outbound Indian investments

Mumbai: The Export-Import Bank of India (Exim Bank), Export Credit Guarantee Corporation of India Ltd (ECGC) and the World Bank's Multilateral Investment Guarantee Agency (MIGA) have formed a partnership to provide Indian companies investing overseas, a package of services that combines competitively-priced financing with risk coverage.

Under this arrangement, Exim Bank will provide the needed financing, while ECGC and MIGA will provide insurance against the risks that are out of investors' control such as currency inconvertibility and transfer restrictions; expropriation; war, terrorism and civil disturbance; and breach of contract.

This would support the overseas expansion of Indian companies, which seek to invest overseas. According to T C Venkat Subramanian, CMD, Exim Bank, outbound foreign direct investment by Indian companies is estimated at about $1 billion a year. He was addressing a press-cum-corporate meet to announce the launch of the initiative in Mumbai, yesterday.

Investors will able to take advantage of all the benefits of partnership with the World Bank without having to interact directly with MIGA staff in Washington DC. Says P K Dash, CMD, ECGC, "The new arrangement will have a very strong impact on efficiency and turnaround time. Investors can, for example, work with a primary contact at ECGC who coordinates the process and eliminates duplication. Documentation for the non-commercial risk insurance aspect of the partnership has been standardised by MIGA and ECGC."

MIGA and ECGC will work together largely through reinsurance and co-insurance arrangements. Investors can opt for either financing or insurance or a combined package of services. Additionally, investors can interact locally with ECGC while still benefiting from the World Bank's involvement.

MIGA's presence brings the World Bank umbrella of deterrence against host government actions that might affect project viability says Luis Dodero, vice-president and general counsel of MIGA. He said, "MIGA's involvement can help protect investments, and in the event that disagreements do occur between investors and host governments, MIGA can mediate disputes and prevent claims from arising and disrupting projects."

MIGA has 164 country members, with Iraq and Mexico being the sole exceptions. Speaking to domain-b after the press meet, Dodero disclosed that India has paid around seven per cent of its MIGA membership fees of around $30 million.

After the dispute arising over the Dabhol Power Project, India seems to be wary of bodies like MIGA. "We had nothing to do with Dabhol," clarifies Dodero. "It was an OPIC (Overseas Private Investment Corporation of the US) project," he adds.

In the event of a dispute, MIGA works through direct representation with governments with whom investors may run into a dispute, even seeking the involvement of the governments from where the investment originated prior to allowing the dispute to slide to arbitration.

A MIGA membership benefits countries by increasing foreign investors' confidence over a neutral dispute redressal mechanism available to them, in the event of commercial disputes arising out of policy issues or disputes with governments, where overseas investors could be at a disadvantage.

"Moreover, countries realise that when they join MIGA, their own overseas project investments are safeguarded," says Dodero.

Corporate investors can avail coverage from MIGA for premiums ranging from 30 basis points onwards of new overseas project investments. The premiums are calculated on the basis of a variety of political risk factors ranging from political stability to threats from terrorist action on the one hand to macro economic stability on the other.