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Overview

The secure supply of raw materials and energy is being considered to be a basic prerequisite for prosperity and growth in the Federal Republic of Germany (Federal Government). However, due to a rather limited national endowment with natural resources, German companies heavily rely on the import of raw materials such as oil and gas, base metals and refractory metals. Hence, the German Untied Loan Guarantee Scheme (UFK) has been designed to enhance the national supply of commodities by providing financial guarantees to national and international financial institutions lending to commercial projects in the mining as well as the oil and gas sector. To date, the Federal Government has supported oil and gas projects as well as various projects for the extraction of copper, zinc and nickel.

For a financing to be eligible under the Untied Loan Guarantee Scheme, the Federal Government requires the project's owner or sponsor to enter into a contract with a German offtaker for the delivery of natural resources extracted. The supply contract shall comprise the delivery of reasonable quantities, be of reasonable duration and match industry standards in respect of termination, hardship and force majeure clauses. Other contractual arrangements such as swap agreements and evergreen contracts are being considered on a case-by-case basis. Projects shall also be commercially and technically feasible and contribute to the economic development of the host country. UFK-guaranteed loans must not been tied to German exports and services.

An Untied Loan Guarantee insures a project's lenders against losses incurred due to political risks such as war, civil commotion, revolution or legislative and administrative measures which prevent the repayment of the guaranteed loan (Guaranteed Amount). Furthermore the scope of cover includes commercial risks, i.e. cases where a Guaranteed Amount becomes uncollectable due to commercial reasons such as insolvency of the debtor etc.

The premium charged for assuming an Untied Loan Guarantee comprises administrative fees and the premium for insurance cover. The premium rate depends on the OECD-country risk category into which a borrower/guarantor is being categorised, the buyer's legal status (public / private), the loan amount and repayment schedule and the project's overall individual risk profile. A standard retention of 10% applies.

Untied Loan Guarantees may be assumed in combination with Export Credit Guarantees and Investment Guarantees but must not be tied to German exports and services.

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