The Transferability and Convertibility Facility (T&C) is an EU-funded guarantee product managed by EDFIMC, in sub-delegation structure with Proparco. T&C provides protection against losses arising from an investor’s inability to legally convert local currency into hard currency and/or to transfer hard currency outside the host country where such a situation results from a government action or failure to act.
This T&C facility was designed by a few DFIs that in the energy sector often face the challenge that their counterparts under PPA payments cannot always convert the payments in hard currency, nor transfer those to offshore accounts. The T&C facility provides a partial guarantee (up to 12 months) of payment obligations that face these challenges. The first guarantees are expected to be signed at the end of 2019.
The T&C Facility aims to contribute to the development of new renewable energy power capacity without delay in developing countries facing significant foreign currency reserve constraints. In recent years, worsened macro-economic conditions have resulted in many exporting countries experiencing some difficulties with their foreign exchange reserves. The inconvertibility and non-transferability risks are particularly important for the energy sector as electricity is sold in local currency while power plants are typically financed in USD or EUR and local governments sometimes do not guarantee such risks.
Concretely, the purpose of the T&C Facility is to mitigate T&C risks by financing a reserve account for each project meeting the eligibility criteria, used by lenders during an inconvertibility/non-transferability event. The facility is now open for business for pillar-assessed European DFIs.