Overseas Private Investment Corporation (OPIC)

Overseas Private Investment Corporation (OPIC)

May 24, 2017
Overseas Private Investment Corporation (OPIC)
Background
Africa would have renewed OPIC on a multi-year basis, but
these provisions were not included in the final legislation
OPIC, a wholly-owned U.S. government corporation and
(P.L. 114-121). OPIC may face more scrutiny in the 115th
development finance institution (DFI), operates under the
Congress, resulting in part from President Trump’s FY2018
Foreign Assistance Act of 1961 (FAA), as amended (22
budget request to eliminate OPIC funding, the ongoing
U.S.C. §2191 et seq.). Spun out of the U.S. Agency for
debate over the Export-Import Bank (Ex-Im Bank), and
International Development (USAID) in 1971 to focus on
debate over the U.S. government’s size and scope.
market-oriented investment, OPIC aims to promote
economic growth in developing and emerging economies
Leadership. OPIC, by statute, has a Board of Directors
by financing overseas investments and insuring against
with 15 members appointed by the President with the
political risks of investing abroad, such as currency
advice and consent of the Senate. The Board has eight
inconvertibility, expropriation, and political violence, for
“private sector” Directors (with requirements for small
qualifying U.S. private investors. OPIC presents
business, labor, and other representation), appointed to
reauthorization, organizational structure, funding and other
three-year terms, and seven “federal government” Directors
issues for Congress.
(including the OPIC President, the USAID Administrator,
Table 1. OPIC Financial Products Overview
the U.S. Trade Representative, and a Labor Department
officer), who serve at the pleasure of the President. A
Examples of OPIC
quorum for the Board to transact business requires eight
OPIC Financial Product
Commitments
Directors. The Board provides policy guidance, and major
OPIC commitments require its approval. The Board meets
Political risk insurance:
Since 2004, has committed over
four times a year. OPIC participates in the interagency
Protects against political
$300 million in political risk
Trade Promotion Coordinating Committee (TPCC), and
risks of investing overseas,
insurance to Apache Corp. for
collaborates periodically on projects with USAID, Ex-Im
up to $250 million per
oil and gas development in
Bank, and the Trade and Development Agency (TDA).
transaction.
Egypt.
Requirements. OPIC operates under the Secretary of
Financing: Up to $250
Approved a $750,000 loan in
State’s policy guidance. OPIC must take into consideration
million and up to 20 years
2009 for a Utah-based small
economic and social development impacts when
through either fixed-rate
business to expand heavy
determining whether to support a project. Other criteria
direct loans for projects
equipment rental business in
include investor eligibility based on sufficient connection to
significantly involving U.S.
Nigeria, and $95 million in
the United States, U.S. economic impact, environmental
small business, or investment financing in 2013 for a wind
impact, worker rights, and development effects on the
guarantees of OPIC
power plant in Pakistan with
country receiving the investment. U.S. small businesses and
repayment of loan if the
General Electric wind turbines.
sub-Saharan Africa are focus areas. Military production and
borrower defaults. Can
In 2013, completed a $245
sales are among “categorically prohibited sectors.”
include limited-recourse
million, 20-year project finance
Funding. The FY2017 appropriations act provided $70
project finance (structured
loan for a hydroelectric power
million for OPIC’s administrative expenses to carry out its
so that loan repayment
plant in Chile, sponsored in part
credit and insurance programs and a transfer of $20 million
comes from project).
by a Virginia-based subsidiary of
from its noncredit account for credit program costs. OPIC
a Chilean firm.
had an estimated 281 full-time equivalent employees in
Investment fund support:
Approved $125 million in
FY2017. The President’s FY2018 budget requests $60.8
Provides senior debt
financing in 2009 for a micro-
million to manage OPIC’s existing portfolio and start
financing to supplement
finance fund in Latin America,
“orderly wind-down activities.”
equity raised by funds
and $80 million in financing in
The FAA directs OPIC to operate “on a self-sustaining
(privately owned and
2014 for an affordable housing
basis, taking into account... the economic and financial
managed capital sources).
fund in sub-Saharan Africa.
soundness of projects.” OPIC charges interest, premia, and
Source: CRS, based on OPIC publications, various years.
other fees for its services to cover operations. OPIC returns
more funds to the U.S. Treasury than it receives in
Authorization status. Since reauthorizing OPIC in
appropriations. On a cash basis, OPIC reported remitting
December 2003 for nearly four years through FY2007 (P.L.
$239 million in FY2016. On a budgetary basis, it finances
108-158), Congress generally has extended its authority
loans by borrowing from the U.S. Treasury, and investment
through appropriations legislation. The FY2017 omnibus
guarantees by issuing certificates of participation in U.S.
appropriations act (P.L. 115-31) extended OPIC’s authority
debt capital markets. It repays the Treasury through
until September 30, 2017. Certain bills introduced in the
collection of loan fees, repayments, and default recoveries.
114th Congress to expand electricity access in sub-Saharan
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Overseas Private Investment Corporation (OPIC)
Activity. OPIC is “demand-driven,” providing services
compete against competitors backed by OPIC’s foreign
based on user interest. OPIC support is available in over
counterparts. Critics argue that OPIC diverts capital away
160 countries, while barred in some other countries due to
from efficient uses and crowds out viable, private
sanctions laws and other restrictions (such as the U.S.
alternatives, and they take issue with OPIC assuming risks
prohibition on operations in China since the Tiananmen
unwanted by the private sector. OPIC also intersects with
Square incident). OPIC makes commitments in various
the broader investment debate: some tie U.S. outbound
sectors, including infrastructure, energy, financial services,
investment with U.S. job loss through offshoring, while
technology, education, and health care. OPIC reported
others argue that overseas investment supports U.S. jobs
making $3.7 billion in new commitments in FY2016. Its
and exports. Regarding foreign policy, supporters contend
overall portfolio reached $21.5 billion— below its $29
that OPIC advances U.S. foreign policy interests by
billion statutory cap but nearly double its 2008 portfolio.
contributing to economic development in poor and conflict-
affected countries through positive results and on a
Figure 1. OPIC Portfolio, FY2016
demand-driven basis; opponents question OPIC’s
development benefits, criticizing, for instance, its support
for particular projects or overall portfolio composition.
Products. The range of financial products that OPIC offers
is another possible issue for Congress. In recent budget
justifications, OPIC has requested to use part of its budget
to invest in private equity funds that serve its mission.
Equity authority could enable OPIC to exert greater
influence on a project’s strategic goals and policies and
allow OPIC to use the higher returns associated with equity
investments to support more projects. Yet, it also involves
the U.S. government taking an ownership stake in a private
enterprise, requires greater resources, and entails financial
risks. Many foreign DFI counterparts have equity authority.
Policies. Specific OPIC policies, especially environmental
policies, have been contested. Based on the FY2010
appropriations act (P.L. 111-117, §7079(b)) and other
factors, OPIC has aimed to reduce its projects’ greenhouse
gas emissions and expand its support for renewable energy.
Recent appropriations acts have barred OPIC from using its

Source: CRS, based on OPIC data.
funds, under certain conditions, to enforce action pursuant
Risk management. OPIC’s activities are backed by the full
to the FY2010 appropriations act or a proposed 2013 policy
faith and credit of the U.S. government. OPIC must conduct
change to limit financing for coal-fired power plants. This
its operations with regard to risk management principles. It
prohibition could expand opportunities for OPIC support
assesses credit and other risks of proposed transactions,
for overseas coal projects, which could help OPIC to
monitors commitments, and guards against potential losses
advance its development mandate in energy-poor countries,
through reserves ($5.6 billion in reserves in FY2016). OPIC
but it also could raise environmental concerns.
works to avoid potential claim situations before they arise.
Internal oversight. USAID’s Inspector General conducts
It reports total recoveries of 103% (including interest) of
reviews, investigations, and inspections of OPIC’s
total claims settlement.
operations, while external auditors review OPIC’s financial
statements and report findings to OPIC’s Board. Congress
Impact. OPIC monitors the impact of active projects by site
could examine this process.
visits of randomly selected projects and the annual self-
International context. OPIC and foreign DFIs are playing
reporting that it requires of clients. OPIC estimates that its
a more prominent role as foreign assistance has declined,
FY2015 commitments of $4.4 billion will bring $14.2
private investment has risen, and capital needs for
billion in new investment, and over a five-year period from
infrastructure and other projects have grown overseas.
FY2015, create about 20,000 host country jobs, and support
Transformative changes in the DFI landscape, with the
400 U.S. jobs through $264 million in U.S. exports.
growing role of China and other emerging markets and the
Issues for Congress
establishment of new multilateral institutions, raise
questions about OPIC’s competitiveness and whether new
Reauthorization debate. One possible issue before
international rules are needed to govern DFI activity.
Congress is whether to reauthorize, reorganize, privatize, or
terminate OPIC. The Trump Administration’s interest in
More information. See CRS Report 98-567, The Overseas
government-wide reorganization to increase the
Private Investment Corporation: Background and
effectiveness, efficiency, and accountability of the
Legislative Issues, by Shayerah Ilias Akhtar.
government may factor into congressional consideration.
Shayerah Ilias Akhtar, Specialist in International Trade
Supporters argue that OPIC fills gaps in private sector
and Finance
investment support arising from market failures (e.g.,
financial crises, risk levels) and helps U.S. businesses
IF10659
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Overseas Private Investment Corporation (OPIC)

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