Exporting out of recession - Business, Innovation and Skills Committee Contents


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 The allegation was withdrawn when challenged but bond cover was still not forthcoming.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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