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The role of export credit agency financing in construction projects

Export credit agencies (ECAs) are institutions that undertake official export credit activities for or on behalf of governments and whose main objective is to foster the competitiveness of a country by supporting the export of goods and services originating from their home jurisdiction. When considering funding sources for large-scale construction projects, an owner should not overlook financing from, or supported by, ECA(s).

The role of an ECA in supporting home country contractors by providing financing for construction projects can be vital. A strategy that seeks bids from contractors from different jurisdictions, each supported by an ECA that provides direct or covered financing, can result in increased competition, drive down pricing and strengthen the bargaining power of an owner in contract negotiations.

Due to the eligibility requirements of ECAs and the mandates under which they operate, ECA financing is unlikely to be as straightforward as traditional bank lending. Below we set out some key considerations for an owner when considering ECA financing in the context of a construction project.

Financing Structure

There isn’t a one-size-fits-all approach to ECA financing; an ECA may participate in a project through the provision of a direct loan, by offering insurance cover or through a guarantee. Some ECAs offer a combination of these options. In circumstances where insurance cover or a guarantee is offered, commercial banks (or other financiers) participate in the financing through that ECA facility. This cover or guarantee provides lenders with a significant level of protection against commercial and political risk, and therefore ECA financing can provide an owner with access to a broader pool of financiers than would be the case with bilateral or uncovered loans. Most ECAs are also able to extend credit to an exporter by guaranteeing working capital provided to the exporter by its bank(s).

Financing Terms

A number of ECAs that support the financing of construction projects adhere to the terms of the Arrangement on Officially Supported Export Credits (the Arrangement). This aims to promote fair competition between participant ECAs and their governments; the focus being on the quality and price of the goods and services to be exported and on minimising competition on credit terms. The Arrangement is non-binding but, due to the ‘comply or explain’ approach, provides the overarching framework within which relevant ECAs will support a construction project, in particular outlining the most generous export credit terms that a participating ECA should offer. An owner should therefore be mindful that while there will be flexibility within the general financing terms of a transaction, there are likely to be certain commercial terms, such as maximum loan tenor, premium rates and ability to finance local costs, that cannot be departed from. On the other hand, the involvement of an ECA in the transaction can offer invaluable credit terms including longer loan tenors, grace periods for principal repayments until commercial operation of the project, capitalisation of interest during construction and the ability to sculpt the debt repayment profile in a project-financed transaction. Loan terms will also be influenced by the security structure and the extent to which ECAs have recourse to revenues and assets beyond the project.


In most cases, an ECA will only support (i.e. provide, cover or guarantee loans in respect of) the export of goods and services from their home jurisdiction, with the flexibility to extend support for a limited value of goods and services from the jurisdiction in which the project is being constructed (local goods and services) and/or other jurisdictions (third country goods and services). Each project will be different, but an owner needs to scrutinise at the outset procurement under the construction contract against the project’s financing strategy. Any misalignment between the two can result in a funding gap because an owner cannot utilise the loan facilities for payment of certain ineligible project costs; a potentially disastrous scenario in a construction project. Moreover, due to the long-lead times of certain equipment or materials, it is imperative that an owner’s construction and financing strategies are developed in parallel.

There are also project costs that an ECA will not finance and therefore the owner may need to consider other funding sources. An ECA will also expect to see a minimum level of equity contributed to the development of the project by its sponsor and, in some cases, a portion of this equity must be funded and used towards down-payments (based on a certain percentage of the value of the export contract, excluding local costs) before the loans are available for disbursement.

Utilisation of the ECA Loans

The proceeds of utilisations of ECA direct or covered loans may be paid directly to the contractor as settlement for delivery of eligible goods/services and/or by way of reimbursement to the owner for eligible goods/services already paid, in each case pursuant to the terms of the construction contract. Regardless of the method of drawdown, detailed documentation is required for each utilisation of the loans to demonstrate that the goods/services the proceeds of the utilisation will be applied are eligible under the ECA policy. Conditions precedent to utilisations can include signed export (i.e. construction) contracts, invoices issued and signed by the exporter (i.e. the contractor), exporter certificates and declarations, certificates of origin, bank statements showing the owner’s payment to the exporter for relevant goods and services, transportation documents such as bills of lading, railway consignment notes or airway bills and any other documents requested under the export contract or by the ECA policy.


An owner should be mindful that lenders (whether the ECA or financiers lending under the cover of an ECA) require the payment of upfront and commitment fees consistent with the approach in a more conventional financing. As is the case with standard insurance policies, ECAs that provide insurance cover or a guarantee charge a premium. The level of the premium is determined on a project-by-project basis and takes into consideration a number of factors such as the country credit risk and the tenor and general terms of the loan(s). Equally, the availability of ECA political and commercial risk cover should reduce the pricing for commercial banks participating under that cover or guarantee. An owner should ensure transparency of costs at the outset to avoid unexpected fees once financing is in place.


As is customary for external financing arrangements, ECAs (themselves and through the appointment of independent advisers) will undertake diligence including legal, technical, market, insurance and environmental and social diligence, before committing to finance a project. The detailed level of diligence required by an ECA can enhance the perceived viability of a project and assist an owner in attracting potential co-investors or other forms of financing. However, the diligence phase needs to be factored into the project timeline and an owner should appoint independent advisers at an early stage so reports are available as soon as the ECA, and any covered lenders, express an interest.

There are clear benefits in involving an ECA to increase competition, drive down construction costs and demonstrate long-term support to a project. ECAs play a pivotal role in the development of construction projects in the energy and infrastructure space and, notwithstanding some of the more stringent ECA financing requirements highlighted in this article, offer an unparalleled level of, and access to, capital.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.