19.02.2009
Overview of EGAP's anti-crisis measures

Overview of measures directed at price reduction and improvement of conditions of insurance
Brief description Benefits
Temporary increase of insurance cover for all types of export credits from 95 per cent to 99 per cent. Lowering of the risk level of an export, reduction of costs for arranging the self-retention.
Temporary increase in the insurance cover of Letters of Credits from 80 per cent to 99 per cent. Reduction in the self-retention of banks, quicker processing of short-term financing from foreign banks, an increase in limits on the foreign banks in Czech banks.
Price reduction in insurance of the so-called manufacturing risk by 30 per cent, markdown of up to 50 pct in concurrence with insurance of an export credit. Lowering of expenses of the exporter.
Price reduction in insurance of investments in concurrence of insurance of a credit for financing of an investment and own contribution of the investor. Lowering of expenses of investors.
Cheaper procedures of environment impact assessment of exports and investments. Decrease in costs of exporters and investors by primary expenses connected with the expert examination (They are covered by EGAP).
Simplification of mode of insurance of pre-export credits and guarantees for small and medium-sized enterprises. Decrease in costs of small and medium-sized enterprises.
Significant shortening of time of handling.
Overview of new insurance products
Brief description Benefits
Insurance of project financing of newly constructed production capacity in foreign countries. EGAP is covering the risk of non-payment of the credit which is not based on collaterals from an exporter or investor but on revenues from the project.
Repayment is spaced in uneven instalments. There is an option of prolongation of the repayment of the credit up to 14 years.
Insurance of a credit for financing of an investment for developer projects in foreign countries. Adjustment of conditions of insurance to specific needs of enterprise in construction of multipurpose, commercial and residential properties in foreign countries.
Insurance of a credit for financing of commercial application of results of science and research designated for export. Support of science and research. Support of introduction of results of research and science into production designated for export, support of exports with high added value.
Insurance of prospection of foreign markets against the risk of losses resulting from failure of prospection. Support of exporters in their search for new markets, defraying of expenses connected with entering foreign markets, marketing, etc. (aiming primarily at small and medium-sized enterprises).
Insurance of export receivables for smallest exporters. Support of exporters with exports not exceeding €2 million per year.
Enlargement of capacity and cultivation of the insurance market in the Czech Republic.

One of impacts of the current worldwide financial and economic crisis on the Czech Republic is a drop in demand in countries which are main markets for Czech export. Therefore, ministers of finance and of industry and trade announced a number of measures supporting the export and one of institutions having as its assignment introduction of these measures in life is EGAP; its insurance capacity in the state budget was raised from CZK120 billion to CZK150 billion. Increase in the insurance capacity enables to satisfy the expected demand on exporters part for the period of several following years while it will not require any immediate budget outlays. At the same time, we created such conditions that we will be able not only to accept for insurance new risks connected with the export of Czech goods, services and investments but also to administratively simplify and simultaneously to reduce the price of types of insurance offered earlier. Benefits from it will go not only to large final exporters of investment goods and machinery equipment but also, to a considerable extent, also to small and medium-sized companies either as sub-suppliers or as direct exporters.

First of all, we temporarily increased insurance cover of the risk of non-payment of all types of export credits from 95 per cent to 99 per cent. We made a similar step in bank guarantees issued in relation to export contracts and in insurance of Czech investments in foreign countries against political risks where we increased the insurance cover even as high as to 100 per cent. It means in practice for Czech exporters, investors and their banks a substantial fall in the risk level of exports and significant savings in costs connected with arranging the self-retention which newly makes mere 1 per cent or is even zero per cent. We increased the insurance cover from 80 pct to 99 pct also for Letters of Credit on a temporary basis in order to enable quicker processing of the short-term financing from foreign banks and raising of limits of foreign financial institutions at banks operating on the Czech market.

We have found certain space where we are not so strictly restricted by binding international rules which among others rigorously determine the level of insurance premium rates. It is a substantial price reduction of insurance of the so-called manufacturing risk when an exporter is insured against the risk of losses resulting from cancellation or interruption of a contract on foreign importer's part or from political, financial and/or macroeconomic situation of the country of the importer. In case of a stand-alone insurance against these risks, the insurance premium rate is currently by 30 per cent lower in comparison with the past, and if the insurance of export buyer credit of the same export transaction has been concluded concurrently, it is lower by as much as 50 per cent.

We have also taken account of a certain overlap of risks in case of investments in foreign countries. Substantial savings may achieve investors who decide to combine their own contribution into an investment with a bank credit insured with us against political and commercial risks. Unlike previous practice when an investor insured separately beside the credit also own contribution into the investment in the host country against political risk as e.g. expropriation without compensation or inability to transfer profits, the insurance of the bank credit for financing of the investment covers at present also risks connected with the own contribution of the investor for the whole duration of drawdown and repayment of the credit. In other words, the investor saves expenses of insurance of own contribution into the investment because these are already included in the price of insurance of the investment credit.

Based on signals from the market, we also started to modify some existing and time-proven products. For example, we introduced a special variation of insurance of an export buyer credit paid off in the form of project financing when the foreign buyer does not guarantee the credit by own assets but the sole source of repayment are revenues from sales of products from the new production capacity built from the export credit. Project financing is suitable primarily for large investment projects in energy sector, mining and processing of raw materials, telecommunications and infrastructure, and in other cases when it is possible to negotiate contracts for purchase of production in advance. On the basis of specific international rules for this type of credits, it is possible to "soften" partially terms of repayment and stimulate thus demand for such projects.

We also comply with wishes of developers of commercial and residential projects in foreign countries. Adjustments in insurance of a credit for financing of an investment in a foreign country follows from the fact that cash-flow and return of credits are in this case usually quicker and conditions of insurance take account of this. On the other hand, the developer should have a contractually bound buyer for at least half of the project at the start of the construction.

New insurance of prospection of foreign markets for the purposes of launching and/or increasing of export of goods and services to one or several countries aims primarily at small and medium-sized companies. Earlier, the insured was the bank extending the credit for prospection and interest on exporters? part was minimal because potential failure of prospection could endanger their position in negotiations for credits for other purposes. Now we insure directly the exporter against the financial loss resulting from full or partial failure of the prospection. Insurance against this risk can be requested by an exporter who has been producing goods or provides services for which prospection should be made for the period of at least 2 years.

We are collecting first experiences with another innovation which is insurance of a bank credit for financing of commercial application of results of science and research for following export, e.g. in the form of patents and licences. The uncertainty level and risks related to the financing are in such case higher than usual. However, we want support with this type of insurance production and export of goods and services with high level of added value in compliance with the Programme Targets of the Government.

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