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- Where to Begin Coal Subsidy Research
- Identifying National Subsidies for Coal
- Identifying International Public Finance for Coal
Where to Begin Coal Subsidy Research
The first step in reforming public finance and subsidies is to identify and understand the extent of public support provided to the coal industry. The public assistance going to coal generally originates from two primary sources – national governments providing in-country support and international public finance. This section provides descriptions of the main sources of subsidies, guidance on where to look for information, and how to estimate the value of subsidies.
In starting subsidy research, it is important to look for any subsidy estimations, data, and assessments of legal/tax codes that may already exist for a given country. Even if the campaign is focused on an individual coal project, it can be useful to obtain general information on coal subsidies to determine what the project is potentially receiving in public assistance.
Good resources to go to first include:
- OECD’s “Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels” – provides a summary of each of the 34 OECD countries’ budgetary and tax-related measures at the central-government level and for selected sub-national units of government. It includes an online database of quantitative estimates for a subset of producer and consumer subsidies for each country;
- IEA’s Coal Information report – provides coal data for 39 countries, including historical and current data on production, consumption (by industrial end use), reserves, exports, imports, prices, and CO2 emissions. This information is useful for estimating the value of certain subsidies, e.g., price gap methodology, social cost of carbon, and exploration tax exemptions;
- IMF’s “Energy Subsidy Reform: Lessons and Implications” – provides several country case studies on fossil fuel subsidy reform and an appendix with oil, gas, and coal subsidies quantified as a percent of government revenue for every country.
- Country-based webpages of the multilateral development banks – provide information on projects and programs funded by the given MDB, including funding amount, project activities as well as other institutions’ participation. In addition to project investment, be sure to also look at policy lending operations, technical assistance, financial intermediaries and research papers, which give information on potential investment incentives/subsidies and policy reforms;
- Oil Change International’s Shift the Subsidies Website – tracks MDB- and ECA-subsidized finance, guarantees & policy lending to the energy sector, with project-by-project details including information on clean vs. fossil fuel funding, energy access, and exploration; national level subsidies to the energy sector;
- CEE Bankwatch Network’s Kings of Coal online toolkit – provides guidance on how to get information on public finance of coal by MDBs, ECAs, and bilateral development institutions with a focus on institutions important for Turkey and Southeast Europe, including the development banks of China and Germany.
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Identifying National Subsidies for Coal
Identifying National Subsidies for Coal
National and sub-national governments offer a range of incentives and public financing measures to support development and investment in the coal industry. These are described in depth in Table 5 below.
Most national- level fossil fuel subsidy reform efforts to date focus on consumer subsidies, which largely involve price controls on electricity and fuel. Often consumer subsidies are reported in government documents as direct budgetary expenditures, which make them easier to target for reform. Meanwhile, producer subsidies have largely remained under the radar. There is a critical need to understand and expose/provide transparency surrounding such subsidies.
With the carbon budget in mind, government subsidies aimed at exploration need urgent attention. One such subsidy is commonly referred to as the Earned Depletion Allowance. This tax provision often allows coal mining corporations to claim additional deductions against their income tax base. Those additional deductions can generally equal up to a certain percentage (e.g. 25%) of the company’s resource profits and are specifically meant to encourage further exploration and development. The Earned Depletion Allowance has been widely applied in the US and Canada.
At the individual corporation level, there are also special tax concessions, regulatory exemptions, and other special arrangements – such as lower royalty rates made through stand-alone contracts/agreements including mining concession agreements, contracts of work (COW), and power purchase agreements (PPA) – which often supersede statutory laws.
Box 1: Subsidized Coal through State-Owned Enterprises
State-owned coal mines, power plants, and associated infrastructure are subsidized in many ways not generally available to other enterprises, including: direct government expenditure on expansion projects, new generation facilities and operations and maintenance costs, lower cost of capital and insurance, preferential land-acquisition or free land, lax regulation and tacitly approved permits.
According to the Economist, SOEs in China enjoy a range of significant advantages over private firms. In return for guaranteed profits and state backing, official banks lend to SOEs at a third of the cost of credit available to private companies. In addition, the Chinese government showers a range of tax breaks and subsidies on state firms, and favors them in procurement contracts. Unirule, a Chinese think-tank, estimates that not having to pay for the land SOEs sit on was a subsidy worth some 4 trillion yuan ($640 billion) in 2001-09.
In some countries, SOEs are not required to remit profits to the Treasury or other public shareholders. This loss of dividend payments represents forgone government revenue and gives SOEs an advantage over private sector firms, which must produce market return on equity for shareholders.
Subsidies originating from SOEs are extremely complex to evaluate. Even though the Treasury and other public shareholders (e.g., local administrations, etc.) typically monitor SOEs under their portfolio, they often do not provide financial statements or other such reports to the public. Even when reporting is provided, such as transfers to and from the central budget, it is often reported in aggregate form, which can conceal significant losses from individual SOE operations.
SOEs play a dominant role in the coal sector globally. State-owned coal mining companies are among the largest operators in key countries including China, India, Indonesia, Kazakhstan, Poland, Germany, and many other countries. The two largest coal-producing companies in the world are SOE’s – China’s Shenhua Group and India’s Coal India Limited. Additionally, state-owned power companies are the major actors behind many of the world’s planned new coal-fired plants in China, Turkey, Indonesia, Vietnam, South Africa, Russia, Czech Republic, and many other countries.
The following table provides detailed information on how to identify national subsidies that support coal:
|1. Transfer of Funds and Liabilities|
|Type of Assistance||Explanation/Estimation||Sources of Information|
|Capital Expenditures||Capital expenditures directly from the state budget to fund coal developments, such as power plants, mining operations, coal rail transport, transmission, etc. This also includes government-injected funds in the capital expenditures of state-owned utilities, power plants, and mining companies. Estimating subsidy amount may require determining the portion of capital expenditure going toward coal, for example the portion of new generation that is coal-fired for a given year.||Official tax-expenditure and budget documents from the Ministries of Finance, Natural Resources, Energy and Mining; gross output data from IEA; state-owned utilities, power, and mining companies’ budgets and capital expenditure figures reported in the media; IMF/World Bank Medium Term Expenditure Reviews; World Bank power sector documents; Bloomberg|
|Government Loans||Government-provided soft loan facilities (equity & debt-based) to finance coal-related projects. Financing provided either directly to the private sector, such as independent power producers, or to state-owned enterprises (SOE). Some governments also have national development banks that fund domestic and international projects, such as the China Development Bank (see Box 2).||Budget documents from the Ministries of Finance, Natural Resources, Energy and Mining; national development bank websites; government sector development strategies, websites, presentations; investment and taxation guides by PwC, KPMG, and other consultancies.; individual coal project information and media reports; MDB project funding information|
|Government Guarantees (publicly provided insurance)||Government-provided loan or partial risk guarantees to finance coal-related projects either directly to the private sector or to SOEs. Government guarantees may come straight from the state budget or from a special government fund, such as a power, development, or infrastructure guarantee fund. Government-provided guarantees typically cover: failures to secure licenses, changes in regulations/laws, and offtake/payment obligations for SOEs. In some instances, national development banks may also provide guarantees for domestic projects. One impact of government guarantees is that providing these guarantees can increase a government’s fiscal liabilities. These liabilities are factored into sovereign credit risk ratings and debt prices, and hence can negatively affect the borrowing capacity of a country. Consequently, these guarantees transfer private company/investor risk onto the public.||Same as above, plus: government guarantee fund websites and documents; review project documents from World Bank IDA and IBRD guarantees, which require government counter guarantees (see below).|
|State-owned Power and Mining Companies||In addition to government loans and guarantees to cover capital expenditures, SOEs may also get government funds to cover operations, maintenance, and transmission costs. This could also include preferential land acquisition and lack of regulation of SOEs.||State-owned Power and Mining Company budgets and websites; energy and mining government agency budgets and reports; media articles|
|Special Government Funds||This may take the form of a Coal Development and Exploration Fund, Infrastructure Finance Fund, Viability Gap Fund, or other similar entity that provides funding of construction costs, feasibility studies, or other funding support to improve the feasibility of coal projects.||Relevant government funds websites; investment and taxation guides by PwC, KPMG, and other consultancies; legislation and regulations covering the Funds’ operations; media & company information on individual coal projects’ funding sources|
|Project Preparation||This covers government funding and grants for feasibility studies, environmental and social impact assessments, and assistance in promoting projects to investors. If direct expenditure details are lacking, a subsidy estimate could be based on the typical cost to produce a given study.||Government sector development strategies, websites and presentations; investment and taxation guides by PwC, KPMG, and other consultancies; individual coal project information and media reports|
|Government Research & Development||This typically includes assistance and grants for carbon capture and storage (CCS), coal to liquids, coal to gas pilot projects, etc.||Same as above|
|Mine Closure & Rehabilitation||Often governments are left with paying for the costs associated with mine closure and rehabilitation for both private and state-owned operations.||Government and SOE budgets; media reports and World Bank documents on mine closure and rehabilitation costs|
|2. Forgone Government Revenue|
|Type of Assistance||Explanation/Estimation Method||Sources of Information|
|Tax Exemptions||Includes VAT exemptions, import duty exemptions, land tax exemptions, building tax exemptions, etc. To evaluate an exemption, such as VAT exemption, the subsidy could be estimated by reflecting a VAT on the coal consumed that would be consistent with the taxation of any other consumer good at the standard country VAT rate.||OECD data; tax code; government tax exemption cost estimates are often available when new legislation or regulations are under consideration (found in media); government sector or public-private partnership (PPP) investment frameworks and incentive schemes; regulations and legislation on sector or investment; investment and taxation guides by PwC, KPMG, and other consultancies|
|Tax Deductions / Credits||Includes income tax rate reductions, accelerated rates of depreciation, investment tax credit, R&D tax credit, mining waste deduction, advanced mine equipment deduction, energy purchases deduction, and exploration and prospecting deductions and credits||Same as above|
|Earned Depletion Allowance (Exploration)||This tax provision allows coal mining corporations to claim additional deductions against their income tax base. Those additional deductions can generally equal up to a certain percentage (e.g. 25%) of the company’s resource profits and are specifically meant to encourage further exploration and development. Sometimes coal mining companies investing in the exploration and development of resources are able to claim depletion allowances in addition to other available deductions such as those specifically for exploration expenses and development expenses, thereby obtaining overall deductions in excess of the total amounts actually spent on exploration and development (e.g. In Canada, the OECD reports as much as 133% of these amounts).||Same as above|
|Lost Tax Revenue from Illegal Activities||When there is weak government control and monitoring or corruption surrounding coal sales and exportation, significant amounts of coal can go untaxed. The subsidy value can be estimated by comparing company or foreign country export and consumption data to government-reported data to determine untaxed amount, and then multiplying this unreported production amount by tax and royalty rates.||Government coal production and consumption data compared against OECD data on coal imports from country of origin and country consumption/production data; estimates of theft reported in the media from various sources; Extractive Industries Transparency Initiative (EITI) company production data|
|3. Provision of Resources/Goods or Services below Market Value|
|Type of Assistance||Explanation/Estimation||Sources of Information|
|Coal Mining Royalty Reduction||Royalty rates are often determined in individual contracts of work (COW) or other similar agreements, which can supersede statutory laws and provide royalty rates below the market rate or typical domestic rate. In addition to COW royalty reductions, a country may have an overall low royalty rate compared to other countries that should be considered below global market rates.||OECD data; individual project contracts – these often are difficult to access, but may be obtained through freedom of information requests; media reports – especially when the government is trying to renegotiate contract terms to raise royalty rates; Extractive Industries Transparency Initiative (EITI – country chapters); Otto, James; et. al. 2006. Mining Royalties: A Global Study of Their Impacts on Investors, Governments, and Civil Society. World Bank, 2006.|
|Power Line and Grid Infrastructure||Coal power plants often benefit from using government-supplied transmission and distribution infrastructure. The subsidy value is easier to estimate when a new coal plant is built and the government provides the new transmission lines. In addition, many MDB projects involve transmission and distribution projects.||Forthcoming|
|Coal Rail & Port Infrastructure||Many coal mine projects benefit from government-provided rail and port infrastructure.||Forthcoming|
|Under-pricing of Government Land||Many coal projects benefit from the use of government land provided below its market value or if the government is responsible for the land acquisition process, land owners may be receiving unfair compensation for their land.||Real estate price listings|
|Under-pricing of water||Mining, processing (e.g. washing), ash disposal, and burning of coal puts an enormous strain on water supplies, especially in regions where water is scarce. According to the World Bank, 2.8 billion people live in areas of high water stress. It is estimated that 2.3 cubic meters of water are withdrawn for every ton of coal mined. The price for water for coal projects needs to be compared to the reference market rate for the country/region.||Pan et al., 2012. “A supply chain based assessment of water issues in the coal industry in China,” Energy Policy 48, 2012|
|Land-use Control||Coal plant, mine, rail, port, and other project exemptions from protected areas, including forests, marine, and zoning laws. It may be difficult to put a value to this exemption, but it is nevertheless important to note.||Various government laws on protected areas, forests, and zoning; sector development strategies and laws; investment and taxation guides by PwC, KPMG, and other consultancies.; individual coal project information|
|4. Income or Price Support|
|Type of Assistance||Explanation/Estimation||Sources of Information|
|Electricity Price Controls||This subsidy arises when government policies and/or programs set the price paid for electricity by consumers below the market price, typically with the government making up for the difference in price. Some governments report this subsidy figure in budget documents. When this is not available or needs to be verified the OECD and IMF, use the price gap analysis to calculate the subsidy value. This calculation measures subsidies as the difference between the reference price for electricity (see IEA reference price data) and the domestic price paid by households and firms.||OECD; IMF; World Bank; government budget documents often provide figures on consumer electricity subsidies; legislation and IEA electricity prices: http://www.iea.org/statistics/|
|Fuel Price Controls||Same as above||Same as above|
|Below-Cost Power / Fuel Purchase Agreements||Utilities and governments sign contracts that lock in power purchase tariffs that are sometimes below cost or lower than other consumers pay. These agreements are usually for large industrial users – sometimes a lower rate to large consumers may be justified based on lower distribution costs, but this needs to be verified/appropriately justified. The subsidy would be calculated as the difference between the fair market rate and the below market rate for the electricity or fuel (e.g. coal supply for power plants, cement, or steel).||Individual power purchase agreements – these often are difficult to access, but may be obtained through freedom of information requests in some cases when they are signed with a government entity; media reports, especially when the government is trying to renegotiate contract terms; Revenue Watch’s report, Contracts Confidential: Ending Secret Deals in the Extractive Industries: http://www.revenuewatch.org/publications/contracts-confidential-ending-secret-deals-extractive-industries|
|Special Income Tax Treatment||One example includes Capital Gains Treatment of Royalties. This tax provision allows individual owners of coal-mining rights to benefit from a more favorable capital-gains tax rate rather than the regular income-tax regime when receiving royalties. Another example is Percentage Depletion of Mineral – Under normal income-tax treatment, expenses that are capitalized into the basis of mineral properties would be recovered over time as output is extracted from the mines. Under percentage depletion, producers can, however, recover these costs by claiming as a depletion allowance a fixed percentage of gross income from the property. Over time, the sum of these deductions can be several times the original cost of the investment.||For more examples of special income tax treatment and valuation methodologies, see OECD, 2012. Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels: http://www.oecd.org/site/tadffss/|
|5. Negative Externalities|
|Type of Assistance||Explanation/Estimation||Sources of Information|
|Health: PM, SO2, NOx||Health impacts from coal power plants and mining operations. Estimates in the US range from $100 billion per year in a 2010 National Academy of Sciences report to $345 billion per year in a 2011 Harvard Medical School study.||Greenpeace International modeled health impacts for individual coal projects and sector-wide using MSC-W modeling with meteorological data based on exposure-response coefficients, annual ambient air emissions concentrations, and data on the exposed population: Yushi, Mao, Sheng Hong and Yang Fuqiang, 2008. The True Cost of Coal. Greenpeace. Available at: http://www.greenpeace.org/eastasia/PageFiles/301168/the-true-cost-of-coal.pdf; Data for Ozone, Particulate Matter, NOx, and SO2 is available at http://www.epa.gov/airquality/urbanair/|
|Health: mercury, lead, cadmium||Health impacts from coal power plants and mining operations.||Trasande et al. Trasande, L., P. Landrigan & C. Schechter. 2005. Public health and economic consequences of methyl mercury toxicity to the developing brain. Environ. Health Perspective. 113: 590–596; Greenpeace International|
|Health: Dust from coal trains||The Hunter Community Environmental Centre of Newcastle, Australia estimates that it would cost $10,000 per wagon to cover coal wagons with fitted lids to reduce particle pollution up to 99%.||This externality estimate is based on the cost of pollution abatement, as opposed costs associated with health impacts, which might not be available. http://www.hcec.org.au/|
|Climate Change: GHG emissions||The first step for calculating the value of GHG emissions externalities is to use an appropriate GHG emissions factor for CO2 and methane (CH4) for power plant and mining operations. A coal power plant should report CO2 g/kWh or CO2 lbs/MWh. If not available, as a proxy consider the average coal-fired power plant in the US puts out about 2,000 lbs CO2/MWh and newer, more efficient models emit on average 1,800 lbs CO2/MWh. Once you have the amount of CO2 and CH4 emitted multiply by a Social Cost of Carbon (SCC). SCC References: The IMF uses a SCC of $34 per ton, derived from the work of the U.S. Interagency Working Group on Social Cost of Carbon. The UK government’s latest calculation is a range of $41-$124 per ton of CO2, with a central case of $83.||For GHG emissions: IPCC Guidelines for National Greenhouse Gas Inventories, 2006; GHG Protocol: www.ghgprotocol.org. For carbon valuation or SCC: https://www.gov.uk/government/collections/carbon-valuation–2, http://www.epa.gov/climatechange/EPAactivities/economics/scc.html|
|Infrastructure Damage||Includes damages to roads, ports, bridges, etc.||Forthcoming|
|Crop Damage||Coal-fired power plant discharges have been found to negatively affect soil fertility and crop growth. One study found a 10 to 30% reduction in germination for pea and wheat crops (see Ajmal and Khan, 1986).||Ajmal, M. and Khan, MA. 1986. Effects of coal-fired thermal power plant discharges on agricultural soil and crop plants. Environmental Research, 1986 Apr; 39(2):405-17.|
|Security Provision||Use of military to protect coal interests||Forthcoming|
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Identifying International Public Finance for Coal
Identifying International Public Finance for Coal
While national governments are key conduits for public financing and subsidies to coal development, international finance also occupies a unique position of influence on the financing and policies promoting the development of coal. Coal development is supported through various international finance mechanisms including direct project finance and guarantees, policy and institutional reforms, technical assistance, and advisory services. This financing can come from multilateral development banks (MDBs) or bilateral finance, including export credit agencies (ECAs), bilateral aid, and international operations of national development banks.
In 2013, several MDBs and national governments adopted significant restrictions on public international financing of coal, including the World Bank, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the governments of the US, UK, the Netherlands, and Nordic countries. The policies all restrict the international financing of coal power plants except in rare circumstances, including for the poorest countries that have no alternatives to coal. The EIB’s policy further adds an emissions performance standard of 550g per kWh. Overall, the policies only apply to power plants and not coal mining or other associated infrastructure.
The adoption of the cited policies are a critical first step and set an important precedent, however public pressure and monitoring will have to continue on international financing for coal, even in the institutions and countries cited. It will be necessary to watch what will pass as “rare circumstances” in which coal financing is approved, and policy lending, technical assistance, and financial intermediaries will need to be carefully assessed to identify and eliminate support for coal development.
Further, a number of the countries that have not pledged to limit international coal financing provide substantial amounts of finance for coal, including Japan, China, Korea, Russia, and Germany.
Multilateral Development Banks (MDBs) include the World Bank Group, which has global coverage, as well as regional development banks, such as the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Asian Development Bank (ADB), the Inter-American Development Bank (IDB), and the African Development Bank (AfDB). MDBs provide assistance to governments and the private sector. Some MDBs, like the EBRD, only support the private sector.
MDBs’ shareholders or owners are its member governments. For example, the World Bank has over 180 member governments. All MDBs are backed by large sums of public money from member governments, which allows them to provide finance to governments and the private sector at lower interest rates and on better terms (e.g. longer tenors) than could be obtained from commercial lenders. These favorable financing terms constitute the subsidy.
Recently, MDBs have begun to largely recognize the need to reduce consumer subsidies and their policy operations often support reforms to raise prices of electricity and fuels, while protecting the needs of the poor. However, the MDBs do not recognize their own contributions to producer subsidies, such as investment incentives and direct project finance. In some cases, the same MDB policy operation reduces consumer subsidies while creating producer subsidies.
MDB support for coal takes many forms, including:
- Direct Project Finance. MDBs provide direct funding for coal projects through loans, grants, and equity financing. MDB direct funding supports coal projects including exploration, mining, production, rail lines, ports, power generation, power transmission and distribution systems, coal-bed methane capture, and rehabilitation and upgrading of coal power units. Direct funding for coal projects ranges from the tens of millions to billions of dollars (e.g., $3.05 billion from the World Bank and $2.5 billion from AfDB for Eskom’s 4,800 MW Medupi coal-fired power plant in South Africa).
- Guarantees for Projects. Guarantees represent important catalysts for obtaining project finance. MDB guarantees provide insurance to cover the overall risk of an investment at a lower cost and longer tenor (typically for 15 to 20 years) than commercial insurance. The length of tenor for a guarantee is the period of time for which the project is covered by the guarantee. MDB guarantees help to extend the tenors on project loans, which can be a key limitation for large-scale coal projects if they are not long enough. Thus, MDB guarantees play an important role in a projects’ ability to mobilize long-term commercial bank funding. MDB guarantees typically cover the risks of currency transfer restrictions, expropriation, war and civil disturbance, and breach of contract.
In addition, MDBs may support the creation and funding of national government institutions that provide government guarantees covering delays or failure to secure licenses, changes in regulations or laws, and offtake or payment obligations for state-owned enterprises. These government guarantees transfer private investment risks to public risks. A transfer of private liabilities to public liabilities is a subsidy.
- Policy Lending and Technical Assistance. Through policy lending and technical assistance, MDBs influence policies, regulations, and institutions that alter the costs, benefits, and development preferences in favor of the coal sector. These activities typically focus on policy and institutional reforms that can result in the type of national level subsidy described in the National Government Subsidy section.
For example, several MDBs currently are promoting investment frameworks for Public Private Partnerships (PPPs). In Indonesia, the establishment of PPPs was a central element of recent policy lending operations of the World Bank and ADB. The PPP investment framework supported by the MDBs, which the Indonesian government adopted into law, provides a number of government subsidies for private investors in the power sector. Since inception of the Indonesian PPP framework in 2006, only three power sector PPP projects have been tendered and they were all for coal power.
- Financial Intermediaries. MDBs are increasingly making investments, including in coal, through financial intermediaries. The World Bank Group provides around $8 billion or more of investment annually through financial intermediaries. Financial intermediary operations represent over 40% of the IFC’s private sector investments, which has a major influence on MDB operations as a whole, as the IFC represents one-third of overall funding from development finance institutions going to the private sector in developing countries.
In a financial intermediary arrangement, the MDB provides loans or equity financing to an entity such as a local bank, a private equity fund, or a special government-managed fund, such as an infrastructure development fund. The financial intermediary then passes on the MDB’s funds to various investment projects, including coal.
Consequently, MDB funds are very likely supporting coal through financial intermediaries. However, unlike direct MDB project investments, there is no information publicly available on these individual sub-project investments, making it difficult to track what ultimately happens to MDB funding through financial intermediaries. The extent to which coal is assisted through these activities is thus unknown. The World Bank and ADB have provided funding and technical assistance for the creation and operation of government-owned infrastructure funds in India and Indonesia that have in turn funded coal projects. CSOs have demanded more transparency on financial intermediary lending, but thus far the MDBs have not been forthcoming.
Export credit agencies (ECAs) provide government-backed loans, credits, and guarantees to corporations from their home country working internationally (for details on guarantees, see MDB discussion above). ECAs provide public financial backing for risky projects, including coal, which might otherwise never get off the ground. ECAs are also a major source of national debt in developing countries. Most industrialized nations and emerging economies have at least one ECA, which is usually an official or quasi-official branch of their government. Export credit agencies that have provided finance for coal projects since 2007 include: Japan Bank for International Cooperation (JBIC), Nippon Export & Investment Insurance (NEXI-Japan), Export-Import Bank of the United States (US ExIm), China Export Import Bank (Chexim), Euler Hermes (a private company mandated to manage the official export credit guarantee scheme on behalf of the German government), Korea Export-Import Bank, Korea Trade Insurance Corporation (K-sure), COFACE (France), and UK Export Finance (UKEF).
Bilateral finance. In addition to the ECAs, many countries have bilateral finance, including development finance and aid agencies, international arms of national development banks, or trade promotion agencies that may provide financing for coal. Some of the bilateral development finance institutions that play a significant role in the coal sector include China Development Bank, Industrial & Commercial Bank of China (ICBC), Bank of China, Kreditanstalt für Wiederaufbau (KfW) in Germany, and the Russian Development Bank (VEB).
Box 2: Background on Bilateral Finance Institutions Important to Coal Development
China Development Bank (CDB) – CDB and the Export-Import Bank of China (Chexim), along with the Agricultural Development Bank of China, are “policy” banks. These policy banks were established in 1994 to take over the government-directed spending functions of the big four state-owned commercial banks (ICBC, Bank of China, China Construction Bank and the Agricultural Bank of China). The policy banks are responsible for financing economic and trade development and state-invested projects and support the policies laid out in the State Council’s Five-Year Plans.
Industrial & Commercial Bank of China (ICBC) and the Bank of China – ICBC and Bank of China are two of the big four China state-owned commercial banks. The Bank of China and the ICBC specialize in foreign exchange transactions and trade finance. Both work jointly with Chexim to provide export credit insurance and low-cost finance for exports. In addition to various types of guarantees, the Ministry of Finance and the Ministry of Commerce delegate Bank of China to exclusively undertake the letter of guarantee business under a special central government fund for overseas construction.
Kreditanstalt für Wiederaufbau (KfW) – KfW banking group is Germany’s public development bank which finances projects inside and outside the country. According to its website, KfW helps the federal government implement its goals in international cooperation with developing and emerging countries. KfW’s requisite funding comes from the federal budget and its main client is the Federal Ministry for Economic Cooperation and Development (BMZ). In addition, the European Commission and the governments of other countries also commission KfW to implement their development cooperation programs and projects. Recently, KfW finally started to publish information about its projects.
Korea Trade Insurance Corporation (K-sure) – Founded in 1992, K-sure provides export and import insurance in South Korea and internationally. The insurance system is a policy tool to facilitate financing for Korean importers and exporters. Abroad, it provides several types of risk insurance including a specific overseas natural resources development fund insurance. K-sure was formerly known as Korean Export Insurance Co. and changed its name to Korea Trade Insurance Corporation in 2010 to include an import insurance scheme which aims to secure commodities and natural resources, like coal, that are deemed vital to South Korea’s economy.
Russian Development Bank (VEB) – The “Bank for Development and Foreign Economic Affairs” or Vnesheconombank (VEB) is a Russian state-owned bank. VEB extends government credits and guarantees for projects inside Russia and abroad with payback periods exceeding 5 years and total value exceeding 2 billion rubles (or approximately 58 million USD). In addition, CJSC Roseximbank and the Export Insurance Agency of Russia (EXIAR) are responsible for extending government guarantees to support exports. VEB is Roseximbank’s majority shareholder and EXIAR’s sole shareholder. It is very difficult to obtain information on VEB’s finance activities. Press releases on the VEB website and general searches involving VEB, Roseximbank, and EXIAR are good places to start to find information.
Some institutions provide a mix of services, and ECAs may provide bilateral development finance in addition to export credits. For example, JBIC provides bilateral aid in addition to financing overseas investments by Japanese companies. National development banks, such as China Development Bank and Russian Development Bank (VEB), provide domestic financing as well as international financing. There are also bilateral aid agencies such as UK DfID and USAID that may provide loans, grants, policy lending, and technical assistance.
The following table provides detailed information on how to find financing provided internationally to support coal:
|1. Multilateral Development Banks|
|Type of Assistance||Explanation/Estimation||Sources of Information|
|Project Finance||Loans, grants, and equity financing for coal projects, including exploration, mining, power plants, rail lines, ports, power transmission and distribution systems, coal-bed methane capture, and upgrading (lifetime extension) of coal power plants.||Oil Change International, Shift the Subsidies Database: http://shiftthesubsidies.org/; MDB website project databases and MDB country webpages, which contain proposed projects; for upcoming World Bank projects under preparation check the Bank’s Monthly Operational Summary; other CSO sources include: CEE Bankwatch (EIB & EBRD); and Bank Information Center.|
|Guarantees||Most MDBs provide guarantees. At the World Bank, guarantees are provided by IDA, IBRD, IFC, and the Multilateral Investment Guarantee Agency (MIGA). It is important to note that IDA- and IBRD-provided guarantees require government counter-guarantees, which need to be accounted for in the national subsidies (see government guarantees above) and increase of contingent fiscal liabilities.||Same as above|
|Policy Lending & Technical Assistance/Advisory Services||Often policy lending programs and technical assistance may involve assistance across the energy sector or to multiple sectors (also see main text on MDBs policy lending). In such cases, it will be necessary to determine how much public assistance should be counted toward coal. For the World Bank programs, the WB provides its own estimate – when pulling up operations from the projects database, click on top menu “details” where the Bank reports the percentage of the program that is aimed at various sectors. For projects aimed at the energy sector in general, the percentage of the country’s planned new generation coming from coal could be used to estimate amount of MDB program funding going towards coal.||Same as above.|
|Financial Intermediaries||Look for MDB loans and equity finance to the financial sector for banks, holding companies, and funds, including private equity funds. Go to the bank or funds website to check for a list of investments or projects. Look especially for banks and funds that have the words “development”, “energy”, “natural resources”, “power”, “export”, and/or “infrastructure” in their titles. Also, public-private partnership funds may indicate coal involvement.||MDB website project databases and MDB country webpages – look at projects in the financial sector. The MDB will typically list the sectors that are targeted by the FI; individual FI websites.|
|2. Export Credit Agencies and Bilateral Finance|
|Type of Assistance||Explanation/Estimation||Sources of Information|
|Project Loans||Loans, grants, and equity financing for coal projects including exploration, mining, power plants, rail lines, ports, power transmission and distribution systems, coal-bed methane capture, and upgrading (lifetime extension) of coal power plants.||ECA and bilateral agency websites and press releases; general web search on name of coal project or country along with ECA or development bank name (see Table 4 for list of institutions); useful international news outlets include: www.tradefinancemagazine.com; www.business-standard.com; www.reuters.com; Banktrack.org; for US ExIm & OPIC see Pacific Environment & Earth Justice; for JBIC, JICA, and NEXI see Japan Center for Sustainable Environment and Society|
|Guarantees||Loan or partial risk guarantees to finance coal related projects either directly to the private sector or to state-owned enterprises.||Same as above.|
|Policy Lending & Technical Assistance||Often policy lending or technical assistance provided by ECA or bilateral agency is part of a bigger MDB-led program (typically by the World Bank or ADB). As such, sometimes the ECA/bilateral agency finance for such activities is only listed on the World Bank’s or ADB’s documents under the financials section.||ECA and bilateral agency websites and press releases; general web search on name of coal project and country along with ECA or bilateral agency name (see Table 4 for list of institutions); World Bank policy lending and technical assistance documents – check financial section for each in projects database.|
 For example “Coal India is operating 239 mines without environmental clearance,” Economic Times, September 9, 2011, http://articles.economictimes.indiatimes.com/2011-09-07/news/30123089_1_underground-mines-environmental-clearance-mining-activities.
 Among the largest coal mining companies operating in Kazakhstan is the Kazakh state-owned Samruk Energo.
 In Germany, the two main utilities are also major coal mining companies and are both partially state-owned, RWE (Germany- local municipalities) and Vattenfall (Government of Sweden).
 Coal India is 90% government-owned and accounts for over 80% of India’s coal production.
 The World Bank Group (WBG) is made up of five institutions: International Development Association (IDA), International Bank for Reconstruction and Development (IBRD) (the first two are collectively referred to as the World Bank and provide assistance only to governments), International Finance Corporation (IFC) (provides assistance only to the private sector), Multilateral Investment Guarantee Agency (MIGA), and the International Center for the Settlement of Investment Disputes (ICSID).
 Some MDBs, like the International Finance Corporation (IFC – the private finance arm of the World Bank) contend that they provide loans only at commercial interest rates and thus their funding should not be considered a subsidy. But, typically other MDB benefits, such as the need for longer tenor or the existence of substantial risks, still render the MDB’s involvement critical to finance that could otherwise not be obtained. For example, financial models suggest that a change from a 5-year to a 10-year tenor could boost the debt service ratio – an index of financial strength – from 1 to 1.4, which is substantial enough to turn a project from unfeasible to bankable. The debt service ratio (or interest coverage ratio) is very important from the lender’s point of view. It indicates the number of times interest is covered by the profits available to pay interest charges. Thus, it is an index of the financial strength of an enterprise or project. The higher the debt service ratio the stronger the financial strength and the easier it is for a project to get finance. This information is from a 2010 World Bank Independent Evaluations Group Report: “Climate Change and the World Bank Group, Phase I: An Evaluation of World Bank Win-Win Energy Policy Reforms”.
 For example, the World Bank and ADB’s support to create the Indonesian Infrastructure Guarantee Fund. For details see: OCI, 2013. World Bank Accelerating Coal Development in Indonesia. Oil Change International, September 2013. Available at: http://priceofoil.org/2013/09/25/world-bank-accelerating-coal-development-indonesia/
 For example, sector governance, budget expenditures, energy pricing/tariffs/taxes, subsidies, contract models, licensing, mining cadaster systems, investment frameworks, and social and environmental policies.
 The initiatives were part of the World Bank’s $850 million, four-year (2007-2010) Infrastructure-Development Policy Loan series and the ADB’s $880 million (2006-2010) Infrastructure Reform Sector Development Program series. The Government of Japan, through JBIC, also co-financed the program with $300 million.
 The Indonesian PPP investment framework includes: VAT tax exemptions, import duty exemptions, income tax rate reductions, accelerated rates of depreciation, land tax exemptions, building tax exemptions, and guarantees.
 Central Java Ultra Supercritical Coal Fired Power Plant (2 X 1,000 MW), South Sumatera 9 – Mine Mouth Coal Fired Power Plant (2 X 600 MW), and South Sumatera 10 – Mine Mouth Coal Fired Power Plant (1 X 600 MW). BAPPENAS, 2013. PPP Project Achievements and Future Pipeline. Dr. Ir. Bastary Pandji Indra, Director for PPP Development, National Development Planning Agency (BAPPENAS) Republic of Indonesia. PPP Infrastructure Investment Forum, Tokyo, January 22, 2013.