On July 2, 2018, MIGA agreed to issue guarantees of approximately US$617.5 million covering a proposed third financing facility from a syndicate of international lenders, acting through Standard Chartered Bank as an agent, to Turkiye Ihracat Kredi Bankasi AS, known as Türk Exim Bank (TE). The MIGA guarantee will be issued for up to 10 years against the risk of non-honoring of a financial obligation by a state-owned enterprise.
The project involves securing financing that would enable TE to provide both medium and long-term funds to the Turkish export sector, with a focus on small and medium enterprises (SMEs). As the guaranteed facility will potentially include a focus on climate finance, the MIGA-guaranteed facility may also be extended to buyer’s credits, which provide financing to the foreign buyers/ employers of Turkish exporters/contractors.
The project is categorized as “FI-1” under MIGA's Environmental and Social Sustainability Policy. Similar to the first two transactions, it is expected that this facility will primarily be used to support medium and long-term export credits for small (less than 250 employees) and medium (between 250 and 1499 employees) size exporters. Furthermore, it is expected that a portion of the facility will be used to target climate finance projects of Turkish exporters (i.e. projects that contribute to climate change mitigation or adaptation). The guaranteed facility may also be applied to buyer’s credits, and the TE buyer’s credit portfolio may include projects with impacts that are diverse, irreversible or unprecedented.
In the TE medium and long-term export credit portfolio, direct lending is concentrated mostly in medium-risk and low-risk sectors (e.g., manufacturing and services) as opposed to high-risk sectors (e.g., mining and infrastructure). As in previous transactions, the financing guaranteed by MIGA will only be used to fund business activities that have a potentially limited adverse environmental or social impact, that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures. The financing guaranteed by MIGA will not be used for high-risk projects, and will not be used for projects in the extractive sector.
TE has an overall system for evaluating credit risk, which for the MIGA-guaranteed financing will include screening against a negative list that is consistent with MIGA’s Exclusion List and consideration of environmental and social risks and impacts. Monitoring of the first two transactions indicates that the existing system is effectively implemented in manner consistent with MIGA’s requirements. Given the nature of activities supported by the MIGA-guaranteed financing, the system will ensure compliance with MIGA’s Exclusion List and applicable local environmental and social laws. TE relies on the Ministry of Environment to review environmental and social impact assessments (when required) and monitor environmental compliance of investment projects. The Ministry of Environment’s review and monitoring is evidenced by provision and renewal of environmental approvals and permits.
TE’s buyer’s credit portfolio includes construction projects (e.g. buildings, infrastructure) and provision of Turkish machinery and equipment to international projects. Pipeline projects are similar to the current portfolio. The MIGA-guaranteed facility will not be used to finance extractive sector projects. TE is currently most active in Africa (i.e. there are active projects in Cameroon, Senegal and Ghana), but also has projects in Central and South Asia. TE has an Environmental and Social Management System (ESMS) in place for evaluating applications for buyer’s credits, and monitoring projects post-disbursement. The ESMS is based on and fully consistent with the “Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence” (the “Common Approaches”) (updated 2016). TE has Environmental and Social Guidelines (updated in 2017 based on the Common Approaches 2016 update), which guide their overall implementation of the ESMS. The Environmental and Social Guidelines are publicly disclosed on TE’s website (https://www.eximbank.gov.tr/en/about-us/sustainability/environmental-and-social-impact-assessment/environmental-guidelines). The ESMS includes screening of projects, categorization (A, B, or C, consistent with MIGA’s categorization), review of project environmental and social documents, including environmental and social impact assessments (ESIAs, required for both Category A and B projects), environmental permits and management plans, and monitoring (including site visits, independent consultant monitoring and review of monitoring reports). TE publicly discloses the ESIAs for Category A projects on their website for 30 days prior to investment decision, and ESIAs for both Category A and Category B projects are disclosed throughout the disbursement period (https://www.eximbank.gov.tr/en/about-us/sustainability/environmental-and-social-impact-assessment/category-a-and-b-transactions). TE currently only has one Category A project in their portfolio (a railway project in Ethiopia), which has now been fully disbursed and constructed.
TE will also ensure ongoing compliance of its employment practices with MIGA’s Performance Standard Two on Labor and Working Conditions, and will continue to provide MIGA with an annual monitoring report summarizing the implementation of the system for managing environmental risks and impacts and the overall environmental and social performance of the portfolio.
An Environmental and Social Action Plan has been prepared to ensure that TE's buyer's credit ESMS is compliant with MIGA's requirements.
The project is expected the have the following on-going developmental impacts:
- support TE’s funding strategy and pass-through the related cost savings to export companies, thereby increasing access to long-term finance to the export sector,
- financing of export-oriented credit-constrained SMEs,
- support job creation and retention (a major strategic goal for TE),
- boost regional development and integration within Turkey via increased trade of Turkish companies abroad,
financing of “green projects” of Turkish exporters, as a part of the proceeds are expected to be used for climate finance related investments.