Vol. 429 No. 5
15 Mr. Gilmore asked the Minister for Tourism and Trade if he will give details of the purpose of the £100,000 allocated in the Estimate for his Department for credit financing of certain capital goods exports; and if he will make a statement on the matter.
The allocation referred to relates to the payment of interest subsidies to cover the cost of concessionary export credit finance on OECD terms to capital goods exporters. The sale of capital goods may involve the provision of credit for a period of two to five years. Where the State provides export credit insurance for such sales, the credit terms which may be offered are governed by an OECD arrangement, commonly known as the Consensus. The Consensus interest rate is generally lower than the relevant market rates. By bridging this interest rate difference my Department helps exporters of capital goods to raise finance in approved cases.
Am I correct in saying that this scheme operates completely separately from the export credit insurance scheme?
Yes.
Is the Department directly liable for the interest rate subsidies in question, or does liability rest with An Bord Tráchtála? Are we talking about all brands of capital goods, or what distinguishes this scheme from the general operation of the export credit insurance scheme?
This is a technical question. A very small amount of money is provided for this scheme — the outturn of the scheme in 1992 was only £57,000. In line with the amount provided last year, £100,000 was provided this year. In 1990 the figure provided was £164,000, the highest figure in the last five years. The reason for the reduction relates to the near convergence of the Irish market rate with world market rates. The £100,000 provided covers payment of interest subsidies to commercial banks to compensate them for the cost of providing concessionary export credit finance on OECD terms to capital goods exporters.
Under the export credit insurance scheme specific project cover is available on a case by case basis to exporters of capital goods. A specific contract policy covers a contract with a buyer for the export of capital goods on medium term credit, normally between two and five year's duration. Where officially supported export credits are involved the credit terms which may be provided, which are set at a fixed rate for the duration of the contract, are governed by the arrangements and guidelines for officially supported export credit, which is administered by the OECD. This arrangement, commonly known as the Consensus, sets guidelines in relation to the interest rates to be applied to the capital goods exporters. The Consensus rates are generally lower than the market rates available from the banks for raising finance for exporters. An exporter who receives export credit insurance can approach his bank and, on assignment of the insurance policy to it, receives the funds up front. In order to put the exporters in funds the bank will raise the necessary finance by way of a loan from another financial institution at market rates. As indicated, these rates are generally higher than the rates determined by the Consensus and set out in the contract of the buyer. As the buyer will now pay the bank the principal sum and interest as set out in the contract, the bank will incur a shortfall arising from the difference in the rates. This shortfall incurred by the bank would be paid out for the credit financing of capital goods allocation. The scheme exists so that exporters may not be obliged to carry the additional costs of ensuring that their banks do not incur a loss on interest costs, by financing the project. In essence, the scheme was designed to help exporters raise finance for large capital goods projects.
I will see if I can understand this. The Minister is saying that this is a scheme operated between the OECD trading partners and that if I am an exporter I can go to the bank and get this concessionary rate, but that if there is a shortfall at the end of the trading period the shortfall is made up from a general fund to which our contribution share is £100,000, or is it made up by the domestic government of whichever country is at issue?
Where the export credit terms would be set on a fixed rate for the duration of the contract — this relates to the supply of capital goods — that arrangement would be governed by the OECD arrangement guidelines known as the Consensus, and a fixed interest rate is to be charged there, as agreed. The exporter can go to the bank with his export credit insurance and the bank will put the money up front by borrowing the funds from another financial institution at normal commercial rates, but it can only lend to the exporter at the rates governed by the Consensus, the lower market rate. Therefore, the bank is at the loss of the difference between the higher rate at which it borrowed the funds and the lower rate at which it is obliged to lend under the Consensus rate. That is the difference covered by the £100,000 subhead in the Estimate this year. There has been a subhead there for a number of years and the reason it has been reduced related to the convergence of international rates with the OECD rate. The figure last year was about £57,000. It is not a concession that goes to the exporters; it is to make up the shortfall which I have tried to explain.
I understand it now, but why are not more of our exporters availing of it?
It has to do with capital goods only.
Surely we export more capital goods than would build up a shortfall of £100,000.
This relates to the export of capital goods on OECD terms. There are not many companies involved.
What are we talking about?
I cannot think of a particular instance of a company that is eligible for it. I will let the Deputy have the information. It is not a scheme that is widely used.
I am amazed that more companies are not using this scheme. I thought it related to whenever there were currency fluctuations and there would be a gap to be bridged. What the Minister says is that this relates to certain export goods. Will the Minister give us even one example?
I cannot. I will get the Deputy an example. The cost of the scheme last year was only £57,000.
When did this scheme start? From the way the answers are coming across, I gather that it was set up for a specific purpose, possibly to do with some specific capital good that is being exported. It is not a scheme about which many people are aware.
I do not know when it started. The figures I have here are from 1988, so it has been in operation since then and perhaps before. I will let the Deputy have the details later.
Will the Minister circulate them?
I will.
