Order Code 98-567
Updated October 20, 2008
The Overseas Private Investment Corporation:
Background and Legislative Issues
Danielle LangtonShayerah Ilias
Analyst in International Trade and Finance
Foreign Affairs, Defense, and Trade DivisionDecember 1, 2009
Congressional Research Service
7-5700
www.crs.gov
98-567
CRS Report for Congress
Prepared for Members and Committees of Congress
The Overseas Private Investment Corporation: Background and Legislative Issues
Summary
The Overseas Private Investment Corporation (OPIC)1 was established in 1969 and
began began
operations in 1971 as a development agency to promote and assist U.S. business investment in developing
nations.
developing nations. Today, OPIC is a U.S. government agency that provides project financing, investment
investment insurance, and other services for U.S. businesses in 154 developing nations and
emerging economies. OPIC is currently authorized through March 9, 2009 under the
Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009
(P.L. 110-329). On July 23, 2007, the House approved H.R. 2798 to reauthorize OPIC
through 2011 and make other changes. The Senate Committee on Foreign Relations
reported this bill with an amendment on March 4, 2008. The Consolidated
Appropriations Act of 2008 provides $47.5 million for OPIC’s FY2008 administrative
expenses and allows a transfer of $20 million from OPIC’s non-credit account to fund
its credit program. This report will be updated as events warrant.
Background
Structured like a private corporation, OPIC operates on a self-sustaining basis and
has recorded a positive net income for every year of operation, with reserves now totaling
more than $3 billion. OPIC was established in 1969 amid an atmosphere of congressional
disillusionment overall with U.S. aid programs, especially large infrastructure projects.
In his first message to Congress on aid, President Nixon recommended the creation of
OPIC to assume the investment guaranty and promotion functions that were being
conducted by the Agency for International Development (AID). President Nixon also
directed that OPIC would provide “businesslike management of investment incentives”
to contribute to the economic and social progress of developing nations.2
1
2
For additional information, see OPIC’s Internet address: [http://www.opic.gov/].
Public Papers of the Presidents: Richard Nixon. Washington, U.S. Govt. Print. Off., 1969.
p. 412.
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In creating OPIC, the Nixon Administration indicated that it was not attempting to
end official U.S. foreign assistance, because “private capital and technical assistance
cannot substitute for government assistance programs,” a combination that can provide,
“official aid on the one hand, and private investment and technical assistance on the
other.” Private investment activities, however, were meant to complement the official
assistance programs and, thereby, multiply the benefits of both. In addition, marketoriented private investment was viewed as an antidote to the government-oriented aid
projects that were viewed by some as costly and inefficient. OPIC was created as a first
step in the eventual overhaul of the entire U.S. aid program. In 1973, this overhaul was
completed as the United States largely abandoned infrastructure building and other large
capital projects in favor of humanitarian aid to meet basic human needs.
At present, OPIC is directed to “mobilize and facilitate the participation of United
States private capital and skills in the economic and social development of less developed
countries and areas, and countries in transition from nonmarket to market economies.”3
OPIC’s programs are intended to promote U.S. private investment in less developed
countries by reducing risks, especially political risks (including currency inconvertibility,
expropriation, political violence, and terrorism), for U.S. firms associated with overseas
investment. To accomplish these goals, OPIC is authorized to finance U.S. investment
through loans and guarantees, insure against political risk, and provide various investor
services. OPIC’s authority to guaranty and insure U.S. investments abroad is backed by
the full faith and credit of the U.S. government and OPIC’s own substantial financial
resources. OPIC’s activities also were intended to assist U.S. firms and small businesses’
foreign operations. For instance, Congress directed OPIC to focus on projects that have
“positive trade benefits for the United States.” OPIC is required to decline its services,
however, if it believes an overseas investment may reduce employment in the United
States, either because a U.S. firm shifts part of its production abroad, or because output
from an overseas investment will be shipped to the United States and “reduce
substantially the positive trade benefits” of the investment.4 OPIC also is generally barred
by its enabling legislation from participating in projects that pose an “unreasonable or
major environmental health, or safety, hazard,” or participating in countries that do not
“extend internationally recognized workers rights,” or that impose domestic content
requirements.
Programs
OPIC operates in approximately 154 countries and areas worldwide, including
countries in Central and Eastern Europe.5 Although OPIC offers U.S. firms an array of
services, its activities can be grouped into three categories: finance, insurance, and
investment development.
Finance. OPIC’s finance program operates like an investment bank, customizing
and structuring a complete package for each project. To obtain OPIC financing, the
venture must be commercially and financially sound and be wholly owned by U.S.
3
22 U.S.C. Section 2191.
4
22 U.S.C. Section 2191, 3(k)(1).
5
Annual Report, various years. Overseas Private Investment Corporation.
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companies, foreign subsidiaries of U.S. companies, or joint ventures involving local
companies and U.S. sponsored firms. In the case of a joint venture involving existing
firms, the U.S. investor is expected to own at least 25% of the equity of the venture. For
new ventures, financing may be equal to 50% of the total project cost; a larger share is
possible for plant expansions. OPIC provides financing to investors through two major
programs: direct loans and loan guarantees. Direct loans generally range between $2
million and $10 million and are available only for ventures sponsored by, or significantly
involving, U.S. small businesses or cooperatives (such as joint ventures).
Loan guarantees typically are used for larger projects, ranging in size from $10
million to $75 million, but in certain cases can be as high as $200 million. OPIC’s
guarantees are issued to financial institutions that are more than 50%-owned by U.S.
citizens, corporations, or partnerships. Rates and conditions on loans and guarantees
depend on financial market conditions at the time and on OPIC’s assessment of the
financial and political risks involved. OPIC charges up-front, commitment, and
cancellation fees, and reimbursement is required for related administrative expenses.
OPIC also requires that proceeds of its financing be spent for capital goods and services
in the United States, in the host country, or in other less developed countries, but not in
other industrialized countries.
OPIC also sponsors a number of funds that offer equity financing to U.S. firms that
either cannot allocate or cannot raise sufficient capital to start or expand their businesses
overseas. These funds represent a blend of public and private sector capital and are
managed by firms with venture capital investment capability and experience. Among the
direct investment funds OPIC has invested in are: the Africa Growth Fund, Africa Growth
Fund II, the Central and Eastern European Growth Fund, the India Private Equity Fund,
the Israel Growth Fund, and the InterArab Investment Fund. OPIC also is supplying
guarantees for private funds to assist the Newly Independent States (NIS). These efforts
include the Russia Partners Fund, the Poland Partners Fund, and the Global Environment
Emerging Markets Fund.
Insurance. OPIC political risk insurance is available to U.S. citizens, U.S. firms,
or to the foreign subsidiaries of U.S. firms as long as the foreign subsidiary is at least
95%-owned by a U.S. citizen. According to OPIC, such insurance is available for
investments in new ventures or in expansions of existing enterprises, and can cover equity
investments, parent company and third party loans and loan guarantees, technical
assistance agreements, cross-border leases, assigned inventory or equipment, and other
forms of investment. This insurance covers three broad areas of political risk: currency
inconvertibility, expropriation, and political violence. Currency inconvertibility
coverage compensates investors if new currency restrictions are imposed which prevent
the conversion and transfer of remittances from insured investments, but it does not
protect against currency devaluation.
Expropriation coverage protects U.S. firms against the nationalization, confiscation,
or expropriation of an enterprise, including actions by foreign governments that deprive
an investor of fundamental rights or financial interests in a project for a period of at least
six months. This coverage excludes losses that may arise from lawful regulatory or
revenue actions by a foreign government and actions instigated or provoked by the
investor of foreign firm.
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Political violence coverage compensates U.S. citizens and firms for property and
income losses directly caused by various kinds of violence, including declared or
undeclared wars, hostile actions by national or international forces, civil war, revolution,
insurrection, and civil strife (including politically motivated terrorism and sabotage).
Income loss insurance protects the investor’s share of income from losses that result from
damage to the insured property caused by political violence. Assets coverage
compensates U.S. citizens and firms for losses of or damage to tangible property caused
by political violence. OPIC also has a number of special programs that protect U.S. banks
from political violence. This type of insurance reduces risks for banks and other
institutional investors, which allows them to play a more active role in financing projects
in developing countries. Specialized types of insurance coverage is also available for U.S.
investors involved with certain contracting, exporting, licensing, or leasing transactions
that are undertaken in a developing country.
Investment Development. OPIC also offers various pre-investment services to
aid U.S. investors. For instance, OPIC sponsors periodic investment missions with U.S.
businesses to developing countries and investor conferences to inform U.S. businesses
about investment opportunities.
OPIC’s Budget
OPIC regularly turns funds back to the Treasury Department. Each year, however,
Congress approves a credit program level for OPIC and appropriates funds for its
administrative expenses. These funds are not actually provided to OPIC, because OPIC
relies on its own resources. Congress follows this procedure in order to exercise its
oversight role and to set limits on the extent to which OPIC can obligate U.S. government
resources. Prior to FY1992, OPIC relied exclusively on non-appropriated resources (fees
and interest on Treasury securities) to fund its operations. With federal government credit
reform, however, OPIC was required to receive an appropriation based on an estimate of
its credit programs (direct loans and guarantees). From 1992 to 1994, OPIC returned to
the general fund an amount equal to its direct appropriation. For FY1995 and beyond,
OPIC has received authority to forego additional appropriations.
OPIC’s budget is composed of non-credit and credit accounts, in conformity with the
standards set out in the Federal Credit Reform Act of 1990 (see Table 1). The non-credit
portion of OPIC’s budget relates to OPIC’s political risk insurance program; its credit
program accounts are comprised of OPIC’s direct and guaranteed loans. In FY2004,
OPIC extended about $1.9 billion in insurance to U.S. firms and had $12 billion in
insurance policies outstanding. OPIC also disbursed $300 million in direct loans and $1.1
billion in guaranteed loans. OPIC has accumulated over $3.5 billion in assets in its noncredit account, which it uses to fund losses it may experience in its guarantee and
insurance coverage. OPIC uses premium income and the interest it accrues from the
assets in its non-credit account to fund the direct and indirect expenses in its non-credit
and its credit accounts.
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Table 1. OPIC’s Budget Summary
(in millions of dollars)
FY03
FY04
FY05
FY06
FY07
FY08
FY09
NON CREDIT ACCOUNT
$84
Operating Expenses
$94
$46
$166
$86
$83
$91
Non credit personnel costs
16
16
17
17
18
19
21
Insurance payments/provisions
—
—
—
118
33
34
38
Administration costs
24
25
26
25
25
28
30
Adjustments to accounts
44
3
2
1
2
2
2
50
1
—
8
—
—
Iraq Middle
Foundation
Market
Dev.
Budget authority (gross)
56
81
51
172
112
83
92
Outlays (gross)
76
180
-10
46
52
90
95
-346
-316
-257
-323
-292
-260
-281
Offsetting collections
Federal sources
Interest on U.S. securities
-24
-50
-26
-25
-34
-28
-30
-272
-222
-203
-200
-206
-208
-226
Non-Federal sources
-50
-44
-28
-22
-24
-24
-25
Budget authority (net)
-287
-229
-201
-153
-185
-177
-189
Outlays (net)
-270
-135
-267
-277
-240
-170
-186
48
48
49
45
45
52
59
211
198
180
167
177
123
61
17
6
22
7
16
11
11
1
33
11
1
20
12
14
Program cost re-estimates
168
134
131
134
116
71
2
Administrative expenses
25
25
26
25
25
28
31
Budget authority:
Transferred to other accountsa
CREDIT ACCOUNT
Program Expensesc
Direct loan subsidy
Guaranteed loan subsidy
Budget authority
216
182
174
179
161
123
59
Appropriationb
168
134
120
134
116
71
—
48
48
49
45
45
52
59
c
From other accounts
Source: Budget of the United States Government, various years. U.S. Govt. Print. Off., Washington.
a. Budget authority transferred to other accounts, including OPIC’s credit account.
b. OPIC does not receive an actual appropriation. This figure is calculated by OMB to approximate the
total subsidy OPIC provides through its programs, using its own resources. FY2003 and 2004
appropriations included guarantees for private funds and OPIC finance to assist the NIS.
c. These funds include transfers from OPIC’s Non-Credit Account (see footnote ‘a’) and from the ExportImport Bank and AID for OPIC guarantees to NIS countries.
Legislative Issues
Congress reauthorized OPIC through March 6, 2009 in the Consolidated Security,
Disaster Assistance, and Continuing Appropriations Act, 2009 (P.L. 110-329). This bill
passed after OPIC operated for six months without authorization. Previously, the House
approved H.R. 2798 on July 23, 2007 to reauthorize OPIC through 2011 and introduce
new requirements for OPIC. On March 4, 2008 the Senate Committee on Foreign
Relations reported this bill out of committee, substituting it with an amended version.
Identical language was included in S. 3297, introduced on July 22, 2008. Both House and
Senate versions of the bill include similar new directives for OPIC, such as to promote
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the use of clean energy technology and reduce greenhouse gas emissions associated with
OPIC-supported projects. Both versions also direct OPIC to ensure that extractive
industry projects conform to Extractive Industry Transparency Initiative (EITI) standards
and principles, and provide more information to the public about current and proposed
projects. In addition, both versions would strengthen the statutory provisions on workers’
rights overseas, and prohibit assistance to entities with investments in countries that are
state sponsors of terrorism. The House and Senate versions differ somewhat in language
and details in these and other provisions, and they each include provisions not found in
the other. The Senate has yet to approve the bill because some members are reportedly
opposed to the provisions on clean energy technology.
Other legislation pertaining to OPIC has been introduced in the 110th Congress. The
Energy Independence and Security Act of 2007, P.L. 110-140, expresses the sense of
Congress that OPIC should promote greater investment in clean energy technologies and
includes a reporting requirement. The Caribbean Coral Reef Protection Act, H.R. 1679,
would prohibit OPIC from providing its services to any person who has made investments
contributing to the development of petroleum resources off Cuba’s coast. H.R. 1886
would prohibit OPIC from supporting any oil or gas project. The Currency Reform for
Fair Trade Act of 2007, H.R. 2942, would prohibit OPIC from supporting projects in
designated countries that issue fundamentally misaligned currencies.
Economic and Policy Issues
Economists generally oppose the use of subsidized credits to promote trade or
investment abroad. They believe such subsidies tend to distort the flow of capital and
resources away from the most efficient uses. They also believe that by promoting
investment abroad, OPIC may be crowding out, and thereby reducing, some domestic
investment. As long as OPIC’s non-federal collections — or the fees it charges the public
for its services — are sufficient to cover all of its credit and non-credit activities (as
indicated by some estimates), it may not have a negative impact on the federal
government’s budget. OPIC’s impact on U.S. capital and resource markets, however,
may well be negative due to the distortionary effects of subsidized credits.
Much of the rationale for OPIC relates to U.S. foreign policy goals, a premise that
is being questioned by Members of Congress in a number of ways. Initially, OPIC was
established to enhance U.S. aid policy during a period when policymakers were
dissatisfied with the focus of U.S. aid programs on officially supported capital intensive
projects. OPIC was designed to assist U.S. private firms take the lead in developing
projects that not only would enhance economic development but be economically viable
as well. In recent years, OPIC has supported efforts within the Newly Independent States
to convert defense industries into market-oriented industries producing consumer
products. In this role, OPIC’s programs may serve to rectify certain “market failures” that
dissuade U.S. firms from investing in developing countries. In many of these countries,
labor, goods, and capital markets are not well established, and information about the
economy often is difficult to obtain. Given this lack of information, individual firms may
well attach more risk to investing in developing economies than is warranted. Until the
firms gain greater experience or information, or otherwise change their assessments of the
risks and rewards of investing in developing countries, they may be overly reluctant to
commit resources to investments in the least developed countries without OPIC’s
guarantees.over 150 developing nations and
emerging economies. To date, OPIC has funded, guaranteed, or insured over $180 billion in
investments.
OPIC’s activities are guided by U.S. foreign policy objectives. Geographical priority areas for
OPIC-supported activities are sub-Saharan Africa, the Broader Middle East and North Africa, and
Asia. Sectoral priorities for the agency are renewable energy and access to credit for micro-,
small-, and medium-sized enterprises. OPIC-supported projects must not have negative economic
effects on U.S. employment and industry and must fulfill other statutory requirements.
OPIC’s budget is fully self-sustaining from its own revenues. Congress, as part of its oversight
activities, annually provides OPIC with the authority to cover its administrative expenses and
credit subsidy funding from user fees and its own income. The Omnibus Appropriations Act of
2009 (P.L. 111-8) extended OPIC’s authority through September 30, 2009. The Act provided
$50.6 million for OPIC’s administrative expenses and authorized a transfer of $29 million from
OPIC’s noncredit account to conduct its credit and insurance programs. Legislation to extend
OPIC reauthorization until September 30, 2013 (S. 705) has been introduced in the 111th
Congress.
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The Overseas Private Investment Corporation: Background and Legislative Issues
Contents
Background ................................................................................................................................1
Programs ....................................................................................................................................2
Finance .................................................................................................................................2
Insurance ..............................................................................................................................3
Investment Development.......................................................................................................4
OPIC’s Budget ............................................................................................................................5
Recent Developments..................................................................................................................7
Legislative Issues ........................................................................................................................8
Economic and Policy Issues ........................................................................................................9
Tables
Table 1. OPIC’s Budget Summary...............................................................................................6
Contacts
Author Contact Information ...................................................................................................... 10
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The Overseas Private Investment Corporation: Background and Legislative Issues
Background
The Overseas Private Investment Corporation (OPIC) is a U.S. government agency that provides
project financing, investment insurance, and other services for U.S. businesses in over 150
developing nations and emerging economies. 1 Structured like a private corporation, OPIC
operates on a self-sustaining basis to mobilize and facilitate private capital investment in
developing countries. The agency has recorded a positive net income for every year of operation,
with reserves (comprised of U.S. Treasury securities) totaling about $5 billion.2
Created under the Foreign Assistance Act of 1961 (P.L. 87-195) as amended, OPIC was
established in 1969 and began operations in 1971 as a development agency amid an atmosphere
of congressional disillusionment overall with U.S. aid programs, especially large infrastructure
projects. In his first message to Congress on aid, President Nixon recommended the creation of
OPIC to assume the investment guaranty and promotion functions that were being conducted by
the U.S. Agency for International Development (AID). President Nixon also directed that OPIC
would provide “businesslike management of investment incentives” to contribute to the economic
and social progress of developing nations.3
In creating OPIC, the Nixon Administration indicated that it was not attempting to end official
U.S. foreign assistance, because “private capital and technical assistance cannot substitute for
government assistance programs,” a combination that can provide, “official aid on the one hand,
and private investment and technical assistance on the other.” Private investment activities,
however, were meant to complement the official assistance programs and, thereby, multiply the
benefits of both. In addition, market-oriented private investment was viewed as an antidote to the
government-oriented aid projects that were considered by some to be costly and inefficient. OPIC
was created as a first step in the eventual overhaul of the entire U.S. aid program. In 1973, this
overhaul was completed as the United States largely abandoned infrastructure building and other
large capital projects in favor of humanitarian aid to meet basic human needs.
At present, OPIC is directed to “mobilize and facilitate the participation of United States private
capital and skills in the economic and social development of less developed countries and areas,
and countries in transition from nonmarket to market economies... under the policy guidance of
the Secretary of State.”4 OPIC’s programs are intended to promote U.S. private investment in less
developed countries by mitigating risks, such as political risks (including currency
inconvertibility, expropriation, political violence, and terrorism), for U.S. firms making qualified
investment overseas. To accomplish these goals, OPIC is authorized to finance U.S. investment
through loans and guarantees, insure against political risk, and provide various investor services.
OPIC’s authority to guaranty and insure U.S. investments abroad is backed by the full faith and
credit of the U.S. government and OPIC’s own financial resources.
In addition to their development objectives, OPIC’s activities are intended to assist U.S. firms and
small businesses’ foreign operations. For instance, Congress directed OPIC to focus on projects
1
For additional information, see OPIC’s website: http://www.opic.gov/.
Estimated at fair value. OPIC, OPIC 2008 Annual Report, p. 34.
3
Public Papers of the Presidents: Richard Nixon. Washington, U.S. Government Printing Office, 1969. p. 412.
4
22 U.S.C. Section 2191.
2
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The Overseas Private Investment Corporation: Background and Legislative Issues
that have “positive trade benefits for the United States.” OPIC is required to decline its services,
however, if it determines an overseas investment may reduce employment in the United States,
either because a U.S. firm shifts part of its production abroad, or because output from an overseas
investment will be shipped to the United States and “reduce substantially the positive trade
benefits” of the investment.5 OPIC also is generally barred by its enabling legislation from
participating in projects that pose an “unreasonable or major environmental health, or safety,
hazard,” or participating in countries that do not “extend internationally recognized workers
rights,” or that impose domestic content requirements.
Programs
OPIC operates in over 150 countries and areas worldwide. As OPIC’s activities are guided by
U.S. foreign policy objectives, OPIC has identified three priority regions—sub-Saharan Africa,
the Broader Middle East and North Africa, and Asia—where it believes that OPIC-supported
private investment could advance U.S. foreign policy goals. In recent years, OPIC also has
identified sectoral priorities for its activities, including renewable energy and access to credit for
micro-, small-, and medium-sized enterprises. To date, OPIC has funded, guaranteed, or insured
over $180 billion in investments. 6 Although OPIC offers U.S. firms an array of services, its
activities can be grouped into three categories: finance, insurance, and support for private equity
funds.
Finance
OPIC’s finance program operates like an investment bank, customizing and structuring a
complete package for individual projects in countries where conventional financing institutions
often are unwilling or unable to lend on a reasonable basis. The finance program is carried out
through two departments, one that focuses on projects involving small- and medium-sized
enterprises and the other that focuses on larger infrastructure and financial services projects
involving larger U.S. businesses.
To obtain OPIC financing, the venture must be commercially and financially sound and have
some portion of U.S. ownership. Projects may be wholly owned by U.S. companies, foreign
subsidiaries of U.S. companies, or joint ventures involving local companies and U.S. sponsored
firms. In the case of a joint venture involving existing firms, the U.S. investor generally is
expected to own at least 25% of the equity of the project. For new ventures, financing may be
equal to 50% of the total project cost; a larger share is possible for plant expansions.
The amount of OPIC’s participation may vary taking into consideration financial risks and
benefits. In general, OPIC will not support more than 75% of the total investment. OPIC
provides financing to investors through two major programs: direct loans and loan guarantees.
Direct loans generally range between $100,000 and $10 million, although they can be more in
5
22 U.S.C. Section 2191, 3(k)(1).
6
OPIC, annual reports, various years. OPIC, Budget Request of the Overseas Private Investment Corporation, Fiscal
Year 2009, Congressional Budget Justification, February 2008, pp. 9-16. Telephone conversation with OPIC official,
April 14, 2009.
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The Overseas Private Investment Corporation: Background and Legislative Issues
certain cases. Direct loans are available only for ventures sponsored by, or significantly
involving, U.S. small- and medium-sized businesses or cooperatives (such as joint ventures).
Loan guarantees typically are used for larger projects, ranging in size from $10 million to $250
million, but in certain cases can be as high as $400 million. OPIC’s guarantees are issued to
financial institutions that are more than 50%-owned by U.S. citizens, corporations, or
partnerships. Rates and conditions on loans and guarantees depend on financial market conditions
at the time and on OPIC’s assessment of the financial and political risks involved. Consistent with
commercial lending practices, OPIC charges up-front, commitment, and cancellation fees, and
reimbursement is required for project-related expenses.
As part of its thrust toward U.S. small business investors, OPIC established the Enterprise
Development Network (EDN) in June 2007. Under the EDN, OPIC collaborates with
participating financial intermediaries to expand access of small businesses to OPIC-supported
products and services. OPIC recently announced the selection of several financial consulting
firms to serve as loan originators in the EDN. 7
Insurance
OPIC political risk insurance is available to U.S. citizens, U.S. firms, or to the foreign
subsidiaries of U.S. firms as long as the foreign subsidiary is at least 95%-owned by a U.S.
citizen. According to OPIC, such insurance is available for investments in new ventures or in
expansions of existing enterprises, and can cover equity investments, parent company and third
party loans and loan guarantees, technical assistance agreements, cross-border leases, assigned
inventory or equipment, and other forms of investment. This insurance covers three broad areas
of political risk: currency inconvertibility, expropriation, and political violence. Currency
inconvertibility coverage compensates investors if new currency restrictions are imposed which
prevent the conversion and transfer of remittances from insured investments, but it does not
protect against currency devaluation.
Expropriation coverage protects U.S. firms against the nationalization, confiscation, or
expropriation of an enterprise, including actions by foreign governments that deprive an investor
of fundamental rights or financial interests in a project for a period of at least six months. This
coverage excludes losses that may arise from lawful regulatory or revenue actions by a foreign
government and actions instigated or provoked by the investor of foreign firm.
Political violence coverage compensates U.S. citizens and firms for property and income losses
directly caused by various kinds of violence, including declared or undeclared wars, hostile
actions by national or international forces, civil war, revolution, insurrection, and civil strife
(including politically motivated terrorism and sabotage). Income loss insurance protects the
investor’s share of income from losses that result from damage to the insured property caused by
political violence. Assets coverage compensates U.S. citizens and firms for losses of or damage to
7
OPIC, "OPIC Selects Global Export Finance, LLC as Originator in Enterprise Development Network ," press release,
November 20, 2009. OPIC, "OPIC Selects Alliant Emerging Markets as Originator in Enterprise Development
Network ," press release, November 20, 2009. OPIC, "OPIC Selects Ignite Corporate Financial Solutions as Originator
in Enterprise Development Network ," press release, November 20, 2009. OPIC, "OPIC Selects Saltus, LLC as
Originator in Enterprise Development Network," press release, November 20, 2009. OPIC, "OPIC Selects Global
Business Advisory Services, LLC as Originator in Enterprise Development Network ," press release, November 20,
2009.
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The Overseas Private Investment Corporation: Background and Legislative Issues
tangible property caused by political violence. OPIC also has a number of special programs that
protect U.S. banks from political violence. This type of insurance reduces risks for banks and
other institutional investors, which allows them to play a more active role in financing projects in
developing countries. Specialized types of insurance coverage also is available for U.S. investors
involved with certain contracting, exporting, licensing, or leasing transactions that are undertaken
in a developing country.
Investment Development
OPIC also supports and mobilizes risk capital by providing debt capital for the creation of
privately-owned and privately-managed equity investment funds. These funds make direct
equity and equity-related investments in new, expanding or privatizing emerging market
economies. In most instances, OPIC provides up to one-third of the fund’s total capital, and
receives debt returns on its investment. OPIC supports these funds in situations where U.S. firms
either cannot allocate or cannot raise sufficient capital to start or expand their businesses
overseas. OPIC uses a competitive selection process in order to select fund managers with
venture capital investment capability and experience. Since the initiation of its investment funds
program in 1987, OPIC has committed $3.6 billion in funding to more than 50 private equity
funds. These funds subsequently have invested $4.6 billion in over 470 privately owned and
privately managed companies, mainly in small- and medium-sized enterprises, in regions eligible
for OPIC support.
By geographical area, nearly half (47%) of all of OPIC-supported investment funds are located in
Africa. For example, as part of OPIC’s initiative to broaden and deepen capital markets in SubSaharan Africa, OPIC’s Board of Directors has approved a number of investment funds, including
the Africa Catalyst Fund, Atlantic Coast Regional Fund, and Millennium Global Africa
Opportunities. For each fund, OPIC will provide around $100 million in financing. 8 Other regions
where OPIC-supported investment funds are concentrated include Central/Eastern Europe (15%),
Latin America/Caribbean (15%), and Asian (12%). 9
OPIC supports investment funds in a range of economic sectors. Projects in the
technology/media/telecommunications area and in financial services account for about one-fifth
of all of OPIC-supported investment funds. In line with OPIC’s sectoral focus on renewable
energy, OPIC’s Board of Directors has approved $505 million in financing for several new private
equity funds established to invest in clean and renewable energy projects in developing markets.
These funds include the Middle East & Asia Capital Partners Clean Energy Fund II, South Asia
Clean Energy Fund, FE Global Clean Energy Services Fund IV, and US Renewable Group
Emerging Market Fund. 10
In addition, OPIC offers limited pre-investment services to aid U.S. investors. For instance, OPIC
sponsors periodic investment conferences to inform U.S. businesses about investment
opportunities. As part of these activities, OPIC has sponsored a series of regional outreach
8
OPIC, Budget Request of the Overseas Private Investment Corporation, Fiscal Year 2009, Congressional Budget
Justification, February 2008, pp. 20-21. OPIC, "OPIC: Making Difference in Africa’s Capital Markets," OPIC News,
Winter 2008, p. 4.
9
OPIC website, http://www.opic.gov/investment-funds/participating-funds.
10
OPIC, "OPIC Board Approves Over $500 Million for New Renewable Energy Funds," OPIC News, Fall 2008, pp.
1-2.
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workshops to provide women- and minority-owned businesses with information and contacts for
investing in overseas markets.11
OPIC’s Budget
OPIC’s budget is fully self-funded from its own revenues. Each year, however, Congress provides
through the appropriations process authority for OPIC to pay its administrative expenses and
credit subsidy funding from user fees and other income. This fulfills OPIC’s statutory mandate to
conduct its operations on a “self-sustaining basis.” These funds are not actually provided to
OPIC, because OPIC relies on its own resources. Congress follows this procedure in order to
exercise its oversight role and to set limits on the extent to which OPIC can obligate U.S.
government resources.
Prior to FY1992, OPIC relied exclusively on non-appropriated resources (fees and interest on
Treasury securities) to fund its operations. With federal government credit reform, however, OPIC
was required to receive an appropriation based on an estimate of its credit programs (direct loans
and guarantees). From 1992 to 1994, OPIC returned to the General Fund of the U.S. Treasury an
amount equal to its direct appropriation. For FY1998 and beyond, OPIC’s appropriations
language provides OPIC with the authority to spend from its own income.
OPIC’s budget is composed of noncredit and credit accounts, in conformity with the standards set
out in the Federal Credit Reform Act of 1990 (see Table 1). The noncredit portion of OPIC’s
budget relates to OPIC’s political risk insurance program; its credit program accounts are
comprised of OPIC’s direct and guaranteed loans. OPIC has accumulated $4.7 billion in assets in
its noncredit account, which it uses to fund losses it may experience in its guarantees and
insurance coverage. 12 OPIC uses premium income and the interest it accrues from the assets in its
noncredit account to fund the direct and indirect expenses in its noncredit and its credit accounts.
In FY2008, the maximum exposure of OPIC’s insurance and finance programs stood at $11.3
billion. Of this amount, OPIC’s maximum insurance exposure stood at $2.9 billion. The agency’s
direct loan exposure was $1.2 billion, of which $766 million was outstanding. OPIC had $7.2
billion in exposure for its investment guarantees, of which $4.8 billion was outstanding. Although
the agency’s total maximum exposure in FY2007 and FY2008 was about the same, OPIC’s
insurance liability decreased and investment guarantees liability increased from FY2007 to
FY2008.
OPIC regularly returns “surplus” funds to the U.S. Treasury. These funds represent a reserve fund
against losses that OPIC may accrue from losses through its financing and insurance programs.
The transfer of these funds to the Treasury essentially is a transaction in the accounting ledger
between the Treasury and OPIC, rather than a cash transfer of funds. Currently, OPIC has
accumulated about $5 billion in reserves (comprised of U.S. Treasury securities). 13
11
OPIC, "OPIC Workshops Help U.S. Minority and Women-Owned Business Go Global," OPIC News, Winter 2008,
p. 1. OPIC, "OPIC Workshop for Minority and Women-Owned Businesses Draws 120," press release, October 22,
2009.
12
OPIC, Budget Request of the Overseas Private Investment Corporation: Fiscal Year 2009, Congressional Budget
Justification.
13
Estimated at fair value. OPIC, OPIC 2008 Annual Report, p. 34.
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Table 1. OPIC’s Budget Summary
(in millions of dollars)
FY04
Actual
FY05
Actual
FY06
Actual
FY07
Actual
FY08
Actual
FY09
Est.
FY10
Est.
$41
$43
$42
$43
$48
$50
$52
Noncredit administrative expenses
16
17
17
18
29
20
21
Credit administrative expenses a
25
26
25
25
19
30
31
53
4
120
45
28
24
23
Insurance claim payments/provisions
—
—
118
33
25
10
20
Adjustments to accounts
3
2
2
4
3
5
3
Iraq Middle Market Development
Foundation
50
2
—
8
—
9
—
Subtotal, Budget authority (gross)
81
51
172
112
83
201
182
Subtotal, Outlays (gross)
180
-10
46
52
49
55
70
Offsetting collections
-316
-257
-323
-292
-295
-260
-242
Federal sources
-50
-26
-25
-34
-39
-30
-31
Interest on U.S. securities
-222
-203
-200
-206
-212
-210
-191
Non-Federal sources
-44
-28
-22
-24
-18
-20
-20
Budget authority (net)
-229
-201
-153
-185
-208
-59
-60
Outlays (net)
-135
-267
-277
-240
-246
-205
-172
48
49
45
45
52
59
60
198
180
167
177
110
144
72
Direct loan subsidy
6
22
7
16
6
7
13
Guaranteed loan subsidy
33
11
1
20
5
14
19
Program cost re-estimates
134
121
134
116
70
89
—
Credit administrative expenses a
25
26
25
25
29
29
31
Budget Authority (net)
182
174
179
161
123
148
60
Appropriations d
134
120
134
116
71
89
—
From other accounts c
48
49
45
45
52
59
60
NON CREDIT ACCOUNT
Operating Expenses
Other Noncredit Expenses
Budget authority:
Transferred to other accounts b
CREDIT ACCOUNT
Total New Program Obligations c
Source: Budget of the United States Government, various years. U.S. Government Printing Office, Washington.
Notes:
a.
Credit administrative expenses originate from noncredit account balances and are transferred to the
program account where they are returned to the noncredit account as collection. In this way, the program
account reflects the cost of the credit program.
b.
Budget authority transferred to other accounts, including OPIC’s credit account.
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c.
These funds include transfers from OPIC’s noncredit account (see footnote ‘a’) and from the Export-Import
Bank and AID for OPIC guarantees to Newly Independent States (NIS) countries.
d.
OPIC does not receive an appropriation for the initial funding of its credit program subsidy. In accordance
with the Federal Credit Reform Act, OPIC receives an appropriation for the funding of the upward subsidy
re-estimates.
Recent Developments
With the advent of the current international financial crisis, 14 OPIC has reported that the risks
associated with its investment projects have increased. Private sponsors of OPIC-supported
investment projects have faced challenges obtaining private equity and debt financing for projects
scheduled to be conducted in the future. Businesses financed and insured by OPIC also have been
affected by the global decline in demand. OPIC notes that it has taken measures to monitor
current and potential projects in view of the current economic climate.15
According to OPIC, the challenges posed by the financial crisis have heightened the need for
OPIC’s services by U.S. business companies. The international financial crisis has spurred
liquidity problems for the U.S. financial sector, leading to a contraction of credit and insurance
available in private markets. U.S. companies that are interested in investing in developing
countries may turn to OPIC loans, guarantees, and political risk insurance to fill the gap in
commercial capacity. OPIC reports that it has experienced an increase in inquiries for its services
as a result of tightening of private credit sources. 16
In other developments, in February 2009, a settlement was reached in an environmental lawsuit
brought by Friends of the Earth, Greenpeace, and four cities (Boulder, Colorado and the cities of
Arcata, Santa Monica, and Oakland in California) against OPIC and another U.S. government
agency, the Export-Import Bank (Ex-Im Bank), in 2002.17 In the lawsuit, the environmental
groups and cities alleged that OPIC and the Ex-Im Bank provided more than $32 billion in
financing and insurance from 1990 to 2003, without assessing the extent to which the projects
contributed to climate change in the United States as required by the National Environmental
Policy Act (NEPA, P.L. 91-190).
Under the settlement, OPIC is able to continue funding such projects, but must take several
measures. Among the settlement provisions, OPIC agreed to subject “Category A” projects, those
resulting in emissions of more than 100,000 tons of carbon dioxide equivalents, to a NEPAequivalency Environmental Impact Analysis; to make public its determinations about the
environmental impact of such projects on its agency website and to provide opportunity for
comment; and, on an annual basis, to publicly report greenhouse gas emissions from projects in
its active portfolio that emit more than 100,000 tons of carbon dioxide equivalents a year.
Consistent with OPIC’s ongoing commitment to support renewable energy projects, OPIC also
agreed to provide at least $250 million for investment funds to give priority and preferential
financing terms to renewable energy projects and to encourage applicants seeking OPIC support
14
For a thorough background and analysis of the international financial crisis, see CRS Report RL34742, The Global
Financial Crisis: Analysis and Policy Implications, coordinated by Dick K. Nanto.
15
OPIC, Budget Request of the Overseas Private Investment Corporation: Fiscal Year 2009, Congressional Budget
Justification, p. iii.
16
Ibid.
17
Friends of the Earth v. Mosbacher, 488 F. Supp. 2d 889 (N.D. Cal. 2007).
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to explore opportunities to employ renewable energy sources in project designs. In addition,
OPIC has agreed to reduce by 20% over the next ten years the greenhouse gas emissions
associated with Category A projects. This is in line with an initiative previously adopted by OPIC
in June 2007.18
OPIC has taken a series of actions to increase transparency and accountability and to facilitate
receipt of information from the public in the project review process. In 2004, OPIC created an
Office of Accountability to assess and review complaints about OPIC-supported projects. OPIC
also posts on its website public summaries of OPIC-supported projects approved by the OPIC
Board of Directors and those delegated by the OPIC Board of Directors to be approved by OPIC
management. Recently, OPIC announced several new transparency initiatives, including the
posting of detailed project summaries prior to all Board of Directors meetings and the revision of
its Environmental Handbook for the first time since 2004 (to be renamed the OPIC
Environmental and Social Policy Statement).19
Legislative Issues
Congress does not approve individual OPIC projects, but has a number of oversight
responsibilities related to the agency and its activities. The Senate confirms Presidential
appointments to OPIC’s Board of Directors and to the agency positions of President and
Executive Vice President.20 Congress authorizes OPIC’s ability to conduct its credit and
insurance programs for a period of time chosen by Congress. In addition, Congress approves an
annual appropriation for OPIC that sets an upper limit on the agency’s administrative expenses to
conduct its programs. Congress also can amend or change OPIC’s governing legislation, the
Foreign Assistance Act of 1961 (P.L. 87-195) as amended.
The Omnibus Appropriations Act of 2009 (P.L. 111-8) extended OPIC’s operating authority
through September 30, 2009. The Act provided self-funding for OPIC; it set a limit of $50.6
million for OPIC’s administrative expenses and authorized a transfer of $29 million from OPIC’s
noncredit account to conduct its credit and insurance programs. For FY2010, the State-Foreign
Operations Appropriations bills (H.R. 3081, S. 1434) would set a limit of $52.31 million to fund
OPIC’s administrative expenses and would authorize a transfer of $29 million for its credit and
insurance programs to be funded by a transfer from OPIC’s noncredit account.
On March 25, 2009, the Senate introduced S. 705 to reauthorize OPIC until September 30, 2013.
The bill directs OPIC to ensure transparency and accountability of its investments funds through
the use of competitive, open procedures in the selection of its investment fund managers and
through annual reporting requirements. The bill also requires OPIC to provide more information
to the public on the methodology used to evaluate the impacts of OPIC projects and to provide
more opportunity for public input on OPIC projects. In addition, the legislation directs OPIC to
18
"Lawsuit Forces U.S. Financing Agencies to Account for Climate," Environment News Service, February 7, 2009.
Gerald Karey, "ExIm Bank, OPIC agree to provide $500 mil for renewable energy," Platts Commodity News, February
6, 2009. Meeting with Export-Import Bank officials, March 9, 2009. Overseas Private Investment Corporation, "OPIC
Announces Greenhouse Gas Initiative Capping Emissions on New Projects, Shifting Emphasis to Renewable Energy,"
press release, June 14, 2007.
19
OPIC, "OPIC to Disclose Detailed Project Information in New Commitment to Transparency," press release, April
8, 2009, http://www.opic.gov/news/pressreleases/2007/pr040809.asp.
20
Telephone conversation with OPIC congressional liaison, February 10, 2009.
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ensure that extractive industry projects conform to Extractive Industry Transparency Initiative
(EITI) standards and principles and to give preference to projects in which eligible investors have
agreed to implement the transparency standards and principles. The bill also extends OPIC’s
authority to conduct projects in Iraq. Among other provisions, the bill strengthens statutory
provisions on workers’ rights overseas and prohibits OPIC assistance to entities with investments
of $20 million or more in countries that are state sponsors of terrorism.
OPIC’s authorization has lapsed periodically. When OPIC’s authorization lapses, OPIC is able to
continue operating; the agency is able to disburse funds for already committed projects, but is
unable to sign contracts for new projects. OPIC’s Small and Mid-Size Enterprise Finance
Division reportedly developed a large backlog of unapproved transactions during the lapse in
reauthorization. Expiration of reauthorization also reportedly affects OPIC’s capacity for longterm planning and ability to provide assurances to investors about OPIC programs.21 From an
operational standpoint, some argue that OPIC would benefit from multi-year authorizations.
Others argue that frequent reauthorizations allow for more opportunity for congressional
oversight of OPIC’s activities.
Previous reauthorization bills introduced in the 110th Congress (H.R. 2798, S. 3297) included new
directives for OPIC, such as to promote the use of clean energy technology and reduce
greenhouse gas emissions associated with OPIC-supported projects. The Senate did not act on S.
3297 because some Members were reportedly opposed to the provisions on clean energy
technology. The OPIC reauthorization bill introduced in the 111th Congress (S. 705) does not
include any such directives for OPIC.
Other legislation pertaining to OPIC was introduced in the 110th Congress. The Energy
Independence and Security Act of 2007, P.L. 110-140, expressed the sense of Congress that OPIC
should promote greater investment in clean energy technologies and includes a reporting
requirement. The Caribbean Coral Reef Protection Act, H.R. 1679, would have prohibited OPIC
from providing its services to any person who has made investments contributing to the
development of petroleum resources off Cuba’s coast. H.R. 1886 would have prohibited OPIC
from supporting any oil or gas project. The Currency Reform for Fair Trade Act of 2007, H.R.
2942, would have prohibited OPIC from supporting projects in designated countries that issue
fundamentally misaligned currencies.
Economic and Policy Issues
Economists generally oppose the use of subsidized credits to promote trade or investment abroad.
They believe such subsidies tend to distort the flow of capital and resources away from the most
efficient uses. They also believe that by promoting investment abroad, OPIC may be crowding
out, and thereby reducing, some domestic investment. As long as OPIC’s non-federal
collections—or the fees it charges the public for its services—are sufficient to cover all of its
credit and noncredit activities (as indicated by some estimates), it may not have a negative impact
on the federal government’s budget. OPIC’s impact on U.S. capital and resource markets,
however, may well be negative due to the distorting effects of subsidized credits. Some supporters
21
Small Business Exporters Association, "Congress Restores Authority for Key Small Business International Trade
Agency," press release, October 1, 2008, http://www.nsba.biz/content/2018.shtml. OPIC, Budget Request of the
Overseas Private Investment Corporation: Fiscal Year 2009, Congressional Budget Justification, p. iii.
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argue that, with a total finance and insurance portfolio of $11.3 billion, OPIC is not large enough
to affect the cost of capital in the United States. They also argue that OPIC screens proposed
investments to ensure that they would not affect U.S. employees negatively or displace U.S.
production domestically or in overseas markets.
OPIC was established as part of the Foreign Assistance Act of 1961, as amended. As such, much
of the rationale for OPIC relates to U.S. foreign policy goals, a premise that is being questioned
by some Members of Congress. Initially, OPIC was established to enhance U.S. aid policy during
a period when policymakers were dissatisfied with the focus of U.S. aid programs on officially
supported capital intensive projects. OPIC was designed to assist U.S. private firms to take the
lead in developing projects that not only would enhance economic development but be
economically viable as well. In this role, OPIC’s programs may serve to rectify certain “market
failures” that dissuade U.S. firms from investing in developing countries. In many of these
countries, labor, goods, and capital markets are not well established, and information about the
economy often is difficult to obtain. Given this lack of information, individual firms may well
attach more risk to investing in developing economies than is warranted. Until the firms gain
greater experience or information, or otherwise change their assessments of the risks and rewards
of investing in developing countries, they may be overly reluctant to commit resources to
investments in the least developed countries without OPIC’s guarantees. While critics argue that
many countries may no longer need OPIC support due to the successful transformation of their
markets, supporters maintain that there are numerous countries around the world, including those
in Latin America, Africa, and the Middle East, experiencing economic transformations that
require the type of private sector-oriented support provided by OPIC.
Author Contact Information
Shayerah Ilias
Analyst in International Trade and Finance
silias@crs.loc.gov, 7-9253
Congressional Research Service
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