asked the Minister for Industry and Commerce if he will make a statement regarding the special loan arrangements which were agreed by his Department in January 1983, in relation to a Nigerian company defaulting in payments due to an Irish exporter; the action taken in relation to this incident which occurred under the export guarantee arrangements of the Insurance Act, 1953, as the action taken within the Department had the effect of deferring payment of valid claims and incurring additional expenditure; the additional cost involved; and whether his Department have, at any time, entered into any other similar arrangements or derogations from the normal insurance claim arrangements under the Act.
Written Answers. - Loan Guarantees.
17.
The Deputy is referring to a default by a Nigerian buyer which gave rise to a claim, under the export credit insurance scheme, for £1.9 million in December 1982.
Normally the claim would have been paid direct to the Irish exporter by the Insurance Corporation of Ireland (ICI) which is the Minister's agent for the administration of the scheme. The ICI is then repaid the amount of the claim. Because the buyer had indicated his willingness to pay in dollars on a rescheduled basis and, in addition, would give a personal guarantee to pay generous interest rates, a loan arrangement was entered into whereby the exporter was provided with a loan to the full value of the default. The Minister, as an inherent part of the export credit insurance and finance schemes, guaranteed the repayment of principal and interest.
It was considered that the arrangement, which included a threat of legal action against the buyer and a rate of interest greater than the loan interest, was such that the buyer would pay as promised and, therefore, the term for the loan arrangement would be short. The arrangement appeared to be working well as in 1983 repayments of £.5 million were received.
When the termination of the loan arrangement was considered in February 1984, it transpired that if the exporter was obliged to meet his responsibilities in relation to his share — 10 per cent of the insurance risk and 100 per cent of the dollar exposure — the result would be the closure of his exporting business and the loss of employment of 60 persons.
As no further repayments from Nigeria were forthcoming despite exhaustive recovery attempts including visits to Nigeria by people from my Department, the bank threatened to call in the loan in October 1984.
At that stage, and in the light of the plight of the exporter, the arrangement was altered, with the approval of the Minister for Finance, to provide that the State would assume 90 per cent of the dollar exposure. The loan was fully repaid in January 1986. The cost was £163,243 in respect of an exchange loss and £496,229 in respect of interest. In accordance with the provision that, taking one year with another, the export credit insurance scheme must break even the costs of paying the claim, bank interest and exchange exposure were taken into account with other relevant factors in applying an increase of 15 per cent in premiums in January 1986. Thus the cost of the loan arrangement will be recovered over time.
Two somewhat similar arrangements were embarked on in March and April 1986, because imminent legal proceedings were expected to lead to recovery of the amounts outstanding. Both arrangements were terminated when it became clear that litigation was likely to be prolonged. Court action continues in these cases.