing
• Pp to 300 million of either for projects with
  offshore/hard-currency revenues
• Combined maximum of 400 million per project

11
OPIC and Ex-Im Evaluate Four Primary Factors in
Underwriting Pipeline Projects

• Underlying Economic Rationale of Project
• Sufficient cash flow projections supported
  marketing engineering analyses
• Plan that avoids competitive/diversion risk
• Simply Project Structure
• Minimizes number of crediting institutions (not gt
  3)
• Aligns the interests of upstream, midstream, and
  downstream parties
• Strength of Shareholders, Off-takers, and Lenders
• Mix includes at least one U.S. shareholder (major
  oil company) with experience and a strong balance
  sheet (i.e. ability to provide project completion
  support)
• Off-takers have ability to absorb reserve,
  volume, and oil price risk
• Commercial lenders/financial institutions have
  investment grade ratings
• Environmental Impacts

12
Several Other Important Factors Make Some
Pipeline Projects More Viable than Others

• Off-Short Hard Currency Revenue Accounts
• Government Support Agreements
• Prevent interference
• Enable efficient permitting
• Provide a stable tax regime
• Provide for the physical security of pipeline
• Allow for import tax holidays
• Tariff Regulatory Structures
• Allow for competitive rates (to void firms from
  diverting oil to other lines)
• Allow for adjustment
• Projects Credit Ratings w/o Government/IFI
  Support
• Investment grade ratings by independent credit
  agency (may increase OPICs coverage limits to
  400 million of either insurance or financing)

13
Review The Role of OPIC and Ex-Im Bank in
Supporting Pipeline Investments

• Review of Fundamental Questions
• What are Ex-Im Bank and OPIC?
• How do Ex-Im and OPIC Participate in Pipeline
  Projects?
• What Financial/Risk Factors do OPIC and Ex-Im
  Consider Important in a Pipeline Project?
• For More Questions Contact
• Christine Wood, Senior Business Development
  Officer, Export-Import Bank of the United States,
  202-565-3924
• Michele Smith, Investment Services Manager,
  Overseas Private Investment Corporation,
  msmith_at_opic.gov