Profile of JBIC1. 1 Message from the Governor 2. 2 Profile 4. 3 On Inauguration of the new JBIC 8. 4 JBIC s Medium-Term Business Plan (FY ) 12

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1 Profile of JBIC1 1 Message from the Governor 2 2 Profile 4 3 On Inauguration of the new JBIC 8 4 JBIC s Medium-Term Business Plan (FY ) 12 5 Outline of Operations in FY

2 1 Message from the Governor 1 Profile of JBIC 1. Message from the Governor As we publish the 2012 Annual Report, I would like to express my heartfelt appreciation for your continued understanding and support for our activities. In April 2012, we set off on a new start as a policy-based financial institution wholly owned by the Japanese government separated from the Japan Finance Corporation (JFC), pursuant to the Japan Bank for International Cooperation Act (JBIC Act), promulgated and came into effect on May 2, Today a major change is underway in the international environment surrounding Japan. In the natural resources sector, the growth of the global population and emerging market countries has given rise to a great scramble for acquiring resources. As Japan has a poor supply of domestic energy and mineral resources, securing long-term and stable access to such resources is an issue of strategic importance that is directly linked to people s lives. In particular, as a result of the Great East Japan Earthquake, increased focus is being placed on the importance of stable electricity supplies, and it has become more important to secure stable and more affordable supplies of energy resources, such as natural gas. Whether in the manufacturing industry or in the infrastructure sector, where global demand is growing, the traditional model of competition occurring only among corporations from developed countries has broken down. Japan is facing increasing competition in every corner of the world, in developed and developing countries alike, with companies in emerging market countries entering the fray. Additionally, the appreciation of the yen has put a substantial burden on Japanese businesses, especially the export industry. However, it has also presented us with an agenda of taking advantage of the higher value of the yen, for example, with merger and acquisition activities for acquiring foreign firms and the acquisition of interests in overseas resources. In another area, achieving economic development in harmony with global environmental sustainability is seen as a common global issue. Thus, there is an increasing need not only for environmental and social considerations in individual projects, but also for projects conducive to environmental conservation and improvement, including, among others, those seeking to cope with global warming. 2

3 1 Furthermore, as the world economy is becoming increasingly integrated, global financial crises, such as the Lehman Shock and a destabilized European financial system, could have a more substantial impact on the real economy than ever before. In responding to these various changes currently underway in the global economic environment, we at JBIC will conduct operations in the following four fields, as set out under statutory law, while complementing the financial transactions of private-sector financial institutions: (1) promoting the overseas development and securement of resources which are important for Japan; (2) maintaining and improving the international competitiveness of Japanese industries; (3) promoting the overseas business having the purpose of preserving the global environment, such as preventing global warming; and (4) preventing disruptions to international financial order or taking appropriate measures with respect to damages caused by such disruption. Thus, the ultimate mission of JBIC is to contribute to the sound development of Japan and the international economy and society. Profile of JBIC 1. Message from the Governor To this end, we put forward a new corporate philosophy: Positioned at the crossroads of global business opportunities, JBIC is opening new venues to the future of the Japanese and global economy. It embodies three core values we have to pursue in realizing our goals set out in the mission: Hands-on Policy, Customer-1st Approach and Forward-looking Action. We will constantly keep this corporate philosophy in mind, and as a Japanese policy-based financial institution, the management and staff of JBIC will strive to execute our work efficiently as a unified body, to live up to the expectations placed upon us, while taking care to devote ourselves to complementing private-sector financial institutions and to ensure financial soundness. It is my sincere wish that our endeavors will earn your understanding and enduring support. August 2012 Hiroshi Okuda Governor Japan Bank for International Cooperation (JBIC) 3

4 2 Profile 1 Profile of JBIC 2. Profile As a policy-based financial institution, JBIC has the purpose of contributing to the sound development of Japan and the international economy and society, while having the objective of supplementing the financial transactions implemented by ordinary financial institutions. Japan Bank for International Cooperation (JBIC) is a policy-based financial institution wholly owned by the Japanese government, which has the purpose of contributing to the sound development of Japan and the international economy and society, by taking responsibility for the financial function to promote the overseas development and securement of resources which are important for Japan, to maintain and improve the international competitiveness of Japanese industries and to promote the overseas business having the purpose of preserving the global environment, such as preventing global warming, also providing the financial services that are necessary to prevent disruptions to international financial order or to take appropriate measures with respect to damages caused by such disruption, while having the objective of supplementing the financial transactions implemented by ordinary financial institutions. Profile Name Japan Bank for International Cooperation (JBIC) Office 4-1, Ohtemachi 1-chome Chiyoda-ku, Tokyo , Japan Capital 1,291.0 billion (wholly owned by the Japanese government) Outstanding Loans and Equity Participations* 8,192.7 billion Outstanding Guarantees* 2,378.3 billion *As of March 31, 2012, Account for JBIC Operations Europe 7, billion (3, 700) The Middle East 3 5, billion (769) Africa 3, billion (2, 350) JBIC by the Numbers Total Value (Number) of Loan and Equity Participation Commitments As of March 31,

5 History Japan Bank for International Cooperation (JBIC) was established on April 1, 2012 in accordance with the Japan Bank for International Cooperation Act (JBIC Act), which promulgated and came into effect on May 2, October 1999 JBIC October 2008 April 2012 Japan Finance Corporation ( JFC) JBIC (International Finance Units) (Domestic Finance Units) Micro Business and Individual Unit Agriculture, Forestry, Fisheries and Food Business Unit Japan Bank for International Cooperation ( JBIC) 1 Profile of JBIC 2. Profile Export-Import Bank of Japan (JEXIM) International Financial Operations Small and Medium Enterprise (SME) Unit Overseas Economic Cooperation Fund (OECF) Overseas Economic Cooperation Operations Operations to Facilitate Crisis Responses and Specific Businesses Promotion, etc. Japan International Cooperation Agency ( JICA) North America billion (2, 851) Asia 20, billion (10, 662) Oceania 2, billion (1, 089) Latin America and the Caribbean 8, billion (4, 043) 5

6 1 Profile of JBIC 2. Profile The Purpose of JBIC JBIC is a policy-based financial institution wholly owned by the Japanese government, which has the purpose of contributing to the sound development of Japan and the international economy and society, by conducting financial operation in the following four fields: Promoting the overseas development and securement of resources which are important for Japan Maintaining and improving the international competitiveness of Japanese industries Promoting the overseas business having the purpose of preserving the global environment, such as preventing global warming Preventing disruptions to international financial order or taking appropriate measures with respect to damages caused by such disruption JBIC Corporate Philosophy The objective of JBIC, as set forth in its statutory law, is to contribute to the sound development of Japan and the international economy and society by executing a variety of financial functions. To pursue this objective, we have set out the following new corporate philosophy, which espouses three core values: Hands-on Policy, Customer-1st Approach and Forward-looking Action. Positioned at the crossroads of global business opportunities, JBIC is opening new venues to the future for the Japanese and global economy. Hands-on Policy: Pioneering new value by participating at the forefront of overseas project development, and by engaging proactively in projects from the early stages Customer-1st Approach: Offering customers one-of-a-kind solutions by adopting their perspectives and integrating their views into policy development Forward-looking Action: Contributing to the sustainable development of Japan and the world as a whole by deploying highly professional skills, with a view to realizing a secure and affluent future society Corporate Slogan 6

7 Operational Principles JBIC, as a policy-based financial institution and in accordance with the following principles, conducts speedy and well-focused operations based on policy needs in response to economic and financial situations in Japan and abroad. 1. Supplementing the financial transactions implemented by private-sector financial institutions To effectively perform the functions required for policy-based financing, JBIC shall take account of situations where private-sector financial institutions are placed in their international finance activities and supplement their operations. 1 Profile of JBIC 2. Profile 2. Ensuring financial soundness and certainty of repayment Pursuant to the JBIC Act, JBIC shall make efforts to maintain the financial soundness of its operations, and when making financial decisions, to conduct adequate screening regarding the outlook for the recovery of funds. 3. Maintaining and improving international creditworthiness and confidence In order to conduct adequate operations and effective overseas funding operations, JBIC shall maintain and improve the international creditworthiness and confidence gained by JBIC over the years. 4. Conducting business operations by drawing on its expertise and initiatives JBIC shall conduct operations by drawing on its own expertise and initiatives on international finance. JBIC Code of Conduct Act consistently in the public interest. Contribute to Japan and the international community by pursuing our Mission. Prioritize client satisfaction. Deliberate, decide and act from the client's perspective. Accept responsibility as a professional. Perform every task based on your own initiative. Undertake challenges daringly. Create new value without fear of failure. Work quickly and cost-effectively. Enhance your work quality with an eye to efficiency. Focus on teamwork. Share unified objectives with your colleagues to achieve significant successes. Maintain high ethical standards and a law-abiding spirit. Observe our moral code as a JBIC member at all times. 7

8 3 On Inauguration of the new JBIC 1 Profile of JBIC 3. On Inauguration of the new JBIC Circumstances Surrounding JBIC and Expected Roles Thereof Policies Corresponding to Changes in Global Conditions and the Missions of JBIC Under recent global economic conditions, Japanese companies are facing difficult challenges such as increasing competition in the acquisition of resources due to the economic growth of emerging market countries, increased recognition of global environmental issues, expansion of demand for infrastructure overseas, intensifying competition to secure a share of middle class demand or volume zone in emerging market countries, growing competition from corporations from emerging market countries, and on-going yen appreciation. In the field of resources, they are faced with the significant challenge of how to acquire energy sources with low greenhouse gas (GHG) emissions, amid intensifying global competition in the acquisition of resources. Competition for the acquisition of resources is still increasing, including from emerging market countries. As a result, it is becoming more and more difficult to acquire resources merely by simple payment transactions. Therefore, it is becoming increasingly important to retain the rights for the resources. In the field of infrastructure, there is global demand for the construction of infrastructure that is estimated to be worth approximately $1.2 trillion or more 1. Japanese industry is trying to utilize this high level of demand as a means of growth and is proactively working on the overseas deployment of integrated infrastructure systems 2. Moreover, markets are expanding particularly rapidly in the emerging market countries, which serve as the growth engine of the global economy, along with the growth of the middle class, who hold much purchasing power. While Japan s domestic market cannot be expected to expand due partly to the decreasing population, many Japanese companies, including mid-tier enterprises as well as small and medium sized enterprises (collectively SMEs ), are increasing their overseas investment to capitalize on overseas demands. Taking such conditions into account, the Government of Japan has set up a number of policies including a new growth strategy, which aims to harness the growth of Asian and other nations, who are the drivers of global economic growth. JBIC provides support in addressing the problems facing Japanese society through financial instruments in the four fields stipulated by the JBIC Act: 1) promoting the overseas development and securement of resources which are important for Japan; 2) maintaining and improving the international competitiveness of Japanese industries; 3) promoting the overseas business having the purpose of preserving the global environment, such as preventing global warming; and 4) preventing disruptions to international financial order or taking appropriate measures with respect to damages caused by such disruption. 1. The Ministry of Economy, Trade and Industry, A Report of the Practitioners Review Meeting, Infrastructure System Export Sub-Group, Trade and Economic Cooperation Committee, Industrial Structure Council, June Unlike a business model in which a company individually exports systems or technology as just a subcontractor or a supplier, the overseas deployment of integrated infrastructure systems is a business model by which a company directly invests in an infrastructure-related project and obtains a business right to ensure a wide range of services such as systems, technology, and maintenance services, or provides a wide range of proposals such as a master plan for urban deployment in an integrated manner, taking the needs and expectations of the host country into consideration. JBIC s Involvement from the Early Stages of Project Formulation As large-scale and long-term infrastructure-related businesses are influenced by country risk and changes in economic conditions, financing corresponding to such influences is important. JBIC has been involved in many overseas projects in various fields such as resources, electricity, transportation, and water. JBIC has built relationships of trust with the governments or governmental organizations of the host countries through these projects. Japanese companies are showing strong interest in the overseas deployment of integrated infrastructure systems, through which they can not only sell machinery but also carry out operations and maintenance. In cases where the operation and management of a project is carried out over a long period of time, a long-term relationship of trust with the hosts, such as the government of the host country, need to be built. The expectation of the host countries is not limited to individual proposals for each sector and they expect Japanese companies to set up grand designs, such as how to build up the comprehensive infrastructure of the region. Therefore, JBIC is expected to provide support from the early stages of the project while proposing a future vision for the infrastructure of the entire region through the utilization of its extensive relationships with the governments of foreign countries. Based on such needs, JBIC is currently carrying out various activities. For example, JBIC periodically provides opportunities for the exchange of opinions between JBIC and the Government of Indonesia, on themes such as the promotion of power development utilizing domestic Indonesian resources and related policy ideas for that purpose, or on the management of macro-economic matters. As a result of such opportunities, specific developments include the launching of Indonesia s first highly efficient coal-fired thermal power generation project, which incorporated investment and technology from Japanese companies; and the launching of discussions concerning the provision of technology and know- 8

9 how from Japanese companies regarding small and medium gas fields, which was also aimed at meeting the domestic demand in Indonesia. Moreover, JBIC is holding discussions with the Government of Mexico concerning economic conditions and the economic policy of Mexico and issues related to important fields such as infrastructure, energy, environment, Dialogue with host country Study/ response for project feasibility Competitive bidding Awarded concession/ orders and manufacturing. JBIC is also carrying out policy dialogues with other countries at various levels. JBIC will continue to further promote such efforts to deepen its involvement in projects from the early stages of formulation. Loan structuring Offering financing Project supervision 1 Profile of JBIC 3. On Inauguration of the new JBIC Dialogue with host country for adoption of conditions favorable to Japan Utilization of studies to propose an attractive finance package Utilization of equity participation to reduce initial project costs Offering flexible financing to support bidding by Japanese companies Examination of the project Negotiation for conclusion of contract Maintaining continuous relationship with the government Support for maintaining debt sustainability Proactive involvement from the early stages of the formulation of the project Provision of financing based on the business plan of the project operator Roles of JBIC Promulgation and Implementation of the JBIC Act and the Strategic Realignment In order to deal with the changes surrounding Japanese industries and also the new functions required of JBIC, such as supporting the overseas deployment of integrated infrastructure systems, the JBIC Act, which includes the strengthening of JBIC s functions, was promulgated and entered into force in May According to this act, it was determined that JBIC would be an independent organization for the purpose of strengthening the mobility and expertise of JBIC and at the same time securing financial independence and clarity in order to improve the stability of JBIC s fund procurement. Prior to the shift to a new organizational structure from April 2012, JBIC introduced a five-group system, which includes the Corporate Group; the Credit, Assessment, and System Group; and three finance groups set up as a result of reorganization of the finance departments, which had been organized on a regional basis. Said reorganization was carried out in July 2011 to concentrate know-how and expertise to increase project formulation capabilities and to carry out the missions of JBIC more flexibly and strategically. Before the introduction of the strategic realignment, there were three finance departments classified by region, namely Asia and Oceania; the Americas; and Europe, Middle East and Africa, and two finance departments classified by sector such as the Energy and Natural Resources Finance Department and Corporate Finance Department. After the introduction of the strategic realignment, they were reorganized into three groups: Energy, Natural Resources and Environment Finance Group, Infrastructure Finance Group, and Industry Finance Group, under which former departments were positioned as individual departments. The Energy, Natural Resources and Environment Finance Group mainly performs operations to secure a stable supply of energy and mineral resources, etc. The Infrastructure Finance Group supports the overseas deployment of infrastructurerelated business in order to maintain and improve the international competitiveness of the Japanese industries. The Industry Finance Group supports the overseas deployment of Japanese companies including SMEs and also supports Japanese industries by enabling them to maintain their competitive advantages such as in shipbuilding, plant and machinery 9

10 1 Profile of JBIC 3. On Inauguration of the new JBIC manufacturing over a long period of time for the purpose of maintaining and improving the international competitiveness of Japanese industries, much like the Infrastructure Finance Group. As a result of the realignment, JBIC has set up a system to flexibly carry out the speedy and accurate collection of information and to be proactively involved in projects from the early stages. In addition, to further strengthen the close relationships with foreign governments and government organizations that Organizational Chart Corporate Group JBIC has built, the sales department clearly defines the country in charge as a country with strong links to the mission and/ or field in question, to strengthen coordination with each country. For this purpose, the department in charge of the corresponding country becomes the contact point of the project, even if said project is not the assignment of the department. Thus JBIC has set up a system that further promotes the building of close relationships with host countries. Corporate Planning Department Risk Management Department (As of October 1, 2012) Treasury Department Administration and General Services Department Energy, Natural Resources and Environment Finance Group Oil and Gas Finance Department Mining and Metals Finance Department Nuclear and Renewable Energy Finance Department Infrastructure Finance Group Power and Water Finance Department Transportation and Telecommunication Finance Department Industry Finance Group Corporate Finance Department Marine and Aerospace Finance/Financial Products Department West Japan Office Finance Division for SMEs Credit, Assessment, and System Group Credit Department Country Credit Department IT Planning and Operations Administration Department Internal Audit Department Office of Corporate Auditor Overseas Representative Offices 10

11 Points of the JBIC Act As stipulated in the JBIC Act promulgated and entered into force on May 2, 2011, the operational functions of the former JBIC, which was the international wing of the Japan Finance Corporation (JFC), was strengthened and JBIC was separated from JFC to newly found the Japan Bank for International Cooperation (the new JBIC), with the aim of more effectively supporting strategic investment by Japanese companies in infrastructure-related projects and other fields. The driving force behind the reorganization of JBIC is the fact that enhancement of the overseas deployment of integrated infrastructure systems has become an urgent task. In light of the large amount of demand for infrastructure-related projects expected all over the world, international competition for awarding the order has been intensifying. At the same time, the scale of the infrastructure-related projects is becoming larger and the duration period of such projects is becoming longer. Other rival countries, including emerging market countries, are proactively promoting sales through the coordination of public and private sectors while strengthening support by policy-based finance. In light of these conditions, the Government of Japan held deliberations at the Ministerial Meeting on the Overseas Deployment of Integrated Infrastruc- ture Systems. As a result of the deliberation, the Government of Japan determined a policy to separate JBIC from JFC, and to increase the flexibility and expertise of JBIC so that the functions of JBIC as a core organization for supporting the overseas deployment of integrated infrastructure systems can be strengthened and the effect of the strengthened functions can be utilized to the maximum extent. As for the expansion of the functions of JBIC, seven functions were added as stipulated by the JBIC Act: 1) Export finance for developed countries; 2) Overseas investment finance to provide short-term bridge loans; 3) Overseas investment finance for equity investments in foreign companies; 4) Two-step loans through Japanese banks, 5) Guarantees for currency swaps; 6) Assistance for liquidation and securitization of accounts receivable; and 7) Counter-guarantees for export credits. Of the above seven functions, 1) through 4) have been launched in advance in FY 2011, while it was determined that 5) through 7) would be launched from April Moreover, since the new JBIC assumes financial operation as part of the policies of the Government of Japan, the JBIC Act stipulates that the government must possess all the issued stocks of the new JBIC. 1 Profile of JBIC 3. On Inauguration of the new JBIC Seven expanded functions Started in advance from FY 2011 Launched from April 2012 Export finance for developed countries JBIC can provide export finance to developed countries only for the Japanese industries prescribed by a Cabinet order. Guarantees for currency swaps To support local currency loans by private banks, guarantees for currency swaps are possible. Overseas investment finance to provide shortterm bridge loans JBIC can provide overseas investment loans to provide short-term funds to bridge shortfalls prior to the provision of long-term funds for overseas projects, for which loans from JBIC are planned. Overseas investment finance for equity investments in foreign companies JBIC can provide investment loans to provide funds for Japanese companies (including large companies) to make equity investments in foreign companies and acquisition of stocks (M&A), but only for the Japanese industries prescribed by a Cabinet order. Assistance for liquidation and securitization of accounts receivable Guarantees for accounts receivable or accounts receivable backed securities are possible for cases where overseas affiliates of Japanese banks accept the accounts receivable of overseas Japanese companies or where a special purpose company, etc., issues securities backed by the accounts receivable of the overseas affiliates of Japanese companies. Counter-guarantees for export credits JBIC is able to provide counter-guarantees for guarantees by overseas export credit agencies. Two-step loans through Japanese banks Two-step loans through Japanese banks to support overseas investments of SMEs and equity investments and M&A are possible, but only for the Japanese industries prescribed by a Cabinet order. 11

12 4 JBIC s Medium-Term Business Plan (FY ) 1 Profile of JBIC 4. JBIC s Medium-Term Business Plan (FY ) Basic Principles, Backdrop and Overview JBIC has issued its first Medium-Term Business Plan (FY ) since it began conducting operations. The Medium-Term Business Plan aims to promote efficient and results-oriented business operations in line with the Japanese government s policies and to accomplish proper accountability. To this end, it explicated high priority business and management issues to be addressed by JBIC over the medium term, and set forth strategies and action plans to tackle these issues. JBIC also sets the Annual Business Plan for each fiscal year to set specific targets JBIC should strive to pursue this year with the action plans set in the Medium-Term Business Plan. JBIC s Mission, Corporate Philosophy and the Basic Principles of the Medium-Term Plan Promoting overseas development and acquisition of resources important for Japan Maintaining and improving the international competitiveness of Japanese industries JBIC s Mission JBIC sets the basic principles of the Medium-Term Business Plan of Operational Strategy for 6 Thematic Areas and Basic Principles to 8 Basic Strategies, based on following JBIC mission and policy; 1) Realizing projects strategically with original value added, while being deeply involved in the project formulation stage, thereby contributing to economic growth in Japan and the world, 2) Identifying precise needs of Japanese firms and seeking to strengthen speed with flexibility, expertise and negotiating power to execute requisite policies, 3) Realizing sophisticated risk management as well as maintaining and strengthening JBIC s financial position in response to increasingly high risk, long-term and large-scale projects. Promoting overseas business for preserving the global environment Preventing disruptions to international financial order or to take appropriate measures with respect to damages caused by such disruption Contributing to the sound development of Japan and the international economic community Corporate Philosophy Positioned at the crossroads of global business opportunities, JBIC is opening new venues to the future for the Japanese and global economy. Hands-on Policy Pioneering new value by participating at the forefront of overseas project development, and by engaging proactively in projects from the early stages Customer 1st Approach Offering customers one of a kind solutions by adopting their perspectives and integrating their views into policy development Forward looking Action Contributing to the sustainable development of Japan and the world as a whole by deploying highly professional skills, with a view to realizing a secure and affluent future society. Basic Principles of the Medium-Term Business Plan Realizing projects strategically with original value added, while being deeply involved in the project formulation stage, thereby contributing to economic growth in Japan and the world Operations Identifying precise needs of Japanese firms and seeking to strengthen speed with flexibility, expertise and negotiating power to execute requisite policies Organization Finances Realizing sophisticated risk management as well as maintaining and strengthening JBIC s financial position in response to increasingly high risk, long-term and large-scale projects 12

13 Overview of the Medium-Term Business Plan FY Identifying precise needs of Japanese firms and seeking to strengthen speed with flexibility, expertise and negotiating power to execute requisite policies Realizing projects strategically with original value added, while being deeply involved in the project formulation stage, thereby contributing to economic growth in Japan and the world Organization Operational Strategy for Each Thematic Area (6 Issues) 1 Supporting development and acquisition of overseas resources based on Japan s natural resources policies 2 Supporting steadfastly the area of preserving the global environment 3 Supporting overseas development of integrated infrastructure system projects 4 Enhancing support for mid-tier enterprises and SMEs 5 Supporting strategic overseas business activities of Japanese firms 6 Preventing disruptions to financial order in the international economy or counteracting their adverse impact Basic Principles Operations Operations Organization Finances Realizing sophisticated risk management as well as maintaining and strengthening JBIC s financial position in response to increasingly high risk, long-term and large-scale projects Basic Strategies (8 Issues) 7 Partnership with private financial institutions (Devotion to complementing private business operations) 8 Effective use of a variety of tools such as equity investment 9 Wielding negotiating power with external counterparties by leveraging JBIC s status as a government-owned institution 10 Conducting speedy, flexible and efficient operations 11 Efforts to strengthen expertise in the organization 12 Self-disciplined corporate management 1 Profile of JBIC 4. JBIC s Medium-Term Business Plan (FY ) Finances 13 Managing risks commensurate with risk exposure of strategic operations 14 Maintaining appropriate profit levels and a stable fiscal position Basic Principles (on Operations) and Their Backdrop Basic Principles Operations Realizing projects strategically with original value added, while being deeply involved in the project formulation stage, thereby contributing to economic growth in Japan and the world What is expected of the government for the overseas business development of integrated infrastructure systems? Government Efforts: Examples Collecting Information Supporting the formation of consortiums Top sales Policy dialogue Being involved in project formulation Support financings Supporting standardization, etc. JBIC s Efforts Areas where active efforts should be made going forward Consultation with potential Japanese project operations Proactive involvement from the early stages of project formulation Dialogue with host country government Studies for project feasibility Competitive bidding Awarded concession; orders Areas where efforts have been made to date Provide financing based on the business plan of the project operator Loan structuring Offering financing Project supervision 13

14 1 Profile of JBIC 4. JBIC s Medium-Term Business Plan (FY ) Basic Principles (on Organization and Finances) and Their Backdrop Basic Principle Basic Principle Expertise Operations Risk-assuming capacity Organization Speed with flexibility Realizing projects strategically with original value added, while being deeply involved in the project formulation stage, thereby contributing to economic growth in Japan and the world Identifying precise needs of Japanese firms and seeking to strengthen speed with flexibility, expertise and negotiating power to execute requisite policies Negotiating power Sustaining credibility Basic Principle Finances Functions required for organization and finances Realizing sophisticated risk management as well as maintaining and strengthening JBIC s financial position in response to increasingly high risk, long-term and large-scale projects Speed with flexibility Speedy, accurate collection of project information Expertise Risk analysis of long-term projects involving substantial cost Making policies for bidding and financial support Formulating projects, winning orders, construction and operation in public-private partnerships Negotiating power Dialogue with host country governments and agencies by drawing on overseas network and expertise Formulating a financing structure capable for Japan to provide support Sustaining credibility Solid financial position capable of supporting large financial support Information disclosure and IR activities based on international rules Risk-assuming capacity Offering competitive financing terms The Medium-Term Business Plan contains the following content. Basic Principles Key Strategies Agendas and Action Plans Performance Indicators Set out principles guiding JBIC operations over the medium term to effectively execute the mission mandated on JBIC, given its status as a policy-based financing institution. Designate strategic issues necessary to conduct operations in accordance with the Basic Principles. These consist of the Basic Strategies, which set out matters concerning operations, organization and finances, and Operational Strategies for Thematic Areas, which set out an operational strategy for each thematic area. Assigned over the medium term for each of the Key Strategies. Evaluate the extent to which the objective of each action plan has been achieved as well as monitor and evaluate the progress being made for each action plan. There are four types of performance indicators used in the Medium-Term Business Plan as shown below. Objectives are set in the Annual Business Plan for each fiscal year, and the Management Advisory and Evaluation Committee will evaluate the performance at the end of each fiscal year by assessing the extent to which the initially-set objectives have been achieved. Indicator Definition Initial Assignment End Period Evaluation Quantitative Indicators Set initially quantitative objectives for the end of the planned year and evaluate the extent to which they are achieved at the end of the planned period. Set quantitative objectives. Tabulate the actually achieved figures and evaluate them quantitatively.* Monitoring Indicators Add up performance figures at the end of the planned period and monitor their chronological changes. Tabulate the actually achieved figures and monitor them. Qualitative Indicators Set initially exemplified qualitative objectives for the end of the planned period and evaluate the results actually achieved at the end of the planned period. Set exemplified qualitative objectives. Tabulate actually achieved results and evaluate them qualitatively. Milestone Indicators For issues that require steady progress in action over the medium to long term (about 3 years), set initially concrete actions (milestones**) to take each year and evaluate the extent to which they achieve the milestone (if necessary, a milestone may be modified at the beginning of the next year). Set initially in the planned 3-year period milestones** (for each year). Review at the initial point in the subsequent years. Evaluate the results based on the already set milestones.* * Quantitative Milestone indicators may also be evaluated from a qualitative aspect. ** Quantitative figures may be incorporated in milestones. 14

15 JBIC is committed to performing its mission and roles appropriately as a policy-based financing institution by implementing the PDCA cycle in the Medium-Term Business Plan and the Annual Business Plan. 1 PDCA Cycle of Medium-Term Business Plan and Annual Business Plan Evaluation of the Medium-Term Business Plan (Check) Feedback (Action) Medium-Term Business Plan (Plan) PDCA Cycle for Medium-Term Business Plan (3 years) Feedback (Action) Evaluation (Check) Annual Business Plan (Plan) PDCA Cycle for Annual Business Plan Implementation, Monitoring (Do) Profile of JBIC 4. JBIC s Medium-Term Business Plan (FY ) Strategies, Agendas (Action Plans) and Performance Indicators The agendas (action plans) and performance indicators for the Operational Strategies for Each Thematic Areas (six strategies) and Basic Strategies (eight strategies) are as below. Operational Strategy for Each Thematic Area 1 Supporting Development and Acquisition of Overseas Resources Based on Japan s Natural Resources Policies Agenda and Action Plan Performance Indicator Type Supporting development/acquisition of resources in the upstream sector and a stable supply of resources based on the Japanese government policy of taking advantage of yen appreciation and the changed environment in the wake of the Great East Japan Earthquake Number of loan, guarantee and investment commitments for the projects/transactions contributing to acquisition of interests in resources, taking their delivery and obtaining their sales concessions Among the above commitments, the number of those contributing to securing a stable supply of energy resources Among the immediately above commitments, their amounts of oil, natural gas, copper and iron ores, and coal obtained by new acquisition and delivery Efforts (including support for related infrastructure) to reduce the procurement cost of natural gas for Japan Quantitative Quantitative Monitoring Qualitative 2 Supporting Steadfastly the Area of Preserving the Global Environment Agenda and Action Plan Performance Indicator Type Realizing steadfastly such environmental projects as renewable energy, energy efficiency improvement and highly efficient power generation Number of loan, guarantee and investment commitments for such environmental projects as renewable energy, energy efficiency improvement and highly efficient power generation Projected reductions in greenhouse gas emissions in new projects to which loan, guarantee and investment commitments were made Quantitative Monitoring 3 Supporting Overseas Development of Integrated Infrastructure System Projects Agenda and Action Plan Performance Indicator Type Pressing forward E-FACE* (Actively supporting infrastructure projects by Japanese firms) Strengthening efforts to support the formulation of highly strategic projects Number of loan, guarantee and investment commitments supporting overseas development of integrated infrastructure systems Implementing support for the formulation of highly strategic projects Quantitative Qualitative * The JBIC Enhanced Facility for Global Cooperation in Low Carbon Infrastructure and Equity Investment (E-FACE) was launched in April 2011 to actively support Japanese direct investment in the systematically integrated infrastructure business overseas based on the New Growth Strategy, while mobilizing private sector funding. 15

16 1 Profile of JBIC 4. JBIC s Medium-Term Business Plan (FY ) 4 Enhancing Support for Mid-Tier Enterprises and SMEs Agenda and Action Plan Performance Indicator Type Pressing forward efforts for active support Increase opportunities to disseminate information such as seminars and consulting sessions 5 Supporting Strategic Overseas Business Activities of Japanese Firms Number of loan, guarantee and investment commitments for mid-tier enterprises and SMEs Number of mid-tier enterprises and SMEs supported by the above commitments Number of seminars and consulting sessions organized for mid-tier enterprises and SMEs Quantitative Monitoring Quantitative Agenda and Action Plan Performance Indicator Type Supporting Japanese firms strategy to capture overseas market shares and the maintenance and strengthening of their supply chains Supporting M&A activities based on the government policy of taking advantage of yen appreciation 6 Number of loan, guarantee and investment commitments for overseas investment projects by Japanese firms or projects for supporting associated operations with such projects (Show breakdown by developed country for monitoring purposes) Number of loan, guarantee and investment commitments for export transactions by Japanese firms (Show breakdown by developed country for monitoring purposes) Number of loan, guarantee and investment commitments for M&A deals The total amount of M&A deals above Preventing Disruptions to Financial Order in the International Economy or Counteracting Their Adverse Impact Quantitative Quantitative Quantitative Monitoring Agenda and Action Plan Performance Indicator Type Preventing disruptions to financial order in the international economy or counteracting their adverse impact with speed, flexibility and effectiveness Number of countries for which monitoring was done with respect to macroeconomic conditions Number of loan, guarantee and investment commitments for preventing disruptions to financial order in the international economy or counteracting their adverse impact Quantitative Monitoring Basic Strategies Operations 7 Partnership with Private Financial Institutions (Devotion to Complementing Private Business Operations) Agenda and Action Plan Performance Indicator Type Pressing forward strategic partnerships with private financial institutions, including appropriate cofinancing The share of cofinancing commitments in the number of loan commitments (excluding matching* loans and loans to banks) Private sector funds mobilized in the projects/transactions to which JBIC made loan, guarantee and investment commitments Number of private banks with which JBIC entered into a partnership Quantitative Monitoring Quantitative * Application of the same credit terms offered by the participating or non-participating countries under the OECD Arrangement on Guidelines for Officially Supported Export Credits 8 Effective Use of a Variety of Tools Such as Equity Investment Agenda and Action Plan Performance Indicator Type Active use of equity investment Number of investment commitments for equity investment (participation) projects Quantitative Effective use of guarantees and other financial instruments Pressing forward efforts to finance with local currencies Record of effective use of guarantees and other financial instruments Number of local currencies with which loan, guarantee and investment commitments were made (outstanding) Qualitative Monitoring Pressing forward PF and SF* projects Number of commitments to PF and SF projects Quantitative * Project finance and structured finance 9 Wielding Negotiating Power with External Counterparties by Leveraging JBIC s Status as a Government-owned Institution Agenda and Action Plan Performance Indicator Type Strengthening relations with foreign governments and government agencies, increasing collaboration with multilateral institutions and foreign official institutions, and wielding JBIC s negotiating power with external counterparties Efforts to strengthen relations with major countries (their governments and government agencies) Cases where JBIC wielded its negotiating power among the number of loan, guarantee and investment commitments with which cross-border loans were extended Qualitative Quantitative 16

17 Basic Strategies 10 Conducting Speedy, Flexible and Efficient Operations Agenda and Action Plan Performance Indicator Type Enhancing strategic and flexible allocation of given management resources Efficient corporate management with work flow improvement and other means Upgrading IT infrastructure * Business Process Re-engineering 11 Efforts to strengthen expertise in the organization Customer satisfaction survey (level of satisfaction with the time taken for approving loans and other financial instruments) Employee consciousness survey (awareness of equalizing work load among employers) Progress in key BPR* measures Average overtime work hours per employee Progress in IT investment, including improvement in the common infrastructure and the establishment of a backup center Quantitative Monitoring Milestone Monitoring Milestone Agenda and Action Plan Performance Indicator Type Recruiting and fostering human resources capable of providing high value-added services Strengthening the strategic collection and dissemination of requisite information 12 Organization Self-disciplined corporate management Number of training sessions for providing advanced financing and appraisal methods (including the number of participants for monitoring purposes) The percentage of the staff who have experience in an overseas posting or who were loaned to overseas institutions (during the past 5 years) Domestic and foreign entities with which an exchange of views continues to take place through operational cooperation or assignment, excluding clients (cumulative total) Quantitative Quantitative Quantitative 1 Profile of JBIC 4. JBIC s Medium-Term Business Plan (FY ) Agenda and Action Plan Performance Indicator Type Customer satisfaction survey (overall level of satisfaction) Quantitative Corporate management that meets the needs of clients Customer satisfaction survey (level of satisfaction on the time taken for loan approval) Quantitative The average appraisal period for PF projects Monitoring Promoting disclosure and public relations activity Number of times the JBIC website and other mediums are accessed Monitoring Mainstreaming compliance efforts Number of internal training sessions on compliance Quantitative Basic Strategies Finances 13 Managing Risks Commensurate with Risk Exposure of Strategic Operations Agenda and Action Plan Performance Indicator Type A more improved and advanced framework Loan assets to be disclosed under the Financial Revitalization Act Monitoring for appropriately assessing and managing major risks associated with conducting strategic The ratio of provisions made for the above assets Monitoring operations Number of meetings held by the Risk Advisory Committee Monitoring 14 Maintaining appropriate profit levels and a stable fiscal position Agenda and Action Plan Performance Indicator Type Overall profit margin* Monitoring Securing appropriate levels of profits and losses The ratio of administrative cost Monitoring Maintaining financial stability Capital Adequacy Ratio (BIS basis) Monitoring Preparation for International Accounting Standard * Yields on Interest-earning Assets-Costs on Interest-bearing Liabilities State of examination with respect to introducing IFRS Milestone The performance will be evaluated at the end of each term by the Management Advisory and Evaluation Committee, which consists of external experts and outside directors, and the result will be published. 17

18 5 Outline of Operations in FY Profile of JBIC 5. Outline of Operations in FY2011 Loans, Investments and Guarantees During FY2011 in an effort to secure supplies of energy and mineral resources, JBIC provided financing for a shale gas development project in Canada and natural gas development and liquefied natural gas (LNG) production projects in Papua New Guinea; copper mine development projects in Chile; coal mine development projects in Canada, Colombia, Chile and Australia; acquisition of interests and development of multiple projects including a zinc and lead mine development project in Australia where Japanese companies participate respectively; and the import of LNG by Japanese power companies. In the infrastructure sector, financial support was provided for the private sector power generation projects where Japanese companies participate in the United Arab Emirates, Thailand and Oman; the construction of natural gas treatment facilities by Japanese companies in Qatar; and the export of a submarine power cable system to Indonesia and power generation facilities to India, Colombia and Viet Nam. In another area, financing was provided for the export of cruise and cargo ships built in Japanese shipyards. Also, JBIC supported overseas manufacturing and sales projects undertaken by Japanese companies, including SMEs, thereby contributing to maintaining and improving the international competitiveness of Japanese industries. Further, as part of GREEN (Global action for Reconciling Economic growth and ENvironmental preservation) operations, JBIC made equity participation in the South Asia Clean Energy Fund, L.P. focusing on investments in clean energy and environment sector projects and supported renewable energy and energy efficiency improvement projects in Mexico and India. In yet another financial operation of JBIC, guarantees were extended to Samurai bonds issued by the Uruguay and Turkish governments in the Tokyo financial market. Following promulgation and entry into force of the JBIC Act on May 2, 2011, JBIC is empowered to provide export loans for developed countries in specified sectors; overseas investment loans for Japanese companies engaging in M&A activities; and overseas investment loans for an expanded range of sectors in developed countries. Thus JBIC supported the export of large cruise ships to Europe and acquisition of companies in developed countries during FY2011. In response to the recent appreciation of the yen, the emergency facility in response to yen appreciation was established in accordance with the Emergency Package Against Yen Appreciation announced by the Japanese government in August Under this facility, 11 loan commitments totaling $4.3 billion were made for promoting the acquisition and development of energy and other resources as well as overseas M&A activities in FY2011. As the result of these financing operations, JBIC s loan, equity participation and guarantee commitments decreased by 9.6% from FY2010, to 1,595.9 billion in FY2011. Outstanding loans and equity participations decreased by 4% to 8,192.7 billion, and outstanding guarantees stood at 2,378.3 billion as of the end of March 31, Commitments by Purpose of Financing Equity Participations 1.5 (0.1%) Untied Loans 23.2 (1%) Commitments by Region The Americas (33%) Guarantees (14%) 1,595.9 billion Overseas Investment Loans (60%) Others (11%) 1,595.9 billion Asia (17%) The Middle East (15%) Europe (14%) (FY2011) Export Loans (13%) Import Loans (11%) Africa 3.3 (0%) (FY2011) Oceania (11%) Changing Composition of Loans, Equity Participations and Guarantees (Commitments) FY (98%) 1.0 (2%) 61.3 billions of yen FY (74%) 33.3 (6%) 68.5 (13%) (6%)(1%) billions of yen FY1985 FY (14%) (40%) (27%) (26%) (43%) (21%) (11%) Guarantees 0.5(0%) (6%) (10%) 14.2 (2%) billions of yen 1,204.7 billions of yen FY (13%) (11%) (60%) (1%) (14%) Equity Participations 1.5(0.1%) Export Loans Import Loans Overseas Investment Loans Untied Loans Governmental Loans Guarantees Equity Participations 1,595.9 billions of yen 18

19 Operational Results In FY2011 (April 1, 2011 March 31, 2012), disbursements for lending, equity participations and securitization totaled 1,097.6 billion. Planned and Actual Lending and Investments FY2008 FY2009 FY2010 FY2011 (Unit: billions of yen) Plan Actual Plan Actual Plan Actual Plan Actual Export Loans Import Loans and Overseas Investment Loans , , , , , , Untied Loans Equity Participations Profile of JBIC 5. Outline of Operations in FY2011 Securitization Total 1, , , , , , , ,097.6 Financial Results Principles of Accounting (1) Separation of Account Pursuant to Article 18.2 of the USFJ Realignment Special Measures Act, JBIC shall conduct JBIC operations and the Financial Operations for Facilitating Realignment of United States Forces in Japan on separate accounts. In FY2011, JBIC conducted these operations on separate accounts pursuant to Article 41 of the Japan Finance Corporation Act (JFC Act). (2) Preparation of Financial Statements Pursuant to the Companies Act and Article 26 of the Japan Bank for International Cooperation Act (JBIC Act), JBIC shall prepare financial statements and submit them to the Minister of Finance. In FY2011, JBIC prepared financial statements pursuant to the Companies Act and Article 40 of the JFC Act and submitted them to the Minister of Finance. The report on the final settlement of accounts is submitted to the Government of Japan, together with the financial statements, and, after examination by the Board of Auditors, to the Diet. Account for JBIC Operations (1) Statement of Operations In FY2011, the overall earnings on financing activities, including loan interest, amounted to billion, with ordinary income reaching billion. These figures are largely attributable to financial support for overseas development and acquisition of strategically important resources. Funding costs, including interest payment for debt, amounted to bil- lion, with ordinary expenses registering billion. As a result, ordinary profits stood at 57.1 billion. After taking account of extraordinary losses associated with the cancellation of moving the office, net earnings for FY2011 amounted to 52.5 billion. (2) Balance Sheet On the assets side, total assets decreased to 12,693.1 billion from FY2010. This was largely attributable to a decrease in yen-denominated loans by billion of repayments to 8,110.3 billion. On the liabilities side, total liabilities decreased to 10,398.3 billion from FY2010. This is largely due to a decline in borrowings from the Fiscal Investment and Loan Program (FILP) Fiscal Loan by billion to 5,255.4 billion and a decline in bonds payable by billion to 2,378.6 billion. Total net assets reached 2,294.7 billion, which included 52.5 billion in net earnings. Financial Account Related to the Financial Operations for Facilitating Realignment of United States Forces in Japan (1) Statement of Operations In this account, there is no loan or funds for loan raised during FY2011, while receiving government grants. Thus, ordinary income on this account amounted to 0.2 billion. Including business operation and service expenses, ordinary expenses amounted to 0.2 billion. As a result, net ordinary income amounted to 0.05 billion, and taking account of extraordinary 19

20 1 Profile of JBIC 5. Outline of Operations in FY2011 profits and losses, net income reached 0.05 billion. (2) Balance Sheet Assets amounted to 0.1 billion, with the cash and due from banks. Liabilities amounted to 0.1 billion, with the provision for retirement benefits. Total net assets reached 0.05 billion, which included 0.05 billion in net earnings. The Fourth Term (FY2011) Financial Statements Statement of Operations (April 1, 2011 March 31, 2012; millions of yen) 2012 Ordinary Income 201,695 Interest Income 176,852 Fees and Commissions 14,221 Other Income 10,621 Ordinary Expenses 144,588 Interest Expenses 118,110 Fees and Commissions Payments 1,105 Other Ordinary Expenses 6,110 General and Administrative Expenses 15,662 Other Expenses 3,598 Ordinary Profit 57,107 Extraordinary Income 3 Extraordinary Losses 4,594 Net Income 52,515 Balance Sheet Assets (As of March 31, 2012; millions of yen) Liabilities Cash and Due from Banks 685,678 Borrowed Money 5,255,489 Receivables under Resale Agreements 602,725 Bonds Payable 2,378,637 Securities 74,108 Other Liabilities 372,934 Loans and Bills Discounted 8,110,356 Provision for Bonuses 496 Other Assets 927,190 Provision for Directors Bonuses 6 Property, Plant and Equipment 37,425 Provision for Retirement Benefits 12,481 Intangible Assets 1,642 Customers Liabilities for Acceptances and Guarantees Provision for Directors Retirement Benefits 2,378,325 Acceptances and Guarantees 2,378,325 Allowance for Loan Losses (124,271) Total Liabilities 10,398,395 Net Assets 24 Capital Stock 1,291,000 Retained Earnings 824,522 Total Valuation and Translation Adjustments 179,263 Total Net Assets 2,294,786 Total Assets 12,693,182 Total Liabilities and Net Assets 12,693,182 The Fourth Term (FY2011) Financial Statements on the Financial Account Related to the Financial Operations for Facilitating Realignment of United States Forces in Japan Statement of Operations (April 1, 2011 March 31, 2012; millions of yen) 2012 Ordinary Income 271 Receipts from the National Budget 271 Other Income 0 Ordinary Expenses 214 Fees and Commissions Payments 45 General and Administrative Expenses 168 Ordinary Profit 57 Net Income 57 Balance Sheet Assets (As of March 31, 2012; millions of yen) Liabilities Cash and Due from Banks 180 Other Liabilities 1 Other Assets 0 Provision for Bonuses 4 Property, Plant and Equipment 0 Provision for Directors Bonuses 0 Provision for Retirement Benefits 116 Provision for Directors Retirement Benefits Total Liabilities 123 Net Assets Retained Earnings 57 Total Shareholders' Equity 57 Total Net Assets 57 Total Assets 181 Total Liabilities and Net Assets

21 Funding Sources JBIC finances its operations through various sources, including borrowings from the FILP Fiscal Loan, Government-guaranteed Foreign Bond issuance, FILP Agency Bond issuance, capital contributions from the government and borrowings from Foreign Exchange Fund. As JBIC provides long-term financing, its operations are financed by long-term funds to match maturities between funding and lending instruments. Borrowings from the FILP Fiscal Loan, Government-guaranteed Foreign Bond issuance, capital contributions from the government and Funding Sources: Actual and Planned borrowings from Foreign Exchange Fund constitute part of the national budget (either as an item in the General Account budget or the Special Account budget). Therefore, they are submitted, together with the operating budget of JBIC, to the Diet for approval. Recent funding results and plans for FY2012 are shown in the table below. 1. JBIC did not make any loan, while receiving a government grant in March 2011 for U.S. Forces Japan Realignment Facilitation Operation. FY2008 Actual FY2009 Actual FY2010 Actual FY2011 Actual (Unit: billions of yen) FY2012 Planned Capital Contribution from the General Account 20.0 Capital Contribution from FILP Industrial Investment Borrowing from FILP Fiscal Loan Borrowing from Foreign Exchange Fund Special Account ,343.9 Government-guaranteed Foreign Bonds* FILP Agency Bonds* Other Sources of Funds, Including Repayments (244.4) (6.9) Total 1, , , , , Profile of JBIC 5. Outline of Operations in FY2011 * Figures for bonds are indicated in face value. Funding Sources Financial Market FILP Bonds Special Account for Fiscal Investment and Loan Program Fund Investment Fund Account Fiscal Loan Fund Account Foreign Exchange Fund Special Account Loans Governmentguaranteed Foreign Bonds FILP Agency Bonds Internal Funds* *Repayments, etc. Capital Contribution Loans Loans / Investments Japanese and foreign firms, foreign financial institutions, foreign governments and government agencies, multilateral financial institutions 21

22 1 Profile of JBIC 5. Outline of Operations in FY2011 Government-guaranteed Bonds JBIC raises part of its funds through government-guaranteed bond issuance in international capital markets. Outstanding government-guaranteed bonds at the end of FY2011 amount to 1,553.4 billion at face value, which accounts for 20.7% of the total outstanding borrowings and bonds. JBIC provides foreign currency loans when necessary for effective financing operations. Financial resources funded by governmentguaranteed bond issuance in international capital markets are applied to such financial operations. In the FY2012 budget, JBIC plans to issue governmentguaranteed bonds in the total amount up to billion, equivalent to approximately $2.61 billion. JBIC s government-guaranteed bonds receive the same ratings as the Government of Japan from the rating agencies (Aa3 from Moody s and AA from Standard & Poor s as of the end of October 2012). Since they are treated as assets for which the Bank for International Settlements (BIS) assigns zero risk weight in calculating the capital adequacy ratio for depository institutions, these bonds provide a quality investment opportunity for investors in international capital markets. FILP Agency Bonds In compliance with the government policy to reform the FILP, JBIC has issued bonds without government guarantee (FILP agency bonds) in the domestic capital market since FY2001, thereby raising funds based on its own creditworthiness. JBIC issued a total of 50.0 billion FILP agency bonds in FY2011, and plans to issue total amount up to 50.0 billion FILP agency bonds in the FY2012 budget. JBIC s FILP agency bonds receive the same ratings as the Government of Japan (as of the end of October 2012) as shown below. They are treated as assets for which BIS assigns 10% risk weight in calculating the capital adequacy ratio for depository financial institutions. Rating & Investment Information, Inc (R&I):...AA+ Japan Credit Rating Agency, Ltd. (JCR):...AAA Moody s:...aa3 Standard & Poor s:...aa 22

23 The Environment Surrounding JBIC Challenges and Efforts of Three Finance Groups 2 1 Energy, Natural Resources and Environment Finance Group 24 2 Infrastructure Finance Group 27 3 Industry Finance Group 30 23

24 1 Energy, Natural Resources and Environment Finance Group 2 The Environment Surrounding JBIC Challenges and Efforts of Three Finance Groups 1. Energy, Natural Resources and Environment Finance Group Increasingly Intense Scramble for Acquiring Resources For Japan, scarcely endowed with resources, it is imperative to secure stable supplies of overseas energy and mineral resources, if it is to maintain and make progress on economic activity. JBIC has been supporting Japanese companies for developing, acquiring interests in and importing overseas natural resources in financial terms, thereby contributing to securing their stable supplies to Japan. Especially in recent years, economic growth in China and other emerging market countries have made it increasingly tough to engage in global competition for acquiring energy and mineral resources. This is posing a challenge to Japan on how to obtain stable and affordable energy and mineral resources. Rising Risk on the Demand and Supply Sides Growing demand for energy in emerging market countries has exerted significant impacts on the global demand-supply balance of energy. In particular, energy consumption in the Asia and Oceania region, which includes China, India and Southeast Asia, show much higher growth rates than other regions. Oil has a significant geopolitical risk factor in view of the fact that about 50% of its reserves are concentrated in the Middle East. Japan s dependence of crude oil on this region declined at one time, but has now increased to more than 80% of its imports. This is attributable to rising demand for oil in Asian countries. As these countries have channeled the previously exported oil to meet oil demand in their domestic markets, their oil exports to Japan have decreased. The situation in which Japan procures liquefied natural gas (LNG) has been changing at a fast pace in recent years. Until about 2000, Japan had a predominant share in global LNG transactions, but its share has diminished to about 30% today. As China and India have been rapidly increasing the imports of LNG, we expect the prospect of sharply-climbing demand well into the future. In Japan, which has found it very difficult to supply electricity from nuclear power stations after the Great East Japan Earthquake, LNG is increasing its presence as a major source of energy, as natural gas produces less greenhouse gas (GHG) emissions relative to oil. In accordance with the situation above, the supplier countries are changing as well. Indonesia and Malaysia have been traditional suppliers of LNG to Japan. Since both countries have continued to post remarkable growth, they have found a sustained increase in domestic demand for LNG. As a result, it forced them to cut back LNG exports to Japan. In the mineral resource mining sector, demand has been surging in emerging market countries. In addition, oligopoly has significantly disturbed the demand-supply balance. For example, in the iron ore industry the top three companies account for more than half of world seaborne trade in iron ore, and the top four coal companies have created an oligopoly in the world market. Furthermore, increased exports in resourcerich Australia have created port congestion, forcing ships to wait in line. This is further tightening resource supplies and, as Major Projects Over the Last 10 Years (Amount of loan for natural resource projects (signed): Approx $51 Billion) Norwegian North Sea Oil Field British North Sea Oil Field Tungsten Mine, Portugal Kashagan Field, Kazakhstan BTC Pipeline West Mynkuduk Uranium Mine, Kazakhstan Kharassan Uranium Mine, Kazakhstan ACG Field, Azerbaijan Neryungri Mine, Russia Sakhalin I, Russia Sakhalin II, Russia Oil Natural Gas Coal Iron Ore Copper Other Miner Pogo Gold Mine, US Resources, etc Cordova Shale Gas, Canada Oil Sand, Canada Grande Cache Coal Mine, Canada Alouette Aluminium Similco Mine, Canada Smelter, Canada Marcellus Shale Gas, US Ohanet Khafji & Hout Field Eagle Ford Shale Oil, US Field, Oil & Gas Field, US Algeri LNG, Qatar Advance Payment Loan to ADNOC Oil & Gas Field, Advance Payment Loan to VINACOMIN Oman Purchasing oil METOR Methanol, Venezuela Gas Fields, Malaysia product from Taganito Nickel Project, Philippine Drummond Project, Columbia PDVSA, Venezuela Tiga LNG, Malaysia Tayan Alumina Project, Indonesia AMAZON Alumina Refinery / Aluminum Smelter, Brazil Pagardewa Oil Field, Indonesia Tangguh LNG, Indonesia MOZAL PNG LNG Bayovar Phosphate Mine, Peru CENIBRA Aluminum Smelter, Kangean Oil & Gas Field, Indonesia Pulp, Batu Hijau Mine, Indonesia Antamina Mine, Peru Mozambique Wheatstone LNG Brazil Pluto LNG Bayu Undan LNG Cerro Verde Mine, Peru Enfield / Vincent Oil Field San Cristobal Zinc Mine, Bolivia Woodchip, Kestrel Mine Oaky Creek / NCA Mine Mozambique Gorgon LNG Minerva Mine Curtis LNG Promoly Project, Chile Logistical Shark Bay Salt Field Rolleston Mine Sierra Gorda Escondida Mine, Support for Copper Mine, Caserones Copper Mine, Chile Iron Ore Worsley Bauxite Mine & Rasp Moolarben Mine Chile Assmang Iron, Zinc, Transportation, Alumina Refinery Zinc & Los Pelambres Mine, Chile Brazil Chrome Ore Mine, Lead Esperanza Mine, Chile Frade Oil Field, South Africa Mine Cape Lambert Iron Ore Shipping Port Brazil West Angeles Mine Forestation, NewZealand NAMISA Mine, Brazil Ambatovy Nickel, Madagascar MUSA Mine, Brazil As of July

25 a result, the prices of affected mineral resources are soaring. In this way, various risks are increasing both on the demand and supply sides. This means that Japanese companies have a need to diversify their overseas investments. JBIC will conduct operations by focusing more than ever on strengthening relations with resource-endowed countries and suppliers. High Expectations on Natural Gas as Cleaner Energy Especially, JBIC is striving to obtain natural gas by designating it as the top priority. What happened at the Fukushima Dai-ichi Nuclear Plant let us consider that a stable supply of electric power is an urgent issue for the Japanese people s lives and economic activities. As mentioned above, there are rising expectations for supporting a stable and affordable supply of natural gas as a major source of present energy. Responding to these expectations, JBIC is actively supporting acquisition of interests and development of LNG-related projects as well as the import of LNG. Amid these developments, JBIC is also supporting acquisition of interests in unconventional natural gas, such as shale gas and coal bed methane (CBM) 1. In 2011, JBIC supported the funding of Japanese companies for acquiring interests in a shale gas field, its development and production in Canada and for acquiring interests in and development of CBM in Queensland, Australia, as well as the liquefying CBM into LNG. Further, JBIC is making efforts to strengthen cooperative ties with natural gas-producing countries. In June 2011, JBIC signed a memorandum of understanding (MOU) with BPMIGAS, a government agency in Indonesia for overseeing and controlling upstream oil and gas business activities, for the purpose of building a business model to encourage further expansion of the total capacity of natural gas supply in Indonesia and promoting gas-related business opportunities for Japanese companies. Risk Diversification with Multiple Sources to Purchase Resources For securing a stable supply of resources, it is important to diversify risks with multiple sources to purchase resources. Firstly, geographical diversification needs to be considered. As described above, Japan is heavily dependent on the Middle East for oil. Thus, it should urgently explore oil supply sources from outside the Middle East and diversify them in the Middle East region. Regarding LNG, JBIC has made loans to the Sakhalin II Project and LNG projects in Papua New Guinea and Australia, etc., thereby contributing to diversification of Japan s LNG supply sources. Regarding coal, JBIC provided a loan for the thermal coal development project in Colombia from which Japan has hardly imported coal. Furthermore, JBIC has also diversified the targeting countries by approaching to Mozambique and Mongolia which are expected to potentially become new major suppliers. In these countries, a major theme is to meet the needs of these countries with proposals The zinc, lead and silver mine project in Bolivia in which a Japanese company participated. that draw on Japanese technology and previous performance. Secondly, we should make use of the un-tapped unconventional resources to date. In this area, development is underway for extra-heavy crude oil in Venezuela, shale gas and shale oil in the United States (U.S.) and other countries. For shale gas, JBIC has already provided loans to projects in the U.S. and Canada, and, for shale oil, a loan was made to a U.S. project. Strengthening Multilayered Relations with Resource-Endowed Countries It is also important to strengthen multilayered and strategic relations with the resource-endowed countries with which Japan has built good, stable relations. In recent years, oil-producing countries in the Middle East have been pushing forward diversification of industries and infrastructure development in their countries based on abundant revenues generated by high oil prices. They have laid their eyes on overseas governments and business companies in seeking support for transplanting technologies for these purposes. In this context, economic relations between the Middle East and Japan have shifted from the traditional, simple relationship between the oil consumers and suppliers to multilayered ties by supporting industrial diversification through cooperation for energy-related and infrastructure development projects as well as joint investments in third countries. For example, in Saudi Arabia, JBIC provided, in March 2006, a loan in project financing 2 to one of the world s largest petrochemical plants being planned by Saudi Arabian Oil Company (Saudi Aramco), a state-owned enterprise, by cooperating with employment creation and industrial promotion with the production of high value-added products. For the LNG project in Qatar, JBIC has supported a number of key links in forming the LNG supply chain, such as natural gas field development, LNG plant construction and loading 1. Coal bed methane (CBM) is methane extracted from and near coal beds. It is drawing attention along with shale gas as unconventional natural gas. 2. Project finance is a financing structure that relies primarily on the cash flow generated by the project for repayment. It is used for financing large projects in such sectors as power generation and oil, gas or other natural resource development. 2 The Environment Surrounding JBIC Challenges and Efforts of Three Finance Groups 1. Energy, Natural Resources and Environment Finance Group 25

26 2 The Environment Surrounding JBIC Challenges and Efforts of Three Finance Groups 1. Energy, Natural Resources and Environment Finance Group The LNG project in Qatar in which a Japanese company participated. port development, since the early stage of its development in the 1980s. LNG produced in Qatar now accounts for 17% of Japan s total import of LNG. At the same time, Japan is the destination of the largest volume of LNG export from Qatar. This is a good example of securing a stable, long-term supply of LNG to Japan, at the same time, contributing to strengthening the relationship between the two countries through continuous cooperation in the world LNG supply chain. Australia also accounts for about 20% share of LNG, 60% of coal and 70% of iron ore procured by Japan. Given its geographical proximity, political stability and abundance of various resources, Australia is one of the countries increasingly important to Japan as a resource supply source. JBIC has built favorable relationships with its resource developers through continued financing over the years. As described above, JBIC supported unconventional LNG projects where CBM is used for as a raw material and acquisition of interests in coal by Japanese companies. Further, JBIC cultivated relations with state governments by signing MOUs on comprehensive strategic partnerships with the Western Australian Government and Queensland Government. These MOUs contain an exchange of information on investments Japanese businesses could make and the holding of periodic consultations. Thus they are expected to lead to laying the groundwork for Japanese business development. In other activities, JBIC signed a MOU with the Ministry of Finance of Mongolia for enhancing financial cooperation, including provision of credit lines, with Mongolia where mineral resources, such as coal and copper, are abundant. For Turkey, which has become increasingly important in recent years with its geopolitical location, bordering with Middle Eastern, NIS (New Independent States) and East European countries, JBIC guaranteed its privately placed Samurai bond issue to support the country s effort to diversify funding sources. In addition, although Japan and China tend to be in a competitive relationship in the area of resources, JBIC has been building up relations with the Export-Import Bank of China and other Chinese policy-based financing institutions, as it considers securing the channel of exchanging information with respect to individual projects and policy trend and exploring the possibility of cofinancing projects. Developing Resources as a Package Deal So far, Japan has procured various resources as one of the leading buyers in the world. As China and other emerging countries are proceeding to engage in global competition to acquire resources against the backdrop of vigorously increasing demand, Japan s relative position has declined. Under these circumstances, in order to have secure and stable access to various resources, JBIC should not confine itself to supporting acquisition of interests and long-term delivery contracts by Japanese companies. Rather, like its approach to Middle Eastern oil countries, etc., it should propose comprehensive resource development, which encompasses the development of infrastructure, such as railways, roads, ports and electric power systems, and increasingly advanced industries, etc., in accordance with the needs of individual countries. Although this is only indirectly linked to resource development, when Japanese companies provide technologies for highly efficient coal-fired power generation and reduction in environmental impact, they could contribute to power development and environmental measures in resource-endowed countries. And these may well work as important factors conducive to their favorable position in acquiring interests in resources and price negotiation. JBIC will continue to provide financial support in various sectors and thematic areas, including support for infrastructure development in resource-endowed countries, thereby contributing to securing stable supplies of resources indispensable for the sound development of the Japanese economy. Efforts to GREEN Operations During FY2011, JBIC provided loans to ICICI Bank Ltd. Banco Nacional de Comercio Exterior, S.N.C. (BANCOMEXT) and Banco Centroamericano de Integración Económica (BCIE) for supporting renewable energy and energy efficiency improvement projects in India, Mexico, and the Latin America and the Caribbean region in an effort for Global action for Reconciling Economic growth and ENvironmental preservation (GREEN) operations ( see p. 69 for details of this initiative). These loans are expected to contribute to reduction in greenhouse gas (GHG) emissions and, inevitably, help the diffusion of Japan s advanced environmental technologies in these countries and regions. ( For JBIC s efforts in the environment sector, see p ) 26

27 2 Infrastructure Finance Group Recent years have seen a sharp increase in demand for services provided by infrastructure, including electric power systems, railways, roads, ports, airports, water supply and sewerage systems, in Asian and other developing countries registering high economic growth. In developed countries, there is a growing momentum to meet rising demand for replacing antiquated infrastructure facilities; developing new railway networks; and generating electricity by harnessing renewable energy to address environmental problems and global warming, and installing smart grids, etc. The New Growth Strategy: Blueprint for Revitalizing Japan (Cabinet decision in June 2010) and the Rebirth of Japan: A Comprehensive Strategy (Cabinet decision in July 2012) encompassed the promotion of the overseas deployment of integrated infrastructure systems as a strategy for making such enormous demand for infrastructure lead to Japan s economic growth. JBIC is committed to active support for Japanese companies participating in various overseas infrastructure projects in such sectors as power, railway, port, road, water and sewerage system operation, by drawing on its experience in a range of overseas infrastructure projects and by making use of relationships of mutual trust cultivated over the years with the host country governments. Soaring Overseas Demand for Infrastructure Many Asian countries having close economic ties with Japan have been posting significant economic growth. Demand for infrastructure development in these countries is projected to reach a total of $8 trillion during the period of In Europe, investment in infrastructure is also projected to trillion (about $ trillion 2 ) in adopting smart grids and renovating or newly building power generation facilities. 3 In the world as a whole, one estimate projected demand for infrastructure development would exceed 1.2 trillion annually. 4 Such overseas infrastructure development may well be an opportunity for many Japanese companies as well as prefectural and municipal governments to make good use of their advanced technological capabilities developed over the years. However, the recent trend is that the export of a single component related to infrastructure is exposed to price competition Japanese equipment to be exported as a key component for an overseas water infrastructure business (desalination plant facility) with rival companies in other countries, especially those in fast-growing emerging market countries. In addition, the host countries have come to expect infrastructure development as a comprehensive package deal that includes cooperation in peripheral areas, Operation and Maintenance (O&M) of facilities and relevant human resource development. Thus a major theme for Japan has emerged: to meet the needs to a host country by energetically proposing an integrated infrastructure system in which the project participants get involved in the comprehensive work associated with a given infrastructure project by providing advanced technology and knowhow as the core of their business. Strengthening the Overseas Deployment of Integrated Infrastructure Systems The Japanese government espoused in its New Growth Strategy: Blueprint for Revitalizing Japan decided by the Cabinet in June 2010 the promotion of the overseas deployment of integrated infrastructure systems so that Japan achieves economic growth together with other countries, especially with Asian countries. Later on, the Rebirth of Japan: A Comprehensive Strategy decided by the Cabinet in July 2012 embraced and explicitly stated that it placed high priority on the promotion 1. Asian Development Bank, Infrastructure for a Seamless Asia, Conversion rate: 1 euro = 1.3 US dollars 3. The European Commission, Commission Staff Working Paper on the Europe 2020 Project Bond Initiative, Stakeholder Consultation Paper, February 28, The Ministry of Economy, Trade and Industry, A Report of the Practitioners Review Meeting, Infrastructure System Export Sub-Group, Trade and Economic Cooperation Committee, Industrial Structure Council, June The Environment Surrounding JBIC Challenges and Efforts of Three Finance Groups 2. Infrastructure Finance Group 27

28 2 The Environment Surrounding JBIC Challenges and Efforts of Three Finance Groups 2. Infrastructure Finance Group JBIC s Financing for Infrastructure Projects Morocco Export of Gas-fired Power Generation UAE Shuweihat S2 IWPP Project Fujairah F2 IWPP Project Shuweihat S3 Power Project United Kingdom Intercity Express Programme Qatar Ras Laffan C IWPP Project Mesaieed A IPP Projec Egypt Export for Metro Construction Project Turkey TSL for Renewable Energy-Related Project Kazakhstan Export of Gas-fired Power Generation Plant Singapore Equity Participation in Acquiring Shares of Senoko Power Limited Export of Seawater Desalination Plan Sri Lanka Export of Hydro Power Generation Facilities Maldives Water Supply and Sewerage System Operation Project Oman The Sohar Port Expansion Project Sur IPP Power Project South Africa The Port of Durban Expansion Project Power Transmission and Distribution Projec North America and European Infrastructure Fund Focusing China Chongqing Monorail Project Korea Export of Gas-fired Power Generation Plant The Philippines Portfolio Acquisition of Existing IPP Project Viet Nam Export of Gas-fired Power Generation Plan Thailand India Delhi-Mumbai Industrial Corridor (DMIC) Project High Energy Efficient Coal-fired Power Plant Manufacturing and Sales Project High Energy Efficient Coal-fired Power Plant Manufacturing and Sales Project TSL for Renewable Energy-Related Project Equipment Export for Renewable Energy-Related Project Nong Saeng Natural Gas-Fired Combined Cycle Power Plant Project Asian Emerging Indonesia Export of Telecommunication Machinery and Equipment Cirebon Thermal Power Plant Project Paiton Thermal Power Plant Expansion Project Tanjung Jati B Coal-Fired Power Plant Expansion Project Java-Bali Submarine Cables replacement project Mexico Infrastructure Fund Focusing Power Water Transport Infrastructure (ports, railways, roads, etc.) Broadcasting, Telecommunication Renewable Energy Others xport of High Energy Efficient Coal-fired Power Plan ortfolio Acquisition of Existing IPP Projects Telecommunications Network Expansion Project TSL for Renewable Energy-Related Project Panama Panama Canal Expansion Project Colombia Porce III Hydroelectric Power Plant Project Export of Water The Latin American and Caribbean region TSL for Renewable Energy-Related Project Brazil São Paulo Beltway (RODOANEL) Project São Paulo Urban Railway Project Cargo Railway Network Development Project Equipment Export for Digital Broadcasting Telecommunications Project TSL for Renewable Energy-Related Project (Note) An Independent Power Producer (IPP) builds and operates a power plant on its own and sells the electricity produced to power utilities. An Independent Water and Power Producer (IWPP) builds and operates power generation and water desalinization plants on its own and sells the electricity and water produced from them. As of July of Japanese companies participation to development of overseas integrated infrastructure systems. JBIC is thus devoting itself to supporting this strategy. Examples of deploying infrastructure as an integrated system are often cited in the power, water, transport and telecommunication sectors. In the power sector, Japanese companies have a long record of delivering or participating in the projects for building ultra super critical power plants that are capable of generating electric power efficiently with less fuel than previous plants in Asia. As demand for electricity is expected to grow in emerging market countries, there are rising expectations on participating in the broader scope of work related to overseas power projects, including not only building and operating highly efficient power plants, but also installing smart grids and meters which transmit and distribute electricity efficiently by exploiting Information Technology (IT). In the transport sector, there is growing momentum in the United States and other developed countries to shift from motor vehicles to rail systems, in order to respond to increasing concern on the environment. In emerging market countries such as Viet Nam and China, it has been pointed out that the increasing urbanization and economic growth call for high-speed railways and urban transit rail networks. In these sectors, the scale of investment for the overseas deployment of integrated infrastructure systems is expected to be significantly large. However, electric power and transport provide vital services as foundations of economic activity and the lives of people. By their very nature, the provision of such services does not recoup invested funds in a short period of time by making significant profit. It is for this reason that, in addition to the provision of appropriate support by the host country government, stable and long-term financing that is not vulnerable to change in the economy as well as country risk is important for successful projects. 28

29 Meeting New Needs JBIC has focused mainly on supporting Japanese business in developing countries. Yet, as described above, demand for infrastructure exists not only in developing countries, but in developed countries as well. There are countless opportunities for infrastructure business in developed countries, including high-speed rail projects in the United States and United Kingdom and urban transit rails and water supply projects in Australia. In light of this situation, the Japanese government has laid down a legal and institutional framework concerning the specified sectors, such as infrastructure, where Japanese companies are considered to have business opportunities. In these sectors, JBIC can now offer, jointly with private financial institutions, export loans (finance for supporting the export of machinery and equipment from Japan) and overseas investment loans (finance for supporting the Japanese companies overseas investment) in developed country projects. JBIC has abundant experience in financing infrastructure and plant-related projects in many Asian and other developing countries. By engaging in more dialogue with host country governments and, in that process, getting involved in the early stages of the projects, JBIC intends to provide support in ways that will effectively and appropriately exploit the strengths of Japanese companies with consideration to demands in host countries. Performance and Recent Efforts of JBIC To date, JBIC has supported overseas infrastructure business conducted by Japanese companies with a variety of financial tools, including loans, guarantees and equity participation. JBIC has supported the funding of developing country governments, their agencies and private businesses for procuring infrastructure-related facilities and equipment from Japanese companies and the funding required for Japanese companies when they participate in projects as equity investors. Particularly in recent years, these infrastructure development projects are not directly implemented by the public sector. Instead, there are increasing cases of implementing them in the form of Public-Private Partnership (PPP). In the case of large infrastructure projects, expectations are running high among developing countries that they can reduce their governments debt burden by making use of private sector funds through PPP and provide more efficient infrastructure services by making use of project participants in the private sector. JBIC has supported a number of such projects with project financing and other finance schemes. In these PPP projects, government commitment and its certain extent of involvement are expected, and the key to such projects is how to allocate risks and responsibilities appropriately between the government and project participants in the private sector. Thus JBIC considers it as an important role to provide advice with respect to an institutional framework in developing countries and support project structuring from the earliest stage through matching the mutual needs of developing countries and Japanese companies, in addition to such direct financial support as lending. From this perspective, JBIC has been making way forward in an array of efforts, including financial dialogues with the host countries. JBIC will continue to perform the role of a policy-based financing institution in multiple aspects by supporting the export of Japanese companies plant-related machinery and equipment and by actively supporting their participation in infrastructure projects so that they will lead to creation and expansion of their business opportunities. 2 The Environment Surrounding JBIC Challenges and Efforts of Three Finance Groups 2. Infrastructure Finance Group The thermal power project in Indonesia in which Japanese companies participated. 29

30 3 Industry Finance Group 2 The Environment Surrounding JBIC Challenges and Efforts of Three Finance Groups 3. Industry Finance Group Major Issues of Japanese Companies in Conducting Overseas Business Operations As the major issues of Japanese companies in conducting overseas business operations, a sharp appreciation of the yen can be addressed firstly. This is weighing on Japanese exporters as a headwind in competing with their counterparts in emerging market countries such as China or Korea. Secondly, amid difficulties of obtaining dollar financing by European private sector financial institutions, triggered by the euro crisis, it is possible to consider that their credit stance will not change for the better, which will pose a substantial financial challenge to foreign companies that desire to purchase products manufactured in Japan and Japanese companies conducting overseas operations. Thirdly, the progress in globalization has forced major Japanese industries to come to grips with increasingly complex and large-scale supply chain networks. Given these issues, the Great East Japan Earthquake and the flood in Thailand have provided Japanese businesses with an opportunity to review their supply chains. Active Overseas Investment by Japanese Companies Besides the above situation, the appreciated yen brought about prominent overseas investments by Japanese companies. Foreign direct investment (FDI) made by Japanese companies since the 1980s have two major peaks: one occurred in the early 1990s in response to the soaring yen following the Plaza Accord and the other occurred in 2008 just before the Lehman Shock; though the second surge turned around to subside in 2009 and In FY2011, however, FDI rose by 108% to about 10.1 trillion. The increase is particularly pronounced in Asia (where FDI rose by 42% to about 3 trillion) and in Europe (where FDI rose by 127% to 3.2 trillion). 1 Especially under the present circumstances where the 1. [Source] Ministry of Finance Japan Figure 1-1 Medium-term Prospects (next 3 yrs. or so) for Overseas Operations Total responding companies (595) 1.0% 16.8% 82.2% (611) 0.7% 20.1% 79.2% (611) 2.0% 32.2% 65.8% (594) 0.7% 16.5% 82.8% (586) 0.2% 12.6% 87.2% Scale back/withdraw Maintain present level Strengthen/expand FY2007 FY2008 FY2009 FY2010 FY2011 (Note) 1. Overseas operations is defined as production, sales, and R&D activities at overseas bases, as well as the outsourcing of manufacturing and procurement overseas. 2. The numbers in the parentheses above the bar graphs indicate the numbers of responding companies to the question. 3. Mid-tier firms/smes are companies whose paid-in capital is less than 1 billion. [Source] Results of the JBIC FY2011 Survey: Outlook for Japanese Foreign Direct Investment (23rd Annual Survey) Japanese company s automobile parts factory in India (from Bestex Kyoei Co., Ltd.) 30

31 Figure 1-2 Ratios of Overseas Production and Overseas Sales Overseas Sales Ratios Overseas Production Ratios Medium-term plans (FY2014) (FY) (Note) 1. (Overseas Production) / (Domestic Production + Overseas Production) 2. (Overseas Sales) / (Domestic Sales + Overseas Sales) 3. Ratios were calculated by simply averaging the values the respondent companies provided [Source] Results of the JBIC FY2011 Survey: Outlook for Japanese Foreign Direct Investment (23rd Annual Survey) FY2011 projected 38.5 Figure 2 Overseas Investment Commitments by Region (FY ) 2 Africa 3% Latin America and the Caribbean 17% North America 12% The Middle East 12% Asia 23% Total Amount 5,371.1 billions of yen Oceania 11% Europe (Including Russia) 23% (Note) The table does not include TSLs for Japanese private financial institutions, etc. The Environment Surrounding JBIC Challenges and Efforts of Three Finance Groups 3. Industry Finance Group Japanese domestic market will inevitably contract with the declining birthrate and aging population, a growing number of Japanese companies are making efforts to capture part of the demand in emerging market countries, primarily in Asia, the central pillar of world growth. In particular, what stands out is that a wide range of industries and sectors are developing products targeting the middle income class in emerging market countries, called the volume market segment. Japanese companies are also forming joint ventures, offering Japanese technologies with local companies in emerging market countries in an effort to create a new market there. At the same time, as major Japanese corporations are expanding overseas production and local procurement, domestic mid-tier enterprises as well as small and medium enterprises (collectively "SMEs") are actively working to expand overseas operations. The recent continued yen appreciation has also boosted overseas M&A activities. There were 624 mergers and acquisitions of foreign companies worth 5,780 billion by Japanese companies in FY2011, which set a record, exceeding the previous high achieved in FY Such a trend was identified in the FY2011 Survey Report on Overseas Business Operations by Japanese Manufacturing Companies (which describes the findings of the 23rd survey conducted from July to September, 2011, with 603 companies having responded). ( see p. 56) For example, as for mid-term prospects (next 3 yrs. or so) for overseas operations, the number of Japanese manufacturing companies willing to strengthen/expand overseas business increased to a record level (87.2%). These responses clearly showed that Japanese manufacturers, including SMEs, have a strong intention to expand overseas business (see Figure 1-1). Both the overseas production and sales ratio continued to grow, and their growth seemed to have gained momentum after the Lehman Shock. The overseas production ratio is forecast to increase further and reach close to 40% over the coming years (see Figure 1-2). What is worth noting here is that of the companies with an intention to strengthen/ expand overseas operations, about 90% replied that they would maintain or expand domestic operations. Supporting Overseas Business Deployment by Japanese Companies Given the situation and corporate trends described above, JBIC is supporting the overseas business deployment of Japanese companies from various aspects to maintain and improve the international competitiveness of Japanese industries. Firstly JBIC is supporting overseas investment by Japanese companies by providing funds for purchase of capital equipment required for overseas business operations and sales financing by making most use of project finance and local currency finance. Supporting Ship and Plant Exports As the yen is hovering at high levels, JBIC is also actively supporting the export of Japanese companies. In particular, as economic turmoil in Europe deepens and stretches out, resulting in a more conservative credit stance taken by European private financial institutions than previously, there are strong expectations on JBIC, as a Japanese policy-based financial 2. [Source] Thomson Reuters. 31

32 2 Challenges and Efforts of Three Finance Groups 3. Industry Finance Group The Environment Surrounding JBIC 32 ❸institution, for providing credit primarily to ship and plant export transactions, to which JBIC is positively responding. pared with large corporations, JBIC have been supporting their overseas business expansion by providing various information, including the foreign investment climate, in addition to supporting Supporting Foreign M&A Activities under the them by providing loans and other financing products. Emergency Facility in Response to Yen Appreciation Following the Emergency Package Against Yen Appreciation, ( see p ) a policy package released by the Government of Japan in the face of the sharply climbing value of the yen, JBIC launched the emergency facility in response to yen appreciation to take advantage of the higher value of the yen. Under this facility, JBIC is supporting Japanese companies for acquiring foreign companies and developing as well as acquiring interests in overseas natural resources, etc. To encourage M&A activities, JBIC not only makes direct investment but also provides M&A credit lines for domestic financial institutions to expeditiously and flexibly fund Japanese companies with medium and long-term foreign currencies for Responding to the Flood Disaster in Thailand The flood that hit Thailand in October 2011 inflicted substantial damage on a number of Japanese local subsidiaries and affiliates. To support their rehabilitation and business activities, JBIC signed a two-step loan agreement with KASIKORNBANK Public Company Limited, a commercial bank in Thailand, targeting local subsidiaries and affiliates of Japanese SMEs as well as local companies that constitute supply chains with Japanese companies. JBIC also finances local Japanese subsidiaries and affiliates who sustained damage from the flood for replacing machinery and equipment. overseas M&A activities. Accurate Response to Needs Supporting Overseas Business Deployment by SMEs The superior technological capabilities of Japanese SMEs have received high credit at home and abroad. At the same time, developing countries themselves are focusing efforts on attracting investments from the companies having sophisticated technologies. However, as SMEs often have constraints on financing, collecting information, and human resources com- JBIC will continue to actively support Japanese companies by effectively drawing on a range of financial facilities and schemes, including loans, equity participations and guarantees, to meet their needs with accurate response, while recognizing various issues of Japanese companies in deploying their overseas business, in order to maintain and improve the international competitiveness of Japanese industries. The site of the refinery and petrochemical plant project in which Japanese companies participated

33 Operational Results in FY Operations by Region 34 2 Supporting Globalization Efforts of SMEs 49 3 Efforts in the Environmental Sector 53 4 Studies and Research Activities, and Partnerships with Universities and Research Institutions 56 33

34 1 Operations by Region 3 Operational Results in FY Operations by Region Asia China China Loan for Manufacturing and Sales of Hydrofluoric Acid and Fluorine Chemical Products: Support for Expanding Customer Base and Market Share in the Chinese Market Having Increasingly Intense Competition JBIC signed a loan agreement with Jiangxi Datang Chemicals Co. Ltd., a corporation majority owned by DAIKIN INDUSTRIES, LTD. (DAIKIN) in Jiangxi Province, China, supporting their operations in manufacturing and sales of hydrofluoric acid and fluorine chemical products, which are used to manufacture fluorine resin and fluorine paints. DAIKIN has the second largest world market shares in fluorine chemicals, and they plan to expand their customer base and market share in China, the important market, through offering a variety of products with improving its profits through stable supplies of inexpensive core raw materials. Loan for Manufacturing and Sales of Automobile Seat Parts: Supporting the Overseas Business Deployment of SMEs in Collaboration with a Japanese Regional Bank JBIC signed a loan agreement with Matsumoto Industry Co., Ltd. ( Matsumoto Kogyo ), one of the SMEs in Kitakyushu City to finance the manufacturing and sales project of automobile seat parts by Matsumoto Kogyo through Hubei Matsumoto Auto Parts Co. Ltd., a subsidiary of Matsumoto Kogyo in Xiangyang, Hubei, China. This is the first loan signed under the business cooperative agreement between JBIC and The Bank of Fukuoka, Ltd. in August 2011 for a local SME, and the total amount of the co-financing is 80 million. China MOU on Establishing Japan-China Energy Efficiency and Environment Fund: Supporting Promotion of Energy Saving and Environment Businesses JBIC signed a Memorandum of Understanding (MOU) with seven entities, including Mizuho Corporate Bank, Ltd., JGC Corporation, The Export-Import Bank of China and Tsing Capital Co., Ltd. on the establishment of the fund that would invest in the energy efficiency and environmental protection sector in China. The Government of China regards the environment area as one of the top policy agendas. The fund is expected to contribute to realize joint projects undertaken by Japanese and Chinese companies and apply Japanese companies advanced environmental technology to the fund-financed projects, thereby contributing to the expansion of business opportunities for Japanese companies in the energy efficiency and environment sector in China. 34

35 Asia Mongolia Indonesia MOU for Strengthening Mutual Relations with the Mongolian Government: Supporting Japanese Companies Exports and Business Expansion JBIC signed a MOU for the purpose of enhancing financial cooperation including provision of an export credit line 1 with the Ministry of Finance of Mongolia. The MOU states that the two institutions will share information and hold regular consultations that could possibly help to increase Japan-Mongolia business and trade activities in the resource, infrastructure and manufacturing sectors. With this MOU, JBIC seeks to strengthen institutional arrangements to support Japanese companies for doing business in such areas as mineral resource development and associated infrastructure development in Mongolia. It is expected that this MOU will strengthen the two countries economic relations. Export Loans for Java-Bali Submarine Power Cables Replacement Project: Supporting Japanese Export for Indonesia s Power Infrastructure Project JBIC signed a loan agreement of buyer s credit 2 with the Government of Indonesia (GOI). The loan will be onlent from GOI to a state-owned power company, PT. PLN (Persero) ( PLN ), to finance the project in which PLN will purchase a submarine power cables system between the islands of Java and Bali from a consortium that includes Sumitomo Corporation and J-Power Systems Corporation. This project will enable a stable supply of power to Bali Island, which is suffering a serious power shortage, by utilizing Japanese facilities and technologies. 3 Operational Results in FY Operations by Region Indonesia Loan Agreement for Manufacturing and Sales of Auto and Motorcycle Parts: Supporting Japanese Businesses in Growing of Auto and Motorcycle Market in Indonesia JBIC signed a loan agreement for supporting operations of auto and motorcycle parts (power steering, bearings and scooter clutch) manufacturing and sales in Indonesia, with PT. JTEKT INDONESIA, a subsidiary established in Indonesia and owned by JTEKT CORPORATION. Against a background of expanding of Japanese automobile and parts manufacturing businesses in Indonesia with growing middle class and consistent economic growth in recent years, JTEKT group is also actively investing in Indonesia. 1. An export credit line is a form of export credit in which JBIC makes a commitment of the maximum amount of credit to be extended to its client (foreign banks or other entities) to finance exports of machinery, equipment and services from Japan. 2. A buyer s credit is a loan JBIC directly extends to a foreign importer (buyer) to finance its import of machinery and equipment from a Japanese company. 35

36 3 Operational Results in FY Operations by Region Asia Indonesia Malaysia Singapore MOU on Cooperation with a Government Agency in Indonesia for Overseeing and Controlling Upstream Oil and Gas Business Activities: Promoting Japanese Gas-Related Business JBIC signed a MOU with Badan Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi (BPMIGAS), a government agency in Indonesia for overseeing and controlling upstream oil and gas business activities, to build a business model that will lead to expand the country s overall supply of natural gas and to promote gas-related business by Japanese companies in Indonesia. The total capacity of natural gas supply in Indonesia is expected to enhance amid increasing domestic energy demand. At the same time, it contributes to create natural gas-related business opportunities for Japanese companies in Indonesia. Loan for Manufacturing and Sales of Encapsulant Sheets for Solar Cells: Supporting Japanese Businesses Share Increase in Growing of Solar Cell Market in Malaysia JBIC signed a loan agreement for supporting manufacturing and sales of encapsulant sheets for solar cells, with MCTI SCIENTEX SOLAR SDN. BHD., a Malaysia subsidiary of Mitsui Chemicals Tohcello, Inc. The solar cells market is expected to grow in Europe, Japan, China, the U.S. and other parts of world. It is also expected that this loan contributes to secure the market share by Japanese companies, and to maintain and enhance the international competitiveness of Japanese industry. Loan for Ship Export to Shipping Company: Supporting Export of Ships Built in a Japanese Shipyard JBIC signed buyer s credit agreements with Dampskibsselskabet NORDEN A/S (NORDEN). These loans are intended to finance a NORDEN s subsidiary incorporated in Singapore, to purchase two 37,000-DWT bulk carriers 3 built by ONOMICHI DOCKYARD CO., LTD. at its Onomichi Dockyard (Onomichi City, Hiroshima Prefecture). These loans provide financial support for the export of ships built in a Japanese shipyard, thereby contributing to maintaining and improving the international competitiveness of the Japanese shipbuilding industry. 3. A bulk carrier is a cargo ship designed to transport dry bulk cargo such as grain, coal, ore, etc. 36

37 Asia Thailand Thailand Project Financing for Natural Gas-fired Combined Cycle Power Plant in Thailand: Supporting Japanese Business for Developing Overseas Integrated Infrastructure System JBIC singed a loan agreement of project financing 4 with Gulf JP NS Co., Ltd. (GNS), a subsidiary of Electric Power Development Co, Ltd. (J-POWER) in Thailand, for financing a project to build and operate a natural gas-fired combined cycle power pant with the capacity of 1,600 MW in Nong Saeng district, Saraburi Province. The project is a typical form of Japanese deployment of overseas integrated infrastructure system project, with J-POWER leading the project deploying the latest facilities and technologies by Mitsubishi Heavy Industries Ltd. Loan for Manufacturing and Sales of Spunbond Nonwoven Fabric for Disposable Diapers: Supporting Japanese Companies in Growing Asian Market JBIC signed a loan agreement for supporting manufacturing and sales of spunbond nonwoven fabric for disposable diapers, with Asahi Kasei Spunbond (Thailand) Co., Ltd., a subsidiary of Asahi Kasei Fibers Corporation. The disposable diaper market in Asia is forecasted to continue to grow at a high rate, backed by economic growth in the region with expanding population and increasing buying power. This loan contributes to maintain and enhance the international competitiveness of Japanese industries. 3 Operational Results in FY Operations by Region Viet Nam Export Loan for Coal-fired Power Project in Viet Nam: Supporting Export of Power Plant Equipment by Japanese Companies JBIC signed a loan agreement with Vietnam Oil and Gas Group (Petrovietnam: PVN). The loan will finance the procurement of steam turbines and related equipment as a whole from Toshiba Corporation and Sojitz Corporation, as PVN will construct a coal-fired power plant in Ha Tinh Province located in the central region of Viet Nam. This loan contributes Viet Nam in developing the country s power supply infrastructure to meet increasing demand backed with steady economic growth. 4. Project finance is a financing structure that relies primarily on the cash flow generated by the project for repayment. It is used for financing large projects in such sectors as power generation and oil, gas or other natural resource development. 37

38 3 Operational Results in FY Operations by Region Asia India India South Asia Export Credit for Supercritical Coal-fired Power Generation Project: Supporting Japanese Export of Thermal Power Generation Equipment to India JBIC signed a loan agreement with ICICI Bank Limited (ICICI), the largest private sector bank in India, to finance the Japanese export to India of high efficiency and performance boilers and turbines built with high compression technologies 5 by the consortium of Marubeni Corporation and Mitsubishi Heavy Industries, Ltd. This is for its supercritical pressure coal-fired thermal power plant to be built and run by Nabha Power Ltd. in the State of Punjab, India. This loan contributes India to solve the tight supply of electricity, from its rapid economic growth, through the development of power infrastructure. Loan for Building Factory of Transmission Belts for Automobiles and Motor Scooters: Supporting Expansion of Market Share for Japanese Companies in India s Automobile Market JBIC signed a loan agreement supporting to build a factory in Bangalore for manufacturing of transmission belts ing large middle class population and BANDO plans to tor scooter market is expected to grow with an increas- for automobiles and motor scooters with Bando (India) expand its clients base and market share in the Indian Private Ltd., a subsidiary established by Bando Chemical market. Industries Ltd. (BANDO) In India, the automobile and mo- Participating in Fund Focusing on Clean Energy Investments: Contributing to Reduction of Greenhouse Gas JBIC signed an agreement for equity participation in South Asia Clean Energy Fund, L.P. that will invest principally in clean energy and environmental sectors in South Asia (India, Bangladesh, Nepal and Sri Lanka). This is the first equity investment made by JBIC in its GREEN operation ( see p. 69). By supporting these projects through the Fund, it is expected to help reduce GHG emissions and preserve the global environment. 5. High compression technology is the technology used in power generation by operating supercritical turbines and boilers at very high temperature and pressure above water s critical point. It is expected to help to reduce greenhouse gas (GHG) with higher fuel efficiency compared to sub-critical coal fired technology. 38

39 Oceania Australia Australia Australia Energy and Natural Resource Financing for Acquisition of Interest in the LNG Project: Supporting Japanese Electric Company s Participation in the LNG Project JBIC signed a loan agreement with Kyushu Electric Wheatstone Pty Ltd., an Australian subsidiary of Kyushu Electric Power Co., Inc. (Kyushu Electric). It intends to support the acquisition of partial interest in the upstream LNG reserves (development of gas fields) and liquefaction facilities related to natural gas and LNG produced in Wheatstone Iago Field and nearby fields located northwest off Western Australia, to Ashburton North, Western Australia. Kyushu Electric Power plans to import annually 830,000 tons of LNG from this project. Perth Australia Julimar and Brunello fields Sydney Wheatstone and Iago fields Ashburton North (liquefaction and port facilities, etc.) Energy and Natural Resource Financing for Developing New Mining Block in Queensland: Supporting Japanese Company s Participation in Overseas Coal Mining Development Project In order to secure stable procurement of coking coal to Japan, JBIC signed a loan agreement with Mitsui Kestrel Coal Investment Pty Ltd., an Australian subsidiary of Mitsui & Co., Ltd. to develop a new mining block in the Kestrel Mine, Queensland. The quality of coal produced by the Kestrel Mine is rated highly by Japanese blast furnace steelmakers for having good property as coking material, and has been sold mainly to Japan. The project thus has significant implication for securing stable procurement of coking coal for Japan. Energy and Natural Resource Financing for the Project of Liquefying CBM in Queensland: Supporting a Japanese Gas Company s Participation in the CBM-LNG Project JBIC signed a loan agreement with Tokyo Gas Co., Ltd. (Tokyo Gas) for the acquisition of upstream interests and the liquefaction train of coal-bed methane (CBM) 6 gas produced on Curtis Island off the coast of Gladstone, Queensland, from the CBM gas field in the Surat basin of the same state. This is the first loan provided by JBIC for the CBM-LNG project. Tokyo Gas plans to import 1.2 million tons of LNG from multiple LNG sources, including this project, in the next 20 years from Operational Results in FY Operations by Region 6. Coal-bed Methane is a form of natural gas extracted from coal beds, and is becoming popular as non-conventional natural gas, along with shale gas. 39

40 3 Operational Results in FY Operations by Region Oceania Australia Marshall Islands MOU with the Western Australian Government and the State of Queensland: Supporting Japanese Companies in Securing the Natural Resources JBIC signed MOUs on comprehensive strategic partnerships with the Western Australian government through its Department of State Development and the State of Queensland through its Department of Employment, Economic Development and Innovation. Western Australia is endowed with abundant mineral and energy resources including iron ore, nickel, alumina, gold, crude oil and natural gas, while, Queensland is endowed with coal, crude oil and natural gas. Through deepening of the economic relationships with state governments, JBIC supports Japanese companies business activities related to natural resources and infrastructure in Australia. Buyer s Credits for Ship Exports to Marshall Islands: Supporting Export of Bulk Carriers Built in a Japanese Shipyard In support of exporting ships built in a Japanese shipyard, JBIC signed buyer's credit agreements with three ship owning companies incorporated in Marshall Islands owned by Safe Bulkers, Inc. to finance the export of three vessels built in a Japanese shipyard. These loans support the export of the ships and contribute to maintain and strengthen the international competitiveness of Japanese shipbuilders. Also, these were JBIC s first buyer s credit loans made to the buyers in Marshall Islands. Papua New Guinea Project Financing for Procurement of LNG Tanker: Supporting Long Term and Stable Supplies of LNG to Japan JBIC signed a loan agreement with Bahamas LNG Shipping Ltd., a wholly-owned subsidiary of Nippon Yusen Kabushiki Kaisha in Bahamas, for procurement of a new LNG tanker, to be used for The Tokyo Electric Power Company to import LNG produced in PNG LNG Project in Papua New Guinea. Given the fact that natural gas has been playing an increasingly important role as fuel for generating electricity, this loan contributes to securing a long-term supply of natural gas to Japan by utilizing the know-how of a Japanese shipping company. 40

41 Europe Russia Russia Russia Export Loan for Urea Fertilizer Plant in Russia: Supporting Japanese Exporters through Local Financial Institutions JBIC signed a loan agreement with Vnesheconombank (VEB) in Russia to finance the purchase of a whole set of machineries and equipment by Joint Stock Company Ammoni in Russia, from Mitsubishi Heavy Industries, Ltd. and Sojitz Corporation for constructing a urea fertilizer plant in Mendeleevsk, the Republic of Tatarstan, Russia. It is expected that this loan will help to expand Japanese companies business opportunities in Russia. Export Loan for Wood Processing Machinery and Equipment in Russia: Supporting Export Business of a Japanese SME JBIC signed a loan agreement with Vnesheconombank (VEB) in Russia, to finance the purchase of veneer production facilities by Amurskaya Lesopromyshlennaya Kompaniya LLC. from Hashimoto denki Co., Ltd. for its wood-processing plant in Khabarovsk. This is to support the expansion of export business by a Japanese SME, and to contribute to maintain and improve the international competitiveness of Japanese industries. Export Credit Line for Sberbank in Russia: Supporting Japanese Exports of Machineries and Equipment JBIC signed a loan agreement for an export credit line with Sberbank of Russia, the largest commercial bank in Russia, to finance the import by Russian companies of machineries, equipment and services, including construction machineries, from Japanese exporters. Since 2010, the Russian economy has been back on a steady recovery path. This credit line is expected to support exports of machineries and equipment to Russia by Japanese companies, thereby contributing to the expansion of overseas markets and maintaining and improving the international competitiveness of Japanese companies. 3 Operational Results in FY Operations by Region 41

42 3 Operational Results in FY Operations by Region Europe United Kingdom Switzerland Buyer s Credit for Ship Export to World s Largest Cruise Ship Operator: Supporting Export of Large Cruise Ships Built in a Japanese Shipyard JBIC signed two buyer s credit agreements for ship exports with Carnival plc incorporated in the United Kingdom and Carnival Corporation incorporated in Panama, the world s largest cruise ship operator, to finance the purchase of two 125,000-ton large cruise ships from Mitsubishi Heavy Industries Ltd. The ships will be built in its Nagasaki Shipyard (in Nagasaki City, Nagasaki Prefecture). JBIC is now empowered to finance ship exports to developed countries, pursuant to the JBIC Act promulgated and entered into effect on May 2, 2011 and the related government areas. Loans to Finance a Purchase of Smart Meter Company: Supporting Overseas M&A of Japanese Companies JBIC provided a loan to Toshiba Corporation, through Sumitomo Mitsui Banking Corporation, Mizuho Bank, Ltd., and The Bank of Tokyo-Mitsubishi UFJ, Ltd. for financing the purchase of Landis+Gyr AG, a major Swiss company, that manufactures and markets the smart meters. Toshiba plans to further develop its global business of Smart Community and Smart Grid businesses with this acquisition. Switzerland 42

43 The Middle East Oman Qatar Project Financing for Natural Gas-Fired Combined Cycle Power Project: Supporting the Overseas Deployment of Integrated Infrastructure Systems by Japanese Companies JBIC signed a loan agreement with Phoenix Power Company S.A.O.C. in Oman, a joint venture set up by Marubeni Corporation, Chubu Electric Power Co., Inc., Qatar Electricity & Water Company Q.S.C. and Multitech L.L.C. to finance its project of constructing and operating the natural gas-fired combined cycle power plant with a capacity of 2,000 MW, in Sur, 150 km southeast of Muscat, the capital of Oman. This project, to be completed in 2014 according to the plan, would be the largest Independent Power Producer (IPP) in Oman and is expected to meet about one quarter of the national power demand at that time. Project Financing for Export of the Equipment of Natural Gas Treatment Facilities: Strengthening Multi-Layered Relations with Resource-Endowed Country through Financial Support for Export of Large Plant by Japanese Company 3 Operational Results in FY Operations by Region JBIC signed a buyer s credit agreement with Barzan Gas Company Limited, a joint venture of Qatar Petroleum, a state-owned oil company in Qatar and an affiliate of Exxon Mobil Corporation, a U.S. corporation, to finance the construction of the country s largest natural gas treatment facilities, for which JGC Corporation was awarded the contract. With this loan, JBIC supports the export of Japanese plants and equipment, at the same time, contributes to Qatar s stable economic development and strengthens multi-layered relations with Qatar, an important supply source of resources to Japan. planned location Qatar Turkey Export Credit Line for Enka Pazarlama in Turkey: Supporting Export of Japanese Construction Machinery JBIC signed a loan agreement with Enka Pazarlama Ihracat Ithalat A.S., a regional enterprise importing and selling construction equipment and other industrial machinery in Istanbul, Turkey for the purchase of machinery and other equipment from Japan. Since 2005, JBIC has provided several credit lines to finance Enka Group for purchasing construction machinery and other equipment from Japan. This loan is a follow-on of these credit lines to meet the growing demand for infrastructure. 43

44 3 Operational Results in FY Operations by Region The Middle East Turkey United Arab Emirates Guarantee for Privately Placed Samurai Bonds Issued by the Government of Turkey: Contributing the Samurai Bond Market and Diversifying the Funding Sources of Turkey JBIC signed a set of agreements to provide a guarantee for yen-denominated foreign bonds (Samurai bonds) issue by the Government of Turkey in the Tokyo bond market as part of the Guarantee and Acquisition toward Tokyo market Enhancement (GATE) facility. This guarantee supports Samurai bonds issue in the Tokyo bond market Turkey through the provision of credit enhancement, thereby making available to Japanese investors a broader, diverse range of investment opportunities, and increasing activities in the Tokyo bond market. In the meantime, JBIC also supports the Government of Turkey to diversify its funding sources. Project Financing for Natural Gas-Fired Combined Cycle Power Plant: Supporting the Overseas Deployment of Integrated Infrastructure Systems by a Japanese Company JBIC signed a project finance loan agreement with Shuweihat Asia Power Company P.J.S.C., incorporated in the United Arab Emirates (UAE) and invested by Sumitomo Corporation, to finance the construction and operation of a natural gas-fired combined cycle power plant (capacity 1,600 MW) in Shuweihat, 250 km southwest of Abu Dhabi. There has been a growing expectation to strengthen the multi-layered economic relationship through supporting of infrastructure deployment in the UAE, beyond the bound by natural resource trade. 44

45 Africa North America Mozambique Canada Energy and Natural Resource Financing for Woodchip Manufacturing and Sales Project: Supporting Stable Long-Term Supply of Woodchip by a Japanese Company JBIC signed a loan agreement with Sojitz Maputo Cellulose, Limitada (SOMACEL), a wholly-owned subsidiary of Sojitz Corporation Group in Mozambique, for financing a woodchip manufacturing and sales project to be undertaken by SOMACEL in Maputo Province, Mozambique. Japan acquires woodchips from overseas as a raw material for producing paper, and their imports meet more than half of its domestic demand for woodchips. Meanwhile, world supply for woodchips is expected to get increasingly tight over the medium and long term. As this project provides a new supply source of woodchips to Japan, it has a significant implication for sourcing a stable supply of woodchips. Extending Export Credit Line to Afreximbank: Supporting Japanese Companies Export Businesses to Africa JBIC signed a loan agreement with the African Export- Import Bank (Afreximbank) for extending an export credit line. It intended to provide loans for local companies in Africa to purchase machinery, equipment and services from Japanese companies. In recent years, African countries have achieved remarkable economic development, as the result, the demand for development of infrastructure and consumer markets is growing. It is hoped that this loan will help sustainable growth in this region and contribute to the expansion of Japanese business activities in Africa. Energy and Natural Resources Financing for a Shale Gas Project: Supporting the Acquisition of Interests and Development of Shale Gas by Japanese Companies JBIC signed a loan agreement in Canadian dollars with Cordova Gas Resources Ltd., a Canadian subsidiary of Mitsubishi Corporation; Tokyo Gas Co., Ltd.; Chubu Electric Power Co., Inc.; and Osaka Gas Co., Ltd., to finance CGR s acquisition of a 50% interest in the Cordova Embayment, British Columbia, Canada and for the development of shale gas fields. This loan will support the development of shale gas, which has been expected to become a new source of natural gas in recent years, thereby contributing to securing energy resources and their stable supply to Japan. 3 Operational Results in FY Operations by Region 45

46 3 Operational Results in FY Operations by Region North America Latin America and the Caribbean Canada Canada Brazil Energy and Natural Resource Financing for Aluminum Smelter Project: Supporting the Acquisition of Additional Interest in Aluminum Smelter by Japanese Company JBIC signed a loan agreement with Marubeni Metals & Minerals (Canada), Inc., supporting the acquisition of additional interest in the Alouette Aluminum Smelter project in Quebec, Canada. Aluminum is an essential metal for Japanese industries, as it can be used in various products such as automobile parts, precision instruments, etc., with its characteristic light weight, high corrosion resistance and workability. This project contributes to secure a long term and stable supply of aluminum ingot to Japan. Energy and Natural Resource Financing for Acquiring Interest in Coal Mine: Contributing to Securing Energy Resources and Their Stable Supply JBIC signed a loan agreement with Marubeni Corporation for acquisition of, through Marubeni Coal Canada Ltd., 40% of equity shares in Grande Cache Coal Corporation, which holds the Grande Cache Coal Mine in Alberta. The coking coal produced in this mine will be supplied to Japanese blast furnace steelmakers and coke manufacturers over the long term, thus this transaction has a major significance in securing a stable supply of coking coal to Japan. Project Financing for an Ultra-Deepwater FPSO Operation Project: Supporting Offshore Resource Development and Strengthening International Competitiveness of Japanese Industries JBIC signed a loan agreement of project financing with Cernambi Sul MV24 B.V., a company incorporated in the Netherlands in which MODEC, Inc., Mitsui & Co., Ltd., Mitsui O.S.K. Lines, Ltd., and Marubeni Corporation have equity stakes, for financing a project in which a long term FPSO system (built by MODEC) chartering services (including operations and maintenance) to be offered to a consortium formed in the Netherlands by Petróleo Brasileiro S.A., a state-owned oil company in Brazil. This FPSO vessel will be deployed for developing the Cernambi South area of Brazilian offshore pre-salt oil field. 46

47 Latin America and the Caribbean Brazil Chile MOUs with BNDES: Finance in Brazilian Real and Financial Cooperation in the Third Countries JBIC signed MOUs with Banco Nacional de Desenvolvimento Economico e Social (BNDES) for the purpose of cooperation in long-term financing in Brazilian Real and in the third countries. It is expected that these MOUs will promote Japanese companies investments with growing financial demand in recent years for infrastructure development in Brazil, and for natural resources development in the third countries, such as Africa and other American countries. Project Financing for Copper Mine Development Project: Supporting Japanese Companies for Large Scale Copper Mine Development JBIC signed a loan agreement with Sierra Gorda SCM, a company incorporated in Chile and invested in by Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation, for financing the development of the Sierra Gorda Copper Mine Project in the Antofagasta Region. Since Japan relies solely on imports for copper concentrate from Chile and other countries, this will help to secure long-term and stable supply of copper resources to Japan. 3 Operational Results in FY Operations by Region Colombia Export Loan for Hydraulic Power Plant Project: Supporting Japanese Companies Export of Hydraulic Power Generation Equipment JBIC signed a buyer s credit agreement with ISAGEN S.A. E.S.P., a company incorporated in Colombia, to finance the purchase of a set of equipment including generators from a consortium of Mitsui & Co. Plant Systems, Ltd. and Toshiba International Corporation, as it constructs a hydraulic power plant (capacity 820MW) to be constructed and operated by ISAGEN in the Sogamoso river basin in Santander in the northeastern part of Colombia. It is expected that this helps to create business opportunities for Japanese industries in the power sector in Colombia. 47

48 3 Operational Results in FY Operations by Region Latin America and the Caribbean Mexico Uruguay Loan and Guarantee for Hot-Dip Galvanized Steel Sheet Manufacturing and Sales Project: Strengthening Global Competitiveness and Supporting Overseas Business Expansion of Japanese Steel Industries JBIC signed a loan agreement with TENIGAL, S.de R.L. de C.V., a joint venture formed in Mexico by Nippon Steel & Sumitomo Metal Corporation and Ternium S.A., for undertaking the project of manufacturing and selling hop-dip galvanized and galvannealed steel sheets to meet increasing demand for automotive steel sheets in Mexico. JBIC also provided a guarantee of the co-financed portion. The steel sheets produced will be sold to automotive manufactures in Mexico, including Japanese, U.S. and European affiliates, to be used for their high-end automobiles. Guarantee for Privately Placed Samurai Bonds Issued by the Government of Uruguay: Contributing to Activate the Samurai Bonds Market and Diversifying the Funding Sources of the Uruguayan Government JBIC signed a set of agreements to provide a guarantee for yen-denominated foreign bonds (Samurai bonds) issue by the Government of Uruguay in the Japanese bond market as part of the GATE facility. By supporting Samurai bond issues by foreign issuers in the Tokyo bond market with credit enhancement through JBIC s guarantee, thereby making available to Japanese investors, it helps to expand and diversify the investment opportunities, and increase the activity of the Samurai bond market. At the same time, JBIC helps the Uruguayan government to diversify Urguay its funding sources. Credit Line with BCIE: Contributing to Promote Global Environmental Sustainability in Cooperation with Multilateral Regional Financial Institution JBIC signed a loan agreement with the Banco Centroamericano de Integración Económica (BCIE), as part of JBIC s GREEN operations, to promote the renewable energy projects in Central American countries. This loan is expected to contribute to accelerating the harnessing of renewable energy and reducing greenhouse gas emissions, while disseminating advanced environmental technologies in Central America countries. 48

49 2 Supporting Globalization Efforts of SMEs As globalization of the world economy advances, it has become imperative for Japanese mid-tier enterprises as well as small and medium enterprises (collectively "SMEs") to actively develop their overseas businesses, and JBIC supports their activities by providing information and holding seminars on the overseas investment climate, as well as directly supporting the financing of their overseas businesses. Also, JBIC supports them through collaboration with domestic regional financial institutions and overseas local financial institutions in emerging market countries. More precisely, these include supplementing the financial transactions implemented by private-sector financial institutions in the areas where it is difficult to provide services, including the assumption of political risks; cooperating with domestic regional financial institutions, prefectural and municipal governments, and local chambers of commerce and industry; providing information and consulting services on transactions with overseas business partners; publishing guidebooks on overseas investment climates that are prepared based on field studies; and holding seminars and other events. region, etc., forming partnerships with overseas local financial institutions. JBIC has signed MOUs with KASIKORNBANK Public Company Limited (KASIKORNBANK) in Thailand in May 2011, PT. Bank Negara Indonesia (Persero) Tbk. (BNI) in July 2011 and the State Bank of India in August 2012, to provide a support framework for SMEs to expand their overseas businesses through Japanese regional financial institutions. With these MOUs, JBIC has set up a framework and continued to cooperate and collaborate on opening and expanding a Japan desk at overseas local financial institutions, and on preparation of more concrete plans to support Japanese SMEs who are clients of Japanese regional financial institutions, for their overseas business deployment. Many Japanese regional financial institutions have already joined the program, with 24 banks under the MOU with KASIKORNBANK and 23 banks under the MOU with BNI, as of the end of August Operational Results in FY Supporting Globalization Efforts of SMEs KASIKORNBANK and JBIC at signing Overseas Investment Seminar Strengthening of Support Function for SMEs Upon the inauguration of JBIC in April 2012, the financial function in respective projects and information services regarding the overseas investment climate were enhanced by setting up new units dedicated to supporting SMEs in the Head Office and the West Japan Office as part of the Industry Finance Group. Moreover, JBIC provides knowledge and advice on investing overseas and how to start business overseas, cooperating with prefectural and municipal governments, and local chambers of commerce and industry, which are supporting the overseas business of local companies. In addition JBIC holds a mobile counseling office on a regular basis and provides advice on the overseas investment climate and know-how on long term financing in Sendai, Ota, Tokyo and Nagoya. Partnerships with Overseas Local and Japanese Regional Financial Institutions JBIC also supports Japanese SMEs, developing a support framework for them to expand their businesses into the Asian BNI and JBIC at signing Partnership with Japanese Regional Financial Institutions JBIC signed cooperation agreements with The Senshu Ikeda Bank, Ltd. (Senshu Ikeda) in July 2011, and with The Bank of Fukuoka., Ltd. (Fukuoka Bank), Kumamoto Family Bank, and The Shinwa Bank, Ltd., members of Fukuoka Financial Group Inc., in August 2011, to cooperate on information exchange related to the overseas business operations of Japanese companies, including Japanese local SMEs, and the investment climate of overseas hosting countries. Based on these agreements, in March 2012, in cooperation and collaboration with Fukuoka Bank, JBIC provided the financing for an SME that is an automobile parts manufacturer in Kita Kyushu City in Fukuoka prefecture to start their first overseas operation in China. In July 2012, JBIC signed a loan agreement to set up a credit line in U.S. dollars with Senshu Ikeda, supporting the overseas business deployment of SMEs. 49

50 3 Operational Results in FY Supporting Globalization Efforts of SMEs What is more, in July 2012, JBIC held a conference with local representatives of Japanese regional financial institutions in Bangkok, Thailand, to exchange opinions about supporting Japanese companies operating locally, and JBIC plans to further strengthen its function of providing support to overseas business deployment by SMEs, through cooperation and collaboration with Japanese regional financial institutions. Partnership with Foreign Government and Government Agencies In September 2011, JBIC signed an agreement with the Office of the Board of Investment of Thailand, to exchange information on investments by Japanese companies to Thailand. This agreement is expected to support SMEs overseas business deployment in Thailand, through information exchange on investments by Japanese companies and maintaining close cooperation. Providing Reports on the Overseas Investment Climate JBIC has prepared information materials on investment climates in foreign countries based on field studies and interviews, and made them available to interested clients. These investment climate series are available in print as well as Web publications on the JBIC Website. Other Efforts In June 2012, JBIC held a seminar at the West Japan Office for SME clients in Western Japan, on the subjects of business skill development of Japanese staff in overseas offices, and Utilization of local residents and local human resources. Round-table conference with SMEs 50

51 China China Cases of Supporting Efforts of SMEs JBIC supports SMEs in a wide range of industries with their overseas business deployment. Fukuda Metal Foil & POWER Co., Ltd. Manufacturing and Sales of Electrodeposited Foil Fukuda Metal Foil & POWER has advanced processing techniques accumulated through its long company history, and manufactures metal powder and electrolysis foils used in various machine parts and printed circuit boards for electronic equipment. Its subsidiary, Suzhou Fukuda Metal Co., Ltd. manufactures electrodeposited copper foil in high demand, backed by the expansion of the electric equipment market. JBIC provides financing to the parent to support the expansion of foil manufacturing facilities at the subsidiary. TOKUSEN Co., Ltd. Manufacturing and Sales of Special Steel Wire TOKUSEN has strength in the manufacturing of steel wire for the reinforcement of automobile tires and sawing wire for the cutting of silicon slices for semiconductors and solar panels. In the context of a growing market, at its subsidiary in China, Kanai TOKUSEN Co., Ltd. manufactures the same products. JBIC provides financing to the parent to finance the expansion of manufacturing facilities at the subsidiary. China Indonesia Indonesia Wako Filter Technology Co., Ltd. Manufacturing and Sales of Filters for Automobile and Construction Equipment Wako Filter Technology has strength in the manufacturing of various filters for automobile and construction equipment, as well as filters for high pressure hydraulic fluid equipment and for oil plant equipment. At its Henan Peace Filter Co.,Ltd., a subsidiary in China, the company manufactures the filters, keeping its price competitive and meeting customers needs for local production. JBIC provides financing to the parent to finance manufacturing and sales of various filters for automobile and construction equipment at the subsidiary. RP TOPLA Limited. Manufacturing and Sales of Synthetic Resin Spout Molding RP TOPLA has strength in synthetic resin spout molding for home electrical appliances, OA equipment, transportation equipment, equipment for the home, and industrial material. At its subsidiary, PT. TOPLA HYMOLD INDONESIA, the company expanded the manufacturing capacity of various molding parts to meet the growing demand backed by the country s economic growth. JBIC provides financing to the subsidiary to support their expansion of facilities. YAMATOGAWA SHIKO Co., Ltd. Manufacturing and Sales of Film for Disposable Diapers YAMATOGAWA SHIKO s strength is in the manufacturing of a wide range of paper cores, such as cores for household wrapping film, for general consumer and industrial products such as roll paper manufacturers, and building materials. At its Indonesian subsidiary, PT. YAMATOGAWA INDONESIA, film and film winding paper cores for disposable diaper are manufactured. JBIC provides financing to the parent to support their subsidiary s expansion of production capacity in Indonesia, targeting the growing disposable diaper market backed by the country s recent economic growth. 3 Operational Results in FY Supporting Globalization Efforts of SMEs 51

52 3 Operational Results in FY Supporting Globalization Efforts of SMEs Indonesia Indonesia Thailand PT. Bank Resona Perdania Two-step Loans for Local Projects by SMEs Resona Perdania, an Indonesia subsidiary of Resona Bank Limited, has a wide ranging client base, mostly in local subsidiaries of Japanese SMEs. JBIC provides financing to Resona Perdania for making long-term loans to subsidiaries of Japanese SMEs. TAMANO KASEI CO., LTD. Manufacturing and Sales of Automobile Parts TAMANO KASEI has strength in plastic automobile parts, especially in washer nozzles, and sells its products to major auto parts suppliers. It established an Indonesian subsidiary, PT. Tamano Indonesia (TMI) to capture the growing Asian auto parts market from increasing automobile demand, backed by stable economic growth. JBIC provides financing to the parent to support manufacturing and sales of automobile parts at the subsidiary. SAMTECH Corp. Manufacturing and Sales of Automobile Parts As a bare shape auto parts supplier, SAMTECH has strength in precision hot forging, cold forging and flow forming parts for automobiles, especially in wheel hub unit bearings (outer ring and inner shaft) with its unique proprietary technology, and also makes efforts in the research and development of auto parts for future fuel cell-powered vehicles. At Samtech (Thailand) Co., Ltd., a subsidiary in Thailand, it planned to manufacture facilities with the most advanced technology for the manufacturing of hub unit bearings in November JBIC provides financing to the subsidiary to support the expansion of its facilities. Thailand Viet Nam Viet Nam Sankin Corporation Manufacturing and Sales of Cold Drawn Steel Tubes Sankin Corporation s strength is in the manufacturing of cold drawn steel tubes for automobile parts. At its subsidiary in Thailand, SANKIN THAILAND CO., LTD., cold drawn steel tubes and compressor parts for air conditioners are manufactured, on the back of the growing automobile market in Thailand and Southeast Asian countries. JBIC provided financing to the subsidiary to expand production facilities for the manufacturing of more high precision products. OGINO KOGYO Co., Ltd. Manufacturing and Sales of Automobile Engine Components OGINO KOGYO s strength is in the integrated production of automotive parts, such as in deformation and machine processing, heat treatment and polishing of materials, as well as in new product development. The company produces engine and transmission parts at its subsidiary in Viet Nam (OGINO VIETNAM CORPORATION). JBIC provided financing to the subsidiary to build and expand its production facilities. Kyoto Biken Laboratories, Inc. Manufacturing and Sales of Veterinary Vaccines Kyoto Biken specializes in veterinary vaccines for pets, in addition to livestock, and produces veterinary vaccines. KYOTO BIKEN HANOI LABORATORIES CO., LTD., is its subsidiary in Viet Nam, a first overseas business in Viet Nam. JBIC provides financing to the parent to support the introduction of production facilities. 52

53 3 Efforts in the Environmental Sector Supporting Environmental Conservation and Improvement Projects Nowadays, achieving economic development compatible with environmental sustainability is recognized as a common challenge facing developed and developing countries alike. Given this self-realization, there are growing expectations across the world on implementing projects conducive to environmental conservation and improvement. A wide range of efforts are underway all over the world in this sector, including energy efficiency improvement projects; renewable energy harnessing projects such as solar and wind power generation; highly efficient, high performance coal-fired thermal power generation and natural gas-fired combinedcycle power projects that reduce carbon dioxide emissions; urban transport projects such as transit rails that mitigate traffic congestion and reduce air pollution; smart grid projects Examples: Supporting Renewable Energy and Energy Efficiency Projects in India JBIC provided a loan, by way of an Indian local bank, necessary for financing renewable energy and energy efficiency projects in India that contribute to reducing the country s GHG emissions. Under the National Action Plan on Climate Change (NAPCC), India s medium and long-term environment policy, the Indian government has been making a variety of efforts. JBIC s loan is expected not only to contribute to reducing GHG emissions in India and promoting the Indian government's environmental policy, but also to contribute to disseminating advanced environmental technologies. that supply efficient power supply by using IT and eco-city projects that aim to realize environmentally sustainable cities. Amid these developments, JBIC is devoting itself to supporting environment conservation and improvement projects, not to mention environmental and social considerations being made in individual projects. JBIC also launched GREEN (Global action for Reconciling Economic growth and ENvironmental preservation) operations in April 2010 and has since been actively focusing its support on efforts to conserve the global environment, such as projects that are expected to significantly reduce greenhouse gas (GHG) emissions, while taking account of the global dissemination of Japan s internationallyacclaimed advanced environmental technologies. 3 Operational Results in FY Efforts in the Environmental Sector Mitigating Traffic Congestion and Air Pollution in Brazil JBIC provided a loan to the metro construction project undertaken by the Government of the State of São Paulo. The city of São Paulo, renowned as the center of the Brazilian economy, is plagued by such emerging urban problems as chronic traffic congestion and air pollution. This project is expected to mitigate congestion and air pollution by developing urban transport infrastructure. Supporting Wind Power Project in Bulgaria JBIC provided a loan to a wind power project in Bulgaria whereby Japanese companies participate by holding equity stakes in the project. This power generation project harnessing renewable energy is located in the Kaliakra district of the Municipality of Kavarna, a city on the coast of the Black Sea. The project utilizes Japanese wind power plant equipment. This project was also validated by the United Nations as a Joint Implementation (JI) project under the Kyoto Mechanisms, as it reduces GHG emissions through investment and technology provided by Japanese companies. This is a significant case of a project directly leading to the acquisition of emission credits by Japan. 53

54 3 Operational Results in FY Efforts in the Environmental Sector Partnerships and Knowledge Sharing in the Environmental Sector As environment-related projects are expected to be implemented in many places across the world with the aim of realizing global environmental conservation and a low-carbon economy, JBIC is supporting Japanese overseas business deployment as well as efforts being made by foreign governments, not only in financing but through information sharing and knowledge dissemination by holding seminars and Holding a Workshop in Malaysia JBIC organized in June, 2011, the Malaysia-Japan Green Technology Workshop jointly with Malaysia s Ministry of Energy, Green Technology and Water in Kuala Lumpur. The objective was to promote collaboration between Japan and Malaysia in environmental business. More than 100 participants from government agencies and representatives from private businesses seeking to enter this market in both countries attended the workshop. The Malaysian participants presented their local institutions and the Japanese participants presented technologies, including solar and biomass power generation. participating in relevant events, while forming close partnerships with foreign governments and government agencies, domestic prefectural and municipal governments, and other stakeholders. Participating in the International Water Week in Singapore The 4th Singapore International Water Week (SIWW 2011) was held in July A variety of forums and networking events were organized to pursue how to develop sustainable water infrastructure amid rapid urbanization across the world. A director and a staff member of JBIC participated in the Japan Business Forum and the India Business Forum as a speaker and a panel member in the panel discussion respectively. Holding a Symposium on Environmental Projects In October 2011, JBIC held a symposium on Renewable Energy and Energy Efficiency Investment Opportunities in Tokyo, jointly with the European Bank for Reconstruction and Development (EBRD), with support from the Japan Association for Trade with Russia and NIS (ROTOBO), Japan External Trade Organization (JETRO) and Japan Institute for Overseas Investment (JOI). The broader use of renewable energy and the promotion of energy efficiency are major pillars of the New Growth Strategy advocated by the Japanese government. They are also topics that are attracting increasing global attention in mitigating global warming. In the seminar, the activities of EBRD in these areas were presented and a vigorous panel discussion was held with the participants from Japanese companies. 54

55 Japan Bank for International Cooperation Guidelines for Confirmation of Environmental and Social Considerations Procedure for Confirmation of Environmental and Social Considerations Project Proponent Screening form is submitted at time of funding request. For Category A projects, an environment impact assessment (EIA) report must be submitted. Information necessary for the Environmental Review is submitted. Growing interest in environmental conservation has led to a worldwide trend for more rigorous environmental regulations. There are not a few cases, especially in overseas projects, in which insufficient risk management of possible environmental and social impacts has seriously affected project implementation or undermined social reputation. In conducting these operations, JBIC confirms whether the borrower made appropriate considerations for local communities and the natural environment in all the JBIC-financed projects based on the Japan Bank for International Cooperation Guidelines for Confirmation of Environmental and Social Considerations (Environmental Guidelines). The Environmental Guidelines set out the procedures, criteria and requirements that JBIC-financed projects must meet in confirmation of environmental and social considerations. When JBIC judges the project proponents have not made appropriate environmental and social considerations, it will encourage them to take remedial measures. If appropriate environmental and social considerations have not been taken, JBIC may decide not to extend funding. Prospective projects are screened prior to funding, and classified into categories according to the degree of potential environmental impact. An Environmental Review is then conducted to verify that the environmental and social impacts have been given proper consideration. After funding has been approved, projects are monitored to assess the actual impact. Status report is presented on implementation of measures for environment and social considerations (monitoring). 3 Operational Results in FY Efforts in the Environmental Sector JBIC Categorization Category A Category B Category FI Environmental Review (Site inspections are in principle conducted for all Category A projects) Environmental Review* Funding Commitment Confirmation of Monitoring (Site inspections conducted as necessary) Category C Disclosure The project outline, category, and EIA report (required for Category A) are in principle disclosed on the JBIC website The Environmental Review and Screening Form are disclosed on the JBIC website (with the exception of Category C projects). In cases where the project proponent discloses the monitoring report, the report is in principle also disclosed on the JBIC website. * For Category FI projects, JBIC confirms through the financial intermediary that the proper environmental and social considerations indicated in the Environment Guidelines have been followed for the project. Projects are classified into one of the following four categories in relation to the degree of environmental impact, based on the information provided by the project proponent during the screening process. Category A: Project with the potential for a serious and adverse impact on the environment. Category B: Project with an adverse impact on the environment, but less than that of Category A projects. Category C: Project with minimal or no adverse impact on the environment. Category FI: Project for which JBIC provided funding to a financial intermediary, and after acceptance of JBIC funding, the financial intermediary selects and conducts screenings for specific subprojects, in cases where subprojects cannot be determined prior to acceptance of JBIC funding, and where such subprojects are anticipated to have an impact on the environment. 55

56 4 Studies and Research Activities, and Partnerships with Universities and Research Institutions 3 Operational Results in FY Studies and Research Activities, and Partnerships with Universities and Research Institutions JBIC has been conducting studies and research on trends regarding foreign direct investment (FDI) over the years and exchanged views and information with foreign government agencies, research institutions at home and abroad and experts in the relevant fields, thereby collecting and analyzing a variety of information, as well as sharing knowledge with them. Survey Report on Overseas Business Operations by Japanese Manufacturing Companies Since 1989, JBIC has conducted an annual survey report on overseas business operations by Japanese manufacturing companies. The survey in FY2011 is the 23 rd of this annual series of survey. As it seeks to identify Japanese manufacturers policy direction and agenda in their overseas business activities from a unique perspective and with consistency, it has been drawing attention from a broad spectrum of readers. The results of the survey were compiled into a report and published in print, as well as posted at the JBIC Website, for external readers. These results were also disseminated through seminars held in several regions across Japan in cooperation with the local chambers of commerce and industry and regional financial institutions to share the information with a broad range of audiences. In addition, JBIC held explanatory meetings with overseas Japanese chambers of commerce and industry and foreign governments for acquainting their members with these results. The findings of the survey were also used effectively in making policy proposals to foreign governments. The findings of the survey and the seminars were often reported in the news media, such as newspapers, and the articles and commentaries drawing on this survey are contributed to the news media. Overseas Investment Seminar Partnerships with Foreign Government Agencies In November 2011, the Economic Forum of The Export-Import Bank of China, The Export-Import Bank of Korea and JBIC was held in Tokyo. In this Forum, economists practicing economic survey and sovereign risk assessment got together and exchanged views and information on various issues in the global economy and political and economic conditions in emerging market and developing countries. In this 5th meeting since the first Forum held in 2009, a panel discussion among the participants from the three banks was opened to the public, with support from the Graduate School of Public Policy of the University of Tokyo. The Economic Forum of The Export-Import Bank of China, The Export-Import Bank of Korea and JBIC (above and below) Partnerships with Universities In August 2011, JBIC signed a comprehensive partnership agreement with Hitotsubashi University for making contributions to advances in academic research and human resource development in the field of finance. As part of cooperation under this agreement, JBIC donated a special lecture series, titled Project Finance, to the Hitotsubashi MBA Program (HMBA) of the University s Graduate School of Commerce and Management. The lectures start from the second semester of academic year In this series, JBIC staff will teach the theory, practice and case studies of project finance in English based on the experiences of JBIC, as it has provided project finance to a large number of projects for overseas energy and other resource development, private sector-participated infrastructure development and other projects over the years. In a similar effort, JBIC sponsored the establishment of a 56

57 visiting chair on project finance in the Graduate School of Management of Kyoto University in an event is expected to stimulate cooperation for achieving concrete results by deepening the understanding of common policy issues among the participants from industry, academia and governments in the Asian region. 3 Operational Results in FY2011 Hitotsubashi University In February 2012, the National Graduate Institute for Policy Studies (GRIPS) JBIC Joint Forum, titled After Fire and Flood: Thailand s Prospects, was held in cooperation with GRIPS. The Forum was organized to find the perspective on the way forward for Thailand, with which Japan has a close relationship, to overcoming its political turmoil in the past few years and the flood damage in the second half of 2011, and thereby achieving further development. The Forum invited researchers from Chulalongkorn University, which is internationally acclaimed in the field of political and economic research on Thailand, and Center for Southeast Asian Studies, Kyoto University, for a joint presentation and discussion with the audience. A speaker at the podium of the international conference in Thailand Asian Regional Cooperation: Mega-infrastructure Investment in Asia amid Global Uncertainties in Thailand JBIC also co-organized, in February 2012, a workshop, titled Infrastructure Financing: Indian and Japanese Perspectives, with the Indian Council for Research on International Economic Relations (ICRIER) in India. The workshop focused on the role and agenda of public private partnership (PPP) for moving forward infrastructure development and the issues facing Indian domestic financial and capital markets. During the workshop, the participants from the academic and business communities in Japan and India as well as from international organizations engaged in discussion. This conference represents part of JBIC s efforts to forge deeper relations with the economic policy think tank, with which JBIC has continued dialogue on economic relations between Japan and India to date. In addition, it is expected to contribute to increasing the understanding on a strategy for drawing investments to mega-infrastructure covering a broad region among the representatives of industry, the academic community and the government in major Asian countries. 4. Studies and Research Activities, and Partnerships with Universities and Research Institutions GRIPS JBIC Joint Forum After Fire and Flood: Thailand s Prospects Partnerships with Overseas Research Institutions In February 2012, JBIC and the Fiscal Policy Research Institute (FPRI) in Thailand co-organized an international conference, titled Asian Regional Cooperation: Mega-infrastructure Investment in Asia amid Global Uncertainties in Thailand, in Bangkok. Speakers attended to the conference were not only from Japan and Thailand but from China and Korea as well, and discussion took place among academics and representatives from private enterprises and international organizations. About 250 people attended the 2-day conference. The joint event was held through cooperation between JBIC and FPRI, with which JBIC had cultivated ties over many years. Such The workshop in India Infrastructure Financing: Indian and Japanese Perspectives 57

58 Financial Instruments 4 1 Financial Instruments 60 2 Prominent Initiatives in Recent Years 68 59

59 1 Financial Instruments 4 Financial Instruments 1. Financial Instruments Export Loans Export loans are provided to overseas importers and financial institutions to support finance exports of Japanese machinery, equipment and technology mainly to developing countries. In particular, products such as marine vessels, power generation facilities and other types of plant equipment incorporate a large amount of advanced technology, and their export contributes to enhance the technological base of Japanese industries. Further, Japanese shipbuilding and plant facilities industries have a broad range of supporting industries including mid-tier enterprises and SMEs producing parts and components. Export loans JBIC provides are also expected to positively contribute to the business of these Japanese companies. Export loans are also available to developed countries in eligible sectors (see note). Terms and conditions of export loans are determined based on the OECD Arrangement. In principle, the loan amount should not exceed the value of an export contract or technical service contract, and excludes down payment. While local costs cannot, in principle, be applied to the loan, such costs may be covered provided that the amount is within the scope prescribed by the OECD Arrangement. (Note) Eligible Sectors of Export Loans in Developed Countries (As of October 31, 2012) [Integrated Infrastructure System Projects] Railways (high-speed, inter-city projects and projects in major cities), water business, biomass fuel production, renewable energy power generation, nuclear power generation, power transformation, transmission and distribution, highly efficient coal-fired power generation, coal gasification, carbon capture and storage (CCS), highly efficient gas-fired power generation and smart grid [Other Export Transactions] Ships, satellites, aircrafts, medical positron beam therapy equipment Loan (B/L)* 2 Financial institution, etc., in foreign country Loan (B/C)* 1 Loans Japanese exporter(s) Exports of plants, etc. Importer(s) in foreign country(ies) *1. Loan to foreign importers (Buyer s Credit or B/C ). *2. Loan to foreign financial institutions (Bank-to-Bank Loan or B/L ). Support for Export of Transport Infrastructure Due to the expansion of the global rolling stock market, many manufacturers in Europe, Asia, North America and elsewhere are vigorously engaged in business activities to win orders for transport infrastructure. In Cairo, the capital of Egypt, chronic traffic congestion caused by excessive concentration of the population is posing major problems. It was against this backdrop that JBIC provided support for the export of Japanese companies by financing the procurement of a fleet of rolling stocks mainly manufactured by Japanese companies for the project of constructing Line 3 of the Greater Cairo Metro Network that links the city center with Cairo International Airport. Supporting Overseas Business Development of Japanese Companies As the fast-paced growth in the Indian economy in recent years has caused chronic power shortages, JBIC provided export credit, through India s largest private sector bank, to finance the export to India of thermal power generation boiler/turbine sets that embody supercritical pressure coal-fired power generation technology that is expected to reduce the burden on the environment. This loan supports overseas infrastructure business development by Japanese companies as well as contributing to India s power supply capacity. An image of Metro Line 3 passenger cars (courtesy of The Kinki Sharyo Co., Ltd.) 60

60 Import Loans Import loans support imports of strategically important goods including natural resources. They are extended to Japanese importers or foreign exporters. As Japan is poorly endowed with natural resources, stable imports of natural resources over the long term are one of the key factors underpinning domestic economic activity. Import loans finance the development and import of energy resources, including oil and LNG, and mineral resources, including iron ore, copper and other rare materials. In addition to natural resources, JBIC provides a guarantee facility for goods and services essential to the sound development of the Japanese economy, such as for the import of aircraft. Products Eligible for Import Loans (Natural Resources) Oil, petroleum gas, LNG, coal, uranium, metallic ore, metals, mineral phosphate, fluorite, salt, lumber, wood chip, pulp, and other materials 4 Financial Instruments 1. Financial Instruments Loan Loan Japanese Importer(s) Imports of natural resources Foreign exporter(s) Financing to Ensure Stable Supplies of Oil from Overseas The United Arab Emirates (UAE) has been a stable crude oil exporter for Japan for more than 30 years. In addition, Abu Dhabi allows the entry of foreign-affiliated companies to operate oil fields on the basis of concession agreements. Thus, the UAE is an important country for Japan s resource strategy. JBIC signed MOUs for the further strengthening of its comprehensive and strategic partnership with Abu Dhabi National Oil Company (ADNOC) in Abu Dhabi, which is a hub of oil and gas production in the UAE. JBIC further provided import loans for ANDOC, thereby contributing to securing a stable supply of energy resources to Japan. 61

61 4 Financial Instruments 1. Financial Instruments Overseas Investment Loans Overseas investment loans support Japanese foreign direct investments. They are extended to Japanese companies (investors), overseas affiliates including joint ventures where Japanese firms have equity interests and governments or financial institutions that make equity investments in or extend loans to such overseas affiliates. Direct loans to Japanese companies are intended for midtier enterprises and SMEs, as well as for projects aimed at developing or securing interests in overseas resources that are strategically important to Japan, or for projects to assist with merger and acquisition (M&A) activities and other agreements (including to large firms). Moreover, JBIC is able to provide two-step loans (TSLs) to support the overseas business deployment of Japanese companies, including mid-tier enterprises and SMEs, as well as TSLs intended to support their M&A activities. JBIC is also able to provide short-term loans for overseas business operations when bridge loans are required to fill the financing gap before it offers long-term loans. JBIC is further empowered to extend investment loans for projects in developed countries for eligible sectors (see note). (Note) Eligible Sectors of Overseas Investment Loans in Developed Countries (As of October 31, 2012) Railways (high-speed, inter-city projects and projects in major cities), water business, renewable energy power generation, nuclear power generation, power transformation, transmission and distribution, highly efficient coal-fired power generation, coal gasification, carbon capture and storage (CCS), smart grid, development of telecommunications network, biomass fuel production, highly efficient gas-fired power generation, aircraft maintenance and sales, M&A activities, etc. Loan Loan Loan Government, financial institution, etc., in foreign country, Japanese bank Loans Japanese firm Loans and/or equity investment Japanese affiliate(s) Loans Loans Equity investment Project(s) in foreign country(ies) Joint venture partner(s) Financing for Japanese Companies Investing in Natural Resource Development Copper is an important mining resource used in a wide range of applications, such as electrical cables, automobiles and building materials, though Japan is currently wholly dependent on imports for its supply of copper concentrates. JBIC is providing the financing for the Caserones Copper Mine project in Chile, the first 100% Japan-owned large-scale overseas copper mine development. This project secures a steady supply of copper concentrates to Japan, and is strategically important in terms of both the acquisition of mine development and operational know-how overseas by Japanese companies, as well as the securing of mineral resources for Japan over the medium to long term. Supporting Japanese Manufacturers Overseas Business Deployment There has been increasing needs for mechanization of agriculture, due to economic growth, income growth among agricultural households and a decrease in agricultural population inthailand, which has about six times more rice paddy fields than Japan. As a result, the agricultural machinery market has been rapidly growing. JBIC extended a loan to YANMMAR Co., Ltd., a Japanese agricultural machinery manufacturer, for funding its sales of agricultural machinery in Thailand. The loan is expected to support Japanese companies to expand their business in Thailand, the economy of which is on a path of sustained growth. 62

62 Untied Loans Untied loans are financing basically to developing countries necessary to implement projects and import goods, or for such countries to level their international balance of trade, or stabilize their currency. Loans are not conditional on procurement of equipment and materials from Japan. Capital procured from untied loans is used to: Secure stable supplies of energy and mineral resources to Japan; Promote business activities of Japanese companies; Maintain and expand trade and direct investment from Japan; Finance projects having significant effect on global environmental preservation; and Finance projects maintaining international financial order Untied loans may be categorized into two types: project loans and policy adjustment loans. Project loans are used to finance projects for developing economic infrastructure, including power, telecommunications and transportation facilities, and for developing natural resources. Policy adjustment loans support economic management, including structural adjustment in the overall economy and in individual sectors. A project loan may take the form of a TSL, which supports the promotion of exports and the development of supporting industries in a developing country through its official financial institution. Drawing on its strong ties with developing countries fostered by the provision of untied loans, JBIC provides indirect support for Japanese firms business activities in developing countries by helping solve disputes that arise between developing country authorities and Japanese firms. 4 Financial Instruments 1. Financial Instruments Loan Government, financial institution, etc., in foreign country Project(s) in the recipient country(ies) Foreign importer(s) Imports of equipment and technology Exporter(s) Supporting Renewable Energy and Energy Conservation Projects JBIC provided a loan for Denizbank A.S., one of the leading commercial banks in Turkey, to support the funding of its environment-related projects, such as renewable energy and energy efficiency improvement. This financing is provided as part of JBIC s GREEN (Global action for Reconciling Economic growth and ENvironmental preservation) operations ( see p. 69). The Turkish government ratified the Kyoto Protocol in August 2009 and has been making active efforts to mitigate climate change. The loan is expected to contribute to mitigating greenhouse gas (GHG) emissions, as well as disseminating advanced environmental technologies to Turkey. 63

63 4 Financial Instruments 1. Financial Instruments Equity Participations Equity participations are capital contributions to the companies which Japanese companies have equity stakes set up by Japanese companies to undertake overseas projects and funds where Japanese companies perform a significant role. In principle, equity participations take the following forms. Japanese firms make equity investment in an overseas project Japanese firm(s) Equity participations Equity participation Overseas project Japanese firms participate in fund (and perform such major role as general partner in their management and investment decisions) Japanese firm(s) Major role Equity participations Equity participation Fund Equity participations Other investor(s) Japanese firms acquire equity interests in a foreign firm to form business alliance Japanese firms form a consortium and participate in an international fund Business alliance Japanese firm(s) Equity participations Foreign firm Japanese firm(s) Fund Equity participations Other investor(s) Equity participation consortium Equity participation Equity Participation in a Fund for Growth Companies in Emerging Nations JBIC has invested in a fund that targets growth companies in Viet Nam. This private equity fund, managed by Japanese companies, invests in Vietnamese companies that need capital and technology to grow, and provides them with support in such areas as alliances with Japanese companies, with the aim of enhancing their corporate value. In addition to supporting growth of Vietnamese companies, the fund contributes to promote business deployment of Japanese companies in Viet Nam, which is highly expected as a promising manufacturing base and consumer market for them. Medical exam buses owned by a portfolio company of the fund 64

64 Guarantees In addition to loans and equity participations, JBIC also provides support through its guarantee facility. Guarantees are provided for loans extended by private financial institutions, bonds issued by governments of emerging nations or overseas Japanese companies, and currency swap transactions. JBIC also issues reassurance for guarantees from export credit agencies in other countries. Guarantees for Imports of Manufactured Products JBIC has a guarantee facility for the borrowings made by Japanese firms to finance the import of aircraft and other manufactured products that are important for Japan. Foreign exporter(s) Guarantee Import of products Private financial institution, etc. Loan Japanese importer(s) 4 Financial Instruments 1. Financial Instruments Guarantees for Corporate Bonds Issued by Japanese Affiliates JBIC supports Japanese affiliates operating overseas by providing guarantees for the bonds they issue in local capital markets. Counter guarantee Guarantee Sub guarantee Investor(s) Issue of bonds Japanese firm (Parent company, private financial institution, etc.) Guarantees Japanese affiliate (Issuer) Guarantees for Co-financing, Overseas Syndicated Loans and Public Sector Bonds Loans to developing countries involve, among others, currency conversion, transfer and country risk. Guarantees that JBIC issues to cover such risks will enable Japanese private financial institutions to provide medium- and long-term financing for developing countries, supporting developing countries to bring in private capital and facilitating private firms expanding international business activities. Guarantee Private financial institution, etc. Guarantee Loan Loan Investor(s) Issues of public bonds, etc. Government, etc., in foreign country Guarantee for Currency Swaps JBIC provides guarantees for swap transactions to support the local currency financing of overseas infrastructure projects, etc., undertaken by Japanese firms. Guarantee Japanese firm(s) Operation Investment Swap counterparty in overseas Currency swap contract Private financed institution Local currency loan Overseas infrastructure projects,etc. 65

65 4 Financial Instruments 1. Financial Instruments Counter Guarantees for Export Credits When Japanese exporters export machinery and equipment with other country s firm(s), JBIC provides a counter guarantee for the guarantee provided by that country s Export Credit Agecy (ECA), thereby participating in a multilateral mutual guarantee scheme. Bridge Loans JBIC provides short-term financing for governments of developing countries to meet their foreign currency needs for external transactions when they face balance-of-payment difficulties. Counter guarantee Foreign ECA Guarantee Private bank(s) Loan Japanese firm(s) Foreign firm(s) Export Foreign importer(s) Loan Government, financial institution, etc., in foreign country (Conditionality) Loans from the IMF, World Bank, etc. Import or other external transaction(s) Acquisition of Loan Assets and Public and Corporate Bonds When JBIC provides export loans, import loans, overseas investment loans and untied loans, JBIC can also provide credits, in addition to providing loans and guarantees, by purchasing loan assets and acquiring public and corporate bonds 1 issued by borrowers for funding. The objective of such operations is to promote private financial institutions loans in international finance and Japanese firms funding in international capital markets. 1. The scope of assets and securities acquired includes public bonds, corporate bonds, debt securities and trust beneficiary rights. Research and Studies JBIC conducts research and studies on individual projects during their initial stage, as well as research and studies focused on specific regions or industry sectors that may have a bearing on specific projects occasionally. This is an effective means of uncovering potentially favorable projects, and supports to increase exports of materials and services from Japan for that project, as well as to expand opportunities for participation by Japanese companies. Research and studies are conducted at each stage necessary for realization of the project, including creation of a master plan for an individual project, conducting of prefeasibility and feasibility studies (Pre-F/S, F/S), front end engineering design (FEED), and studies of regions and industry sectors linked to specific projects. After the research and studies are completed, follow-up reviews are conducted at least once each year to confirm the progress of the project. Research and studies are conducted in the following order. 1. Selection of a research and study subject 2. Selection of the contractor to conduct research and studies 3. Conduct of the research and studies 4. Completion of the research and study report 5. Follow-up 66

66 Securitization, etc. JBIC provides support for securitization, etc. in order to supplement and encourage the activities of private financial institutions. 1. Securitization (Guarantees) In cases where special purpose companies or trust companies issue asset-backed securities or other financial products with loans or other assets as collateral, JBIC guarantees the payment of such asset-backed securities to reduce the country and structure risks, thereby supporting the issuance of bonds in the emerging capital markets. Originator Private financial institutions, etc. Loans Transfer of loans 2. Securitization (Acquisition of Securities) JBIC supports bond issues by acquiring a portion of the assetbacked securities issued by special purpose companies or trust companies with loans or other assets as collateral. JBIC s acquisition will contribute to the smooth issuance of bonds, as well as stimulates the market by circulating the acquired bonds back into the market when market conditions allow it. Guarantee Special purpose company Issue of assetbacked security Purchase of assetbacked security 4 Financial Instruments 1. Financial Instruments Obligor Overseas Japanese affiliates Investors (in Japan and overseas) The above diagrams depict the schemes where special purpose companies (SPCs) are used, but the clients can also use schemes where trusts are used or JBIC acquires or provides guarantees for assets backed by securitization. 3. Securitization of Receivables, etc. JBIC provides guarantees for the receivables and other monetary claims held by overseas subsidiaries of Japanese companies, in order to facilitate the purchase of such receivables by banks. JBIC is also able to provide guarantees for securities issued by special purpose companies (SPCs) or trust companies to secure monetary claims they have acquired from overseas Japanese subsidiaries. Overseas Japanese affiliates Proceeds Guarantee Assignment of account receivable Accounts receivable, etc. Guarantee Overseas Local companies Private financial institutions SPC or Trust Asset-backed securities Proceeds Investors Securitization of Automobile Financing Receivables The automobile market in the United Arab Emirates (UAE) is expected to continue to grow and, with Japanese automobiles accounting for a 60% share of the market, it is considered a promising market for Japanese automakers. JBIC acquired and provided guarantees for securitized notes backed by auto loans originated* by Emirates NBD PJSC (ENBD), the largest bank in the UAE in terms of assets. This was the first auto loan securitization in the UAE. With the payment guarantees for the securities sold to investors, JBIC minimized the country and structure risks, and provided new investment opportunities to the market. This deal supports smooth provision of auto loans by local banks, thereby contributing promote steady growth in the UAE automobile market and serving to uphold and expand an important market for Japanese automobile manufacturers. (Note) The Originator is the initial owner of the securitized assets. 67

67 2 Prominent Initiatives in Recent Years 4 Financial Instruments 2. Prominent Initiatives in Recent Years E-FACE Initiative to Finance Strategic Projects JBIC established E-FACE (Enhanced Facility for Global Cooperation in Low Carbon Infrastructure and Equity Investment) 1 in April 2011, in order to offer proactive support for the overseas deployment of integrated infrastructure systems and other strategic projects, while also mobilizing private sector funding to the greatest extent possible. This facility is intended to finance the overseas deployment of integrated infrastructure systems, to promote investment in such projects as M&A deals Supporting for the Overseas Deployment of Integrated Infrastructure Systems Implemented by Japanese Companies Clean energy projects (renewable energy, etc.) Water projects Project Eligible for Support under the E-FACE Initiative Rail projects (inter-city, metropolitan transit) Smart grid-related projects and large-scale acquisitions of natural resource interests, and to provide risk capital for energy conservation and new energy projects, as well as projects in Asia. 1. This Facility was launched to develop and expand the JBIC Facility for Asia Cooperation and Environment (FACE), which supported Asian projects, primarily in the sectors that would contribute to mitigating climate change, infrastructure development projects, and the Leading Investment to Future Environment Initiative (LIFE Initiative), which aimed to support environmental investments undertaken by governments and private sector companies in Asian and other developing countries. JBIC Enhanced Facility for Global Cooperation in Low Carbon Infrastructure and Equity Investment (E-FACE) Promoting Investment in M&A Projects M&A projects Large-scale resource interest acquisition projects Supporting Environment Sector and Asian Projects, etc. Energy efficiency/ Alternative energy projects Projects in Asia Loans Equity participations Loans Loans Equity participations/loans Equity participations/loans Equity participations Equity participations Equity participations Guarantees Private Sector 68

68 GREEN Operations JBIC launched GREEN (Global action for Reconciling Economic growth and ENvironmental preservation) operations in April Previously, JBIC s financing operations had centered mainly on projects directly aiming to maintain and improve international competitiveness of Japanese industries, such as projects involving Japanese firms investment and machinery/ equipment exports. Accordingly, projects dedicated solely to preservation of the global environment were so far not eligible for JBIC support. Launching GREEN operations enabled JBIC to focus its financing on projects seeking to preserve the global environment, such as those that materially reduce greenhouse gas (GHG) emissions, while propagating advanced Japanese environmental technologies across the world. To help implement GREEN operations, JBIC also established the Guidelines for Measurement, Reporting and Verification of GHG Emission Reductions in JBIC GREEN operations (J-MRV Guidelines), which set out the basic concepts and procedures for the J-MRV Guidelines. Promoting the overseas business having the purpose of preserving the global environment, such as preventing global warming Guarantees Equity participations/ Loans Eligible Entity: Eligible Projects: Private Flows Foreign government, governmental agencies or local governments, public enterprises such as utilities operating closely with government, Foreign Financial Institution, multilateral Institution. 1. Favorable impact on preservation of the global environment, such as significantly reducing GHG emissions. 2. Accepting JBIC-MRV* process on the effect of the environmental preservation. (e.g. Energy efficiency improvement, Renewable energy, etc.) * JBIC original methodology for Measurement, Reporting and Verification. 4 Financial Instruments 2. Prominent Initiatives in Recent Years Guarantee and Acquisition toward Tokyo market Enhancement (GATE) Facility JBIC launched the new Guarantee and Acquisition toward Tokyo market Enhancement (GATE) facility for supporting samurai bond 1 issuance in April This enables JBIC to acquire samurai bonds where appropriate in addition to providing partial guarantees for samurai bond issues. The GATE facility thereby helped foreign governments and government agencies to consistently raise funds in the Tokyo market. Since May 2009, JBIC has stood behind the self-help efforts of Asian countries to regain access to international markets with the Market Access Support Facility (MASF), which provides guarantees to samurai bonds. Under this facility, JBIC provided guarantees for samurai bonds issued by these countries that are temporarily unable to raise funds through sovereign bond issuance in international financial markets due to the market turmoil caused by the global financial crisis. Under MASF, JBIC guarantees supported samurai bonds issued by the Indonesian and Philippine governments. Responding to disruptions in financial order in the international economy, JBIC also supported samurai bonds issued by the Colombian and Mexican governments. The GATE facility, which extended and enhanced the functions of the MASF, backs up bond issues by foreign governments and government agencies in the Tokyo market. It is thereby expected to help attract foreign bond issuers to the Tokyo market; induce them to become regular participants in the Tokyo market; and expand and diversify the range of investment opportunities available to Japanese investors, which leads to an increase in activities in the Tokyo samurai bond market. 1. Samurai bonds are yen-denominated bonds issued in the Japanese financial market by foreign issuing bodies, such as governments and companies. The investors pay in Japanese yen to purchase these bonds when they are issued. 69

69 4 Financial Instruments 2. Prominent Initiatives in Recent Years Promoting Efforts for Africa Following the Japanese government s pledge of $2.5 billion in financial support for Africa over the next five years during the Fourth Tokyo International Conference on African Development (TICAD IV) in May 2008, JBIC has been making vigorous efforts to support business investments in Africa. In April 2009, the JBIC Facility for African Investment (FAI) was established to support projects undertaken by Japanese companies for developing and expanding their business in Africa by drawing on JBIC s equity participation, guarantee facility, etc. FAI allows JBIC to make equity participations in Japanese companies individual projects in African countries and provide guarantees for the loans to these projects conducted by private financial institutions. JBIC continues to be committed to actively supporting Japanese companies for expanding business operations into Africa by drawing on this facility or other JBIC financing facilities and schemes. Supporting Export of Textile Manufacturing Machinery to Angola by Japanese Companies Expanding Local Currency Loans To date, JBIC has responded to local currency funding needs of Japanese companies in developing countries by providing: (1) loans through obtaining funds in swap transactions (e.g. South African rand and Thai baht); (2) loans by obtaining funding through local currency bond issues (e.g. Thai baht); (3) guarantees for local currency corporate securities issued by local Japanese subsidiaries or affiliates: (4) two-step loans to the banks in developing countries (loans provided by JBIC in hard currency to banks in developing countries are on-lent in local currencies). Following the promulgation and coming into effect of the JBIC Act in May 2011, JBIC is empowered to provide guarantees for swap transactions between private financial institutions to meet funding needs associated with business operations and projects of Japanese subsidiaries and affiliates. Under the Japanese overseas deployment of integrated infrastructure systems project operated/advanced by public and private sector, needs of local currency funding is increasing in developing countries. JBIC will continue to provide support by drawing on appropriate financial facilities and schemes based on specific needs of Japanese companies. 70

70 Operational and Administrative Policies 5 1 Corporate Governance 72 2 Risk Management 76 3 Public Information and Disclosure 80 71

71 1 Corporate Governance 5 Operational and Administrative Policies 1. Corporate Governance Fundamental Approach to Corporate Governance JBIC is making efforts to build corporate governance structure in conducting operations with particular attention to integrity Supervisory and Evaluation Function Board of Corporate Auditors Outside corporate Auditors Office of Corporate Auditor Executive Function Shareholder Meeting Board of Directors Outside Director Executive Committee and efficiency, as it seeks to fulfill the mission set out under the JBIC Act (Law No. 39, 2012) and realize its corporate philosophy. Accounting Auditor Management Advisory and Evaluation Committee Risk Advisory Committee Internal Audit Committee Credit Committee Preliminary Credit Committee Internal Audit Department Corporate Risk Management Committee ALM Committee Compliance and Customer Protection Management Committee Global Head Personnel Committee [Deliberative Committees] [Decision Committees] How National Government is Involved in JBIC As JBIC has its shares wholly owned by the Government of Japan, it is subject to the control of the Japanese government, its sole shareholder. Additionally, it is subject to the national budget passed in the Diet, inspections by the Board of Audit of Japan, by the Competent Minister and by the Financial Services Agency whose inspection is delegated by the Competent Minister. Supervisory and Evaluation Function and the Conduct of JBIC Operations To strengthen the supervisory and evaluative function of the Board of Directors as well as conduct speedy and flexible operations, JBIC has established, in addition to the Board of Directors, the Board of Corporate Auditors and other organs required by the Companies Act, the Management Advisory and Evaluation Committee, the Risk Advisory Committee, the Internal Audit Committee and the Executive Committee. Furthermore, a variety of committees were set up by the Executive Committee that delegated specific tasks to them. (1) Board of Directors The Board of Directors consists of 5 members, of which one member is an outside director as set forth in the Companies Act. The external director supervises the conduct of JBIC 72

72 operations from the point of view of a corporate outsider, apart from representative directors of JBIC. In addition, he contributes to improving the governance of JBIC as a member of the Management Advisory and Evaluation Committee as well as the Risk Advisory Committee. (2) Board of Corporate Auditors The Board of Corporate Auditors consists of 3 auditors, of which two are outside corporate auditors, as set forth in the Companies Act. Outside corporate auditors contribute to improving the governance structure of JBIC, as they cooperate with the full-time auditor in auditing the conduct of its operations. As a section helping them execute their responsibilities, there is the Office of Corporate Auditor. (3) Management Advisory and Evaluation Committee The Management Advisory and Evaluation Committee consists of 3 to 7 external experts and the outside director. They make assessment and offer advice on the matters referred to them by the Board of Directors pertaining to the business operations and management of JBIC. List of Members of the Management Advisory and Evaluation Committee Name Shujiro Urata Akira Kondoh Yoshikatsu Suzuki Yuzo Takagi Mikiko Fujiwara Occupation Professor, Graduate School of Asia- Pacific Studies, Waseda University JBIC Managing Director (Outside Director) Senior Commentator of Jiji Press Ltd. Chairman & Representative of Audit Corporation GODAI, Certified Public Accountant CEO of Alpha Associates Co., Ltd. Hirokazu Yoshikawa Senior Corporate Adviser of DOWA Holdings Co., Ltd. Chairman Deputy chairman (Listed in the order of 50 character kana syllabary, name listed without honorifics) (4) Risk Advisory Committee The Risk Advisory Committee consists of 3 to 7 external experts and the outside director. They offer advice on the matters referred to them by the Board of Directors pertaining to risk management and assessment framework associated with large-lot debtors and risk exposure to large-scale projects. List of Members of the Risk Advisory Committee Name Shuhei Abe Akira Kondoh Toshiki Tomita Chieko Matsuda Occupation President, CEO&CIO of SPARX Group Co., Ltd. JBIC Managing Director (Outside Director) Professor, Faculty of Law, Chuo University Professor of Management, Graduate School of Social Sciences, Tokyo Metropolitan University Name Keisuke Yokoo Naoyuki Yoshino Occupation Advisor of Mizuho Securities Co., Ltd. Professor, Faculty of Economics, Keio University Chairman Deputy chairman (Listed in the order of 50 character kana syllabary, name listed without honorifics) (5) Internal Audit Committee The Internal Audit Committee consists of representative directors and the outside director. They make decisions and deliberations concerning important matters pertaining to internal audit, as delegated by the Board of Directors. (6) Executive Committee The Executive Committee consists of representative directors, executive director and all the managing executive officers. They make decisions and deliberations concerning important managerial matters, thereby taking responsibility for conducting flexible JBIC operations, as delegated by the Board of Directors. Certain decisions such as financing to a specific project are delegated to the following committees. (i) Credit Committee The Credit Committee makes decisions and deliberations concerning important matters on loan, guarantee and equity participation by JBIC, as delegated by the Executive Committee. (ii) Corporate Risk Management Committee The Corporate Risk Management Committee makes decisions and deliberations concerning important matters pertaining to the corporate risk management of JBIC, as delegated by the Executive Committee. (iii) Compliance and Customer Protection Management Committee The Compliance and Customer Protection Management Committee makes decisions and deliberations concerning important matters pertaining to the compliance and customer protection management of JBIC, as delegated by the Executive Committee. (iv) Personnel Committee The Personnel Committee makes decisions and deliberations concerning important matters pertaining to the personnel of JBIC, as delegated by the Executive Committee. (v) Preliminary Credit Committee The Preliminary Credit Committee makes deliberations concerning important matters pertaining to assessment policies toward loan, guarantee and equity participation and credit policy toward large-lot debtors, as delegated by the Executive Committee. (vi) ALM Committee The ALM Committee makes deliberations concerning important matters pertaining to the asset-liability management (ALM) of JBIC, as delegated by the Executive Committee and the Corporate Risk Management Committee. 5 Operational and Administrative Policies 1. Corporate Governance 73

73 5 Operational and Administrative Policies 1. Corporate Governance (vii) Global Head Committee more flexibly and strategically. The Global Head Committee makes deliberations concerning Specifically, Energy, Natural Resources and Environment cross-cutting matters among internal groups, including Finance Group; Infrastructure Finance Group; Industry Finance operational policy for each country or region, as delegated Group; Corporate Group and Credit Assessment, and Systems by the Executive Committee. Group were set up, with each Group having departments with special expertise. Adopting Mission/Sector-Specific Group Structure For each Group, the responsible board member is appointed, JBIC reconstituted its organization and adopted mission/ and the managing director or a managing executive sector-specific group structure in July Its objective is officer performs as Global Head of each Group. Each Group to strengthen the capacity to formulate projects by bringing is managed in an integral manner under the Global Head of together knowhow and expertise in each sector and area, the Group in an effort to conduct speedy, flexible and efficient thereby facilitating JBIC to perform the functions in its mission operations. Governer (Governer of JBIC / Responsible for Internal Audit Department) CEO, Executive Managing Director (Governor s support / Responsible for Credit, Assessment, and Systems Group) Outside Managing Director (Responsible for Management Advisory and Evaluation Committee, and Risk Advisory Committee) Managing Director (Global Head of Corporate Group) COO, Senior Managing Director (Responsible for Business operation) Managing Executive Officer Managing Executive Officer Managing Executive Officer Managing Executive Officer (Global Head of Energy, Natural Resources and Environment Finance Group) (Global Head of Infrastructure Finance Group) (Global Head of Industry Finance Group) (Global Head of Credit, Assessment, and Systems Group) Internal Audit Department Corporate Group Energy, Natural Resources and Environment Group Infrastructure Finance Group Industry Finance Group Credit, Assessment, and Systems Group Member of Board of Directors Member of Internal Audit Committee Member of Executive Committee 74

74 Fundamental Policy on Internal Control As an internal control system for overall operations, JBIC has appropriate internal audit procedures to review, as well as evaluate their appropriateness and effectiveness and make recommendations to improve them. For these purposes, JBIC has the Internal Audit Committee, which includes the outside director, as a decision-making body independent of the Executive Committee that is responsible for conducting operations. There is also the Internal Audit Department independent of the line departments and directly reporting to the Governor. The Internal Audit Department exchanges relevant information and cooperates with Corporate Auditors and an Accounting Auditor for executing efficient internal audit. ( see p.143 for the Fundamental Policy on Internal Control) Maintenance and Control of Information Assets JBIC sets forth its fundamental Security Policy concerning the use and management of information assets ( see p.145) in order to secure high standard information security and implement proper and efficient operations. Based on the standard, JBIC properly handles, manages, protects and maintains information assets. on the Protection of Personal Information Held by Independent Administrative Agencies, etc. 5 Operational and Administrative Policies 1. Corporate Governance Compliance As a policy-based financing institution conducting international operations, JBIC is keenly aware of the public missions and social responsibilities called for in the international community and in civil society. It is also well recognized that any act in violation of laws, regulations or rules by its management and staff will lead to denigrating confidence in JBIC as a whole and have a materially adverse effect on its operations. Being attentive to these needs, JBIC is constantly striving toward compliance and operational integrity. JBIC makes positive efforts, primarily by the Compliance and Customer Protection Management Committee, to improve compliance and has established the Legal Affairs and Compliance Office as an integrated compliance management unit. Each group and overseas representative office serving as a regional headquarter has an Integrated Compliance Officer while each department and overseas representative office has a Compliance Officer for making positive efforts for compliance, such as fostering awareness on compliance among JBIC employees. In addition to the reporting procedures in its ordinary line of business, JBIC has put in place and is properly operating an internal reporting system such that it is capable of finding a significant compliance issue at an early stage and taking appropriate remedial action. Protection of Private Information JBIC has drawn up and disclosed its Privacy Policy ( see p.146) which stipulates appropriate management of private information held by JBIC pursuant to the provisions of the Act 75

75 2 Risk Management 5 Operational and Administrative Policies 2. Risk Management Operations of JBIC In general, the operations of financial institutions involve various risks, including credit risk, market risk (such as interest rate and exchange rate risk, etc.), liquidity risk and operational risk. As a policy-based financial institution, JBIC conducts financial operations to achieve policy objectives. Thus, JBIC differs from private financial institutions in its nature as well as the extent of risks involved in its operations and ways to deal with them. Nonetheless, recognizing the importance of appropriate risk management as a financial institution, JBIC has put in place an institutional system for risk management commensurate with different types of risks and for addressing integrated risk management. More specifically, JBIC defines the objective of risk management as identifying, measuring and monitoring various risks JBIC is exposed to in the process of conducting operations to ensure the soundness and integrity of operations and increase Credit Risk transparency. For this purpose, JBIC has designated the staff responsible for managing various risks and has a department working on the overall risk management. In addition, there are the Corporate Risk Management Committee and the Asset ALM Committee that make discussions and considerations for the effective functioning of risk management. JBIC has also set up the Risk Advisory Committee, which consists of external experts, to provide advice on the risk management and assessment system with respect to large credit recipients from JBIC and on issues referred to by the JBIC board of directors with respect to risks associated with large-scale projects. The following sections describe how JBIC manages representative risks JBIC is facing, among various other operational risks, in conducting operations as a policy-based financial institution. Credit risk refers to the potential loss from a decline or loss of the value of credit assets due to deterioration in the financial conditions of a debtor. This risk is inherent in JBIC s operations as it primarily engages in lending activities. Credit risk exposure to JBIC may be classified into: sovereign risk, which involves financing foreign governments; corporate risk, which involves financing business firms; project risk, which occurs when a project financed in project financing a financing structure in which a loan is primarily secured on the cash flow generated from the project fails to generate the planned cash flow; and country risk, which involves financing foreign firms as well as projects located in foreign countries (a risk added to corporate risk and project risk arising from the country where the debtor resides and the project is located). Given the very nature of financial support JBIC provides for promoting overseas development and acquisition of interests in strategically important resources to Japan, for maintaining and improving the international competitiveness of Japanese industries, and for promoting the overseas business for preserving the global environment, such as preventing global warming, JBIC frequently extends loans to foreign governments, government agencies and companies. Therefore, sovereign and country risks account for a considerable share of the credit risks accompanying JBIC s operations. Managing Credit Risk The cornerstone of credit risk management at JBIC is the evaluation of an individual borrower s creditworthiness in the process leading to credit approval. When a new loan application is being processed, the relevant finance department and the Credit Department collect and analyze information on the borrower. The overseas representative offices also play a part in collecting information on foreign governments and companies. It is based on this information and its analysis that credit appraisal takes place, with checks and balances at work between these different departments throughout this process, leading to the final decision by management. In providing credit for foreign governments and companies, JBIC makes the most of its unique position as an official financier, as it exchanges views and information with the governments and relevant authorities in the recipient countries, multilateral institutions such as the International Monetary Fund (IMF) and the World Bank, other official export credit agencies and, furthermore, with private financial institutions in developed countries. Using all these channels, JBIC evaluates sovereign and country risks based on a broad range of information collected on borrowing governments, government agencies and political and economic conditions in their countries. In providing credit for domestic and foreign companies, there is a need to evaluate their creditworthiness and the appropriateness of the collateral they offer. In particular, for credit provision related to overseas projects, credit evaluation involves checking and examining the certainty of conducting transactions to be financed, feasibility studies of the projects and the industry in which the borrower operates. Internal Credit Rating JBIC has established an internal credit rating system as part of the bank-wide operating procedures. It covers, in principle, all 76

76 the borrowers. Internal credit ratings are the cornerstone of credit risk management, being used for conducting individual credit appraisals and quantifying credit risks. Internal credit rating is revised when appropriate based on JBIC s risk profile. Internal Assessment of Asset Portfolio Japanese private financial institutions undertake the internal assessment of asset portfolios in accordance with Inspection Manual for Deposit-Taking Institutions (the Financial Inspection Manual ) of Japan s Financial Services Agency. JBIC is similarly undertaking the internal assessment of its loan portfolio, based on the Financial Inspection Manual and in consultation with an auditing firm so that the characteristics of its loan assets will be accurately reflected on its assessment. In this process, the first-stage assessment is conducted by the relevant financing departments, while the second-stage assessment is conducted by the Credit Department and the Country Credit Department, which is then inspected by the Market Risk Market risk refers to the potential loss from changes in the value of assets and liabilities as a result of fluctuations in interest rates and foreign exchange rates. JBIC manages specific market risks as follows. Audit Department. The results of internal assessment conducted on the portfolio are not only used internally for the continuous reviews of the loan portfolio but are also reflected in the disclosure of asset quality to enhance the transparency of JBIC s financial position. Quantifying Credit Risk In addition to individual credit risk management, JBIC is working on quantifying credit risks with a view to evaluating the risk of the overall loan portfolio. To quantify credit risks, it is important to take into account the characteristics of JBIC s loan portfolio, which holds a significant proportion of longterm loans and loans involving sovereign and country risks. Also to be taken into account are mechanisms for securing assets, such as the Paris Club 1 a unique framework for debt management by official creditor countries. The credit risk quantification model incorporating these factors is measuring credit risks and is utilized for internal control. Derivatives Transactions (1) Basic Policy for Derivatives Transactions JBIC engages in derivatives transactions exclusively for the purpose of hedging exchange rate and interest rate risks. 5 Operational and Administrative Policies 2. Risk Management Exchange Rate Risk Foreign currency-denominated loans involve the risk associated with exchange rate fluctuations. JBIC has a consistent policy of hedging the full amount of such exposure through currency swaps and forward exchange transactions. Interest Rate Risk Interest rate risk for foreign currency-denominated loans is hedged through interest rate swaps. Thereby, both foreign currency-denominated loans and their funding are made in floating rates. On the other hand, yen-denominated loans are mostly made in fixed interest rates. Their interest rate risk is limited, however, since the maturities of loans and their corresponding funding are more or less matched. In addition, JBIC calculates and analyzes careful projections of its future asset / liability structure and profits and losses. (2) Transactions Derivatives transactions of JBIC include interest rate and currency swaps and forward exchange contracts. The following table gives a summary of these transactions. Credit Risk of Derivatives, etc. (As of March 31, 2012; 100 millions of yen) Contract Amounts / Notional Amounts Credit Risk Amounts Interest Rate Swaps 27, Currency Swaps 34,577 10,589 Forward Exchange Contracts 2 0 Other Derivatives Credit Risk Reductions through Netting (625) Total 62,555 10,940 (Note) The credit risk amounts are calculated under Uniform International Standards in accordance with the Banking Act of Japan and the related regulations. 1. An informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor nations. Since the first meeting took place in 1956 to resolve the debt problem of Argentina, the meeting has been held in Paris, with the French Treasury acting as its secretariat. Hence, it has come to be called the Paris Club. 77

77 5 Operational and Administrative Policies 2. Risk Management (3) Risks Involved in Derivatives Transactions Derivatives transactions involve the following risks. Counterparty Credit Risk The potential loss from the failure of a counterparty to perform its obligations in accordance with the terms and conditions of the contract governing transactions due to bankruptcy or its deteriorating business performance. Market Risk The potential loss from changes in the market value of financial products due to fluctuations in interest rates or exchange rates in the market. Liquidity Risk Liquidity risk refers to the potential loss resulting from difficulties in funding due to a maturity mismatch between financing and funding caused by unexpected cash-outs or from being forced to fund at an interest rate significantly higher than in normal circumstances, as well as the potential loss resulting from a failure to make transactions in the market due to market turmoil or from being forced to make transactions at a significantly disadvantageous price compared to normal (4) Measures to Address These Risks Counterparty Credit Risk JBIC constantly monitors the market value of a derivative in making transaction with each counterparty, credit risk exposure to it and its creditworthiness. Such information is then used to assess the appropriateness of making transaction with it. Market Risk JBIC utilizes derivatives transactions exclusively for the purpose of hedging. Therefore, the market risk on derivatives transactions and the risk on hedged (lending or funding) transactions, in principle, offset each other. circumstances. JBIC is minimizing liquidity risk through effective cash flow management and the diversification of its funding sources, including borrowings under the Fiscal Investment and Loan Program (FILP), government-guaranteed bond issues in international capital markets and FILP agency bond issues in the domestic capital market. Operational Risks Operational risk refers to the potential loss resulting from inadequate or failed internal processes, people and systems or from external events. Apart from administrative and computer system risks, JBIC recognizes that its operations involve various direct and indirect risks. JBIC will proactively identify, assess and manage such risks. Administrative Risk Administrative risk is the risk of a financial institution incurring losses from the neglect by officers and employees to conduct administrative work properly, accidents caused by them, and violation of laws and regulations caused by them, etc., conducted in the course of the administrative work process. JBIC has been minimizing this risk by ensuring sound operations through scrupulous checks on work processes, creating operational manuals, improving training programs, and streamlining and adopting systematic procedures. In addition, the Audit Department, independent from other departments and reporting directly to the Governor & CEO, conducts internal auditing of JBIC. Computer System Risk Computer system risk refers to the potential loss from a breakdown or malfunction in computer systems as well as from their misuse. JBIC has been minimizing computer system risk by increasing readiness to respond effectively to emergency situations. Specifically, (a) measures have been taken to prevent system malfunctions and leakage of client information; and (b) contingency plans have been prepared to respond to system malfunctions caused by accidents and other causes, and disaster-response drills have been conducted. 78

78 Financial Operations for Facilitating Realignment of United States Forces in Japan 5 Credit Risk No loan was extended in these operations. Market Risk Since no loan was extended in these operations in FY2011, the only financial assets or liabilities held in these operations related accounts are cash deposits and therefore market risk is considered to be limited. Liquidity Risk These operations do not accept deposits, other than government grants. In FY2011, they conducted stable funding only from government grants, while they have yet to provide a loan as of the end of the current fiscal year and as it spent the expenses required for these operations, the liquidity risk is considered to be limited. Operational and Administrative Policies 2. Risk Management Operational Risks Administrative Risk Following the practice common with JBIC operation, JBIC has been minimizing this risk by ensuring sound operations through scrupulous checks on work processes, creating operational manuals, improving training programs, and streamlining and adopting systematic procedures. In addition, the Audit Department, independent from other departments and reporting directly to the Governor & CEO of JFC, conducts internal auditing of JBIC. Computer System Risk Following the practice common with JBIC operation, JBIC has been minimizing computer system risk by increasing readiness to respond effectively to emergency situations. Specifically, (a) measures have been taken to prevent system malfunctions and leakage of client information; and (b) contingency plans have been prepared to respond to system malfunctions caused by accidents and other causes, and disaster-response drills have been conducted. 79

79 3 Public Information and Disclosure 5 Operational and Administrative Policies 3. Public Information and Disclosure JBIC is providing and disseminating information to a broad range of the domestic and overseas public in an effort to promote further understanding of its operations and activities. The JBIC Information Center at the Head Office and the West Japan Office make available to the general public various brochures, annual reports, public relations magazines and other materials. In addition, a variety of information about JBIC is provided to the domestic and overseas public through the JBIC website ( and its Facebook page Furthermore, the Window for Information Disclosure and Protection of Personal Information at the Head Office and the West Japan Office accept the submission of a request for disclosure of information in documents under the Act on Access to Information Held by Independent Administrative Institutions and a request for disclosure of personal information under the Act on Protection of Personal Information Retained by Independent Administrative Institutions. Publications JBIC publishes its annual operations and activities, and financial conditions in various disclosure materials, including annual reports, business reports, financial statements, and Form 10-K submitted to the U.S. Securities and Exchange Commission. Other publications available to the public include: a public information magazine, JBIC TODAY, which reports JBIC s latest activities and topics on its operations and other relevant issues, JBIC Profile: Role and Function, a brochure describing JBIC operations, and JBIC Project Finance Initiatives. Website The website provides access to JBIC information, including its financial facilities, press releases, various kinds of information, invitations to seminars, overseas investment climate reports, reports on various studies, activities on environmental issues, annual reports, various brochures, IR information for investors and JBIC videos. In addition, an official JBIC page has been opened on Facebook, a social networking service (SNS), which is disseminating information to a broad range of users in coordination with the JBIC website. JBIC website JBIC Today JBIC Facebook page JBIC Profile Project Finance Initiatives 80

80 Information Dissemination for the Media Besides information dissemination through various publications, the website and other means, JBIC informs the news media about its operations and activities through press conferences and meetings, etc. Governor Okuda at the press conference Information Dissemination from Overseas JBIC s overseas representative offices are actively contributing reports and articles to the news media to provide information from overseas. They have also appeared in TV news programs to provide timely topics that can only be reported at the local grassroots level, such as individual consumption and information on taxation, etc. Disclosure JBIC discloses to the public operational and financial information to promote further understanding of its current activities as follows. (Principal) Materials for Providing Information Source of Information Access Business Report Financial Statements Available at the Head Office and List of Assets the West Japan Office Report on Settlement of Distributed to the National Accounts Diet Library and economic organizations, etc. Auditor s Opinion Audit Report Annual Report Available at the Head Office and (Japanese and English) the West Japan Office Public Relations Magazine, Distributed to interested etc. persons/institutions Website: On the internet Type of Business Address: Operations, Business Results, Overview of Facebook: Organization, Financial Composition, etc. JBIC.Japan 5 Operational and Administrative Policies 3. Public Information and Disclosure Promoting International Exchange Since 1976, JBIC has annually held JBIC Seminars in Japan to promote mutual understanding with its overseas business partners and relevant organizations by inviting officials of foreign governments, government agencies, private companies and financial institutions, etc. The cumulative number of seminar participants has exceeded 580 so far. Participants at the JBIC Seminar 81