Last week, the Export-Import Bank of the United States released its annual Competitiveness Report to the U.S. Congress. The report highlighted “the ballooning of export finance around the world, particularly of the opaque, non-OECD-compliant variety.” This growth of export finance on “terms more lenient than the [OECD] Arrangement, with rates below what EXIM can offer and minimal risk-related fees,” threatens to undermine U.S. competitiveness, the report warned. Perhaps no sector illustrates the threat posed by non-OECD export finance as starkly as nuclear energy.
We have explained why Ex-Im Bank is essential for U.S. suppliers to be competitive in international nuclear energy markets. When the foreign competition is bound by OECD limits, Ex-Im Bank provides a somewhat level playing field for U.S. suppliers. When the foreign competition is unchecked by OECD rules, Ex-Im Bank cannot level playing field but keeps U.S. suppliers in the game.
As a result of U.S. leadership, the OECD has adopted uniform lending and transparency rules to prevent a global financing race to the bottom. In the nuclear sector, it has agreed to further restraints in a Nuclear Sector Understanding (NSU). Among other limits, the NSU sets minimum interests rates and maximum repayment terms; requires the repayment of principal and the payment of interest in equal installments at least twice annually; and prohibits the capitalization of interest. Nuclear energy supplier countries subject to OECD rules include Australia, Canada, members of the European Union, Japan, Korea, New Zealand, Norway and Switzerland.
Russia is not a member of the OECD and is not bound by the NSU. Russia has a made a strategic priority of capturing a larger share of the global nuclear energy market. With 13 reactors under construction around the world and many more under contract, it is progressing toward a target of 70 percent growth in nuclear energy exports by 2020. Russian nuclear energy exports have been promoted with Russian equity, Russian submarines and fear. But the consistent, decisive factor in the growth of Russia’s nuclear energy market share has been aggressive Russian financing. Finance for Russian nuclear exports comes from the Russian treasury rather than from a national export credit agency like Ex-Im Bank. While details of Russian finance are shrouded in secrecy, it has been known to feature interest rates well below OECD limits, capitalization of interest against OECD rules and generous repayment terms.
The Ex-Im Bank is vital for U.S. nuclear suppliers to compete against foreign suppliers operating under OECD restraints. Against non-OECD suppliers like Russia, the Ex-Im Bank keeps U.S. suppliers in the game. Despite inferior financing, a U.S. supplier with backing from the Ex-Im Bank meets the tender requirements of ECA support and reaches the negotiating table to discuss superior U.S. technology, operational know-how, training and industrial partnership. Without Ex-Im Bank, the U.S. nuclear supplier is out of the game – against OECD and non-OECD competition alike.