Introduction

With the downturn in the U.S. oil economy, petroleum engineering and service companies are increasingly looking overseas for work. Many of the exciting developments in the petroleum industry are taking place in the developing countries, requiring parties place in the developing countries, requiring parties to accept unique foreign risks. These risks can, in many cases, be covered by a small number of private sector political risk insurers and the Overseas Private Investment Corporation (" OPIC"), a U.S. Private Investment Corporation (" OPIC"), a U.S. Government agency, which offers political risk insurance and, to a limited extent, financing for American companies with exposures in the developing countries. This paper describes how those risks can be insured.

Discussion

The Overseas Private Investment Corporation (" OPIC") is a United States Government agency designed to promote the economic development of less-developed promote the economic development of less-developed nations by assisting United States citizens, corporations and their wholly-owned (95%) foreign subsidiaries in efforts to invest, or develop contractual relationships, in the third world. As a complement to the U.S. Agency for International Development, which finances projects on a government-to-government basis, OPIC's purpose is to facilitate the transfer of U.S. capital, technology and management skills by helping American companies establish a broad variety of projects in Latin America, Africa, the Middle East, the Indian Subcontinent, Asia and parts of Europe (Portugal, Greece, Yugoslavia, Ireland and Northern Ireland). Its political risk insurance and finance programs operate either independently of or in conjunction with the programs of the Export-Import Bank of the United States, the World Bank (including the International Finance Corporation), the regional development banks, foreign government supplier credit and political risk insurance agencies and private political risk insurers throughout the world. While political risk insurers throughout the world. While Congress views OPIC as a development agency, corporate America views OPIC as an insurance company and a source of non-recourse (or project) financing.

Companies buy OPIC political risk insurance for a number of reasons. While obviously most take coverage in order to reduce risks and receive compensation for losses, others are equally interested in the insurance for non-financial reasons. Because of the agency's vast experience in resolving investment disputes, some corporate executives place great importance on the fact that OPIC clients can turn to a U.S. government agency to help them resolve major investment issues with host governments. OPIC's involvement brings with it not only the full weight of the U.S. Government but also a direct financial interest in the outcome of any dispute; hence OPIC's participation increases the likelihood that disputes will be settled amicably and in legal and financial framework rather than in a public political arena. In addition, small companies which are deeply involved in third world projects will find that their bankers and major suppliers feel more secure when those exposures are insured against country risk by an agency of the U.S. Government.

OPIC offers three types of political risk insurance:

  1. Inconvertibility - insurance against the deterioration in exchange control laws, regulations and procedures (not including devaluation);

  2. Expropriation - insurance against nationalization, confiscation and creeping expropriation, including, in the case of contracts with host governments, material changes in those contracts unilaterally imposed by the host government; and

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