PROPOSED 2020 COMMON LINES 4 August, 2021

Common Line: CL-XCR 01-A/2020

1. R

EFERENCE

N

UMBER

:

CL-XCR 01-A/2020

2. N

AME OF

I

MPORTING

C

OUNTRY

: Any country eligible for tied aid

according to Article 34 of the OECD

Arrangement.

3. N

AME OF

B

UYER

/B

ORROWER

: any potential buyer of an eligible

project in such country according to

Article 35 of the OECD Arrangement

and the ex-ante guidance

(TD/PG/2005)20).

4. D

ESCRIPTION OF

T

RANSACTION

: Any project fulfilling the project and

country eligibility criteria (Articles 35

and 34) of the OECD Arrangement.

5. T

ERMS AND

C

ONDITIONS

: In accordance with Article 36 of the

OECD Arrangement.

6. C

OMMON

L

INE

P

ROPOSAL

: Suspension of DDR applicable

according to Article 38 of the OECD

Arrangement and its replacement by

the unified discount rate used by the

IMF and the World Bank. The

measure shall be applicable for 2

years following the effectivity date of

this Common Line.

7. T

ENDER

/

BID PERIOD

: N/A

8. N

ATIONALITY AND

N

AMES ON KNOWN BIDDERS

: N/A due to the general nature of this

proposal.

9. O

THER INFORMATION

: This measure aims at increasing

capacities to provide needed external

financing resources to countries,

sectors or projects with little or no

access to market financing (see

Article 31) especially under the

extraordinary COVID-19

circumstances.

S

UPPLEMENTARY

C

OMMENTS

While the COVID-19 pandemic continues to spread throughout the globe, the wider-ranging shutdown measures set by governments to contain the pandemic have triggered an unprecedented global economic crisis.

The economic slump has affected advanced economies and through adverse spill-over effects emerging markets and developing economies, putting these poorer countries already experiencing weaker growth before the crisis at higher risk for major development setbacks in financing most needed infrastructure projects contributing to sustainable development.

As various sources of financing have already been, according to OECD research, severely impacted by the crisis and both domestic, and external private financing sources in these countries are projected to drop in 2020 compared to 2019 levels, it is evident that concessional development finance will remain an important financing instrument to close the COVID-19 financing gap in developing countries both during the crisis and for the recovery.

In 2016-2019, EU tied-aid schemes have financed projects in developing countries amounting to approx. EUR 1.5 bn. As chapter III of the Arrangement limits projects' eligibility for tied aid financing to commercially and financially non-viable projects (see art. 35 and Ex Ante-Guidance for Tied Aid, TD/PG(2005)20)) in order to avoid crowding-out of private sector projects, they mainly target certain infrastructure projects in the public sector. Almost 1/3 of EU's overall tied concessional financing 2016- 2019 concerned critical infrastructure such as healthcare, water and education. Ensuring a continuous use also of these financing schemes should contribute to a better handling of the current crisis.

However, there is a high risk that the tied aid projects and their positive effect on the sustainable development will be hampered by the current overtly restrictive and rigid concessionality rules in the Arrangement (see art. 36 and 38):

 According to Article 36, a minimum concessionality level of 35% for eligible countries (i.e.

countries classified by WB as lower-middle income or below) or 50% for countries classified as least developed countries –LDC has to be met.

 According to Article 38, the concessionality calculation applies the so-called differentiated discount rate – DDR which is interrelated to the CIRR-regime and based on the respective currency's average government bond yield data collected in the second semester preceding the year of the commitment date.

The extreme low interest rate environment impacting various OECD currencies incl. Euro has considerably increased costs to reach the minimum concessionality levels, a situation which most likely will continue as a consequence of the crisis. This makes it very difficult, and sometimes virtually impossible, to respond favourably and with appropriate terms and conditions to tied aid requests for projects that are very much needed in the present COVID-19 circumstances.

Measures counteracting these developments, which make it easier for the donor entities to reach concessional thresholds with financing terms and conditions, might be viewed, prima facie, as reducing the minimum concessional part, thus disadvantaging buyers from developing countries.

However, in the long run, this approach will contribute considerably to the respective country's well- being, and is in line with the principles of sustainable lending. This conclusion is supported mainly by the following reasons:

Common Line: CL-XCR 01-A/2020

 In today’s situation, the donor countries are forced to cut their concessional financing offers to the developing countries for budgetary reasons. The proposed measure would enable to maintain approximately the level of the concessional financing offers to cover the needs of the developing countries;

 Further, the current circumstances force the donor countries to offer to the development countries repayment and grace periods that are much longer than the useful life of the good supplied for budgetary reasons (e.g. 50 years). This can ultimately lead to repayment problems of the developing countries contrary to the principles of sustainable debt;

 The buyer countries' authorities are tempted to neglect sound budgetary planning principles and to make arbitration among donor countries' concessional lending systems to achieve longer credit periods. Also this contradicts sustainable lending practices.

In any case, the proposed measure will in no way undermine obligations emanating from Sustainable Lending Initiatives. All debt limits and concessionality requirements from IMF/WB are not concerned and will have to be met.

Against this background, the initiator proposes to make use of the Common Line instrument foreseen in Article 56 ff. of the OECD Arrangement in order to address the current situation by implementing one of the following two options:

OPTION 1:

Suspension of the current DDR applicable as of 15 January 2020 calculated according to Article 38 of the Arrangement and replacement by the unified discount rate used by the IMF and the World Bank.

The proposal foresees that the Common Line will remain applicable for 2 years following the effectivity date of the Common Line. This time should allow for coping with the adverse impact of the economic downturn induced by the Covid-19 sanitary crisis. After that, the Participants may decide whether they are grounds for renewal or amendment of the measure.

P

^ROPOSED

: 19 O

^CTOBER

2020

T

O

: A

LL

P

ARTICIPANTS

A

CCEPT

:

A

GAINST

: A

USTRALIA

(5 N

OVEMBER

2020), C

ANADA

(5 N

OVEMBER

2020), K

OREA

(6

N

OVEMBER

2020)

U

NCERTAIN

:

U

NANSWERED

: E

UROPEAN

U

NION

, J

APAN

, N

EW

Z

EALAND

, N

ORWAY

, S

WITZERLAND

, T

URKEY

,

U

NITED

S

TATES

S

TATUS

:

REJECTED

(5 N

OVEMBER

2020)

1. R

EFERENCE

N

UMBER

:

CL-XCR 01-B/2020

2. N

^{AME OF}

I

^MPORTING

C

^OUNTRY

: Any country eligible for tied aid

according to Article 34 of the OECD

Arrangement.

3. N

AME OF

B

UYER

/B

ORROWER

: Any potential buyer of an eligible

project in such country according to

Article 35 of the OECD Arrangement

and the ex-ante guidance

(TD/PG/2005)20).

4. D

ESCRIPTION OF

T

RANSACTION

: Any project fulfilling the project and

country eligibility criteria (Articles 35

and 34) of the OECD Arrangement.

5. T

ERMS AND

C

ONDITIONS

: In accordance with the Arrangement.

6. C

OMMON

L

INE

P

ROPOSAL

: Reduction of the minimum

concessionality level as regulated in

Article 36 from 35% to 25% for

eligible buyer countries according to

Article 34 and from 50% to 40% for

Least Developed Countries. The

measure shall be applicable for 2

years following the effectivity date of

this Common Line.

7. T

ENDER

/

BID PERIOD

: N/A

8. N

ATIONALITY AND

N

AMES ON KNOWN BIDDERS

: N/A due to the general nature of this

proposal.

9. O

THER INFORMATION

: This measure aims at increasing

capacities to provide needed external

financing resources to countries,

sectors or projects with little or no

access to market financing (see

Article 31) under the extraordinary

COVID-19 circumstances.

Common Line: CL-XCR 01-B/2020

S

UPPLEMENTARY

C

OMMENTS

While the COVID-19 pandemic continues to spread throughout the globe, the wider-ranging shutdown measures set by governments to contain the pandemic have triggered an unprecedented global economic crisis.

The economic slump has affected advanced economies and through adverse spill-over effects emerging markets and developing economies, putting these poorer countries already experiencing weaker growth before the crisis at higher risk for major development setbacks in financing most needed infrastructure projects contributing to sustainable development.

As various sources of financing have already been, according to OECD research, severely impacted by the crisis and both domestic, and external private financing sources in these countries are projected to drop in 2020 compared to 2019 levels, it is evident that concessional development finance will remain an important financing instrument to close the COVID-19 financing gap in developing countries both during the crisis and for the recovery.

In 2016-2019, EU tied-aid schemes have financed projects in developing countries amounting to approx. EUR 1.5 bn. As chapter III of the Arrangement limits projects' eligibility for tied aid financing to commercially and financially non-viable projects (see art. 35 and Ex Ante-Guidance for Tied Aid, TD/PG(2005)20)) in order to avoid crowding-out of private sector projects, they mainly target certain infrastructure projects in the public sector. Almost 1/3 of EU's overall tied concessional financing 2016- 2019 concerned critical infrastructure such as healthcare, water and education. Ensuring a continuous use also of these financing schemes should contribute to a better handling of the current crisis.

However, there is a high risk that the tied aid projects and their positive effect on the sustainable development will be hampered by the current overtly restrictive and rigid concessionality rules in the Arrangement (see art. 36 and 38):

 According to Article 36, a minimum concessionality level of 35% for eligible countries (i.e.

countries classified by WB as lower-middle income or below) or 50% for countries classified as least developed countries –LDC has to be met.

 According to Article 38, the concessionality calculation applies the so-called differentiated discount rate – DDR which is interrelated to the CIRR-regime and based on the respective currency's average government bond yield data collected in the second semester preceding the year of the commitment date.

The extreme low interest rate environment impacting various OECD currencies incl. Euro has considerably increased costs to reach the minimum concessionality levels, a situation which most likely will continue as a consequence of the crisis. This makes it very difficult, and sometimes virtually impossible, to respond favourably and with appropriate terms and conditions to tied aid requests for projects that are very much needed in the present COVID-19 circumstances.

Measures counteracting these developments, which make it easier for the donor entities to reach concessional thresholds with financing terms and conditions, might be viewed, prima facie, as reducing the minimum concessional part, thus disadvantaging buyers from developing countries.

However, in the long run, this approach will contribute considerably to the respective country's well- being, and is in line with the principles of sustainable lending. This conclusion is supported mainly by the following reasons:

 In today’s situation, the donor countries are forced to cut their concessional financing offers to the developing countries for budgetary reasons. The proposed measure would enable to maintain approximately the level of the concessional financing offers to cover the needs of the developing countries;

 Further, the current circumstances force the donor countries to offer to the development countries repayment and grace periods that are much longer than the useful life of the good supplied for budgetary reasons (e.g. 50 years). This can ultimately lead to repayment problems of the developing countries contrary to the principles of sustainable debt;

 The buyer countries' authorities are tempted to neglect sound budgetary planning principles and to make arbitration among donor countries' concessional lending systems to achieve longer credit periods. Also this contradicts sustainable lending practices.

In any case, the proposed measure will in no way undermine obligations emanating from Sustainable Lending Initiatives. All debt limits and concessionality requirements from IMF/WB are not concerned and will have to be met.

Against this background, the initiator proposes to make use of the Common Line instrument foreseen in Article 56 ff. of the OECD Arrangement in order to address the current situation by implementing one of the following two options:

OPTION 2:

Reduction of the minimum concessionality level as currently regulated in Article 36 of the Arrangement from 35% to 25% for eligible buyer countries according to Article 34 and from 50% to 40% for Least Developed Countries.

The proposal foresees that the Common Line will remain applicable for 2 years following the effectivity date of the Common Line. This time should allow for coping with the adverse impact of the economic downturn induced by the Covid-19 sanitary crisis. After that, the Participants may decide whether they are grounds for renewal or amendment of the measure.

P

ROPOSED

: 19 O

CTOBER

2020

T

O

: A

LL

P

ARTICIPANTS

A

CCEPT

:

A

GAINST

: A

USTRALIA

(5 N

OVEMBER

2020), C

ANADA

(5 N

OVEMBER

2020), K

OREA

(6

N

OVEMBER

2020)

U

NCERTAIN

:

U

NANSWERED

: E

UROPEAN

U

NION

, J

APAN

, N

EW

Z

EALAND

, N

ORWAY

, S

WITZERLAND

, T

URKEY

,

U

NITED

S

TATES

S

TATUS

:

REJECTED

(5 N

OVEMBER

2020)

Common Line: CL-XCR 02/2020

1. R

EFERENCE

N

UMBER

:

CL-XCR 02/2020

2. N

AME OF

I

MPORTING

C

OUNTRY

:

Latvia (category I country)

3. N

AME OF

B

UYER

/B

ORROWER

:

Rigas Satiksme (full official name: Rigas pasvaldibas sabiedriba ar ierobezotu atbildibu "Rigas Satiksme"). It is a municipally-owned (Municipal Limited Liability Company) public transportation and infrastructure company serving the Latvian capital Riga, and the surrounding areas.

4. D

ESCRIPTION OF

T

^RANSACTION

:

Delivery of the trams (20 sets of trams) to be used in the frame of the public transportation system in Riga (Latvia).

5. T

ERMS AND

C

ONDITIONS

:

12-years repayment period for category I country with possibility to provide insurance cover of 97%.

6. C

OMMON

L

INE

P

ROPOSAL

:

Waiver of the provisions of RSU Chapter II, 2b) 3), first dash.

7. T

^ENDER

/

^{BID PERIOD}

:

N/A

8. N

ATIONALITY AND

N

AMES ON KNOWN BIDDERS

:

N/A, since delivery contract has been already signed.

9. O

THER INFORMATION

:

See below

A

DDITIONAL INFORMATION AND RATIONALE FOR PROPOSAL

Explanation for support and the need to waive the provisions of RSU, Chapter II, 2b) 3), first dash:

 Participant is currently considering the above transaction.

 The buyer is municipally-owned public transportation and infrastructure company, which has as sources of its funding especially revenues from sale of tickets for public transport services and funding provided by Riga Municipality.

 As a municipally-owned company, which relies on public budget it is appropriate to have lower repayment volumes for longer time period, when acquiring new fleet of trams.

 Standard Arrangement/RSU conditions will be applied within this transaction like regular repayment, etc.

 Down-payment is in case of this transaction 24.96%. This volume is by 66.4% higher in comparison with 15% minimum down-payment, which is required by the Arrangement.

 Participant considers that the acceptance of this Common Line proposal would not distort the level playing field: competition will not be threatened as the delivery contract has already been signed.

P

ROPOSED

: 4 D

ECEMBER

2020

T

O

: A

LL

P

ARTICIPANTS

A

CCEPT

: S

WITZERLAND

(7 D

ECEMBER

2020), K

OREA

(22 D

ECEMBER

2020), C

ANADA

(23

D

ECEMBER

2020)

A

GAINST

:

U

NCERTAIN

:

U

NANSWERED

: A

USTRALIA

, E

UROPEAN

U

NION

, J

APAN

, N

EW

Z

EALAND

, N

ORWAY

, T

URKEY

, U

NITED

S

TATES

S

TATUS

:

ACCEPTED

(

EFFECTIVE AS OF

7 J

ANUARY

2021)

Common Line: CL-XCR 01/2021

1. R

EFERENCE

N

UMBER

:

CL-XCR 01/2021

2. N

AME OF

I

MPORTING

C

OUNTRY

:

Republic of South Africa

3. N

^{AME OF}

B

^UYER

/B

^ORROWER

:

N/A

4. D

ESCRIPTION OF

T

^RANSACTION

:

N/A

5. T

^{ERMS AND}

C

^ONDITIONS

:

N/A

6. C

^OMMON

L

^INE

P

^ROPOSAL

:

To create a CIRR in ZAR that would be applicable for all Participants for next two years (see below for details).

7. T

ENDER

/

BID PERIOD

:

N/A

8. N

ATIONALITY AND

N

AMES ON KNOWN BIDDERS

:

N/A

9. O

THER INFORMATION

:

The main reason for proposing this common line is that the proposer has encountered demand from buyers in the Republic of South Africa to have a fixed rate in their local currency when buying turbines for windfarms.

A

DDITIONAL INFORMATION AND RATIONALE FOR PROPOSAL

The proposer is aiming at creating a common line for CIRR in ZAR by using data on South African government bonds from Bloomberg. Please see the attached Excel file.

The proposer has calculated several of the base rates based on the data from government bonds on residual maturity and bid yield to maturity.

The CIRR will hereby be constructed by adding the correct margins, which can also be seen in the attached file. We have chosen to use the base rate system of three-year government bond yields for a repayment term of up to and including five years; five-year government bond yields for over five and up to and including eight and a half years; and seven-year government bond yields for over eight and a half years.

The proposer has also established the base rates for the construction of CIRRs for transactions under Annex IV of the Arrangement. The construction of this CIRR based on the different margins can also be seen in the attached file.

Terms and conditions foreseen by the initiating country: the proposer expects the financing to be between 10 and 18 years repayment.

P

ROPOSED

: 8 J

ULY

2021

T

O

: A

LL

P

ARTICIPANTS

A

CCEPT

: S

WITZERLAND

A

GAINST

:

U

^NCERTAIN

:

U

^NANSWERED

: C

^ANADA

, E

^UROPEAN

U

^NION

, J

^APAN

, K

^OREA

, N

^EW

Z

^EALAND

, N

^ORWAY

,

S

^WITZERLAND

, T

^URKEY

, U

^NITED

K

^INGDOM

, U

^NITED

S

^TATES

S

TATUS

:

ACCEPTED

(

EFFECTIVE AS OF

9 A

UGUST

2021)

Common Line: Status

U ^NDECIDED C ^OMMON L ^INES

4 AUGUST, 2021

A CCEPTED C OMMON L INES

4 August, 2021

CL-XCR 2/2020 Delivery of the trams (20 sets of trams) to be used in the frame of the public transportation system in Riga (Latvia).

CL-XCR 1/2021 Creation of a CIRR in ZAR that would be applicable for all Participants for next two years.

R EJECTED C OMMON L INES

4 August, 2021

CL-XCR 1-A/2020 Reduction of the minimum concessionality level as regulated in article 36 from 35%

to 25% for eligible buyer countries according to article 34 and from 50% to 40% for least developed countries. The measure shall be applicable for 2 years following the effectivity date of this common line. (5 November 2020)

CL-XCR 1-B/2020 Suspension of DDR applicable according to article 38 of the OECD Arrangement and its replacement by the unified discount rate used by the IMF and the world bank.

The measure shall be applicable for 2 years following the effectivity date of this common line. (5 November 2020)

C ANCELLED C OMMON L INES

4 August, 2021

A

CCEPTED

: 2

R

EJECTED

: 2

P

ARTLY ACCEPTED

/

PARTLY REJECTED

: 0

(IN THE CASE THAT PART OF THE COMMON LINE IS ACCEPTED AND PART OF IT IS REJECTED

)

U

NDECIDED

: 0

C

ANCELLED

: 0

TOTAL

4