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Finance: Will the DFC Deliver for US Nuclear Exporters?

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The proposed policy change allowing nuclear equity and loan investments by the new U.S. International Development Finance Corp. (DFC) offers brighter prospects for US nuclear exporters, but the amounts on offer so far pale in comparison to state aid nuclear financing from supplier countries such as Russia and China, and the rules governing such financing have yet to be fully formulated. It's possible that DFC nuclear financing for countries such as Romania and Poland -- both understood to be high priorities for the Trump administration -- could be arranged in the near term, but for small modular and advanced reactors, expectations are that any serious rollout of DFC-backed deals won't materialize until the latter part of the decade, at which point such reactors might be ready for export (NIW Nov.22'19). The DFC, which began operating in October, represents years of efforts by the international aid community to boost lending by its predecessor organization, the Overseas Private Investment Corp. (Opic). Like Opic, the DFC is meant to be self-financing, and it had strong bipartisan support when it was legislated into life in 2018 (NIW Aug.16'19) The Better Utilization of Investment Leading to Development (BUILD) Act set the DFC's total outstanding portfolio cap at $60 billion, more than double Opic's $29 billion. The legislation also gave the DFC power to make equity investments of up to 30% of a project, with a total cap of $21 billion, in addition to loans, loan guarantees and risk insurance, and it significantly loosened Opic's requirement for US private-sector investment as a condition for lending. While the legislation was aimed at catalyzing greater private investment in low and lower-middle income countries, it was also seen as a tool to promote US foreign policy and national security interests. Last week the DFC proposed lifting an inherited restriction on nuclear lending, thus launching a 30-day comment period (NIW Dec.6'19). Considering the level of support Moscow has so far extended for overseas nuclear projects -- to date it's promised more than $60 billion in debt financing for new reactor exports -- the DFC will be hard-pressed to catch up. Its debt financing typically ranges from $1 million to $1 billion per project, according to its website. Congress appropriated only $150 million for equity financing in the current fiscal year and is weighing an increase to $450 million in the administration's FY2021 budget request. That's not much, and under current accounting rules equity financing is limited by an inability to leverage appropriations into greater sums; changing that would likely require a legislative fix. But even with such a change -- unlikely in an election year -- as an instrument of "soft power" meant to counter China's Belt and Road Initiative and Russia's dominance in the nuclear sphere and other industry, the DFC is still seen as woefully inadequate. "You don't want to show up with a knife to a gunfight," one US industry source said of the DFC's current lending capacity. Apart from the DFC's not-so-deep pockets, the bank may not be the panacea US nuclear exporters are looking for, thanks to a provision in the Build Act that quietly dropped Opic's requirement for US investor participation in an overseas project as a condition of financing. "Instead of a requirement, it's a preference," a source noted, explaining that the change was made to forestall conservative Republican complaints about "corporate welfare" leveled against Opic (and the Export-Import Bank for that matter), and liberal Democratic complaints that US investors were favored over poor people.

Topics:
Equity and Debt Markets, Security Risk , Nuclear, Nuclear Fuel
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