Commission Delegated Regulation (EU) No 727/2013 of 14 March 2013 amending Annex II to Regulation (EU) No 1233/2011 of the European Parliament and of the Council on the application of certain guidelines in the field of officially supported export credits

Repayment term (years)	Standard minimum interest rates	Standard minimum interest rates	Minimum interest rates for projects with long construction periods, i.e.: — New large hydro-power projects — Appendix II Project Class A	Minimum interest rates for projects with long construction periods, i.e.: — New large hydro-power projects — Appendix II Project Class A
Repayment term (years)	Government bonds (years)	Margin (bps)	Government bonds (years)	Margin (bps)
< 11	Relevant CIRR in accordance with Article 20 of the Arrangement	Relevant CIRR in accordance with Article 20 of the Arrangement	Relevant CIRR in accordance with Article 20 of the Arrangement	Relevant CIRR in accordance with Article 20 of the Arrangement
11 to 12	7	100	7	100
13	7	120	8	120
14	8	120	9	120
15	8	120	9	120
16	9	120	10	125
17	9	120	10	130
18	10	120	10	130

7. ELIGIBLE CURRENCIES

The currencies that are eligible for official financing support are those which are fully convertible and for which data are available to construct the minimum interest rates mentioned in Article 6 of this Sector Understanding, and Article 20 of the Arrangement for repayment terms less than 11 years.

8. LOCAL COSTS

	a)	For officially supported export credits relating to contracts of a value of at least SDR 10 million, official support provided for local costs shall not exceed 30 % of the export contract value.
---	---	---
	b)	For officially supported export credits relating to contracts of a value of less than SDR 10 million: 1) For the sectors listed in Appendix I, official support provided for local costs shall not exceed 45 % of the export contract value. 2) For the sectors listed in Appendix II and for water projects defined in Article 3 of this Sector Understanding, official support provided for local costs shall not exceed 30 % of the export contract value.
---	---	---
	c)	Where official support for local cost exceeds 15 % of the export contract value, such official support shall be subject to prior notification, pursuant to Article 9 of this Sector Understanding, specifying the nature of the local costs being supported.

CHAPTER III

Procedures

9. PRIOR NOTIFICATION

	a)	A Participant shall give prior notification in accordance with Article 48 of the Arrangement at least ten calendar days before issuing any commitment if it intends to provide support in accordance with the provisions of this Sector Understanding.
---	---	---
	b)	For projects falling in the Project Classes listed in Appendix II of this Sector Understanding, such notifications shall include an enhanced description of the project in order to demonstrate how the project complies with the criteria for support, as set out in Article 2 b) of this Sector Understanding.
---	---	---
	c)	If the notifying Participant intends to provide support with a repayment term in excess of 15 years and/or in accordance with Article 5 c) of this Sector Understanding, it shall wait an additional ten calendar days if any other Participant requests a discussion during the initial ten calendar days.
---	---	---
	d)	A Participant shall inform all other Participants of its final decision following a discussion, to facilitate the review of the body of experience.

CHAPTER IV

Monitoring and review

10. FUTURE WORK

The Participants agree to examine the following issues in the 12 months following the adoption of this Sector Understanding:

• a) Term-adjusted risk-premia.

• b) Climate change “adaptation” sectors and technologies.

• c) Conditions for low emission/high energy efficiency fossil fuel power plants including definition of CCS-readiness.

• d) Net zero energy buildings.

• e) Smart grids.

• f) Fuel cell projects.

11. MONITORING AND REVIEW

	a)	The Secretariat shall report annually on the implementation of this Sector Understanding.
---	---	---
	b)	The Participants shall regularly review the scope and other provisions of this Sector Understanding and at the latest by the end of 2013.
---	---	---
	c)	Appendix II shall be reviewed at regular intervals, including upon the request of a Participant, with the view to assessing whether any Project Class and/or Type should be added to, or removed from, or whether any thresholds should be changed in, that Appendix. Proposals for new Project Classes and/or Types shall be supported by information on how projects within such a Class/Type should fulfil the criteria set out in Article 2 b) of this Sector Understanding and shall follow the methodology set out in Appendix III.

Appendix I

Renewable energies sectors

The following renewable energies sectors shall be eligible for the financial terms and conditions set out in this Sector Understanding provided that their impacts are addressed in accordance with the 2012 Recommendation on Common Approaches on Officially Supported Export Credits and Environmental and Social Due Diligence [^ntr28-L_2013207EN.01007101-E0001] (as subsequently amended by Members of the OECD Working Group on Export Credits and Credit Guarantee (ECG) and adopted by the OECD Council):

• a) Wind energy [^ntr29-L_2013207EN.01007101-E0002].

• b) Geothermal energy.

• c) Tidal and tidal stream power.

• d) Wave power.

• e) Osmotic power.

• f) Solar photovoltaic power.

• g) Solar thermal energy.

• h) Ocean thermal energy.

• i) Bio-energy: all sustainable landfill gas, sewage treatment plant gas, biogas energy or fuel derived from biomass energy installations. “Biomass” shall mean the biodegradable fraction of products, waste and residues from agriculture (including vegetal and animal substances), forestry and related industries, as well as the biodegradable fraction of industrial and municipal waste.

• j) Hydro power.

• k) Energy efficiency in Renewable Energies projects.

Appendix II

Climate change mitigation sectors

Project Class	Definition	Rationale	Standards used	Repayment Terms
Project Class A:   Carbon capture and storage	Project Class A:   Carbon capture and storage	Project Class A:   Carbon capture and storage	Project Class A:   Carbon capture and storage	Project Class A:   Carbon capture and storage
TYPE 1: Fossil Fuel Power Plants with Operational Capture and Storage (CCS)	A process consisting of the separation of CO2 stream from the emissions produced by fossil fuel generation sources, transport to a storage site, for the purposes of environmentally safe and permanent geological storage of CO2.	To achieve low carbon emission levels for fossil fuel power sources.	Carbon intensity shall achieve a level equal to or less than 350 metric ton CO2 per GWh vented to atmosphere[^ntr30-L_2013207EN.01007201-E0001]; Or In the case of all projects, a capture and storage rate that would reduce the plant’s carbon emissions by 65 % or greater; Or The capture rate has to be at least 85 % of CO2 emitted by the equipment included in the application for officially supported export credits. The 85 % is to apply at normal operating conditions.	18 years
TYPE 2: CCS Projects as such	A process consisting of the separation of CO2 from industrial or energy generation sources, transport to a storage site, for the purposes of environmentally safe and permanent geological storage of CO2.	To significantly reduce carbon emissions from existing sources.	In the case of all projects, a capture and storage rate that would reduce the industrial or energy generation carbon emissions by 65 % or greater; Or The capture rate has to be at least 85 % of CO2 emitted by the equipment included in the application for officially supported export credits. The 85 % is to apply at normal operating conditions.	18 years
Project Class B:   Fossil Fuel Substitution	Project Class B:   Fossil Fuel Substitution	Project Class B:   Fossil Fuel Substitution	Project Class B:   Fossil Fuel Substitution	Project Class B:   Fossil Fuel Substitution
TYPE 1: Waste to Energy	Unit dedicated to generating energy by thermal treatment (including gasification) of mixed stream solid waste.	To offset GHG emissions from the use of conventional power and by reducing future GHG such as methane that would normally emanate from the waste.	In the case of a steam cycle, a boiler (or steam generator) energy conversion efficiency of at least 75 % based on low heating value (LHV)[^ntr31-L_2013207EN.01007201-E0002]. In the case of gasification, a gasifier efficiency of at least 65 % LHV[^ntr32-L_2013207EN.01007201-E0003].	15 years
TYPE 2: Hybrid Power Plants	A power plant that generates electric power from both a renewable energy source and a fossil fuel source.	To meet the requirement of plant availability, a fossil fuel generating source is required for those periods when power from the renewable energy source is not available or sufficient. The fossil fuel source enables the usage of renewable energy in the hybrid plant, thereby achieving a significant carbon reduction compared with standard fossil fuel plant.	Model 1: Two separate generation sources: one Renewable Energy and one fossil fuel. Project shall be designed such that at least 50 % of its projected total annual energy output originates from the plant’s renewable energy source. Model 2: Single generation source using the combination of renewable and fossil fuel. The project shall be designed such that at least 75 % of the useful energy produced is derived from the renewable source.	15 years
Project Class C:   Energy Efficiency	Project Class C:   Energy Efficiency	Project Class C:   Energy Efficiency	Project Class C:   Energy Efficiency	Project Class C:   Energy Efficiency
TYPE 1: Combined Heat & Power projects	Simultaneous generation of multiple forms of energy (electrical, mechanical and thermal) in a single integrated system. Output of the CHP plant shall include electric or mechanical energy and heat for commercial industrial and/or residential use.	Up to two thirds of the primary energy used to generate electricity in conventional thermal power plants is lost in the form of heat. Combined heat and power (CHP) generation can therefore be an effective GHG mitigation option. CHP is possible with all heat machines and fuels (including biomass and solar thermal) from a few kW-rated to 1 000  MW steam-condensing power plants[^ntr33-L_2013207EN.01007201-E0004].	Overall efficiency of at least 75 % based on low heating value (LHV)[^ntr34-L_2013207EN.01007201-E0005].	15 years
TYPE 2: District heating and/or cooling	Network which carries/distributes thermal energy from energy producing unit to end use.	To improve the efficiency of heating of districts by building piping networks for steam and/or hot water with substantial thermal efficiency, both by minimising losses of piping and converters, and by increasing the amount of utilisation of waste heat. District cooling is an integrative technology that can make significant contributions to reducing emissions of carbon dioxide and air pollution and to increasing energy security e.g. via substitution of individual air-conditioners.	The district piping thermal conductivity shall be less than 80 % of the relevant thermal conductivity required by the European standard EN253:2009 (to be reviewed when thisstandard is updated).	15 years

Appendix III

Methodology to be used when determining the eligibility of sectors relating to article 2 of this sector understanding

When proposing that Project Class or Type be added to Appendix II of this Sector Understanding, Participants shall provide a detailed description of the proposed Project Class or Type and information on how such projects fulfil the criteria set out in Article 2 b) of this Sector Understanding; such information shall include:

• a) An evaluation of the direct contribution of the Project Class or Type to climate change mitigation, including a comparison of the sector performance, based on measurable data regarding carbon emissions or CO2 equivalent and/or in high energy efficiency, with conventional and in-use newer technological approaches; this comparison shall, in all cases, be based on quantitative measures, such as a decrease in emissions per unit produced.

• b) A description of the technical and performance standards of the Project Class or Type proposed sector, including information on any relevant, existing Best Available Techniques (BAT); if appropriate, this description shall explain how the technology is an improvement on the existing BAT.

• c) A description of the financial barriers in the proposed Project Class or Type, including any financial needs and market conditions, and identify the provisions under this Sector Understanding that are expected to enable such projects to proceed.

Appendix IV

List of definitions

Best Available Techniques: as per the definition of EU Directive 96/61/EC (Article 2.11), "Best Available Techniques" shall mean the most effective and advanced stage in the development of activities and their methods of operation which indicate the practical suitability of particular techniques for providing in principle the basis for emission limit values designed to prevent and, where that is not practicable, generally to reduce emissions and the impact on the environment as a whole:

• a) "techniques" shall include both the technology used and the way in which the installation is designed, built, maintained, operated and decommissioned.

• b) "available" techniques shall mean those developed on a scale which allows implementation in the relevant industrial sector, under economically and technically viable conditions, taking into consideration the costs and advantages, whether or not the techniques are used or produced inside the Member State in question, as long as they are reasonably accessible to the operator.

• c) "best" shall mean most effective in achieving a high general level of protection of the environment as a whole.

Greenhouse Gases: greenhouse gases are defined to include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride.

Large Hydro Power Project: as per the definition of the International Commission on Large Dams (ICOLD). ICOLD defines a large dam as a dam with a height of 15 m or more from the foundation. Dams that are between 5 and 15 m high and have a reservoir volume of more than 3 million m³ are also classified as large dams.

ANNEX V

INFORMATION TO BE PROVIDED FOR NOTIFICATIONS

The information listed in Section I below shall be provided for all notifications made under the Arrangement (including its Annexes). In addition, the information specified in Section II shall be provided, as appropriate, in relation to the specific type of notification being made.

I. INFORMATION TO BE PROVIDED FOR ALL NOTIFICATIONS

a) Basic Information

	1.	Notifying country
---	---	---
	2.	Notification date
---	---	---
	3.	Name of notifying authority/agency
---	---	---
	4.	Reference number
---	---	---
	5.	Original notification or revision to previous notification (revision number as relevant)
---	---	---
	6.	Tranche number (if relevant)
---	---	---
	7.	Reference number of credit line (if relevant)
---	---	---
	8.	Arrangement Article(s) under which the notification is being made
---	---	---
	9.	Reference number of notification being matched (if relevant)
---	---	---
	10.	Description of support being matched (if relevant)
---	---	---
	11.	Destination Country

b) Buyer/Borrower/Guarantor Information

	12.	Buyer Country
---	---	---
	13.	Buyer Name
---	---	---
	14.	Buyer Location
---	---	---
	15.	Buyer Status
---	---	---
	16.	Borrower Country (if different from the buyer)
---	---	---
	17.	Borrower Name (if different from the buyer)
---	---	---
	18.	Borrower Location (if different from the buyer)
---	---	---
	19.	Borrower Status (if different from the buyer)
---	---	---
	20.	Guarantor Country (if relevant)
---	---	---
	21.	Guarantor Name (if relevant)
---	---	---
	22.	Guarantor Location (if relevant)
---	---	---
	23.	Guarantor Status (if relevant)

c) Information on Goods and/or Services Being Exported and the Project

	24.	Description of the goods and/or services being exported
---	---	---
	25.	Description of the project (if relevant)
---	---	---
	26.	Location of the project (if relevant)
---	---	---
	27.	Tender closing date (if relevant)
---	---	---
	28.	Expiry date of credit line (if relevant)
---	---	---
	29.	Value of contract(s) supported, either the actual value (for all lines of credit and project finance transactions or for any individual transaction on a voluntary basis) or according to the following scale in millions of SDRs: Category From To I: 0 1 II: 1 2 III: 2 3 IV: 3 5 V: 5 7 VI: 7 10 VII: 10 20 VIII: 20 40 IX: 40 80 X: 80 120 XI: 120 160 XII: 160 200 XIII: 200 240 XIV: 240 280 XV: 280 [^ntr*2-L_2013207EN.01007701-E0001]
---	---	---
	30.	Currency of contract(s)

d) Financial Terms and Conditions of the Official Export Credit Support

	31.	Credit value; the actual value for notifications involving lines of credit and project finance transactions or for any individual transaction on a voluntary basis, or according to the SDR scale
---	---	---
	32.	Currency of credit
---	---	---
	33.	Down payment (percentage of the total value of the contracts supported)
---	---	---
	34.	Local Costs (percentage of the total value of the contracts supported)
---	---	---
	35.	Starting point of credit and reference to the applicable sub-paragraph of Article 10
---	---	---
	36.	Length of the repayment period
---	---	---
	37.	Interest rate base
---	---	---
	38.	Interest rate or margin

II.   ADDITIONAL INFORMATION TO BE PROVIDED, AS APPROPRIATE, FOR NOTIFICATIONS MADE IN RELATION TO SPECIFIC PROVISIONS

a) Arrangement, Article 14 d) 5

	1.	Repayment profile
---	---	---
	2.	Repayment frequency
---	---	---
	3.	Length of time between the starting point of credit and the first repayment of principal
---	---	---
	4.	Amount of interest capitalised before the starting point of credit
---	---	---
	5.	Weighted average life of the repayment period
---	---	---
	6.	Explanation of the reason for not providing support according to Article 14 paragraphs a) through c)

b) Arrangement, Articles 24, 27, 30 and 31

	1.	Country risk classification of the obligor’s country
---	---	---
	2.	Selected buyer risk category of the obligor
---	---	---
	3.	Length of the disbursement period
---	---	---
	4.	Percentage of cover for political (country) risk
---	---	---
	5.	Percentage of cover for commercial (buyer) risk
---	---	---
	6.	Quality of cover (i.e. below standard, standard, above standard)
---	---	---
	7.	MPR based on the country risk classification of the obligor’s country absent any third party guarantee, involvement of a multilateral/regional institution ,risk mitigation and/or buyer risk enhancements
---	---	---
	8.	Applicable MPR
---	---	---
	9.	Actual premium rate charged (expressed in MPR format as a percentage of the principal)

c) Arrangement, Article 24 c) third tiret

	1.	Benchmark(s) applied (see Annex XIII).

d) Arrangement, Article 24 e) first tiret

	1.	Country risk classification of the guarantor’s country
---	---	---
	2.	Selected buyer risk classification of the guarantor
---	---	---
	3.	Confirmation that all of the criteria listed in Annex VII have been met.
---	---	---
	4.	Percentage of the total amount at risk (i.e. principal and interest) that is covered by the guarantee (i.e. total or partial amount)
---	---	---
	5.	Indication as to whether any financial relationship exists between the guarantor and the obligor
---	---	---
	6.	In the case that there is a relationship between the guarantor and the obligor: — The type of relationship (e.g. parent-subsidiary, subsidiary-parent, common ownership) — Confirmation that the guarantor is legally and financially independent and can fulfil the obligor’s payment obligation — Confirmation that the guarantor would not be affected by events, regulations or sovereign intervention in the obligor’s country

e) Arrangement, Article 27 e)

	1.	Selected buyer risk category of the obligor
---	---	---
	2.	Accredited CRA foreign currency rating(s)
---	---	---
	3.	Rationale for buyer risk category better than accredited CRA rating

f) Arrangement, Article 30

	1.	Country risk mitigation technique used
---	---	---
	2.	Confirmation that the criteria listed in Annex VIII have been met
---	---	---
	3.	For Technique 1, the applicable country risk classification resulting from the use of the technique.
---	---	---
	4.	For Technique 2: — the local currency used — the value of the LCF applied

g) Arrangement, Article 31

	1.	The BRCE(s) applied
---	---	---
	2.	The CEF applied for each credit enhancement
---	---	---
	3.	The total CEF to be applied

h) Arrangement, Articles 49 and 50

	1.	Form of tied aid (i.e. development aid or premixed credit or associated finance)
---	---	---
	2.	Overall concessionality level of the tied and partially untied aid financing calculated in accordance with Article 40
---	---	---
	3.	DDR used for concessionality calculation
---	---	---
	4.	Treatment of cash payments in the calculation of the concessionality level
---	---	---
	5.	Restrictions on use of credit lines

i) Annex II, Article 8

	1.	Enhanced description of the export contract, i.e. new nuclear power station, modernisation of an existing nuclear power plant, supply of nuclear fuel and enrichment, or provision of spent fuel management.
---	---	---
	2.	Repayment of principal and payment of interest according to: Article 3 a) 1), Article 3 a) 2) or Article 3 c) of Annex II.
---	---	---
	3.	Where official support is provided in accordance with Article 3 c) of Annex II, please provide: — Repayment profile — Repayment frequency — Length of time between the starting point of credit and the first repayment of principal — Amount of interest capitalised before the starting point of credit — Weighted average life of the repayment period — Explanation of the reason for not providing support in accordance with Articles 3 a) and b).
---	---	---
	4.	Minimum interest rate applied in accordance with Article 4 of Annex II.

j) Annex IV, Article 9

	1.	Enhanced description of the project: — New renewable energies and water plant, or modernisation of an existing renewable energies and water plant, including the specific sector as listed in Appendix I of Annex IV, or — If a hydro-power project, whether a new large hydro-power project (as defined in Appendix IV of Annex IV), or — For projects falling in the Project Classes listed in Appendix II of Annex IV, a demonstration of how the project complies with the criteria for support, as set out in Article 2 b) of Annex IV.
---	---	---
	2.	Repayment profile of principal and payment of interest according to: Article 5 a) 1), Article 5 a) 2) or Article 5 c) of Annex IV.
---	---	---
	3.	Where official support is provided in accordance with Article 5 c) of Annex IV, please provide: — Repayment profile — Repayment frequency — Length of time between the starting point of credit and the first repayment of principal — Amount of interest capitalised before the starting point of credit — Weighted average life of the repayment period — Explanation of the reason for not providing support in accordance with Articles 5 a) and b).
---	---	---
	4.	Minimum interest rate applied in accordance with Article 6 of Annex IV.

k) Annex X, Article 5

	1.	Explanation of why project finance terms are being provided
---	---	---
	2.	Contract value in relation to turnkey contract, portion of sub-contracts, etc.
---	---	---
	3.	Enhanced project description
---	---	---
	4.	Type of cover provided prior to the starting point of credit
---	---	---
	5.	Percentage of cover for political risk prior to the starting point of credit
---	---	---
	6.	Percentage of cover for commercial risk prior to the starting point of credit
---	---	---
	7.	Type of cover provided after the starting point of credit
---	---	---
	8.	Percentage of cover for political risk after the starting point of credit
---	---	---
	9.	Percentage of cover for commercial risk after the starting point of credit
---	---	---
	10.	Length of the construction period (if applicable)
---	---	---
	11.	Length of the disbursement period
---	---	---
	12.	Weighted average life of the repayment period
---	---	---
	13.	Repayment profile
---	---	---
	14.	Repayment frequency
---	---	---
	15.	Length of time between the starting point of credit and the first repayment of principal
---	---	---
	16.	Percentage of principal repaid by the mid-point of credit
---	---	---
	17.	Amount of interest capitalised before the starting point of credit
---	---	---
	18.	Other fees received by the ECA, e.g. commitment fees (optional, except in the case of transactions with buyers in High Income OECD Countries)
---	---	---
	19.	Premium rate (optional, except in the case of projects in High Income OECD Countries)
---	---	---
	20.	Confirmation (and explanation as necessary) that the transaction involves/is characterised by: — The financing of a particular economic unit in which a lender is satisfied to consider the cash flows and earnings of that economic unit as the source of funds from which a loan will be repaid and to the assets of the economic unit as collateral for the loan. — Financing of export transactions with an independent (legally and economically) project company, e.g. special purpose company, in respect of investment projects generating their own revenues. — Appropriate risk-sharing among the partners of the project, e.g. private or creditworthy public shareholders, exporters, creditors, off-takers, including adequate equity. — Project cash flow sufficient during the entire repayment period to cover operating costs and debt service for outside funds. — Priority deduction from project revenues of operating costs and debt service. — A non-sovereign buyer/borrower with no sovereign repayment guarantee — Asset-based securities for proceeds/assets of the project, e.g. assignments, pledges, proceed accounts; — Limited or no recourse to the sponsors of the private sector shareholders/sponsors of the project after completion

l) Annex X, Article 5, for projects in High Income OECD Countries

	1.	Total debt syndication amount for the project, including official and private lenders
---	---	---
	2.	Total amount of the debt syndication from private lenders
---	---	---
	3.	Percentage of the debt syndication provided by the Participants
---	---	---
	4.	Confirmation that: — In respect of participation in a loan syndication with private financial institutions that do not benefit from official export credit support, the Participant is a minority partner with pari passu status throughout the life of the loan. — The premium rate reported under item k) 19 above does not undercut available private market financing and is commensurate with the corresponding rates being charged by other private financial institutions that are participating in the syndication.

ANNEX VI

CALCULATION OF THE MINIMUM PREMIUM RATES

MPR Formula

The formula for calculating the applicable MPR for an export credit involving an obligor/guarantor in a country classified in Country Risk Categories 1-7 is:

Image omitted; see official source

where:

ai= country risk coefficient in country risk category i (i = 1-7)

cin= buyer risk coefficient for buyer category n (n = SOV+, SOV/CCO, CC1-CC5) in country risk category i (i = 1-7)

bi= constant for country category risk category i (i = 1-7)

HOR= horizon of risk

PCC= commercial (buyer) risk percentage of cover

PCP= political (country) risk percentage of cover

CEF= credit enhancements factor

QPFi= quality of product factor in country risk category i (i = 1-7)

PCFi= percentage of cover factor in country risk category i (i = 1-7)

BTSF= better than sovereign factor

LCF= local currency factor

Applicable Country Risk Classification

The applicable country risk classification is determined according to Article 24 e), which in turn determines the country risk coefficient (ai) and constant (bi) that are obtained from the following table:

	1	2	3	4	5	6	7
a	0,090	0,200	0,350	0,550	0,740	0,900	1,100
b	0,350	0,350	0,350	0,350	0,750	1,200	1,800

Selection of the Appropriate Buyer Risk Category

The appropriate buyer risk category is selected from the following table, which provides the combinations of country and buyer risk categories that have been established and the agreed concordance between buyer risk categories CC1-CC5 and the classifications of accredited CRAs. Qualitative descriptions of each buyer risk category (SOV+ to CC5) have been established to facilitate the classification of obligors (and guarantors) and are provided in Annex XII.

Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category
1	2	3	4	5	6	7
SOV+	SOV+	SOV+	SOV+	SOV+	SOV+	SOV+
SOV / CC0	SOV / CC0	SOV / CC0	SOV / CC0	SOV / CC0	SOV / CC0	SOV / CC0
CC1 AAA to AA–	CC1 A+ to A–	CC1 BBB+ to BBB–	CC1 BB+ to BB	CC1 BB–	CC1 B+	CC1 B
CC2 A+ to A–	CC2 BBB+ to BBB–	CC2 BB+ to BB	CC2 BB–	CC2 B+	CC2 B	CC2 B– or worse
CC3 BBB+ to BBB–	CC3 BB+ to BB	CC3 BB–	CC3 B+	CC3 B	CC3 B– or worse
CC4 BB+ to BB	CC4 BB–	CC4 B+	CC4 B	CC4 B– or worse
CC5 BB– or worse	CC5 B+ or worse	CC5 B or worse	CC5 B– or worse

The selected buyer risk category, in combination with the applicable country risk category determines the buyer risk coefficient (cin) that is obtained from the following table:

Buyer Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category
Buyer Risk Category	1	2	3	4	5	6	7
SOV+	0,000	0,000	0,000	0,000	0,000	0,000	0,000
SOV / CC0	0,000	0,000	0,000	0,000	0,000	0,000	0,000
CC1	0,110	0,120	0,110	0,100	0,100	0,100	0,125
CC2	0,200	0,212	0,223	0,234	0,246	0,258	0,271
CC3	0,270	0,320	0,320	0,350	0,380	0,480	n/a
CC4	0,405	0,459	0,495	0,540	0,621	n/a	n/a
CC5	0,630	0,675	0,720	0,810	n/a	n/a	n/a

Horizon of Risk (HOR)

The Horizon of Risk (HOR) is calculated as follows:

For standard repayment profiles (i.e. equal semi-annual repayments of principal): Image omitted; see official source

For non-standard repayment profiles: Image omitted; see official source

In the above formulas, the unit of measurement for time is years.

Percentage of Cover for Commercial (Buyer) Risk (PCC) and Political (Country) Risk (PCP)

The Percentages of Cover (PCC and PCP) expressed as a decimal value (i.e. 95 % is expressed as 0,95) in the MPR formula.

Buyer Risk Credit Enhancements

The value of the credit enhancement factor (CEF) is 0 for any transaction that is not subject to any buyer risk credit enhancements. The value of the CEF for transactions that are subject to buyer risk credit enhancements is determined according to Annex VIII (subject to the restrictions set out in Article 31 c) of the Arrangement and may not exceed 0,35.

Quality of Product Factor (QPF)

The QPF is obtained from the following table:

Product Quality	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category
Product Quality	1	2	3	4	5	6	7
Below Standard	0,9965	0,9935	0,9850	0,9825	0,9825	0,9800	0,9800
Standard	1,0000	1,0000	1,0000	1,0000	1,0000	1,0000	1,0000
Above Standard	1,0035	1,0065	1,0150	1,0175	1,0175	1,0200	1,0200

Percentage of Cover Factor (PCF)

The PCF is determined as follows:

For ( max(PCC, PCP) ≤ 0,95, PCF = 1)

For ( max(PCC, PCP) > 0,95, Image omitted; see official source

The percentage of cover coefficient is obtained from the following table:

Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category	Country Risk Category
	1	2	3	4	5	6	7
Percentage of cover coefficient	0,00000	0,00337	0,00489	0,01639	0,03657	0,05878	0,08598

Better than Sovereign Factor (BTSF)

When an obligor is classified in the “better than sovereign” (SOV+) buyer risk category, BTSF = 0,9, otherwise BTSF = 1.

Local Currency Factor (LCF)

For transaction making use of local currency country risk mitigation, the value of the LCF may not exceed 0,2. The value of the LCF for all other transactions is 0.

ANNEX VII

CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF A THIRD PARTY REPAYMENT GUARANTEE AND THE CLASSIFICATION OF MULTILATERAL OR REGIONAL INSTITUTIONS

PURPOSE

This Annex provides the criteria and conditions that govern the application of third party repayment guarantees, including the repayment guarantee of a classified multilateral or regional institution according to Article 24 e) of the Arrangement. It also provides the criteria by which multilateral or regional institutions should be assessed when determining if an institution should be classified in connection with Article 28 of the Arrangement.

APPLICATION

Case 1:   Guarantee for the Total Amount at Risk

When security in the form of a repayment guarantee from an entity is provided for the total amount at risk (i.e. principal and interest), the applicable Country Risk Classification and Buyer Risk Category may be that of the guarantor when the following criteria are met:

• — The guarantee covers the entire duration of the credit.

• — The guarantee is irrevocable, unconditional and available on-demand.

• — The guarantee is legally valid and capable of being enforced in the guarantor country's jurisdiction.

• — The guarantor is creditworthy in relation to the size of the guaranteed debt.

• — The guarantor is subject to the monetary control and transfer regulations of the country in which it is located.

For classified Multilateral or Regional Institutions acting as guarantors, the following criteria apply:

• — The guarantee covers the entire duration of the credit.

• — The guarantee is irrevocable, unconditional and available on-demand.

• — The guarantor is legally committed for the total amount of the credit.

• — The repayments are made directly to the creditor.

If the guarantor is a subsidiary/parent of the guaranteed entity, Participants shall, on a case-by-case basis, determine whether: (1) in consideration of the relationship between the subsidiary/parent and the degree of legal commitment of the parent, the subsidiary/parent is legally and financially independent and could fulfil its payment obligations; (2) the subsidiary/parent could be affected by local events/regulations or sovereign intervention; and (3) the Head Office would in the event of a default regard itself as being liable.

Case 2:   Guarantee Limited in Amount

When security in the form of a repayment guarantee from an entity is provided for a limited amount at risk (i.e. principal and interest), the applicable Country Risk Classification and Buyer Risk Category may be that of the guarantor for the portion of the credit subject to the guarantee, providing that all other criteria listed under Case 1 are met.

For the unguaranteed portion, the applicable Country Risk Classification and Buyer Risk Category is that of the obligor.

Classification of Multilateral or Regional Institutions

Multilateral and regional institutions shall be eligible for classification if the institution is generally exempt from the monetary control and transfer regulations of the country in which it is located. Such institutions shall be classified in Country Risk Categories 0 through 7 on a case-by-case basis according to an assessment of the risk of each on its own merits and in consideration of whether:

• — the institution has statutory and financial independence;

• — all of the institution's assets are immune from nationalisation or confiscation;

• — the institution has full freedom of transfer and conversion of funds;

• — the institution is not subject to government intervention in the country where it is located;

• — the institution has tax immunity; and

• — there is an obligation of all its Member countries to supply additional capital to meet the institution's obligations.

The assessment should also take into consideration the historical payment record in situations of country credit risks default either in the country where it is located or in a obligor’s country; and any other factors which may be deemed appropriate in the assessment process.

The list of classified multilateral and regional institutions is not closed and a Participant may nominate an institution for review according to the above-listed considerations. The classifications of multilateral and regional institutions shall be made public by the Participants.

ANNEX VIII

CRITERIA AND CONDITIONS GOVERNING THE APPLICATION OF COUNTRY RISK MITIGATION TECHNIQUES AND BUYER RISK CREDIT ENHANCEMENTS

PURPOSE

This Annex provides detail on the use of country risk mitigation techniques listed in Article 30 a) of the Arrangement and the buyer risk credit enhancements listed in Article 31 a) of the Arrangement; this includes the criteria, conditions and specific circumstances which apply to their use as well as the impact on the MPRs.

COUNTRY RISK MITIGATION TECHNIQUES

1. Offshore Future Flow Structure Combined with Offshore Escrow Account

Definition:

A written document, such as a deed or a release or trustee arrangement, sealed and delivered to a third party, i.e. a person not party to the instrument, to be held by such third party until the fulfilment of certain conditions and then to be delivered by him to the other party to take effect. If the following criteria are satisfied subject to consideration of the additional factors listed, this technique can reduce or eliminate the transfer risks, mainly in the higher risk country categories.

Criteria:

The escrow account is related to a foreign exchange-earning project and the flows into the escrow account are generated by the project itself and/or by other offshore export receivables.

The escrow account is held offshore, i.e. located outside of the country of the project where there are very limited, transfer or other country risks (i.e. a country classified in Category 0).

The escrow account is located in a first class bank which is not directly or indirectly controlled by interests of the obligor or by the country of the obligor.

The funding of the account is secured through long-term or other appropriate contracts.

The combination of the sources of revenues (i.e. generated by the project itself and/or the other sources) of the obligor flowing through the account are in hard currency and can reasonably be expected to be collectively sufficient for the service of the debt for the entire duration of the credit, and come from one or more creditworthy foreign customers located in better risk countries than the country in which the project is located (i.e. normally countries classified in Category 0).

The obligor irrevocably instructs the foreign customers to pay directly into the account (i.e. the payments are not forwarded through an account controlled by the obligor or through its country).

The funds which have to be kept within the account are equal to at least six months of debt service. Where flexible repayment terms are being applied under a project finance structure, an

amount equivalent to the actual six months debt service under such flexible terms are to be kept within the account; this amount may vary over time depending on the debt service profile.

• — The obligor has restricted access to the account (i.e. only after payment of the debt service under the credit).

• — The revenues deposited in the account are assigned to the lender as direct beneficiary, for the entire life of the credit.

• — The opening of the account has received all the necessary legal authorisations from the local and any other appropriate authorities.

• — The escrow account and contractual arrangements may not be conditional and/or revocable and/or limited in duration.

Additional Factors to be taken into Consideration:

The technique applies subject to a case-by-case consideration of the above characteristics and, inter alia, with regard to:

• — the country, the obligor (i.e. either public or private), the sector, the vulnerability in relation to the commodities or services involved, including their availability for the entire duration of the credit, the customers;

• — the legal structures, e.g. whether the mechanism is sufficiently immune against the influence of the obligor or its country;

• — the degree to which the technique remains subject to government interference, renewal or withdrawal;

• — whether the account would be sufficiently protected against project related risks;

• — the amount which will flow into the account and the mechanism for the continuation of appropriate provision;

• — the situation with regard to the Paris Club (e.g. possible exemption);

• — the possible impact of country risks other than the transfer risk;

• — the protection against the risks of the country where the account is located;

• — the contracts with the customers, including their nature and duration; and

• — the global amount of the expected foreign earnings in relation to the total amount of the credit.

Impact on the MPR

The application of this country risk mitigation technique may result in a one category improvement in the applicable country risk classification for the transaction, except for transactions in Country Risk Category 1.

2. Local Currency Financing

Definition:

Contract and financing negotiated in convertible and available local, other than hard, currencies and financed locally that eliminates or mitigates the transfer risk. The primary debt obligation in local currency would, in principle, not be affected by the occurrence of the first two country credit risks.

Criteria:

• — The ECA liability and claims payment or the payment to the Direct Lender are expressed/ made throughout in local currency.

• — The ECA is normally not exposed to the transfer risk.

• — In the normal course of events, there will be no requirement for local currency deposits to be converted into hard currency.

• — The borrower’s repayment in his own currency and in his own country is a valid discharge of the loan obligation.

• — If a borrower’s income is in local currency the borrower is protected against adverse exchange rate movements.

• — Transfer regulations in the borrower’s country should not affect the borrower’s repayment obligations, which would remain in local currency.

Additional Factors to be taken into Consideration:

The technique applies on a selective basis in respect of convertible and transferable currencies, where the underlying economy is sound. The Participant ECA should be in a position to meet its obligations to pay claims expressed in its own currency in the event that the local currency becomes either ‘non-transferable’ or ‘non-convertible’ after the ECA takes on liability. (A Direct Lender would however carry this exposure.)

Impact on the MPR

The application of this risk mitigation technique may result in a discount of no more than 20 % to the country credit risk portion of the MPR (i.e. a local currency factor [LCF] with a value of no more than .2).

BUYER RISK CREDIT ENHANCEMENTS

The following table provides definitions of the buyer risk credit enhancements that may be applied, along with their maximum impact on the applicable MPRs through the CEF in the MPR formula.

Credit Enhancement	Definition	Maximum CEF
Assignment of Contract Proceeds or Receivables	In the event a borrower has contracts with strong off-takers, whether offshore or local, a legally enforceable assignment of the contract provides rights to enforce the borrower’s contracts and/or make decisions under major contracts in the place of the borrower after a default under the loan. A direct agreement with a third party in a transaction (a local government agency in a mining or energy transaction) allows Lenders to approach a government to seek remedies for expropriation or other violation of contractual obligations related to the transaction. An existing company operating in a difficult market or sector may have receivables related to the sale of production with a company or companies located in a more stable environment. Receivables would generally be in a hard currency but may not be the subject of a specific contractual relationship. Assignment of these receivables could provide asset security in the accounts of the Borrower, giving the Lender a preferential treatment in the cash flow generated by the Borrower.	0,10
Asset Based Security	Control of an asset shown by: (1) mortgage on very mobile and valuable piece of property and (2) property that has entire value in itself. An asset based security is one that can be reacquired with relative ease such as a locomotive, medical equipment or construction equipment. In valuing such a security, the ECA should take into consideration the legal ease of recovery. In other words, there is more value when the security interest in the asset is perfected under an established legal regime and less value where the legal ability to recover the asset is questionable. The precise value of an asset-based security is set by the market, with the relevant "market" being deeper than a local market because the asset can be moved to another jurisdiction. NOTE: The application of an asset based security credit enhancement applies to the buyer risk, where the asset based security is held internally within the country in which the transaction is domiciled.	0,25
Fixed Asset Security	A fixed asset security is most typically component equipment which may be constrained by its physicality such as turbine or manufacturing machinery integrated into an assembly line. The intent and value of the fixed asset security is to provide the ECA with more leverage over the use of the asset in recouping losses in the event of default. The value of a fixed asset security varies dependant on economic, legal, market and other factors.	0,15
Escrow Account	Escrow accounts involve debt service reserve accounts held as security for the lenders or other forms of cash receivable accounts held as security for the lenders by a party not controlled or sharing common ownership with the buyer/obligor. The escrowed amount must be deposited or escrowed in advance. The value of such security is nearly always 100 % of the nominal amount in such cash accounts. Permits greater control over use of cash, ensures that debt is serviced before discretionary spending. NOTE: The application of an escrow account credit enhancement applies to the buyer risk, where the escrow account is held internally within the country in which the transaction is domiciled. Cash security significantly diminishes the risk of default for the covered instalments.	escrowed amount as % of credit up to a maximum of 0,10

ANNEX IX

CHECKLIST OF DEVELOPMENTAL QUALITY

Checklist of developmental quality of aid-financed projects

A number of criteria have been developed in recent years by the DAC to ensure that projects in developing countries that are financed totally or in part by Official Development Assistance (ODA) contribute to development. They are essentially contained in the:

• — DAC Principles for Project Appraisal, 1988;

• — DAC Guiding Principles for Associated Financing and Tied and Partially Untied Official Development Assistance, 1987; and

• — Good Procurement Practices for Official Development Assistance, 1986.

CONSISTENCY OF THE PROJECT WITH THE RECIPIENT COUNTRY'S OVERALL INVESTMENT PRIORITIES (PROJECT SELECTION)

Is the project part of investment and public expenditure programmes already approved by the central financial and planning authorities of the recipient country?

(Specify policy document mentioning the project, e.g. public investment programme of the recipient country.)

Is the project being co-financed with an international development finance institution?

Does evidence exist that the project has been considered and rejected by an international development finance institution or another DAC Member on grounds of low developmental priority?

In the case of a private sector project, has it been approved by the government of the recipient country?

Is the project covered by an intergovernmental agreement providing for a broader range of aid activities by the donor in the recipient country?

PROJECT PREPARATION AND APPRAISAL

Has the project been prepared, designed and appraised against a set of standards and criteria broadly consistent with the DAC Principles for Project Appraisal (PPA)? Relevant principles concern project appraisal under:

• a) Economic aspects (paragraphs 30 to 38 PPA).

• b) Technical aspects (paragraph 22 PPA).

• c) Financial aspects (paragraphs 23 to 29 PPA).

In the case of a revenue producing project, particularly if it is producing for a competitive market, has the concessionary element of the aid financing been passed on to the end-user of the funds? (paragraph 25 PPA).

• a) Institutional assessment (paragraphs 40 to 44 PPA).

• b) Social and distributional analysis (paragraphs 47 to 57 PPA).

• c) Environmental assessment (paragraphs 55 to 57 PPA).

PROCUREMENT PROCEDURES

What procurement mode will be used among the following? (For definitions, see Principles listed in Good Procurement Practices for ODA).

• a) International competitive bidding (Procurement Principle III and its Annex 2: Minimum conditions for effective international competitive bidding).

• b) National competitive bidding (Procurement Principle IV).

• c) Informal competition or direct negotiations (Procurement Principles V A or B).

Is it envisaged to check price and quality of supplies (paragraph 63 PPA)?

ANNEX X

TERMS AND CONDITIONS APPLICABLE TO PROJECT FINANCE TRANSACTIONS

CHAPTER I

General provisions

1. SCOPE OF APPLICATION

	a)	This Annex sets out terms and conditions that Participants may support for project finance transactions that meet the eligibility criteria set out in Appendix 1.
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	b)	Where no corresponding provision exists in this Annex, the terms of the Arrangement shall apply.

CHAPTER II

Financial terms and conditions

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2. MAXIMUM REPAYMENT TERMS

The maximum repayment term is 14 years.

3. REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST

The principal sum of an export credit may be repaid in unequal instalments, and principal and interest may be paid in less frequent than semi-annual instalments, as long as the following conditions are met:

• a) No single repayment of principal or series of principal payments within a six-month period shall exceed 25 % of the principal sum of the credit.

• b) The first repayment of principal shall be made no later than 24 months after the starting point of credit and no less than 2 % of the principal sum of the credit shall have been repaid 24 months after the starting point of credit.

• c) Interest shall be paid no less frequently than every 12 months and the first interest payment shall be made no later than six months after the starting point of credit.

• d) The weighted average life of the repayment period shall not exceed seven-and-a-quarter years.

• e) The Participant shall give prior notification according to Article 5 of this Annex.

4. MINIMUM FIXED INTEREST RATES

Where Participants are providing official financing support for fixed rate loans:

• a) For repayment terms of up to and including 12 years, Participants shall apply the relevant Commercial Interest Reference Rates (CIRRs) constructed in Accordance with Article 20 of the Arrangement.

• b) For repayment terms in excess of 12 years, a surcharge of 20 basis points on the CIRR shall apply for all currencies.

CHAPTER III

Procedures

5. PRIOR NOTIFICATION FOR PROJECT FINANCE TRANSACTIONS

A Participant shall notify all Participants of the intent to provide support according to the terms and conditions of this Annex at least ten calendar days before issuing any commitment. The notification shall be provided in accordance with Annex V of the Arrangement. If any Participant requests an explanation in respect of the terms and conditions being supported during this period, the notifying Participant shall wait an additional ten calendar days before issuing any commitment.

Appendix 1

Eligibility criteria for project finance transactions

I. BASIC CRITERIA

The transaction involves/is characterised by:

• a) The financing of a particular economic unit in which a lender is satisfied to consider the cash flows and earnings of that economic unit as the source of funds from which a loan will be repaid and to the assets of the economic unit as collateral for the loan.

• b) Financing of export transactions with an independent (legally and economically) project company, e.g. special purpose company, in respect of investment projects generating their own revenues.

• c) Appropriate risk-sharing among the partners of the project, e.g. private or creditworthy public shareholders, exporters, creditors, off-takers, including adequate equity.

• d) Project cash flow sufficient during the entire repayment period to cover operating costs and debt service for outside funds.

• e) Priority deduction from project revenues of operating costs and debt service.

• f) A non-sovereign buyer/borrower with no sovereign repayment guarantee (not including performance guarantees, e.g. off-take arrangements).

• g) Asset-based securities for proceeds/assets of the project, e.g. assignments, pledges, proceed accounts;

• h) Limited or no recourse to the sponsors of the private sector shareholders/sponsors of the project after completion.

II.   ADDITIONAL CRITERIA FOR PROJECT FINANCE TRANSACTIONS IN HIGH INCOME OECD COUNTRIES

The transaction involves/is characterised by:

• a) Participation in a loan syndication with private financial institutions that do not benefit from Official Export Credit Support, whereby:

• 1) The Participant is a minority partner with pari passu status throughout the life of the loan and;

• 2) Official export credit support provided by the Participants comprises less than 50 % of the syndication.

• b) Premium rates for any official support that do not undercut available private market financing and that are commensurate with the corresponding rates being charged by other private financial institutions that are participating in the syndication.

ANNEX XI

LIST OF DEFINITIONS

For the purpose of the Arrangement:

• 1) Parts or components (intermediate goods) including related services: in the case of parts or components, the starting point of credit is not later than the actual date of acceptance of the goods or the weighted mean date of acceptance of the goods (including services, if applicable) by the buyer or, for services, the date of the submission of the invoices to the client or acceptance of services by the client.

• 2) Quasi-capital goods, including related services - machinery or equipment, generally of relatively low unit value, intended to be used in an industrial process or for productive or commercial use: in the case of quasi-capital goods, the starting point of credit is not later than the actual date of acceptance of the goods or the weighted mean date of acceptance of the goods by the buyer or, if the exporter has responsibilities for commissioning, then the latest starting point is at commissioning, or for services, the date of the submission of the invoices to the client or acceptance of the service by the client. In the case of a contract for the supply of services where the supplier has responsibility for commissioning, the latest starting point is commissioning.

• 3) Capital goods and project services - machinery or equipment of high value intended to be used in an industrial process or for productive or commercial use:

In the case of a contract for the sale of capital goods consisting of individual items usable in themselves, the latest starting point is the actual date when the buyer takes physical possession of the goods, or the weighted mean date when the buyer takes physical possession of the goods.

In the case of a contract for the sale of capital equipment for complete plant or factories where the supplier has no responsibility for commissioning, the latest starting point is the date at which the buyer is to take physical possession of the entire equipment (excluding spare parts) supplied under the contract.

If the exporter has responsibility for commissioning, the latest starting point is at commissioning.

For services, the latest starting point of credit is the date of the submission of the invoices to the client or acceptance of service by the client. In the case of a contract for the supply of services where the supplier has responsibility for commissioning, the latest starting point is commissioning.

• 4) Complete plants or factories – complete productive units of high value requiring the use of capital goods:

In the case of a contract for the sale of capital equipment for complete plant or factories where the supplier has no responsibility for commissioning, the latest starting point of credit is the date when the buyer takes physical possession of the entire equipment (excluding spare parts) supplied under the contract.

In case of construction contracts where the contractor has no responsibility for commissioning, the latest starting point is the date when construction has been completed.

In the case of any contract where the supplier or contractor has a contractual responsibility for commissioning, the latest starting point is the date when he has completed installation or construction and preliminary tests to ensure it is ready for operation. This applies whether or not it is handed over to the buyer at that time in accordance with the terms of the contract and irrespective of any continuing commitment which the supplier or contractor may have, e.g. for guaranteeing its effective functioning or training local personnel.

Where the contract involves the separate execution of individual parts of a project, the date of the latest starting point is the date of the starting point for each separate part, or the mean date of those starting points, or, where the supplier has a contract, not for the whole project but for an essential part of it, the starting point may be that appropriate to the project as a whole.

For services, the latest starting point of credit is the date of the submission of the invoices to the client or the acceptance of service by the client. In the case of a contract for the supply of services where the supplier has responsibility for commissioning, the latest starting point is commissioning.

This definition applies whether the “tying” is by formal agreement or by any form of informal understanding between the recipient and the donor country, or whether a package includes components from the forms set out in Article 31 of the Arrangement that are not freely and fully available to finance procurement from the recipient country, substantially all other developing countries and from the Participants, or if it involves practices that the DAC or the Participants consider equivalent to such tying.

ANNEX XII

BUYER RISK CATEGORIES QUALITATIVE DESCRIPTIONS

Better than Sovereign (SOV+)

This is an exceptional classification. The entity achieving such a classification is one with an exceptionally strong credit profile which could be expected to fulfil its payment obligations during a period of sovereign debt distress or even default. International Credit Rating Agencies issue regular reports listing Corporate and Counterparty Ratings that exceed the Sovereign's Foreign Currency Rating. Except when the risk sovereign has been identified through the Sovereign Risk Assessment Methodology as being significantly higher than country risk, Participants proposing that an entity be classified as better than sovereign shall reference such better than sovereign ratings in support of their recommendation. In order to be classified as better than its host sovereign, an entity would be expected to display several or normally a majority of the following characteristics or equivalents:

• — A strong credit profile;

• — substantial foreign exchange earnings relative to its currency debt burden;

• — production facilities and cash generation ability from subsidiaries or operations offshore, especially those domiciled in highly rated sovereigns, i.e. multinational enterprises;

• — a foreign owner or a strategic partner which could be relied on as a source of financial support in the absence of a formal guarantee;

• — a history of preferential treatment of the entity by the sovereign, including exemption from transfer and convertibility constraints and surrender requirements for export proceeds, and favourable tax treatment;

• — committed credit lines from highly rated international banks, especially credit lines without a material adverse change (MAC) clause which enable banks to withdraw committed facilities in the event of a sovereign crisis or other risk events; and