Memorandum submitted by Energy Industries
Council
With regard to Iran (the subject of my 27 April
email) I understand that the situation is politically charged
and difficult and that this is unlikely to change unless 12 June
elections produce an unexpected result or there is a fundamental
change of attitude by the current Iranian President. Our members
are telling us that what they would most appreciate is consistency.
HM Government has not banned exports to Iran but is imposing strict
controls on dual-use items. Whilst all concerned appreciate the
need to impede Iran's alleged nuclear weapons programme, there
appears to be a lack of consistency in the application of controls.
For reasons of commercial confidentiality I cannot give specific
details but our Members have reported in writing:
1. Inordinately long lead-times for export licences.
The contract for one member had been cancelled by the time the
licence was issued, and the company will be excluded from further
contracts because of this;
2. Export licences refused for low-technology
items where it is difficult to see any possible dual-use sensitivity;
3. Companies based in other countries (particularly
Germany) are being allowed to export similar items into the same
projects from which UK-based companies effectively have been excluded
by export licence refusals;
4. British banks are refusing to give short-term
bond cover for contracts in Iran, in one case alleging that this
was due to an export ban. The allegation was withdrawn when challenged
but bond cover was still not forthcoming. Our member meanwhile
had lost the value of the bond from the British bank that had
arranged it and now is trying to recover that sum. Banking arrangements
with Iran are severely curtailed albeit there is no relevant ban
in place.
5. Whilst I have no evidence other than anecdotal
to support this statement, companies in European countries are
exporting via third countries to avoid EU restrictions.
More generally, our members find that they have
great difficulty in financing export contracts and that the cost
of funding where available has gone up immensely. They feel disadvantaged
compared to companies based in other EU countries (and elsewhere)
by the lack of availability of government provided short-term
credit insurance. As you will be aware, ECGD transferred this
side of its business to the private sector in 1991. Although this
may have seemed sensible when credit insurance was easily available
in the commercial markets, it now means that the ability of UK-based
companies to compete in export markets is severely constrained.
The UK has the worst export credit agency facilities of any EU
or similar country.
One of our members, a manufacturer of high-value
capital goods for the oil industry, provides a good example of
what is going on. The company exports over 70% of its production,
mainly to the Middle East and Russia. It needs to have 80% of
the contract value funded from the outset. Before the credit crunch,
three times the amount of credit cover was available to this company
compared to today, at one-third of the cost. Although demand for
the company's products remains very robust, they are having to
decline invitations to bid for overseas contracts and scale down
production.
A reinvigorated ECGD would be the best way of
supporting UK exporters. Apart from reinstating the provision
of short-term credit insurance, the ECGD's operational structure
should be revised and staffed by experts who understand the needs
of specific sectors. It should not be run by bankers for bankers,
operating through the clearing banks as at present. ECGD have
just launched a public consultation on the letter of credit guarantee
scheme and we shall contribute to it; I am concerned, however,
at the likely delay before any improvement is made—and all
the time our exporters are losing out to the competition.
Government support for companies trying to break
into new overseas markets should also be strengthened. The recent
announcement of an additional £10 million for UKTI is
welcome, but we are concerned that it should be directed to front-line
activities capable of making a real difference to UK exporters.
We understand that UKTI is also to be allowed to bid for further
funding from the £750 million Strategic Investment Fund
for the "Building Britain's Future—New Industry, New
Jobs" strategy. There is scope for greater collaboration
with private sector service providers such as the EIC to provide
first-class support to UK exporters in the most efficient and
cost-effective manner. A top priority should be to strengthen
the Tradeshow Access Programme (TAP). The government has whittled
down TAP funding over the past five years, to the point where
it makes very little difference to our members. Restoring the
programme to its previous level would encourage UK exporters to
tackle far-flung or unfamiliar markets.
We set up and manage eight to 10 trade
exhibitions a year around the world in the energy industry at
our own commercial risk although we are a not-for-profit organisation.
The largest of these is the Houston Offshore Technology Conference
in May each year where our typical outlay for the event is around
$500,000. This is equivalent to 10% of our total annual revenues
none of which comes from national, regional or local government.
We receive no financial assistance for such exhibitions in contrast
to say Germany where 50% of all costs of the organisers and the
exhibitors, including hotel and travel, is funded by the German
Government. Where we have been offered limited financial assistance
(as recently for trade missions) the offer had strings attached
that we felt unable to accept so the money was not made available.
There is a plethora of regional and national
governmental organisations that seek to promote exports each with
its own bureaucracy. In my view we should have a UK approach and
pool all the financial resources. Also such disparate arrangement
leads to inconsistencies between member companies from different
regions. For example at OTC we organise the UK national pavilion
(the equal biggest in the show) whereas next door to us is the
Scottish Pavilion funded by Scottish Enterprise. Companies on
that stand are heavily subsidised by the Scottish Government but
how do I explain that to our members when all the funds are from
the same tax pot? It also causes confusion to an international
audience as to what is the UK!
I hope this will be useful as an immediate contribution
to the work of your committee and will, as you recommend, follow
up with your office on a possible future meeting to explore these
matters further.
20 May 2009
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