ECGD COVER
CONFIDENTIAL
"As your letter suggests, ECGD cover will be essential if UK companies are to
have any chance of success. (There is also a wider political aspect to this, discussed below). Mr Heap's telegram reports that the French have already
offered full financial support for their companies and pledged to match any
terms offered by competitors. The international competition is expected to be
fierce and we cannot afford to appear half-hearted.
The Foreign Secretary and the Secretary of State for Trade and Industry both
believe that it should be possible to provide substantial support under existing
arrangements. ECGD's Advisory Council has approved a Market Exposure Control (MEC) of £3bn under which there is some £900m spare capacity. This will
increase as repayments of existing debts are made (currently at a rate in excess
of £200m per year). It will be utilised only to the extent that contracts are
actually won and translated into new commitments. If success puts the MEC under
pressure the Advisory Council can be asked to review the figure of £3bn.
Hong Kong is already ECGD's most heavily concentrated market for medium term
exposure and commitments. Under the Portfolio Management System (PMS) support
for any individual project where exposure would exceed £100m requires approval
by the inter-Departmental Export Guarantees Committee (EGC) as does a project of
any size which would take aggregate new commitments over £200m in any one market
during the course of a financial year. (Treasury Ministers have to date
resisted commitments exceeding £200m in individual concentrated ("amber zone")
markets).
The impact of aggregate new amber zone commitments in all concentrated markets
on the annual business budget must also be taken into account. However, there is currently about £1bn headroom available (with 5 months of the year remaining) and the timing of contract awards may well push Hong Kong commitments into future years' budgets.