[Senate Hearing 112-141]
[From the U.S. Government Publishing Office]
S. Hrg. 112-141
OVERSIGHT AND REAUTHORIZATION OF THE EXPORT IMPORT BANK OF THE UNITED
STATES
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
EXAMINING THE OVERSIGHT AND REAUTHORIZATION OF THE EXPORT-IMPORT BANK
OF THE UNITED STATES
__________
MAY 17, 2011
__________
Printed for the use of the Committee on Banking, Housing, and Urban
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71-164 PDF WASHINGTON : 2011
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Charles Yi, Chief Counsel
Pat Grant, Counsel
Laura Swanson, Policy Director
Levon Bagramian, Legislative Assistant
Gregg Richard, Republican Professional Staff Member
John O'Hara, Republican Senior Investigative Counsel
Dawn Ratliff, Chief Clerk
William Fields, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
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TUESDAY, MAY 17, 2011
Page
Opening statement of Chairman Johnson............................ 1
Prepared statement........................................... 15
Opening statements, comments, or prepared statements of:
Senator Crapo................................................ 2
WITNESS
Fred P. Hochberg, President and Chairman, Export-Import Bank of
the United States.............................................. 3
Prepared statement........................................... 15
Responses to written questions of:
Senator Menendez......................................... 21
Senator Bennet........................................... 26
Senator Wicker........................................... 30
(iii)
OVERSIGHT AND REAUTHORIZATION OF THE EXPORT-IMPORT BANK OF THE UNITED
STATES
----------
TUESDAY, MAY 17, 2011
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:03 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Tim Johnson, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN TIM JOHNSON
Chairman Johnson. Good morning. I will call this hearing to
order.
Today, the Committee welcomes the Chairman and President of
the Export-Import Bank of the U.S., Fred Hochberg. This hearing
will allow us to continue our ongoing oversight of the Bank's
recent activities. In addition, we will hear from the Chairman
about the Bank's ideas for reauthorization.
The Bank's current authorization expires on September 30,
2011, and it is my goal to work with Ranking Member Shelby,
Senator Crapo, and other Members of the Committee to
reauthorize the Bank.
I want to thank all Members of this Committee for their
support of Wanda Felton and Sean Mulvaney last week. It is
imperative that the Senate confirm these nominees as quickly as
possible.
The Export-Import Bank is the official export credit agency
of the U.S., and it assists in financing the export of U.S.
goods and services to international markets. Following the
financial crisis, the Bank experienced a dramatic increase in
its activities as many companies struggled to find financing in
the private market. In fiscal year 2010, the Bank saw a 70-
percent increase in authorizations from 2008. In fact, last
year the Bank committed almost $25 billion in support of U.S.
exports--a record.
The Bank is one of the few Federal agencies that actually
makes money for the U.S. and, since 2008, has been self-
funding. This is a testament to the Bank's leadership under
Chairman Hochberg, as well as the good work of the dedicated
staff and Board of the Bank.
All of the Bank's transactions are backed by the full faith
and credit of the United States. Therefore, it is important for
this Committee to make sure that the Bank is working as
efficiently and effectively as possible to protect the
taxpayers.
Equally important is the Bank's goal to use exports to help
create and maintain jobs here at home. This mission, embodied
in the Bank's charter, is at the very core of what Congress
intended the Bank to do. I believe that while the Bank is doing
a good job, it can--and must--do more.
Over the next several years, the Bank will face some
challenges. After weathering the financial crisis, the Bank may
see a shift in the types of deals it is asked to finance as the
economy recovers. In addition, the President has called for the
doubling of our exports by 2015 in an effort to create as many
as 2 million American jobs. As the Nation's official export
credit agency, the Bank will play a critical role if we are to
meet that goal.
I am eager to hear from Chairman Hochberg about the Bank's
recent activities and his ideas for reauthorization.
I now turn to Senator Crapo for any opening remarks he may
have. Senator Crapo.
STATEMENT OF SENATOR MIKE CRAPO
Senator Crapo. Thank you very much, Mr. Chairman, and
welcome, Mr. Hochberg. We appreciate you being here today.
As you have noted, Mr. Chairman, the President declared in
his State of the Union address that he hopes to double the
American exports in 5 years, and he has identified the Export-
Import Bank of the United States as one of the leading
Government agencies to help accomplish that goal.
Financing is a key element in global trade competition, and
extending the Bank's programs is a vital and integral component
in supporting the export of American-made goods and American-
provided services for both small and large companies.
In 2006, I had the privilege of working with my colleagues
on the Banking Committee and then-Export-Import Bank Chairman
Jim Lambright to reauthorize and reform the Export-Import Bank
in a process that reflected broad bipartisan agreement.
The last reauthorization changed the Economic Impact
Procedures to ensure that the Bank's support for transactions
not only helps U.S. exporters but does not negatively impact
domestic companies. Since the Bank was not meeting its 20-
percent small business mandate, the legislation made structural
changes to make sure that the small business community has
advocates to advance its needs and to address its concerns. And
while it is appropriate to review the content requirements,
tied aid requirements, and funding limits, we should be mindful
that the Bank's authorization expires in just a few months.
We need to quickly assess the results of these changes from
2006 and determine if there are any other reforms to the Bank's
operations that are needed to maintain or improve its
competitiveness with export financing while not negatively
impacting domestic business.
There are literally billions of potential global consumers,
both established and emerging, in the markets for goods and
services made in America. Getting these American goods and
services into consumers' hands worldwide is the key to our
export challenge.
And one of the challenges the Bank and our exporters face
is that other nations also use very aggressive export policies,
which often limit the attractiveness of our export market to
foreign buyers if we do not deal with them. Hopefully today's
testimony will shed some light on these issues and contribute
to our speedy reauthorization process.
Thank you, Mr. Chairman.
Chairman Johnson. Are there any Members who wish to make
opening statements?
[No response.]
Chairman Johnson. If not, today's witness, Fred Hochberg,
is the 23rd President of the Export-Import Bank, the U.S.
Government's official export credit agency. In this capacity,
he also serves as Chairman of the Board.
Mr. Hochberg, thank you for being here today. You may
proceed with your testimony.
STATEMENT OF FRED P. HOCHBERG, PRESIDENT AND CHAIRMAN, EXPORT-
IMPORT BANK OF THE UNITED STATES
Mr. Hochberg. Thank you, Chairman Johnson and Senator Crapo
and distinguished Members of the Committee. Thank you for the
opportunity to testify today about the Export-Import Bank and
our reauthorization.
The Export-Import Bank of the United States helps U.S.
companies and workers compete in the global marketplace. In
2010, at Ex-Im Bank's annual conference, President Obama kicked
off the National Export Initiative with the goal of energizing
our export base and creating jobs through a doubling of exports
by 2015.
The Export-Import Bank is our Nation's official credit
agency, export credit agency. Our mission is to enable American
companies, large and small, to compete for sales that help
maintain and create U.S. jobs.
In 2008, as the financial crisis unfolded, Ex-Im Bank
stepped in to assist businesses when the private sector was
unable or unwilling to provide financing. This ensured that
American businesses and their employees were able to compete
for sales that helped their companies and their workers weather
the tough economic times.
The Bank fulfilled its mission with reasonable assurance of
repayment by providing export financing through its loan,
guarantee, and insurance programs. This is something that Ex-Im
Bank has been doing since it was established in 1934. Ex-Im
Bank helps U.S. companies compete with foreign competitors that
receive support from their export credit agencies. In short, we
help level the playing field so that U.S. businesses can
compete based on quality and price of their products and
services and not be undercut by overly aggressive use of export
financing. We provide our exporters and the workers with a
competitive edge.
In fiscal year 2010, Ex-Im Bank authorized a record $24.5
billion worth of financing which supported more than $34
billion worth of U.S. exports and 227,000 U.S. jobs at more
than 3,300 companies. We proudly added more than 500 businesses
over our fiscal year 2009 levels.
We are now halfway through fiscal year 2011, and I am
confident we will have another record-breaking year. We are
already ahead of where we were mid-year 2010. And I would like
to note that we do this work at no cost to the American
taxpayer.
Since October of 2007, Ex-Im Bank has operated as a self-
sustaining Federal agency. Given the importance of lowering our
Nation's deficit, I am pleased to report that over the past 5
years our agency has generated $3.4 billion for the U.S.
Treasury.
Ex-Im Bank helps businesses, large and small, sharpen their
competitive edge in every part of the country.
Mr. Chairman, in your State we have supported nearly $18.5
million in exports since 2007. I have results for Senator
Shelby. Let me continue. In fact, for all Members of this
Committee, total exports supported more than $19 billion, of
which more than 40 percent was for small business, and that is
since 2007.
Let me briefly touch on three issues that we are
particularly proud of at Ex-Im Bank: our support of small
businesses, our support of renewable energy projects, and our
support of Sub-Saharan Africa projects.
First, the Bank dedicates substantial resources to
assisting small businesses, and it is paying dividends. More
than 85 percent of all transactions at the Bank assist small
companies. Our total for small business transactions have
increased from $3.2 billion in fiscal year 2008 to $5.1 billion
in 2010, which was a record for the Bank. We have been able to
meet our 20-percent small business mandate even as our total
authorizations grew 70 percent in the past 2 years. In fact, in
43 of 50 States, we are well above the 20-percent small
business mandate.
In order to reach more small businesses, we are partnering
with the U.S. Chamber of Commerce, the National Association of
Manufacturers, and several financial institutions to leverage
their networks.
In January of 2011, Ex-Im Bank launched a new initiative
called Global Access for Small Business because for small
businesses to compete they need access to capital and
liquidity. It includes new financing products for small
exporters and concrete goals to double small business
financings to $9 billion by 2015, as well as add 5,000 more of
these companies to our portfolio.
Ex-Im Bank along with these partners has already organized
nine Global Access Forums across the country. As I mentioned to
Senator Hagan just before, we will be doing one in North
Carolina in early June. We plan to hold 20 in the course of
this year.
Second, I want to share with you the strong results we are
achieving in financing renewable exports. In fiscal year 2008,
the Bank authorized $30.4 billion in renewable energy exports.
That grew more than tenfold by 2010 when we authorized $332
million in renewable energy exports. We are optimistic that for
fiscal year 2011 we will have doubled last year's numbers,
which would set another record for renewable energy exports in
2011.
Third, we are breaking records with our work in Sub-Saharan
Africa. For fiscal year 2009, the Bank supported $412 million
across 20 countries. In fiscal year 2010, that grew to $812
million, a new record, and it represents 5 percent of all U.S.
exports for the region, more as a percentage than any other
region of the world. In fiscal year 2011, Ex-Im Bank expects to
top $1 billion in Sub-Saharan African authorizations.
Last, let me take a moment to discuss our reauthorization
legislation that was sent to you yesterday. Our legislation
extends Ex-Im Bank's authorization through September 30, 2015.
We clean up outdated language that references programs we no
longer need and countries like Yugoslavia which no longer
exist.
The final highlight of our language is that we gradually
increase our existing exposure cap from $100 billion to $140
billion over 4 years. This will enable the Bank to continue to
support U.S. exports and meet the President's goal of doubling
them by 2015.
I am proud of the excellent work that the 400 strong Ex-Im
Bank staff is doing to create jobs, and, again, this is at no
cost to the taxpayer.
I look forward to working with you on our reauthorization.
This will allow the Bank to continue to help grow exports and
jobs while at the same time making American businesses more
competitive in the global markets.
I thank you for this opportunity to testify. I look forward
to your questions.
Chairman Johnson. Thank you for your testimony.
As we begin questioning the witness, I will ask the clerk
to put 5 minutes on the clock for each Member's questions.
In large part due to the economic crisis, the Export-Import
Bank has seen a 70-percent increase in its authorized
transactions over the last 2 years. As the economy continues to
recover, how do you think the Bank will be affected?
Mr. Hochberg. Senator, thank you for that question. I am
very proud of the fact that we have stepped in to the financial
crisis and increased our authorizations over 70 percent.
That said, although the financial crisis and the banking
crisis is subsiding, we still see a need for extensive export
assistance partly to address foreign competition. Our companies
are facing brutal competition, and it is important that we
continue to create jobs here in the United States through
exports.
Second, more and more exports are going to emerging
economies which have less access to the capital markets, less
access to banking, and, therefore, there is still a great need
for our services.
Chairman Johnson. The President has announced a National
Export Initiative to double exports by 2015, which could create
2 million new jobs. How can the Bank best advance the goals of
this initiative?
Mr. Hochberg. Chairman Johnson, the best way that we can
address those is by making sure that when American companies
are competing for orders, competing for sales overseas, that
financing is never an impediment to making that sale. So we are
helping companies, large and small, make sure that they have
the financial resources--small companies primarily through
access to liquidity and insurance on receivables, large
companies making sure they have a competitive financing offer
so that they can meet the foreign competition.
Chairman Johnson. At the close of fiscal year 2010, the
Bank had $75 billion in total obligations outstanding. The Bank
is prohibited from exceeding $100 billion in outstanding
obligations. If Congress were to raise this cap, what impact
would that have?
Mr. Hochberg. Senator, we are increasing our authorizations
each year. So far this year we have authorized $13.4 billion,
and I expect this year we will in all likelihood top last
year's record of $24.5 billion. So each time we add to those
authorizations, we need to add to our portfolio. Roughly
speaking, we added $20 billion; about $10 billion stays on the
portfolio because they are longer-term deals, and the balance
will be paid off for the short term. So we need an increase in
the exposure cap to continue to support American companies as
they compete overseas and compete for jobs here at home.
Chairman Johnson. The Bank is required to ensure that at
least 20 percent of its annual authorizations goes toward small
business. Under your leadership the Bank has met this goal this
year. Can you talk about how the Bank works to meet and
possibly exceed this mandate?
Mr. Hochberg. Senator, I think that one of the reasons that
President Obama asked me to take this position was my work at
the Small Business Administration under President Clinton as
the Deputy and the fact that I ran a company that was once
small for 20 years, a family business called Lillian Vernon.
The key to our growth in this economy is small business,
and it is central to our work and central to my work at Ex-Im
Bank. We have launched a number of these Global Access Forums
around the country. I know that you and are working to find a
date in South Dakota, for example. Most of this is about
information. We do need resources to meet small business
owners. They frequently do not understand how we can be a
resource and help them grow their businesses. So resources are
critical, and that is a separate matter in terms of
appropriation.
We have also added new products, Express Insurance and a
number of fast products to improve turnaround time to make sure
that small companies get answers and get answers quickly.
But it is a real challenge to meet the 20-percent threshold
each and every year based on the resources that we have.
Chairman Johnson. The Bank limits foreign content in many
of the transactions it approves. Can you explain how the Bank
calculates domestic content for the products and services it
supports?
Mr. Hochberg. We work with our exporters. We have an
engineering department that will certify, working with their
self-certification and reviewing that, to ensure that in the
case of full support 85 percent of the content is U.S. made and
domestic.
To the extent that content is less than 85-percent U.S.
content, we simply adjust the amount of credit facilities or
insurance to be commensurate with the amount of U.S. content in
those transactions.
Chairman Johnson. Senator Crapo.
Senator Crapo. Thank you very much, Mr. Chairman.
Chairman Hochberg, the last reauthorization changed the
Economic Impact Procedures to ensure that support for
transactions not only helps U.S. exporters but does not
negatively impact domestic companies. Has the Sensitive Sectors
List succeed in making the process more predictable about
financing that is unlikely to be provided while still allowing
the transactions to proceed?
Mr. Hochberg. Senator, we have the Sensitive Sectors List
that we look to and that is a guide to exporters to understand
that there is particular heightened scrutiny on those
particular transactions. It is a process that we review each
time, and sometimes it requires outside of that area more in-
depth analysis depending on the nature of the industry or the
nature of the product. But the Sensitive Sectors List has not
changed since the last reauthorization.
Senator Crapo. So do you feel that there is an adequate
focus on the part of the Bank's operators and those who
implement its processes to making sure that we focus on the
possible negative impacts on domestic companies?
Mr. Hochberg. Without question. We take that very
seriously.
Senator Crapo. All right. Thank you.
Also, in the last reauthorization we made structural
changes to make sure that the small business community has an
advocate to advance its needs and required the Ex-Im Bank to
authorize banks to process medium-term transactions on behalf
of Ex-Im Bank to facilitate the approval of such transactions.
Do you think these initiatives have been successful? And are we
meeting our small business targets effectively?
Mr. Hochberg. We are meeting our small business targets. I
will tell you that, despite enormous effort, it is a large
challenge. Small business owners need much more one-on-one
contact and one-on-one work on those transactions. They do pay
dividends and they do bear fruit, but it is labor intensive at
this time.
We have brought in a new Senior Vice President of Small
Business, someone I actually worked with at the Small Business
Administration. I personally put--a majority of my time is
spent on working with the small business community.
Senator Crapo. All right. Thank you for that.
My last question is, as you know very well, gaining an edge
in financing is critical in terms of export competition, and
last year, the Bank invoked an almost never used provision in
the charter to level the playing field, so to speak, in a
transaction involving American and Chinese locomotives.
What changes to U.S. export credit financing generally do
you see necessary to help us level the playing field?
Mr. Hochberg. This was a sea change for the U.S.
Government. We had evidence that the Chinese were offering
financing assistance to a Chinese manufacturer that did not
comply with OECD guidelines that the other 31 industrialized
countries follow. China now is the largest exporter in the
world and the second largest economy, and yet they do not
follow the same rules and protocols that the other
industrialized countries do.
As a result, having that evidence, we worked with the White
House and the Treasury Department, and we were able to come up
with a competitive financing arrangement. We informed the OECD
that we were going to do so and have offered that to the
exporters to make sure that when the Pakistan Rail Authority
makes a decision, it can be based on the products, the
attributes, service, and price and not on financing terms. We
are still waiting for that transaction to be resolved.
Senator Crapo. Do you think we need to change anything in
the law in order to facilitate your ability to achieve these
kinds of efforts to level the playing field?
Mr. Hochberg. I think the most important thing we need to
do is make sure that the exporting community realizes that and
does not give up on competing against China because they feel
they are such a formidable competitor. So I think we have the
tools, and I am looking to make sure that other exporters in
other sectors realize that we will back them fully to make sure
that we protect U.S. jobs and are competitive and go toe to the
toe with the Chinese or any competitor that is trying to make
sales in the global marketplace.
Senator Crapo. Well, thank you, and I appreciate your
attention to these issues.
Thank you, Mr. Chairman.
Chairman Johnson. Senator Reed.
Senator Reed. Thanks very much, Chairman Johnson, and,
Chairman Hochberg, thank you for your leadership not only at
the Ex-Im Bank but, as you indicated before, at the SBA. You
bring great experience and great energy to this effort.
One of the impressions I have is there are a lot of
particularly small businesses throughout the country that could
be in the export sector but are not for many reasons. What are
you doing proactively along with your other colleagues in the
Administration, the Department of Commerce, et cetera, to get
potential export companies, small business companies, in the
game?
Mr. Hochberg. Senator, actually we are going to be in your
State in early June with Congressman David Cicilline. Perhaps
you can join us as well. We are going to be doing one of our
Global Access Forums, along with Karen Mills, because we
frequently do these with the SBA or the Commerce Department.
One of the most effective tools we have are these Global
Access Forums where we bring in small companies and explain to
other small business owners how they have successfully
exported, created jobs, and actually created sales and profits
through that.
The best way we can do that, candidly, is with Members of
this Committee who can help bring the business community to the
table, and we will do that education.
Part of this, again, this is not an appropriation hearing,
but this is about resources. These are labor intensive and time
intensive, and we are at the same level as the CR, which has
not increased our appropriation in any way, to take an account
for additional volume or outreach to small businesses.
We have a greater Web presence. We are doing webinars on a
monthly basis. And, importantly, we are also changing our
products. I have been challenging the agency to streamline our
operations to get exporters quicker answers. We launched a
product called Express Insurance where we are giving an answer
to an exporter, a quote on insurance within 5 days, and
frequently better than that.
So those are some of the tools, but a lot of it is also
communications.
Senator Reed. Let me ask a question, because you raised
this in the context particularly of very constrained budgets,
you have got to be able to show that you are adding value to
the process. And in terms of what Ex-Im Bank is doing, some
critics have suggested it merely sort of does not increase
overall economic activity, it just reallocates it to the export
sector.
Do you have measurements and metrics that show, you know,
jobs are growing in this country, particularly in the small
business community, that otherwise would not?
Mr. Hochberg. Well, what we do, Senator, is we work with
the Department of Commerce and have made an estimate that about
7,400 jobs are created for every $1 billion worth of exports
that we support, and that is looking at the entire supply
chain. You cannot just look at the company that actually
ultimately ships the goods. You have to look at all the
equipment and material that work to get it to that point. So we
use that number of 7,400 jobs per $1 billion of exports, and by
that calculation, last year we either created or sustained
227,000 jobs through the financings that we did.
I would just add one more thing. American companies are
continually facing a very, very tough competitive environment.
The Senator referred to the transaction on Pakistan where we
are competing against the Chinese. We compete against the
Koreans, the Germans, the Japanese, the French, the Italians,
and many, many other countries. And sometimes if it were not
for the financing we offer, comparable financing, those sales
would be lost and those products would be made by workers in
those countries versus workers in America.
Senator Reed. I think your goals are not only laudable but
actually essential to the success of the country going forward.
As we all know, the President has pledged to do everything they
can to double exports. As you look at that challenge, what do
you have to do more, what do we have to do more to try to reach
that goal of double exports?
Mr. Hochberg. Well, we are actually on a good track.
Exports are up 17 percent in 2010. January was a record month
of exports for the United States, and then that record was
broken again in March. So we are actually on a good trajectory
in terms of increasing exports.
It takes greater dedication to manufacturing, a greater
dedication to services, which actually we run a trade surplus
in, and ag products as well. Secretary Vilsack is working very
hard on making sure we increase our agriculture exports as
well.
I think that it requires the resources at Ex-Im Bank and
the Commerce Department because we are clearly outgunned when
it comes to foreign competition. My competitor export credit
agencies have offices throughout the world. The Chinese have
offices, the Japanese have offices, the Canadians have offices.
You know, I would give you one example. Our offices are in the
United States, and our appropriation is somewhat limited right
now.
Senator Reed. Thank you very much, Mr. Hochberg.
Thank you, Mr. Chairman.
Chairman Johnson. Senator Moran.
Senator Moran. Thank you, Chairman Johnson.
Mr. Chairman, thank you. My first opportunity to extend
an--an opportunity to say hello to you and get acquainted, and
I appreciate that very much.
I want to just follow up on your last response to what you
were saying to Senator Reed. Tell me about the competitors. If
we are doing OK, and you say we are on the right trajectory,
what do we see our competitors doing, particularly as it
relates to access to credit, assisting their exports? You
talked about offices around the world. Tell me more about what
they have that we do not have.
Mr. Hochberg. I would say primarily what some countries--
and I will name China, for example. There is a lot of support
before a company exports, either free facilities, a tax
holiday, 1-percent or no-percent interest loans. There are a
number of those kind of programs that actually assist their
manufacturing base and then make them very formidable
competitors on price as well. So that is something that some
foreign competitors are doing. China is particularly noteworthy
in that particular area.
Senator Moran. Before we ever get to the export market,
they are subsidizing the production of manufactured goods, for
example. We see that in agriculture in which part of what we do
is support the production of agricultural commodities, but part
of what we do is try to encourage their sale abroad. And so we
may not be competing well in the support for the industry. Tell
me about the access to credit. How are we different than other
countries? And what disadvantages do we have?
Mr. Hochberg. Well, actually, we have a number of
advantages. One of the things we do is we can make a direct
loan when a guaranteed loan does not work. Most of our foreign
competition, the traditional OECD, you known, the European
countries, cannot do direct lending. So that actually gives us
an advantage.
We have employed a number of new financing products--that
is something called a take-out option--that if there a material
adverse condition, we will take a loan away from a bank if they
would like to send it back to us so that they can no longer
service it.
So there are a number of programs like that that we have
put in place, and I would say with pride we have taken the
small business mandate far more seriously than our competition
has.
Senator Moran. Thank you, Mr. Chairman.
Chairman Johnson. Senator Warner.
Senator Warner. Thank you, Mr. Chairman. And let me welcome
my friend, Chairman Hochberg, whom I have had the opportunity
to know and work with back to the days when he was in the
private sector. Congratulations on your success at Ex-Im Bank.
I want to follow up on both Senator Moran's comments and
Senator Crapo's comments in terms of competition with the other
export credit agencies.
I guess the first point I want to make is that clearly
China is not playing by the same rules that all the other
participating OECD countries are playing by. Is there any
coordinated effort, since China does these enormous subsidies
and has a very, very low cost of capital, where, you know, the
rest of the world is playing by one set of rules, is going to
have some kind of united action vis-a-vis these kind of
outside-the-fair-boundaries rules that China is playing with?
Mr. Hochberg. I have been with Secretary Geithner and
Secretary Clinton, who have advocated China to more comply with
the rules and protocols that other export agencies do. Last
week, there was the China Strategic and Economic Dialogue, and
that was one of the central themes that was discussed with the
Chinese.
I was at a G-11 meeting, which was the G-7 plus the BRICs,
so the Chinese were with us last week, and I had a meeting in
Europe and discussed at length having them move closer toward
OECD protocols so that they would be providing financing on the
same terms that the United States and other exporters do.
Senator Warner. Are other OECD countries putting that same
kind of pressure on as well? Is there any kind of coordinate
action?
Mr. Hochberg. It is coordinated. I would say that we have
to take the lead. As the United States, people look to us to
take a leadership role. I think we did that in our financing of
the rail for Pakistan. Offering that was a clear statement that
until you comply, we will not sit idly and let orders go away
because you have better financing than we do.
Senator Warner. We would look toward, as we look at the
reauthorization, how we make sure we have got those tools.
Now, in terms of some of the other export credit agencies,
obviously, you mentioned, they are more aggressive. We have got
a deal in our State, the iridium deal, which I am sure you are
familiar with, where France came in and topped us out and, you
know, I just was curious. How can we make sure some of these
areas, satellite technology, something that we have an
advantage on, that we can stay competitive?
Mr. Hochberg. I would say there is one other area I should
mention that also Ambassador Kirk is taking the lead on, as
well as Secretaries Clinton and Geithner, and that is on a
level playing field, to make sure that when American
companies--I am convinced that American companies will compete
and win their fair share of orders when there is a level
playing field and the bidding is truly open to all competitors,
not simply State-owned enterprises or local companies.
That is something that we are continually working toward,
and it is a challenge for American companies when they are
bidding, be it in--not just in China but in Asia and Latin
America, to make sure that American companies can bid on the
same terms as local companies.
Senator Warner. But if my information is correct, Ex-Im did
not even make an offer on the iridium circumstance.
Mr. Hochberg. On the iridium transaction, they ultimately
did not even make an application to us in the end, and from the
preliminary data, we felt that the risk profile in that
transaction was looking outside of the level that we were
comfortable financing. And as a result, we never actually did
receive an application.
Senator Warner. Mr. Chairman, one of the things I hope that
we will have a chance to look at as we work through this
reauthorization--and I look forward to working with you since
this falls in our Subcommittee, and I would like the Chairman's
comments on any proposed changes to the content rules.
Obviously, content rule in terms of what type of activity you
can help finance. We have had a lot of changes in the 50 years
since, I believe, the content rules originally were laid out in
terms of global supply chain, a lot more move toward technology
products and services where--and, again, I commend your efforts
on the small businesses, but particularly a lot of small
businesses are in that technology and supply chain, service in
the supply chain as well.
Do you have any comments for the Committee in terms of
proposals that you would want to see changes in the content
rules?
Mr. Hochberg. The content rules now require that as long as
the content is 85 percent, we will fully support the export. If
the U.S. content is 50 or 60 percent, we will provide 50 or 60
percent of the financing. So we adjust our financial support
based on the U.S. content.
With close to--well, actually, we are back at 9-percent
unemployment, I find it very--it is hard to justify dropping
the content as a way of increasing employment. We use content
as a proxy for American workers and American labor. So I think
the content rules, as we currently enforce them, are the best
way we can help increase employment.
Senator Warner. Even as we look on the service side and
kind of----
Mr. Hochberg. On the service side, we can support services.
About 10 percent, Senator, of our exports last year were on the
service side. We are working with Black & Veatch, a company in
Kansas, that is 100-percent service export. So the service side
we can support, be it engineering, architectural, legal,
insurance.
Technology companies are the ones that present somewhat of
a challenge, and that is really--we need the product to be
shipped from the United States to be a true export, and we need
verification that it was create by U.S. workers. In that case
we can support it.
Senator Warner. Well, I would just like to look at kind
of--since on technology so much of where it is shipped from may
be one indication, but there are so many different parts along
the way. I look forward to working with you on that.
Thank you, Mr. Chairman.
Chairman Johnson. Senator Merkley.
Senator Merkley. Thank you very much, Mr. Chair.
Thank you for your testimony. I wanted to start by asking
about the economic impact studies on productive machinery. I
believe you do a couple a year or you pick out topics. How do
you decide what to choose to explore in those studies?
Mr. Hochberg. For economic impact?
Senator Merkley. Yes.
Mr. Hochberg. It is on a transaction-by-transaction basis.
When we get a transaction that would be of capital equipment
that, therefore, might impact or hurt American competitive
businesses and American companies, we will at that point do an
economic impact study to ascertain whether this would be
harmful or not to the U.S. economy. So it is really on each
transaction.
Senator Merkley. So, for example, in the Pacific Northwest,
we have lost a lot of paper manufacturers to low-cost paper
coming from China, and I know that China has shipped in major
production machinery from around the world, I believe including
U.S. machines. I do not know if they were subsidized at all by
the Export-Import Bank, but is that the type of issue you would
explore? And have you explored that specific issue?
Mr. Hochberg. I have not explored that specific issue, but
what we would--the way we would approach situations like that,
if there was an export of paper-making equipment that we were
being asked to finance, we would look at that export of paper-
making equipment and see whether that would hurt American
competitiveness by producing paper and giving capacity and
capability to a foreign company in a foreign country. So it is
more on the export of the capital equipment that we would be
making that assessment.
Senator Merkley. Do those studies come in advance or are
they backward-looking?
Mr. Hochberg. Well, they are both backward-looking and, as
best we can, making a forecast of what would this additional
capacity on the part of a foreign company and could that
compete in a material way with the marketplace for American
goods and services.
Senator Merkley. When you are guaranteeing loans to foreign
companies to buy American products and those companies do not
pay up in a certain amount of time--I do not know if it is 60
days or 90 days--how do you go about essentially holding those
companies accountable?
Mr. Hochberg. Senator, I think that is one of the key
reasons why American companies work with us, and they work with
us in challenging environments. We have at our disposal--
frankly, the United States Embassy is very helpful. We do a
thorough review of the creditworthiness before we get there. So
our write-off rates average about 1.5 percent, which, if you
look at it on a commercial basis, is actually very strong and a
low write-off basis. And we are dealing with far more
challenging credits than the average bank.
Senator Merkley. Certainly any private lender would be
envious of that write-off rate. Are there private lenders that
find that there is enough business in the export world that you
are not attending to that you have the complement of private
financiers in this sector?
Mr. Hochberg. Oh, without question. I mean, the United
States Export-Import Bank finances or is engaged with about 1.5
percent of U.S. exports--frankly, a low-intensity level, lower
than most other developed countries. So we really as the United
States far more on the private sector to support trade finance
than almost any other country.
Senator Merkley. I really think of the Bank as serving in
that role where the private market does not attend because of
the fact that it is too risky, the buyer is too uncertain, et
cetera. And yet with a write-off rate of only 1.5 percent, that
is quite remarkable. Are there a lot of loans that you simply
turn down guarantees for or turn down direct loans for because
they are too high of a risk?
Mr. Hochberg. Well, first let me say one thing. Companies
and countries do not like to default on the U.S. Government. It
is not a good idea. We are a very good ally and a good friend
and not someone you want to make an enemy of. So that helps in
our ability to collect.
Frequently a transaction will--people will work with the
Bank, and if we feel that it is not creditworthy enough, we may
not even see the application maybe early enough.
That said, the instruction I have given to our Bank is that
I want to find a way to get to yes, and if that means perhaps a
slightly higher fee or instead of guaranteeing 85 percent we
might only guarantee 80 or 75 percent, or ask the exporter to
take on some other risk, we want to find a way that we can help
a U.S. exporter so that they can make that sale. And we will
either look at the pricing or the coverage ratio as a way of
getting to yes in one way or another.
Senator Merkley. Thank you.
Chairman Johnson. Thank you, Chairman Hochberg, for your
testimony today.
We will leave the record open for 7 days so that Members
can submit additional questions. Chairman Hochberg, please
submit your answers to us as soon as possible.
This hearing is adjourned.
[Whereupon, at 10:46 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN TIM JOHNSON
Today, the Committee welcomes the Chairman and President of the
Export-Import Bank of the United States, Fred Hochberg. This hearing
will allow us to continue our ongoing oversight of the Bank's recent
activities. In addition, we will hear from the Chairman about the
Bank's ideas for reauthorization.
The Bank's current authorization expires on September 30, 2011, and
it is my goal to work with Ranking Member Shelby and other Members of
the Committee to reauthorize the Bank.
I want to thank all Members of this Committee for their support of
Wanda Felton and Sean Mulvaney last week. It is imperative that the
Senate confirm these nominees as quickly as possible.
The Export-Import Bank is the official export credit agency of the
United States and it assists in financing the export of U.S. goods and
services to international markets. Following the financial crisis, the
Bank experienced a dramatic increase in its activities as many
companies struggled to find financing in the private market. In Fiscal
Year 2010, the Bank saw a 70-percent increase in authorizations from
2008. In fact, last year the Bank committed almost $25 billion in
support of U.S. exports--a record.
The Bank is one of the few Federal agencies that actually makes
money for the U.S. and, since 2008, has been self-funding. This is a
testament to the Bank's leadership under Chairman Hochberg, as well as
the good work of the dedicated staff and Board of the Bank.
All of the Bank's transactions are backed by the full faith and
credit of the United States. Therefore, it is important for this
Committee to make sure that the Bank is working as efficiently and
effectively as possible to protect the taxpayers.
Equally important is the Bank's goal to use exports to help create
and maintain jobs here at home. This mission, embodied in the Bank's
Charter, is at the very core of what Congress intended the Bank to do.
I believe that while the Bank is doing a good job, it can--and must--do
more.
Over the next several years, the Bank will face some challenges.
After weathering the financial crisis, the Bank may see a shift in the
types of deals it is asked to finance as the economy recovers. In
addition, the President has called for the doubling of our exports by
2015 in an effort to create as many as 2 million American jobs. As the
Nation's official export credit agency, the Bank will play a critical
role if we are to meet that goal.
I am eager to hear from Chairman Hochberg about the Bank's recent
activities and his ideas for reauthorization.
______
PREPARED STATEMENT OF FRED P. HOCHBERG
President and Chairman, Export-Import Bank of the United States
May 17, 2011
The Export-Import Bank of the United States (``Ex-Im Bank'' or
``Bank'') is the official export credit agency of the United States.
The mission of Ex-Im Bank is to enable U.S. companies--large and
small--to turn export opportunities into real sales that help maintain
and create U.S. jobs which contribute to a stronger national economy.
The Bank achieves this mission by providing export financing through
its loan, guarantee, and insurance programs in cases where the private
sector is unable or unwilling to provide financing. Ex-Im Bank also
provides support when export financing is necessary to level the
playing field due to financing provided by foreign governments to their
exporters that are in competition for export sales with U.S. exporters.
All Ex-Im Bank products carry the full faith and credit of the U.S.
Government and are only provided if the Bank is convinced that there is
reasonable assurance of repayment. As a result of our diligent review
and management of credit, the Bank has a loan loss rate of roughly 1.5
percent--well below most commercial banks. Since FY2008, Ex-Im Bank has
operated in self-sustaining financial status at no cost to the
taxpayer, while achieving its mission.
Over the past 2 years, Ex-Im Bank addressed the market contractions
caused by the financial crisis by stepping in where private banks and
other lending institutions were unwilling or unable to meet the trade
finance needs. In recent years, the Bank has supported a level of
authorizations that is far higher than historical averages.
In FY2008, Ex-Im authorized $14.4 billion to support transactions
that resulted in roughly $19.6 billion in U.S. exports. Just 2 years
later, in FY2010, Ex-Im authorized a record $24.5 billion in export
financing which supported roughly $34.3 billion worth of U.S. exports
and 227,000 U.S. jobs at more than 3,300 U.S. companies.
I am proud to say that we have accomplished all of this work at no
cost to the U.S. taxpayer. Ex-Im Bank more than covers our
administrative and program expenses through the fees that we charge to
borrowers of the U.S. exports Ex-Im Bank helps to support. In the past
5 years, we have sent $3.4 billion to the U.S. Treasury.
Ex-Im Bank offers three financial programs to keep the U.S.
competitive in the world markets: direct loans, guarantees, and
insurance. There are various products within these programs, such as
Working Capital Guarantees and Export Credit Insurance, which primarily
benefit small businesses.
Direct loans provide financing directly to foreign buyers of U.S.
goods and service and cover up to 85 percent of the U.S. contract value
or 100 percent of the U.S. content, whichever is less.
Loan guarantees cover the repayment risks on the foreign buyer's
debt obligations incurred to purchase U.S. exports. Ex-Im Bank
guarantees to a lender that, in the event of a payment default by the
borrower, it will pay to the lender the outstanding principal and
interest on the loan. We provide support up to 85 percent of the U.S.
contract value or 100 percent of the U.S. content, whichever is less.
Working Capital Guarantees provide repayment guarantees to lenders
on secured, short-term working capital loans made to qualified
exporters. The working capital guarantee may be approved for a single
loan or a revolving line of credit. Ex-Im Bank's working capital
guarantee protects the lender from default by the exporter for 90
percent of the loan.
Export credit insurance helps U.S. exporters sell their goods
overseas by protecting them against the risk of foreign buyer or other
foreign debtor default for political or commercial reasons, allowing
them to extend credit to their international customers. Insurance
policies may apply to shipments to one buyer or many buyers, insure
comprehensive (commercial and political) credit risks or only political
risks, and support short-term or medium-term sales.
By utilizing these various products, Ex-Im Bank levels the playing
field for U.S. exporters and workers so U.S. jobs are not lost to
foreign competitors.
To ensure that the needs of small businesses are met, Congress
mandates that 20 percent of our authorizations directly benefit small
businesses. I am happy to report that we are meeting this mandate. Our
totals for small business transactions have increased from $3.2 billion
in FY2008, to $5.1 billion in FY2010, which reflects a 58-percent
increase over the 2-year period. We have been able to maintain the 20-
percent small business mandate over the last 2 years, in a time that
has seen our total business grow from $14.4 billion in FY2008 to $24.5
billion in FY2010, a 70-percent increase.
We recently submitted our 2011 Small Business Report to Congress on
March 31st which details our small business activity for fiscal year
2010 and the plans that we have already initiated for 2011 to continue
growing our small business portfolio.
While we have met our 20-percent Congressional mandate and we
continue to implement new programs and strategies to grow that
percentage, it is increasingly difficult to do given our limited
administrative budget and our inability to deliver the highest level of
quality customer service as a result of our aging Information
Technology (IT) infrastructure. The Bank utilizes its various products
to respond to the needs of the market and as such, we provide financing
based on what business is coming in at any given time. We continue to
aggressively pursue small business transactions, but ultimately our
percentage of the total portfolio is a function of the sectors that
need Ex-Im financing at any given time. Small business transactions
account for more than 85 percent of our total transactions at the Ex-Im
Bank but are just over 20 percent of the authorization dollars. Meeting
our 20-percent small business mandate is something that is highly labor
intensive and requires significant resources. To maintain and grow our
small business percentage, we will need an increase in our
administrative budget.
In order to further expand the small business activity, Ex-Im has
initiated the following initiatives:
Global Access for Small Business Initiative. Earlier this
year, I was joined by Tom Donohue from the Chamber of Commerce
and Jay Timmons from the National Association of Manufacturers
in announcing Ex-Im Bank's Global Access for Small Business
Initiative. Ex-Im Bank is sponsoring a series of 20 forums
across the country to assist small business exporters in
understanding how the Bank's programs and programs at the Small
Business Administration (SBA) and Department of Commerce can
help them begin exporting or increase their international
sales. In addition to presentations by successful small
business exporters, the Global Access forums include panels of
Ex-Im, SBA, and Department of Commerce staff based in local
United States Export Assistance Centers (USEACs) as well as
one-one-one counseling by Ex-Im Bank Export Finance Managers
and other Federal agency representatives. These half-day events
are free for attendees and held in collaboration with elected
officials, representatives from Federal and local government
agencies, lenders, and insurance brokers involved with
supporting exporters. We also provide small business owners as
panelists who highlight their success in using Ex-Im Bank
products to start or grow their exporting and we provide one-
on-one counseling for businessmen and women at the event.
Expanded Bank and Broker Training. Ex-Im Bank has expanded
its lender and broker training options to include monthly
trainings around the country. Webinars have also been added to
the training curriculum to help exporters, lenders and
insurance brokers learn how to use Ex-Im products and services.
Supply Chain Finance Guarantee. The Supply Chain Finance
Guarantee provides competitively priced working capital
financings to businesses that supply products or services to
larger U.S. exporters. These businesses are considered indirect
exporters. The product works through approved lenders with an
existing supply chain finance program.
It enables the lender to purchase accounts receivable from
small business suppliers whose goods will be part of an export.
The suppliers are paid for their goods in approximately 5 days
which improves their cash flow and liquidity. Ex-Im Bank
provides the lenders with a 90-percent guarantee of repayment
by the manufacturers. In turn, the Bank requires that at least
50 percent of the credit be to small-business suppliers.
Reinsurance. Reinsurance assists private-sector insurers
that provide short-term export-credit insurance covering
foreign receivables to predominantly U.S. small business
exporters. This new product will increase the capacity of
insurance companies to offer insurance to small business
exporters that have had difficulty obtaining short-term export
credit since the financial crisis. The Bank's reinsurance
product will mitigate risks for private insurers and enable
them to expand their underwriting capacity for short-term small
business credits. It will also help Ex-Im Bank achieve
economies of scale in originating, underwriting, and servicing
these credits--accomplishing substantially more for small
businesses with fewer resources by expanding the reach of
private-sector insurers.
Express Insurance. In response to the requests of exporters
and Ex-Im Bank broker-partners, Ex-Im is adding a new program
to its flagship Trade Credit Insurance product--Express
Insurance. Express Insurance specifically targets small
businesses. Ex-Im Bank has designed an express insurance
product that streamlines the application process for the Bank's
short-term export credit insurance. The target turnaround time
for a quote is 5 days, down from the current average of 15.
Cutting the processing time by \2/3\ and cutting the length of
the actual application from 4 pages down to 2 pages and using
credit scoring in the processing of new applications and
renewals reduces the time frame and the complexity of insurance
that small businesses need to protect their export receivables
from foreign buyer and country risk.
Authorizations--Small business authorizations in FY2010 increased
15.9 percent to just over $5 billion as compared with new small
business authorizations for FY2009 of roughly $4.4 billion and FY2008
of roughly $3.2 billion. In FY2010, small-business authorizations
represented 20.7 percent of total authorizations. During FY2010, the
number of transactions that were made available for the direct benefit
of small-business exporters increased by 21.7 percent to 3,091
transactions compared to 2,540 in 2009.
As referred to earlier, Ex-Im Bank offers two products that
primarily benefit small businesses: Working Capital Guarantees and
Export Credit Insurance. In fiscal year 2010, Ex-Im Bank authorized
roughly $1.5 billion in Working Capital Guarantees to small businesses
compared to $1.2 billion in 2009. In fiscal year 2010, Ex-Im Bank
authorized more than $2.6 billion in Export Credit Insurance to small
businesses.
Increased Lender and Broker Participation--Ex-Im Bank leverages its
resources on behalf of small businesses by working with private-sector
lenders, insurance brokers and other financial and trade institutions.
In fiscal year 2010, 18 new lenders received Delegated Authority to
provide working capital guarantees. Delegated Authority provides
lenders a preapproved credit line which allows them to approve loans
and receive Ex-Im Bank's guarantee without having to submit individual
applications for approval. An additional 14 brokers serving small
businesses trade insurance needs were added to the roster. At the
fiscal year's end, Ex-Im Bank had a total of 100 delegated authority
lenders and 194 registered brokers helping deliver the Bank's small-
business products. While these numbers are significant, we continue to
seek additional brokers and lenders to partner with Ex-Im Bank.
Export Initiative With State and Local Constituencies--One
effective approach to developing strong partnerships is our initiatives
with our City/State Partners. More than 60 Ex-Im City/State Partners in
40 States work with Ex-Im Bank and report their activity annually.
Their mission is the promotion, creation and expansion of businesses in
a given region by making available financing assistance and
entrepreneurial services. Examples of eligible partners include: State,
County, City Governments--either directly or indirectly funded; local
nonprofit economic development entities funded through universities and
colleges; and Small Business Development Centers.
Many of the small business owners are veterans, women, and
minorities. Ex-Im Bank wants to do more to reach these key groups which
historically are less likely to approach the Bank for financing. In an
effort to increase our interaction with these groups, Ex-Im Bank has
worked with the Department of Commerce and other sources to increase
our outreach. I would also ask Members of this Committee and your
colleagues to provide suggestions of organizations, constituencies, and
events that you think we should be participating in so we can grow
participation among veterans, women, and minorities.
Ex-Im Bank recently created a new position of Director of Veterans'
Relations to better reach out to all veterans groups and to connect
export finance opportunities with their knowledge of foreign cultures,
people, and businesses. Ex-Im Bank hosted the Vet-Force meeting for
Veteran Owned Business (VOB's), Veteran Community Organizations (VCO's)
and various Government agencies to introduce veterans to export
financing. In coordination with SBA's Georgia District Office Ex-Im's
Director of Veterans' Relations was the keynote speaker at the first
ever Veteran's Export Symposium.
In fiscal year 2010, Ex-Im Bank authorized $481 million to support
exports by U.S. small businesses known to be minority-owned and woman-
owned (this information can be volunteered on applications, but we
cannot require it). In fiscal 2009, Ex-Im Bank authorized $492.7
million to support exports by U.S. small businesses known to be
minority-owned and woman-owned. Although support for minority and
woman-owned small business declined slightly, the total support
increased by $65.2 million when taking into account medium and large
exporters in this group.
------------------------------------------------------------------------
(Millions) 2008 2009 2010
------------------------------------------------------------------------
Minority and Woman Owned
Medium/Large Business..................... $80 $70.3 $147.2
Small Business............................ $386 $492.7 $481.0
------------------------------------------------------------------------
Total................................. $466 $563.0 $628.2
------------------------------------------------------------------------
Significant emphasis is placed on events attended by small business
exporters, as well as minority, rural, and woman-owned entrepreneurs.
During 2010, staff from within the Small Business Group at the Bank
attended 85 outreach events reaching approximately 5,500 Minority and
Woman-Owned Business exporters and intermediaries. Ex-Im Bank made
presentations at 75 percent of the events attended in 2010.
Significant steps are being taken to boost this segment of the Ex-
Im Bank business. First and foremost, during 2010, Ex-Im Bank hired as
our new Senior Vice President of the Small Business Group a former
banker with 20 years in community development and minority lending and
investment experience. In addition, we hired a Vice President of
Marketing and Sales, a Community Reinvestment Act professional from a
major bank. In addition to their managerial responsibilities, these two
officers will further expand Minority and Woman-Owned Business Outreach
activities. We have also reallocated resources to achieve our 20-
percent small business mandate.
In order to expand the reach and service to small businesses, Ex-Im
is doing the following:
Global Access Events. Developing at least 4 Global Access
media and training events specifically for Minority and Woman-
Owned Businesses.
Community Development Financial Institutions. The Small
Business Group attends the conferences for the National
Federation of Community Development Credit Unions, Opportunity
Finance Network, National Community Reinvestment Coalition, and
events sponsored by Federal regulators concerning Community
Reinvestment Act initiatives. The chief objective is to expand
the number of local and community development banks and other
intermediaries using the Ex-Im Bank trade credit and working
capital products and services.
Direct Calling on Minority and Woman-Owned Exporters. In
order to expedite the communication with the exporter, Ex-Im
has established a ``smart data-base'' program. The program,
which includes exporter names from the Trade Promotion
Coordinating Committee (TPCC), is designed to support direct
outreach to minority and woman-owned exporters through
systematic cold calling by experienced Ex-Im Bank export
finance officers. While targeting the use of Ex-Im Bank's trade
credit insurance, the officers are also trained and encouraged
to refer exporters to the appropriate Department of Commerce
and SBA functions as reflected by the exporter's needs.
The global marketplace is brutally competitive for businesses small
and large. At Ex-Im we have seen a decrease in sovereign loans and an
increase from the private sector in emerging markets. And commercial
lenders routinely limit the amount of exposure a company can have in
particular regions and consequently those businesses are coming to Ex-
Im Bank for financing.
Businesses in the United States are second to none when it comes to
manufacturing. The U.S. is the number one manufacturer in the world. We
make more goods than China, Germany, and Japan.
However, when it comes to selling overseas, we fall to number three
behind China and Germany, which is unacceptable. There is nothing
third-rate about American products and American business and there
should be nothing stopping us from selling more of the products and
services we make into the global marketplace.
By ensuring that more American companies--big and small--go after
our share of this global business, Ex-Im Bank is helping build the type
of export powerhouse that is at the heart of President Obama's plan to
win the future and double exports by 2015. At Ex-Im, our goal is to
provide the financing to make this a reality.
We have targeted nine emerging markets in Brazil, Colombia, India,
Indonesia, Mexico, Nigeria, South Africa, Turkey, and Vietnam. Let me
provide examples of the work Ex-Im Bank is doing to support exports to
a couple of these countries.
India plans to spend $1 trillion on infrastructure between 2012 and
2017, which is double what they spent in the previous 5 years.
As part of these investments, India needs to build one million
square miles of new paved roads and roughly 4,600 miles of new metros
and subways. That rail system and those roads mean billions of dollars
worth of capital goods and services--from trains to rails to
engineering services to paving equipment.
In addition to infrastructure demands, India also has growing power
needs. Today, nearly 400 million people in India have never seen a
light bulb. India is powering up and they are working to do it
responsibly. India recently announced its National Solar Mission, a
far-reaching plan to add 20,000 megawatts of solar power by 2020. That
is enough to power nearly 10 million homes with renewable energy.
At Ex-Im, we are working with U.S. solar companies to make sure
they have the competitive financing they need to be part of these
projects. One of these companies is Infinia, which is based in
Washington State. Ex-Im recently authorized a $30 million direct loan
to finance a solar project in Rajasthan, India. The project is using
Infinia's PowerDish technology. This was Infinia's first major sale for
foreign delivery and their largest sale to date.
Brazil is another market that we are targeting due to its
forecasted growth in the coming years. With the World Cup in 2014 and
the Olympics just 2 years later, boosting power production and building
out infrastructure are two of the country's critical priorities. Brazil
will invest more than $200 billion on everything from roads and public
transportation, to airports and sports stadiums.
Ex-Im will support American companies--and American workers--
exporting to these projects. That's why just a few weeks ago, President
Obama announced a $1 billion credit facility in Ex-Im financing for the
State of Rio de Janeiro. Its purpose is to finance the purchase of more
American-made goods and services. All around the world we are seeing
similar opportunities for American companies.
In many cases, Ex-Im Bank's financing levels the playing field when
it comes to international competition. Let me give you an example.
General Electric (GE) was recently bidding on a $500 million rail
project to supply 150 diesel-electric locomotives to Pakistan. These
locomotives are critical to building the infrastructure of Pakistan's
economy, so products and commodities can get to market.
GE was told by Pakistani officials that they preferred GE
locomotives and they were willing to pay a premium for their high-
quality and dependability. However, there was only one sticking point
and it was financing. The Chinese government offered financing that did
not conform to international standards and practices. The intended was
to provide Chinese manufacturers an advantage that GE could not make up
in quality, price or service. This put the entire sale and more than
700 jobs in Erie, Pennsylvania, at risk.
To remedy this, the Administration put together a matching
financing package. And for the first time, we went to the OECD, the
organization that governs global export financing, to inform them of
our decision to match China. While the final deal is not yet completed,
this significant policy change signals to foreign competitors that Ex-
Im will compete on financing, allowing American companies to compete
solely on the quality and value of its products--and the service it
provides.
Let me share with you exciting results we have accomplished in
financing renewable energy. The Ex-Im Bank has made significant strides
when it comes to increasing financing of renewable energy products. In
FY2008 the Bank authorized $30.4 million in renewable energy exports.
That grew to $101 million in FY2009. We tripled our previous year's
totals by authorizing $332 million for renewable energy exports in
FY2010. To put this number in perspective, according to data gathered
by the Department of Commerce, the U.S. exported a total of $2.1
billion in renewable energy products in 2009. Ex-Im Bank is playing a
major role in supporting U.S. renewable energy exports. In FY2011 we
are projecting to more than double our authorizations from FY2010.
We are also breaking records with our work in Sub-Saharan Africa.
For FY2009, Ex-Im Bank supported 109 transactions totaling $412 million
across 20 Sub-Sahara African countries. In FY2010 those totals grew to
132 transactions totaling $812 million in 20 Sub-Saharan African
countries, which represents nearly 5 percent of all U.S. exports for
the region. In FY2011, Ex-Im Bank expects to top $1 billion in Sub-
Saharan African authorizations.
We are supporting U.S. exports and transactions across various
economic sectors including: power, aviation, transportation,
construction, agriculture, and mining.
Ex-Im Bank is providing a key service to businesses large and small
in the United States. In order for us to continue helping to grow and
sustain jobs through exports, the Bank needs to be reauthorized.
Our legislation provides for a gradual increase in our exposure
limit over 4 years from the existing $100 billion to $140 billion in
FY2015, removes outdated references from our Charter--such as removing
references to the former Yugoslavia which disbanded in the 1990s, and
provides for a 4 year reauthorization which allows the Ex-Im Bank to
continue operations through September 30, 2015.
The President's FY2012 Budget continues the Bank's self-sustaining
status, which was achieved for the first time in FY2008. I want to
emphasize this point: self-sustaining status allows for funding of the
Bank's operations, including program budget and administrative
expenses, entirely from fees collected from the Bank's borrowers. As a
result, the Bank does not rely on taxpayer resources to fund
operations, which is critical in a tight budgetary environment.
Congress will continue its oversight of Ex-Im Bank's budget, setting
annual limits on its use of funds for program subsidy and
administrative expense obligations.
Ex-Im Bank and our employees are making a significant contribution
to the U.S. economy. Our employees at the Bank have helped increase
business by 70 percent since 2008 while implementing new technologies
and programs like Express Insurance and Supply Chain Finance which are
detailed in my written testimony. At the same time, we have received
only a 7.6-percent increase in our administrative expense appropriation
since 2008 and have only increased staffing by 13 FTEs or full time
equivalent staff. Simply put, we have become leaner and more
productive. This is something that every business strives to achieve.
While Ex-Im's staffing and budget have remained relatively flat, we
have generated billions in funds for the U.S. Treasury. But, in order
to meet our goal of doubling exports by 2015, we must be able to
increase our administrative budget.
I ran a business for 20 years and I know that we need to continue
to invest in capital and human resources in order to grow business. The
President has proposed an increase in our budget for Fiscal Year 2012.
This increase includes $124.6 million for our administrative budget
which would allow Ex-Im Bank to increase staffing for outreach to small
businesses. Additionally, it will provide resources to improve our IT
systems to help expedite applications and provide better customer
service. While I realize this is our authorizing committee and not our
appropriating committee, I would encourage you all strongly to consider
the President's request for increased funding levels for the Bank. Let
me be clear--this increase in our administrative budget is simply
allowing Ex-Im Bank to use more of the money it generates for
administrative expenses, which in turn will help sustain and create
more jobs and generate more funds for the taxpayers of our country. The
President's Budget still estimates--even with the increase in
administrative budget--that the Export-Import Bank will generate excess
funds in the amount of $212.9 million in FY2012.
Thank you very much and we look forward to working with you on the
reauthorization process.
______
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ
FROM FRED P. HOCHBERG
Q.1. My understanding is that it is in Ex-Im Bank's charter to
create U.S. jobs and according to the Ex-Im Bank Web site in
2009 for every $1 billion in exports the Bank created 7,400
jobs and for every $1 billion in export financing you created
9,265 jobs. But based on discussions my staff has had with Ex-
Im Bank, it seems that the Kusile coal project in Africa will
create 1,049 jobs over 5 years (or just over 200 jobs per year)
for an $800 million loan. This is a ratio of $1 billion in
export financing creating 1,311 jobs (or 250 jobs per year). Do
you think this ratio of jobs to a loan is good enough? Should
we have a target or even a flexible requirement that a certain
number of jobs are created per dollar of loan?
A.1. All jobs are important as far as Ex-Im Bank is concerned
no matter how few. The Bank is there to support U.S. exports
that, in turn, sustain and support U.S. jobs. Moreover, not
only were there benefits to Ex-Im Bank being involved in the
transaction in terms of exports and jobs but also because the
project itself was improved along environmental grounds.
Q.2. I have also heard complaints that loan applicants and Ex-
Im Bank loan officers do not under the laws governing U.S.
shipping requirements. What are you doing to ensure that Ex-Im
Bank employees and Ex-Im applicants know they are required to
use U.S. flagged ships with U.S. merchant marines unless
certain circumstances arise?
A.2. Ex-Im Bank staff are made aware of the shipping
requirements as part of their ongoing training. In addition,
the Bank's policies are also posted on our internal and
external Web sites for easy reference. (See: http://
www.exim.gov/products/policies/shipping.cfm). The U.S. shipping
requirement is also contained in the internal and external fact
sheets of those programs in which the shipping requirement
applies. (See: http://www.exim.gov/products/loanguar.cfm, and
http://www.exim.gov/products/directloan.cfm). Finally, our
Policy Group is readily available for further information,
explanations, or interpretation to staff and external
participants.
Q.3. Are you aware that some proposed project sponsors
effectively pay their shipping managers a bonus if they lower
transportation costs by outsourcing to foreign shipping
companies? Can you guarantee that the Bank is not funding
projects sponsored by companies that do business this way?
A.3. Ex-Im Bank ensures that transactions receiving Ex-Im Bank
loans or guarantees fully comply with U.S. shipping
requirements under Public Resolution 17. If a transaction is
not in compliance, Ex-Im Bank will not fund or guarantee
financing for the shipments.
Ex-Im Bank's shipping regulations are subject to Public
Resolution 17 of the 73rd Congress (PR-17). The following
transactions are subject to the provisions of PR-17, and Ex-Im
Bank supported goods must be shipped exclusively on U.S.
vessels or pursuant to a waiver granted by the Maritime
Administration of the Department of Transportation (MARAD):
1. Direct loans regardless of term or amount; and
2. Guarantees in excess of $20,000,000 (excluding Ex-Im Bank
Exposure Fee) or the repayment period of greater than
seven (7) years or the term permitted under Ex-Im
Bank's Environmental Exports Program, Transportation
Security Export Program, or Medical Equipment
Initiative.
Requests for waivers of PR-17 can be obtained for a variety
of reasons (e.g., if a U.S. vessel is unavailable or
unsuitable, etc.); however, obtaining a waiver may be difficult
as MARAD explicitly tries to keep waiver issuances to a
minimum. If a waiver is obtained, goods shipped on vessel of
non-U.S. registry are eligible for financing by Ex-Im Bank.
Q.4. I understand from a letter you sent to Transportation
Secretary LaHood that you have met with several companies who
have claimed hardship when it comes to U.S. shipping
requirements. Could you provide the Committee a list of the
companies and the projects where you have found hardship in
complying with U.S. shipping requirements?
A.4. The estimated impact on Ex-Im Bank is in excess of $4
billion. On overall U.S. exports, the estimated impact is less
but substantial--$1.5 to $3 billion. These figures are
imprecise in that Ex-Im Bank does not hear about all of the
cases that don't come in to us due to MARAD requirements.
The Impact of U.S. Shipping Requirements on the Export-Import Bank of
the United States (Ex-Im Bank)
Prepared by the Ex-Im Bank Structured Finance Division, July 2011
Ex-Im Bank is the only export credit agency (ECA) that
requires buyers to use domestic (e.g., U.S.-flagged) shipping
as a condition of financing eligibility, placing (a) Ex-Im Bank
at a comparative disadvantage to other ECAs and, (b) all else
being equal, U.S. exporters at a competitive disadvantage
relative to foreign competitors.
Exporters and foreign buyers have informed Ex-Im Bank's
Structured Finance Division that the requirement to use U.S.-
flagged vessels has:
1. Complicated, delayed, and increased the cost of U.S.
goods and services supported by Ex-Im Bank;
2. Reduced the amount of Ex-Im Bank support provided to U.S.
exporters; and
3. Led to lower U.S. exports.
The following examples on a number of important deals, as
reported to the Structured Finance Division, demonstrate these
points. Please note that names of companies involved and other
identifying facts have been withheld due to confidentiality
concerns.
1. Complications, Delays, and Increased Transactions Costs
On several deals, U.S. exporters and foreign borrowers have
had to perform extra work to secure U.S. vessels or seek
waivers to qualify for Ex-Im Bank financing or hire experts at
their own expense to comply with U.S. shipping requirements.
Some of these experiences have led foreign buyers to inform Ex-
Im Bank of their intention to forgo working with Ex-Im Bank.
Examples include:
A Middle Eastern company, which had difficulty
complying with shipping rules before obtaining finance
on a infrastructure deal, ultimately requiring the
retention of a shipping expert to support future
transactions with Ex-Im Bank.
A project in Latin America, in order to meet
shipping requirements and qualify for Ex-Im Bank
financing, had to aggregate shipments. The borrower
also had to transship through other countries in Latin
America, and then ship on a MARAD-specified foreign
vessel. The process led to cost increases, project
delays, and was blamed for damages to the equipment.
Several borrowers in Brazil consider compliance
with U.S. shipping requirements to be difficult and
costly. Even though MARAD ultimately granted one of the
companies a waiver, at the time the company stated that
they would forgo using Ex-Im Bank again until the
shipping requirements are eliminated or substantially
changed.
Ex-Im Bank's financing for a project in the Middle
East was delayed by approximately 1 year due to the
company's initial unwillingness to pay the cost of a
compensatory waiver required for U.S. goods shipped on
non-U.S. vessels--ultimately the buyer paid the costs
associated with the compensatory waiver.
2. Reduction in Ex-Im Bank Support for Exports
On certain transactions, foreign borrowers have also
reduced the amount of Ex-Im Bank financing on certain
transactions, reportedly due to U.S. shipping requirements.
While these reductions might not 'directly and immediately lead
to less U.S. exports, reduced support levels impair Ex-Im
Bank's ability to fulfill its mission to level the playing
field for U.S. exporters compared to foreign competitors.
Reduced support on one deal can also lower the chance that
a borrower will elect to award a U.S. exporter a future sale.
Based on the information received by Ex-Im Bank from exporters
and foreign buyers, Structured Finance Division estimates
broadly the amount of its financing lost due to U.S. shipping
requirements to be about $4 billion between 2004 and 2010 or
about $600-$700 million per year.
Examples where borrowers and exporters have informed Ex-Im
Bank that their inability or unwillingness to comply with
shipping requirements has caused parties to reduce Ex-Im Bank
financing include:
As a result of having to pay the costs associated
with a compensatory waiver on a transaction cited
above, the foreign company recently chose not to pursue
Ex-Im Bank finance for a transaction for $900 million.
A total of $50 million in gas production equipment
exports were excluded from Ex-Im Bank financing
approved in 2004 because of inability to comply with
U.S. shipping requirements.
A Latin American company canceled a long-term
transaction due to U.S. shipping requirements. The
company later sought and received a large Preliminary
Commitment from Ex-Im, but allowed the facility to
expire, in part, because of concerns about higher
shipping costs for U.S. vessels.
A total of $25 million of Ex-Im Bank financing for
a U.S.-made equipment was canceled because U.S. flag
carrier shipping costs were two times that of foreign
carriers and parties chose not to pay the additional
costs.
A company reduced its financing request from $1
billion as a result of U.S. flag carrier shipping
costs. Ultimately, the transaction entailed Ex-Im Bank
support for less than $400 million, a reduction of over
$600 million compared to the initial estimate.
An Asian company chose to ship U.S. goods on a
foreign flag vessel rather than on U.S. vessels that
were two times more expensive and thus had to cancel a
significant portion of its Ex-Im Bank commitment. \1\
---------------------------------------------------------------------------
\1\ Note that U.S. carriers believe that the terms of foreign
competition were unclear, but this does not change the fact that Ex-Im
Bank finance of $18 million was canceled.
An Asian company reduced its financing on a 2011
transaction by about $25 million to avoid paying
transportation rates that were two times as expensive
as foreign options. The company did agree to pay
shipping costs two times those of foreign carriers to
maintain the possibility of Ex-Im Bank finance for
---------------------------------------------------------------------------
other equipment equal to about $50 million of finance.
A Latin American company sought Ex-Im Bank
financing to support a U.S. contract worth about $150
million, but canceled the Ex-Im Bank finance because of
concerns that about \1/3\ of this $150 million in
equipment was not shipped on U.S. flag vessels or
pursuant to a MARAD waiver, was unable to obtain a
waiver, and thus was not eligible for Ex-Im financing.
An application for finance of $61 million for an
electricity company was withdrawn because the company
had shipped goods on non-U.S. vessels and was unable to
obtain a compensatory or other waiver from MARAD.
Ex-Im Bank was not able to support a transaction
for a sale of $50 million from a U.S. manufacturer to a
borrower in Latin America because of a lack of
shipments on U.S. vessels and failure to obtain a MARAD
waiver.
A project finance advisor in Latin America informed
Ex-Im Bank that, because of U.S. shipping requirements,
the project sponsor would not pursue Ex-Im Bank
financing for the project even though the project could
include about $240 million in Ex-Im Bank eligible U.S.
goods and services.
Ex-Im Bank approved its first-ever merchant power
project finance transaction for borrower in Asia.
However, the loan for canceled due to U.S. shipping
requirements. Ex-Im Bank was informed that U.S.
shipping costs were more than four times greater than
those of foreign carriers and one-sixth of the total
amount of Ex-Im Bank finance. The borrower and exporter
chose a foreign carrier, were unable to obtain a
waiver, and ultimately canceled the transaction.
Executives from the company raised this again in a
recent meeting with the Chairman of Ex-Im Bank.
3. Reduction in U.S. Exports
In comparison to the impact on Ex-Im Bank financings,
making estimates about the effect of U.S. shipping rules on
U.S. exports is more difficult. In nearly all cases, if
borrowers make decisions not to ``buy U.S.'' as a result of
U.S. shipping requirement--Ex-Im Bank does not learn about this
decision until after the transaction has been finalized. In
most cases the U.S. exporter does not know that U.S. shipping
requirement negatively affected their sales opportunity, only
that it lost a sale.
In a few cases foreign borrowers have informed Ex-Im Bank
that U.S. shipping requirements and associated costs have
resulted in decisions to shift sourcing choices from the U.S.
In other cases, EPC contractors have informed Ex-Im Bank of
decisions to shift production to foreign suppliers as a result
of U.S. shipping requirements.
Additionally, we have seen the emergence of bidding
requirements and other rules that expressly forbid the concept
of cargo preference. Based on reports, Ex-Im Bank believes that
over the last 5-10 years U.S. shipping requirements have
resulted in a reduction of $1.5 to $3 billion in U.S. exports.
In a competitive, global economy where financial decisions for
hundreds of millions of dollars are made on basis points and
the ability to meet project deadlines is critical, there is a
plausible basis to conclude that the negative impact of U.S.
shipping could be potentially even greater. While hard
quantitative data on ``lost sales'' is limited, the evidence
points to of a financial loss to U.S. exporters.
The following examples illustrate where parties have
informed Ex-Im Bank that U.S. shipping rules have curtailed
U.S. exports.
Wind Power Project. In 2010, a U.S. exporter lost a
sale to a significant wind power project in Asia to
Chinese competitors in part due to U.S. shipping
requirements.
Wind Power Project. Earlier this year, on a wind
power project in Sub-Saharan Africa, a U.S. wind
turbine manufacturer decided to shift production to
serve this project from its U.S. facilities to
facilities in Germany, because U.S. vessel shipping
cost was significantly greater than foreign carrier
costs.
Uruguay Project. U.S. manufacturers and Ex-Im were
excluded from the opportunity to participate in a
follow up bid on a follow-up transaction to a Uruguay
project because tender documents specifically required
``no shipping restrictions.''
Supply Shifting. ``Supply shifting'' has emerged on
a number of transactions, including a Latin American
mining project and a Middle Eastern power project where
Ex-Im Bank financing was rejected. Based on information
from exporters, Ex-Im Bank estimates this supply
shifting to be several hundred million dollars.
Latin American Oil and Gas. A Latin American oil
and gas company decided to source an $80 million
contract with a U.S. oil and gas company mainly from
its facilities in Europe rather than sourcing at least
half from the U.S. as had been originally envisioned.
The stated reason was that U.S. shipping costs were too
great, so it approached a European ECA for financing
for about $70 million and Ex-Im Bank for only about $10
million.
Integrated Water & Power Project. A U.S. power
generation equipment company appears to have lost a
sale for $400-$500 million for an Integrated Water &
Power Project located in the Middle East. The Middle
Eastern power company making the purchasing decision
informed Ex-Im Bank that it preferred the U.S.
equipment but before making the decision wanted to know
if it could obtain a waiver from U.S. shipping
requirements. In the absence of an application for Ex-
Im Bank finance, Ex-Im Bank believes that this sale was
lost.
Indian Company. As a result of its experience
paying more for U.S. vessels, an Indian company has
informed Ex-Im Bank that it would be shifting sales
from the U.S. to other countries.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BENNET
FROM FRED P. HOCHBERG
Q.1. In Colorado, we're fortunate to be home to many innovative
companies that research, invent, and manufacture clean energy
technologies. What role does the Export-Import Bank play in
promoting the export of these technologies? How does the Bank
support the growth of our domestic renewable energy sector?
A.1. Ex-Im Bank plays a critical role in supporting clean
energy exporters in Colorado, and throughout the United States.
Financing is often the most critical element in winning an
export sales order. Ex-Im Bank can support clean energy
exporters in a number of ways ranging from using Ex-Im Bank's
Short-Term Insurance Program to offer open account financing
for international customers for both goods and services up to
360 days--this is much less complicated and lower cost method
than having the foreign buyer pay by letter of credit--to our
medium- and long-term direct loan and loan guarantee program
that can support repayment terms of up to 18 years for
renewable energy systems transactions over $350,000. Ex-Im Bank
financing is usually the most cost-effective source of
financing for international customers to purchase U.S.-made
products and services.
Earlier this year, Ex-Im Bank approved an 18-year loan
guarantee under its Renewable Energy Express program for a
solar power project in Canada, which made possible an $800,000
sale of solar inverters by Advanced Energy Inc. of Fort
Collins, CO. The fact that Ex-Im Bank can support loans and
loan guarantees with repayment terms of up to 18 years has
enabled U.S. exporters to compete in markets where host
governments have created incentives for renewable energy, such
as Italy, Canada, and India.
Ex-Im Bank's working capital guarantee can also be an
invaluable resource for U.S. exporters seeking to finance the
manufacture of goods for export sales. This program enables
commercial lenders to make working capital loans to U.S.
exporters for various export-related activities by
substantially reducing the risks associated with these loans.
The exporter may use the program to purchase raw materials and
finished goods for export, to pay for materials, labor, and
overhead to produce goods for export, and to cover stand-by
letters of credit, and bid and performance bonds.
In September 2010, Ex-Im Bank approved a $10 million
working capital guarantee to support export sales for Abound
Solar, Inc. of Loveland, CO. Abound Solar is also benefiting
from several pending Ex-Im Bank loans to buyers in India that
will expand to India for Abound.
Since 1992, Ex-Im Bank has had a special Congressional
mandate in its Charter to increase its support for
environmental exports. In recognition of this mandate, Ex-Im
Bank established its Environmental Exports Program in 1994, to
expand support for U.S. exports of environmentally beneficial
goods and services, and, at the behest of a Congressional
request in 2006, Ex-Im Bank created the Office of Renewable
Energy and Environmental Exports (Office) in 2008. The Office
serves as the primary point of contact for environmental
exporters, as well as international customers. The Office is
charged with promoting the Bank's Environmental Exports Program
that includes renewable energy.
A major focus of the Office, as the means to achieve the
goal of increased support for renewable energy and other
environmental exports, is increased outreach to the
environmental industry. The Office seeks to accomplish this
through a robust calling plan to visit renewable energy
exports, representation at trade shows, e-mailings, and
overseas trade missions. The Office makes a major effort to
establish and maintain relationships with U.S. environmental
exporters. By increasing the knowledge among environmental
exporters of how to include Ex-Im Bank financing as part of
their package of technology and services, Ex-Im Bank stands to
gain significant numbers of repeat customers who will serve to
create a pipeline of Ex-Im Bank deals. We are already seeing
the fruits of our labor with a number of deals inhouse, as well
as a strong project pipeline. In addition to outreach to
customers, the Office works with the exporters to generate
applications to Ex-Im Bank. In Colorado, Ex-Im Bank has visited
the offices of Abound Solar (one of our staff attending the
ribbon-cutting ceremony of the new factory), Ascent Solar,
Advanced Energy Inc., CH2MHill, Community Power Corp.,
Coolerado, ReflecTechSolar, SkyFuel, Inc., and Solix Biofuels.
In addition to the business development staff, the Bank
created a ``renewable energy finance team'' of three loan
officers within the Office to develop expertise at underwriting
renewable energy transactions. This team currently handles all
renewable energy transactions under $10 million, and often
larger transactions as well, with transactions over $10 million
handled by the Structured and Project Finance Division.
Over the past few years, Ex-Im Bank has experienced a
significant growth in financing renewable energy exports. We're
on track to more than double our authorizations for financing
renewable energy in FY2011 to over $700 million vs.
authorizations in FY2010 of $330 million, compared to our
FY2009 authorizations of $100.4 million, and FY2008
authorizations of $30.4 million.
This surge in activity has been driven by the growth of the
industry combined with our increased efforts at promoting Ex-Im
Bank to the industry, particularly new companies in the
industry such as Clipper and Suniva. Also, the ongoing turmoil
in financial markets in which commercial banks are constrained
in funding loans with 18-year tenors has driven a greater
interest in Ex-Im Bank financing for renewable energy projects
in the EU and Canada where the longer-term Ex-Im Bank financing
is helping U.S. solar suppliers compete with cheaper Chinese-
made solar panels.
Q.2. As you know, the Export-Import Bank has a congressional
mandate to use 10 percent of its financing to support renewable
energy and energy efficient end use technologies. Yet according
to a July 2010 Government Accountability Office (GAO) report,
it continually falls well short of this mandate. Given the
importance of the renewable energy and energy efficiency sector
to the U.S. and Colorado economy, what steps is the Export-
Import Bank taking to improve in this area? Does the Bank have
a timetable to comply fully with the mandate? As the Bank
implements the President's National Export Initiative, what
plans does it have to ensure that it complies with its
renewable energy and energy efficient end use technologies
mandate?
A.2. Ex-Im Bank is uniquely positioned to help achieve
President Obama's vision for the U.S. to be a leader in the
export of renewable energy technology. Ex-Im Bank has developed
close working relationships with most of the major renewable
exporters, industry trade associations, and a number of key
foreign buyers and international project sponsors. Already in
FY2011 the Office of Renewable Energy has brought in $540
million in pending applications for renewable energy projects.
Ex-Im Bank has put in place a Business Development Strategy
to proactively increase its support for renewable energy
exports. As the market for renewable energy and clean
technology continues to be dynamic, Ex-Im Bank's Business
Development Strategy also will be dynamic with adjustments and
updates made as needed. The highlights of the Bank's Strategy
are:
1. Create a robust calling program to visit companies at
their offices, as well as visit companies and meet with
their customers at the major industry trade shows.
Importantly, maintain and strengthen relationships with
the top 20 firms in the industry that generate an
estimated 90 percent of U.S. renewable energy exports.
Expand the calling program to include venture capital
firms with significant clean tech portfolios.
2. Continue to build the Ex-Im Bank ``brand'' in the
industry by issuing press releases of success stories,
running ads that highlight our programs in targeted
industry publications, speaking and having a presence
at major conferences, and selectively engaging in key
international markets, and in participating in
international trade missions.
3. Creation of the Renewable Energy Finance Team within the
Bank, comprised of three Loan Officers, solely
dedicated to the expedited processing of renewable
energy transactions under $10 million.
4. Creation of a Renewable Energy Express Program Finance
Team to process transactions under $10 million in 60
days or less.
Q.3. Independent accountability mechanisms that evaluate and
report on agency compliance with environmental and social
policies, and that provide problem-solving services are
increasingly the norm at public finance institutions, and exist
at the U.S. Overseas Private Investment Corporation (OPIC),
several export credit agencies, the World Bank Group, and
elsewhere. Do you support the establishment of a similar
independent accountability mechanism at Ex-Im Bank?
A.3. We believe that independent accountability mechanisms are
quite appropriate for many international financial
institutions, and can be valuable in ensuring that the projects
financed by those institutions are in compliance with their
environmental and social policies. This is especially true in
the case of financial institutions that have developmental
mandates, such as the multilateral development banks and OPIC,
which have provided significant investments in less developed
countries, many of which have weak governance structures.
In the case of Ex-Im Bank, however, our mandate is trade
related--to support U.S. jobs through the financing of exports.
Ex-Im Bank has historically been a leader among export credit
agencies with respect to environmental and social stewardship,
and we have an especially strong legacy with respect to
transparency in the administration of our environmental and
social policies as they relate to our financial support of
foreign projects. The divisions within the Bank that administer
these policies, most notably our Engineering and Environment
Division, have always taken very seriously any concerns
expressed by the stakeholders of projects we finance, or
problems brought to our attention by environmental groups.
Moreover, I have an open door policy when it comes to any Ex-Im
Bank stakeholder wishing to express an opinion on our policies
or issues associated with projects we finance.
Finally, any action to establish a formal social and
environmental accountability mechanism within Ex-Im Bank would
require additional staff and administrative resources, which
would have the effect of diverting resources away from
activities related to the core objectives of the Bank, the
support of U.S. exporters, especially small business exporters
and exporters of renewable energy and environmentally
beneficial goods and services. We only provide financing for
foreign projects that are in compliance with our environmental
and social guidelines, and we scrupulously monitor those
projects to ensure that they remain in compliance. I do not
believe that the establishment of a formal accountability
grievance mechanism within Ex-Im Bank would represent a
productive or constructive action, nor do I believe that it
would necessarily contribute to the environmental performance
of the foreign projects that we support.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR WICKER
FROM FRED P. HOCHBERG
Q.1. With the ability to offer such attractive rates, often for
transactions that would have happened anyway, do you feel that
private lenders are being put at a competitive disadvantage?
A.1. Ex-Im Bank does not compete with the private sector. In
fact, Sec. 2(b)(1)(B) of the Bank's charter states: ``It is
also the policy of the United States that the Bank in the
exercise of its functions should supplement and encourage, and
not compete with private capital . . . .'' Thus, Ex-Im believes
we do not put private lenders at a competitive disadvantage.
Ex-Im is very mindful of its role and makes a concerted effort
to not compete with, but instead supplement the private sector.
Ex-Im has a basic litmus test which is known as additionality.
Ex-Im support is contingent upon a clear need for our
participation in a transaction or project with the basic reason
being to address certain market imperfections such as
heightened perceptions of risk and/or foreign ECA competitive
financing. If a private lender is willing and able to assume
the foreign credit risks on their own, then they need not come
to Ex-Im and won't because of the cost and profit factors, if
nothing else. And if a private lender can offer financing terms
(interest rates, repayment terms) on comparable footing as the
foreign competitors are offering and meet their own internal
objectives, then they will and should do it independently of
Ex-Im.
However, if the private lender cannot accept the risks or
offer the financing terms to support the U.S. export,
especially on the same or similar terms as its foreign
competitor, then Ex-Im stands ready to supplement their support
and facilitate the sale. Simply put, Ex-Im Bank's financial
involvement is countercyclical in nature and has an inverse
relationship with the market: when the private sector has a
robust capability and willingness to extend foreign credit on
their own, the need and demand for Ex-Im declines and vice
versa. Hence, Ex-Im finances deals that, but for Ex-Im, would
not otherwise go forward. In other words, Ex-Im Bank fills a
very important niche and gap in private capital financing.
The recent global financial and liquidity crisis has
illustrated the role of ECAs generally and for Ex-Im in
particular. Since 2008, the global private lending community
shut down for all intents and purposes. Ex-Im Bank was asked to
step in by the lending and exporting community to ensure that
critical trade flows continued ranging from short-term trade
finance, up through medium- and long-term export finance.
During this period, it is safe to say that Ex-Im was not a
competitor to private lenders whatsoever, but rather has
bridged the gap for the private lending community until they
have been able and willing to reengage. In fact, Ex-Im created
a ``safety net'' program to encourage private lenders to stay
involved but, in the event market conditions deteriorated and
they stood to incur financial losses, Ex-Im Bank would ``take-
out'' their loan, thereby at least minimizing losses for
private lenders, if not avoiding them altogether.
During less volatile, more interest-rate stable periods,
Ex-Im believes that the all-in-cost of Ex-Im Bank support
(including the risk premium and other fees) when compared to
what a private lender's cost would be, any cost advantage with
interest rates that Ex-Im might have is offset by the cost of
Ex-Im participation. Therefore, unless Ex-Im Bank is truly
needed in a transaction, borrowers would prefer to finance
their deals on their own with private sector support.
It is also important to note that when Ex-Im Bank does
provide a direct loan, the interest rates we charge are in full
compliance with the OECD Arrangement and the WTO commitments
and these rates do reflect marketing pricing.
Q.2. I understand that the Export-Import Bank is more active
than ever before in its efforts to promote U.S. exports. Would
you tell me what portion of the Ex-Im Bank's loans and
guarantees currently outstanding directly benefit businesses
and workers in the State of Mississippi?
A.2. Ex-Im Bank has $54 million in exposure outstanding that
directly benefits businesses and workers in the State of
Mississippi.
Q.3. The board of directors of the Export-Import Bank recently
granted preliminary approval for an $805.6 million direct loan
to South Africa's state-owned electric power utility, Eskom,
Ltd. How does this align with the Charter's mandate to promote
renewable energy?
A.3. The recent Ex-Im Bank $805.6 authorization to finance the
export of engineering services and other goods and services for
Eskom's, Kusile, coal-fired power plant is not inconsistent
with Ex-Im Bank's directive to supporting renewable energy. In
FY2010, Ex-Im Bank adopted a carbon policy under which it
implemented measures to expand its support for renewable energy
projects, and subsequently the Board of Directors approved a
revision to the Bank's Environmental Guidelines that placed
added requirements on high carbon intensity projects (such as
the Kusile power plant) that address the project's level of
greenhouse gas emissions. (These revised Guidelines for high
carbon intensity projects are set forth in Annex ``G'' of the
Bank's Environmental Procedures and Guidelines.)
Concurrently, Ex-Im Bank maintains a robust and growing
program for the support of renewable energy. Since 2008, it has
increased its authorizations for renewable energy from $30
million in 2008, to over $100 million in 2009, to $332 million
in 2010, and we're on track and expect our support of renewable
energy transactions in FY2011 to total over $800 million. To
encourage exports of renewable energy, Ex-Im Bank provides
incentives for renewable energy transactions consisting of up
to 18-year repayment terms and capitalization of interest
during project construction (loan draw-down) that is not
available to fossil fuel power projects.
South Africa's Eskom project met the requirements of our
revised guidelines for high carbon intensity projects. It is
consistent with South Africa's long term strategy for lowering
its carbon production, which by 2025 is projected to decline.
The Kusile plant uses boilers incorporating super-critical
technology for high efficiency, and it is ``carbon capture and
sequestration ready'' reflecting an investment by Eskom to
mitigate the project's greenhouse gas production when the
technology becomes technically viable. The plant is also the
first in South Africa to incorporate into its design equipment
to reduce the level of sulfur pollution through the use of S02
scrubbers.
Ex-Im Bank's mission is to support U.S. exports, and the
jobs that create those exports for all foreign projects that
meet its environmentally guidelines, and which are considered
to be environmentally responsible. High carbon intensity
projects such as the Kusile project are urgently needed by
foreign buyers to meet their country's electric power demands,
and they represent a bridge between high carbon intensity
plants and future projects that will draw from renewable and
low carbon technologies. Moreover, the participation in these
projects by U.S. suppliers lead to U.S. employment. Ex-Im Bank
offers initiatives for the financing of renewable energy
projects consisting of repayment terms of 18 years, and
capitalization of interest during the construction of the
renewable energy projects, incentives that are not given to
conventional fossil fuel plants.
Q.4. Do you believe that the Administration would support the
construction of an identical coal-burning power plant in the
United States?
A.4. This question relating to the domestic policies for coal-
burning power plants would be best posed to the U.S. DOE and
the EPA. While we understand that the Administration is
discouraging the construction of plants that produce high
levels of greenhouse gases in favor of renewable, nuclear, and
low carbon alternatives, we believe that Ex-Im Bank's carbon
policy responsibly addresses the legitimate realties posed by
the increasing demands for electric power in South Africa and
other developing countries as they embark on paths to
transition from carbon producing plants to alternative energy
sources.