December 16, 2003
EC approves German ship financing guarantee scheme
The European Commission has decided to approve a German proposal for ship financing guarantees. Under the proposal, premium payments will be differentiated according to the risk to be covered. The guarantees will be operated in Germany's five coastal states (Niedersachsen, Bremen, Hamburg, Schleswig-Holstein and Mecklenburg-Vorpommern). The scheme will provide public fallback guarantees with respect to credits granted for the financing of ships built in German yards.
The novelty of the schemes consists in the introduction of risk differentiation. Different premiums will be charged for the different risks to be covered by the guarantee. Germany has devised a sophisticated rating system comprising six risk categories allowing allocation of projects according to their respective risks.
Low risk project will thus be able to benefit from cheaper premiums compared to higher risk projects. High-risk projects will in the future face premium payments commensurate with risk that is being insured.
EU Competition Commissioner Monti highlighted the good cooperation between the German authorities and the Commission services and stated that this case could serve as an example for the future assessment of guarantees schemes in the shipbuilding sector.
The guarantees are granted in relation to bank credits granted by any financial institution, irrespective of its location. Two types of guarantees can be granted: "Construction financing guarantees", i.e. guarantees to secure the pre-financing of the construction cost of the vessel until the delivery by the yard and "end-financing guarantees", i.e. guarantees to finance the purchase of the completed ship by the owner.
The schemes are approved until December 31, 2006. Prior to that date, the Commission will review the functioning of the new system in light of the experience gained within the first three years.