We asked the Managing Director Pavol Parízek what is experience of the Export Guarantee and Insurance Corporation with Russian market and what is the level of the risk on it, how he sees interest of our companies in the enterprise in Russia and what can EGAP offer to them.
I would like to bring this trend nearer by some data. Since the beginning of the last year up to the present, we have concluded more than 60 insurance contracts only for the export to Russia in worth exceeding CZK13 billion and we have thus supported the realization of contracts for approximately CZK20 billion. To add another number: The last year meant for us almost doubling of the volume against the year before that. The spectrum of contracts is very wide, reaching from CZK30 million to projects in the billion figures. A majority of business deals was medium-sized. The insurance contracts were concluded predominantly by machinery companies, very successful were e.g. exporters of technology for production of container glass. A majority of business deals was based on the project finance and it meant to us that, when analysing the risk, we had to assess how the future sales were ensured and to evaluate the overall economy of the operation of the company; this, naturally, requires specific knowledge of the local market.
Except traditional regions like Moscow and Petersburg where the interest of Czech companies concentrates predominantly, it is Yekaterinburg, Sverdlovsk region, Tatarstan or Omsk, where we have insured e.g. the export of buses.
When we started in Russia several years ago, the risk had been much larger and our idea that we would insure something with the state guarantee of the Russian federal government turned out to be absolutely unrealistic. Regardless, we succeeded to realize several projects with a guarantee of big Russian banks. They were mostly infrastructure projects, e.g. reconstruction of tramways, where also regional governments stepped in. Situation in Russia has been gradually improving and, at the end of January, the OECD reclassified this country from the 4th risk category into the 3rd. Russia is now a country with a standard type of the risk. For comparison, a majority of new member states of the European Union is in the 2nd category, the Czech Republic is in the 1st category.
Practical impact of this reclassification of the risk level is considerable. It means a reduction in the price of the insurance up to 1/3 for our exporters; it concerns a number of projects we have approved under original conditions but their realization had moved in time so we are able to use the lower insurance rate now. Our exporters would save about CZK140 million of the insurance premium in these projects only and thus reduce their overall costs.
Two, three years ago, it was practically impossible to insure short-term receivables from Russian buyers under the commercial insurance with the exception of largest Russian companies. Today, our subsidiary the "Commercial Credit Insurance Company EGAP", has, as a matter of fact, no limitation and it insured exports to Russia valued at CZK1 billion last year.
EGAP is preparing a new system of the reinsurance enabling commercial insurance companies to insure also risks for which they cannot find market reinsurance; it is intended for companies which are unable to comply with conditions of the commercial insurance of the short-term receivables. The system will cover not only Russia but, in principle, all countries in the world which are commercially uninsurable today. Regarding the main area of EGAP's activities, i.e. the insurance with state support, our exporters may expect, as I said, significantly lower insurance premium rates for Russia and also our willingness to insure more than in the past the direct risk of private Russian companies as debtors. Russia represented for us 40 per cent of the newly concluded insurance contracts last year; a year on year increase in the total number of new policies was 370 against 250.
Standardization of situation in Russia enables a number of operation to take place in the commercial subsidiary of EGAP serving about a thousand of clients. The advantage of the commercial insurance is its easy accessibility over the online system and modules of insurance contracts which lower administrative demands so they are suitable also for small companies. In the insurance with state support, we made organizational changes at the beginning of the year which made possible to give even more attention to clients than before. A number of business deals is in the pipeline and we have sufficient capacity for their insurance.
For 10 years we have been insuring investment against political risks, i.e. the risk of nationalization, damage, prevention of transfer, etc. At the end of the last year, we started to offer the insurance of a credit extended by a bank for acquiring of the foreign investment or its working capital and we insure not only political but also commercial risks. It means we accept the risk that the investment will not be profitable and the investor will not be able to repay the credit to the bank. This type of the insurance makes possible to invest for companies which have a good investment plan but have not enough funds to realize it. Scope of covered risk is really unique in this case because such offer cannot be found in any other insurance company in the world.
At the present, we have a wide range of insurance products aiming at satisfying needs of our exporters as much as possible. This is in situation the credit insurance is not very well covered by the Russian legislation so there is no effectively operating partner organization in Russia. In spite of it, we have been entering also more complicated projects, e.g. by way of international cooperation. An example is the last year's export of the equipment for the production of cardboard and paperboard by the company Unistav with involvement of German and French companies. The leader of the multi-sourcing financing was Komerční banka and EGAP shared risks with partner state credit insurance companies EULER HERMES from Germany and COFACE from France. This project has been awarded a prestigious prize "The best deal of 2006" of the magazine Global Trade Review.