Treasury and Trade Solutions
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However, most oil exporters will have
to reduce infrastructure spending to
balance their budgets.
For emerging market countries,
whether they are oil importers or
exporters, the fall in energy prices —
reinforced by an expected rise
in interest rates by the Federal
Reserve in the coming months —
has the potential to increase
market volatility. As a result,
all energy projects in emerging
markets could become more reliant
on ECA funding.
Financing alternative sources
of energy
The unstable geopolitical
environment has made energy
security a major priority for both
emerging and developed market
countries. Consequently, many
governments have adopted policies
to promote alternative sources of
energy, including renewable sources,
such as solar and wind power, and
non-traditional sources of carbon-
based fuels, such as liquefied
natural gas (LNG).
In Latin America, for example,
renewable energy has gained
increasing government support in
recent years. Unlike the U.S. and
Europe, where renewable energy
is usually subsidized to encourage
production, renewable energy in
Latin America is competitive with
conventional sources of power
because of high domestic
energy costs.
The bulk of the cost of a renewables
project is equipment. ECAs from
the country where equipment is
manufactured usually provide
approximately 50% of the financing
for a renewable project; commercial
banks (such as Citi) provide around
30%, and the developer typically
contributes equity representing 20%
of the project value.
Citi is a leader in Latin American
renewables financing and acted
as advisor and loan arranger for
Abengoa’s Palmatir wind project in
Tacuarembó, Uruguay. The $153.5
million two tranche loan (from
Export-Import (Ex-Im) Bank of the
United States and the Inter-American
Development Bank) financed the
purchase of equipment made in
the U.S. by Spanish wind turbine-
maker Gamesa.
One growing alternative source of
energy is LNG. Most LNG tankers
are built in Asia and their purchase
by international shipping companies
is often facilitated by Asian ECAs.
In the last quarter of 2014, Citi
completed a $1.34 billion senior
secured vessel financing for the
Angelicoussis Shipping Group
Limited. The financing supported
the purchase of eight new build
LNG carriers to be built by the
South Korean shipyards Hyundai
Samho Heavy Industries, and
Daewoo Shipbuilding and Marine
Engineering. The financing includes
a $908.5 million tranche, which is
95% covered by K-Sure, the
