Export Credit Agencies Urged to Extend Cape Town Discount to Rail Under the Luxembourg Rail Protocol
Why it Matters
The call places rail finance directly within the wider debate on export credit pricing, legal certainty and sustainable infrastructure investment. If ECAs apply risk premium discounts to rolling stock under the Luxembourg Rail Protocol, rail exporters and buyers could benefit from more competitive financing terms, improving the viability of fleet procurement and leasing transactions.
For African rail markets, the issue is particularly relevant where rolling stock access remains a constraint on corridor development, freight reform and private sector participation. South Africa’s ECIC has already announced a discount of up to 20% for qualifying rolling stock financings where the Protocol is in force, creating a policy example that could influence wider ECA treatment of rail assets.
Export Credit Agencies (ECAs) from OECD States, at their annual CSO consultation meeting in Paris, were strongly urged to extend to railway rolling stock the risk premium discount of up to 10% they already provide in relation to aircraft finance where the Cape Town Convention (CTC) applies, as momentum grows behind the Luxembourg Rail Protocol as a tool to support more competitive financing for rail exports.
The issue was raised at the OECD in a presentation by Howard Rosen, Chairman of the Rail Working Group, on the role of the Luxembourg Rail Protocol in export credit policy.
The presentation also drew attention to an open letter from leading rolling stock manufacturer Stadler to OECD ECAs, pressing them to apply a risk premium discount to rail export finance where the CTC applies to rolling stock through the Luxembourg Rail Protocol. Stadler points out that “even a small change in the effective cost of finance can be the difference between whether or not we secure an order”, whilst stressing that the Luxembourg Rail Protocol provides additional legal security for creditors and underwriters.
In his intervention, Rosen also drew attention to the recent policy announcement by the Export Credit Insurance Corporation of South Africa (ECIC), which stated that where the Luxembourg Rail Protocol is in force in the debtor or lessee’s state, it will apply a discount of up to 20% to its risk premium when underwriting qualifying rolling stock financings, subject to local content requirements, compliance with the Protocol and other underwriting conditions. It was time, he said, to follow their example and offer a 20% discount also to rolling stock exporters from OECD states.
“How can it be”, said Rosen, “that ECAs state that they ‘encourage the use of stringent international standards and good international industry practices … contributing to sustainable development’ and then reduces its premiums on aircraft exports when the CTC applies but does not apply the same system for rolling stock?” “It makes no sense, taking into account that railways are a key tool in achieving sustainable development”, he added.
