SESSION COVERAGE

• Introduction
• Guidelines for Project Exports
• Screening Committee procedures and guidelines
• RBI Guidelines on Project Export (PEM)
• Export Project Finance -Criteria for Approval Turnkey Projects Export of Services
• Other Related Matters

Concepts & Fundamentals  Cross Border Transaction

 Cross Border Trade Transaction Involves

• Movement of Goods & Services from one country to another
• Movement of Documents representing sale/purchase goods
• Movement of the Funds representing settlement of the  trade transaction

 Trade Finance involves

• Financing Exports
• Financing Imports

 Export Regulations & Regulatory Authorities 

 Introduction - What are project Exports

• Project Finance refers to the setting up of engineering, construction or infrastructure projects overseas within the framework of the Foreign Trade Policy (FTP) of the Government of India and conforming to the guidelines prescribed by the Reserve Bank of India (RBI) for undertaking such projects. Simply put, project exports connote the export of goods or services on deferred payment terms till the complete execution of a particular project abroad.
• Export of engineering goods on deferred payment terms and execution of turnkey projects and civil construction contracts abroad are collectively referred to as ‘Project Exports’.

 Benefits

• Project exports provide several benefits including the following: 
• Generates employment opportunities across the supply chain
• Enables Indian exporters to establish a secured presence in foreign jurisdictions 
• Provides an additional avenue of earnings through the export of goods and services bundled within the project 
• Enables technological and engineering advancement in Indian exports 
• Maintaining trade balance through earning more foreign exchange 
• Recognition of Indian expertise and technology across the globe

 What are project Exports challenges

• Rigid and complex compliance procedures
• Practical difficulties with respect to the classification of export products under the Harmonized System of Nomenclature (HSN)
• Challenges in segregation and valuation of goods and services, respectively, which are bundled in the Project exports
• Absence of single window clearance for undertaking Project exports
• Absence of interest equalization to undertake capital-intensive Project exports
• Administrative difficult relating to the realization of export proceeds as well as export incentives like Duty drawback, RODTEP etc
• Absence of efficient diplomatic support from the Government in the form of investment promotion activities and financial benefits to promote Project exports
• In India, the Project Exports Promotion Council of India (PEPC) has been established by the Government, to promote project exports and also provide necessary support and guidance to various industries to facilitate an increase in such exports.

Role of PEPC

• Collecting information pertaining to new project possibilities in the overseas market
• Facilitating economic and technical relationships between Indian exporters and foreign companies
• Serving as a focal point between the Government and the industry members to execute Project exports
• Offering technical collaborations and strategic alliances to Indian exporters to undertake Project exports
• Updating relevant stakeholders on trends and policy implications relating  ..

Guidelines for Project Exports.

Project Exports Promotion Council of India (PEPC) , set up by GOI to undertakes the necessary export promotion initiatives but also provides necessary technical information,  guidance and support to Indian Civil and Engineering (EPC) construction including process engineering contractors and consultants – in public or private sector – to set up overseas projects in any of the following modules of engineering service:-

• CIVIL CONSTRUCTION (STRUCTURES/INFRASTRUCTURE)
• TURNKEY 
•  PROCESS AND ENGINEERING CONSULTANCY SERVICES 
•  PROJECT CONSTRUCTION ITEMS (EXCLUDING STEEL AND CEMENT) / PROJECT GOODS 

 Every potential Project exporter has to comply with certain procedural requirements in order to enable him initiate exports

 Obtaining  Import Export Code

(Each exporter has to obtain the IEC Code Number from the regional licensing authorities under the office of the Directorate General of Foreign Trade (DGFT), Ministry of Commerce & Industry, Government of India.)

To get registered with Project Exports Promotion Council of India (PEPC) to obtain membership of Council

(After obtaining the necessary IEC Code Number from the office of the DGFT, the prospective Project exporter desirous of undertaking     Projects and supplies overseas should submit an application to PROJECT EPC in the appropriate form for becoming a member .)

Obtaining Registration Membership Certificate

• Once the application for obtaining the membership of the Council is approved by the Working Committee of the Council, the company may apply for online issuance of RCMC by the council. RCMC is required when export benefits as applicable under Foreign Trade Policy, are to be claimed.
• Before a member Project exporter can undertake a Project overseas as a prime contractor or as a subcontractor, its case is to be examined and approved by the Screening Committee taking into account the technical, managerial and financial capabilities of the companies against expected standards.
• The screening committee, comprises representatives from industry, various government ministries and related institutions like Export Credit Guarantee Corporation of India Ltd/EXIM Bank of India, besides Central Public Works Department.

Screening Committee procedures and guidelines

Screening Committee approval is generally accorded selectively for activities for which applicant companies have established capability in one or more of the following construction engineering activities involving:

• Dams, canals, irrigation works, tunnels and earthworks.
• Roads, bridges, flyovers, airports.
• Water and sewage treatment plants, pipelines.
• Buildings including commercial and factory complexes, hotels, schools and hospitals.
• Special foundations and structural works, docks and sea water works/ports.
• Electrification, air-conditioning and utilities.
• Any other structure, infrastructure, utility or activity to be determined by the Screening Committee.
• General contractors with capabilities in combination of two or more areas in the above range of activities.

The coverage of Screening Committee includes all companies wishing to undertake overseas construction engineering Projects involving design, construction, erection and/or commissioning.

Indian companies wishing to export Project construction items or consultancy services are outside the purview of the Screening Committee.

 Types of Clearance

Clearance may be accorded to an applicant company for one or more of the following:

• Prime Contractor or
• Sub Contractor to a Foreign Contracting Company or
• Sub Contractor to Indian Company

The clearance may be given either on a specific value basis or for regular overseas operations, depending on the track record within the country, financial position, management expertise and in-house capability.

Minimum Criteria:

Contractors are normally expected to fulfill following requirements before they can gain approval of the Screening Committee.

• company should be a member of PROJECT EPC
• company should be a limited company - either private limited or public limited or a Government undertaking/department
• company should have a minimum turnover of Rs. 10 crores (last three years) for getting approval by the screening Minimum Criteria committee.
• Company should have minimum tangible net-worth and operating experience as under:

Contractor description Net worth (Rs.) Minimum experience 

As Prime-Contractor 1 crore 10 years

As Subcontractor to a

Foreign Prime-Contractor 25 lakhs 07 years 

As Sub-Contractor to an

 Indian Prime-contractor 10 lakhs 03 years

An applicant company being considered as Prime-contractor should have a minimum experience of 10 years, in undertaking some comparable type of works in India. Similarly in case of Sub contractor to Foreign Prime-contractor the minimum experience should be 7 years. In the case of a Sub-contractor to an Indian Prime-Contractor, the experience in the line of activity in India should be a minimum of 3 years.

RBI Guidelines on Project Export

GENERAL 

• Exporters who have secured orders for undertaking supply contracts on deferred payment terms, 
• those who have secured turnkey/civil construction contracts abroad or
• for export of services in the area of management, technical consultancy, etc. 
• where execution of the contracts involves grant of fund-based and/or non-fund-based facilities from the Indian banking system or
• where deferred payment terms are to be offered require approval from Authorised Dealer / Exim Bank. 

 Broad Criteria for consideration of Proposals 

1) Authorized Dealer / Exim Bank will mainly examine, among others,   the following aspects while considering grant of package approval for proposals for export of engineering goods on deferred payment terms or for undertaking turnkey/construction contracts abroad: 

• Period of deferred credit offered vis-a-vis foreign competition, moratorium, rate of interest, adequacy of advance and down payment provided for as well as requirement of foreign exchange for execution of contract (viz. imports from third countries, agency commission, freight, etc.) and overall economics of the proposal. 
• Nature of security obtainable from the foreign buyers against payments due and nature and extent of various bonds/guarantees required to be offered by the exporter 
• Nature of escalation, force majeure and arbitration clauses provided in the contract and penalty/damages payment provisions. 
• Extent of fund-based and non-fund-based facilities required in India including pre-shipment and post-shipment credit and/or bridge finance requirement. 
• In case of turnkey contracts, economic and technical viability thereof as well as special features relating to erection, supervision and commissioning of the contract. 
• As regards civil construction contracts, turnkey engineering contracts, process and engineering consultancy services and project construction items (excluding steel and cement), the Authorized Dealer / Exim Bank will consider proposals only from contractors who are on the approved list of the Ministry of Commerce and Industry, Government of India .

2)Authorized Dealer / Exim Bank will also take into account the following aspects while considering grant of package approval for construction contracts abroad: 

• Availability of infrastructural facilities in the importer country like transport, water, construction material, skilled/unskilled labour, etc. and nature of laws governing civil matters, labour usages, etc. 
• Estimated monthly/quarterly cash flows for the entire duration of the contract and arrangements between prime contractor and associate/sub-contractors for timely execution of the contract in case of consortium arrangement. 
• Whether the contract would need any bridge finance facility abroad to meet temporary cash flow deficits in working capital, if so, the manner of raising the bridge finance and its full repayment with interest. 

3) In regard to service contracts, Authorized Dealer / Exim Bank will, inter alia, take into account relevant factors like size of the contract, nature of services to be rendered, overall economic condition of the importer country, extent of international competition and potential and prospects for further export of services, goods or turnkey projects from India. 

4) Authorized Dealer / Exim Bank may suitably relax the above criteria at its discretion where warranted by merits of the proposal. While considering proposals, Authorized Dealer / Exim Bank may also make such suggestions or tender such advice as may be necessary to avoid inter se competition and to promote, as far as possible, exports in such a way that the foreign exchange benefit for the country is maximized. 

Procedure for Clearance of Proposals 

• Submission of application in advance to the Authorized Dealer / Exim Bank to enable it to consider the proposal and grant a package clearance to it. 
• Exporters desiring to submit bids for execution of projects abroad including service contracts will not be required to obtain clearance for submission of bids from Authorized Dealer / Exim Bank. 

Declaration of the Exports and Handling of EDF/SDF 

• In order to facilitate maintenance of proper record of exports made on deferred payment terms, exporters should prominently superscribe both copies of relative EDF/SDF with the name of export contract for which supplies are being made and the number and date of the approval granted by the approving authority (viz. Authorized Dealer, Exim Bank) noted on the EDF/SDF. in the space provided therefor. The duplicate copies of the forms should be retained by authorized dealers duly certified after realization of the last installment together with interest from overseas buyers. Similar procedures should be followed by sub-suppliers also while declaring their exports on EDF/SDF. 
• In connection with execution of projects, exporters may sometimes be required to export ‘consumables’ such as tools, tackles, machinery spares etc. for which separate payments will not be made by the overseas buyers. 
• In such cases, authorized dealers may, on application, permit exporters to raise invoices against their own site offices abroad, send the shipping documents direct to those offices and realize the value due thereon in convenient installments out of the progress payments for the contracts. 

Nature of Credit

• Contracts for export of goods on deferred payment terms may be financed either under supplier’s credit or buyer’s credit. 
• Under supplier’s credit the exporter extends credit directly to the overseas buyer. 
• Buyer’s credits are credits extended to the foreign buyers by authorized dealers or financial institutions in India (including a consortium of authorized dealers or financial institutions in India) and the exporters realize the export value in Indian rupees from the institution/s concerned straightaway. 
• As repayments under deferred payment arrangements are spread over a long period of time, exporters extending supplier’s credit as well as those desiring to undertake exports to be financed under buyer’s credit may seek the advice of Exim Bank or ECGC in regard to various risks inherent in extension of such long-term credits and ways and means of protecting themselves against these risks. 

 Eligible Goods 

• LIST OF GOODS IN RESPECT OF WHICH COMMERCIAL EXPORT CREDIT MAY BE OFFERED BY INDIAN EXPORTER 
• A - CAPITAL AND PRODUCER GOODS – Total goods items mentioned in the list are 75
• B- OTHER GOODS  - Total goods items mentioned are 73
• ( details contained as Annexure 1 in PEM- July 2014)
• Both these lists are illustrative in nature and are subject to revision from time to time. 

Period of Deferred Credit

• The periods for which credit may be offered for export of goods, consumer durables, turnkey contracts and civil construction contracts will depend on merits of individual cases and may be determined by the exporter and his banker in mutual consultation on the basis of commercial judgment.  
• In case of consumer durables and miscellaneous engineering goods (Part B of List) should ordinarily be exported on cash terms. 
• Four major factors viz. anticipated life of the goods to be exported, extent of foreign competition, nature of the foreign market and the contract value constitute the criteria for determining the overall terms of credit. 

Conditions necessary for Clearance of  proposals by Authorized Dealers / Exim Bank

• Moratorium or grace period applicable to repayment of principal (and not to payment of interest) should not exceed one year in respect of export of capital or producer goods. In the case of turnkey contracts, the moratorium should not exceed two years. No moratorium should be permitted in respect of export of consumer durables. Interest should be payable even during the period of moratorium. 
• In case of supply contracts, deferred receivables should be received in equal half-yearly installments over the agreed period with relation to mean date of shipment (i.e. the date by which 50 per cent supplies in terms of value will be completed) or the date of respective shipment. 
• In case of turnkey projects, installments should be related to either date of contract or the mean date of shipment or commissioning as agreed upon between the parties. 
• Ordinarily, down payment together with advance payment or mobilization advance should not be less than 15 percent of the contract value. In exceptional cases, this may be reduced to 5 percent of the contract value. In the case of civil construction contracts, it should not ordinarily be less than 5 per cent. 
• Down payments and deferred installments receivable should be secured by a letter of credit/acceptable bank guarantee. 

Post-award Clearance of Proposals 

After entering into contract , exporter should submit to his bankers 

• Form DPX-1 (in respect of turnkey and deferred payment supply contracts)  or
• Form PEX-1 (in respect of civil construction contracts 

These forms to be submitted in six copies along with six copies of contracts

• Approval can be awarded by Authorized dealers within its discretionary powers without any monetary limit else it should be submitted to EXIM bank for approval 
• All approvals by AD to be submitted to EXIM bank/ECGC where their interest is involved.

Other Issues related to clearances

Export of Goods (Pure Supply Contracts) 

• The procedure outlined for post-award clearance will not apply to exports of goods (pure supply contracts) where at least 90% of the export value will be realized within the prescribed period i.e. six months from the date of export and the balance amount within a maximum period of two years from the date of export, provided the exporter does not require/ avail of any funded or non-funded facility for such exports, from authorized dealers. 

Follow-up of Turnkey / Construction Contracts 

• Exporters and all their Indian sub-contractors executing turnkey contracts or civil construction contracts abroad should furnish progress reports in form DPX 2 on a half-yearly basis (June and December) to concerned approving authority viz. authorized dealer / Exim Bank, and to ECGC / Exim Bank in all cases where their risk / guarantee cover participation in the funded / non-funded facilities has been obtained. 
• The final Report in Form DPX 2 should clearly indicate the fact of completion of the project and full compliance with the requirements relating to completed projects 

Requirements relating to Completed Projects (1)

• close the foreign currency accounts and transfer the balances to India; 
• wind up site and liaison offices opened abroad; 
• ensure that the guarantees for performance of the contract and other guarantees issued are canceled and returned to exporters;
• liquidate fully overseas borrowings/overdrafts obtained, if any and cancel counter-guarantees; 
• make suitable provision for payment of taxes, customs and other statutory obligations in the country of project; 
• dispose of the equipment, machinery, vehicles, etc. purchased abroad and/or to arrange their import into India. [ In case the machinery etc. is to be used for another overseas project, the market value (not less than book value) should be recovered from the project to which equipment/machinery has been transferred ] 
• recover funds, if any, transferred to other overseas project/s and repatriate them to India. 

Requirements relating to Completed Projects (2)

The following documents should also be forwarded along with such report 

• A completion or final handing over certificate 
• A certificate from the overseas bank regarding closure of the account held with it. 
• A statement of remittances made to India. Bank certificates about repatriation of funds to India should be enclosed. 
• Tax clearance certificate/No tax liability certificate about the overseas project. 
• Bills of Entry for re-import of machinery, etc. 
• Statements of income and expenditure and profit and loss account of the project duly certified by a Chartered Accountant/Project Manager. 

Buyer’s Credit Scheme of Exim Bank 

• Exim Bank in participation with commercial banks in India extends Buyer’s Credit for grant of credit to foreign buyers in connection with export of capital goods and turnkey projects from India .
• The Scheme provides for payments being made to exporters out of buyer’s credit on a non-recourse basis on fulfilling the commercial terms of the export contracts to be financed under the Scheme.
• All offers for deferred payment exports or turnkey projects against buyer’s credit require specific prior approval of the Exim Bank.
• Exim Bank has been authorized to extend Buyer’s Credit under the Scheme upto the limit of U.S. Dollar 20 Million.
• RBI’s approval is required under FEMA guidelines

 EXPORT OF SERVICES

Contracts for export of consultancy, technical and other services by Indian companies/firms generally fall in the following categories:

• Preparation of project/feasibility reports, drawings, designs, etc. 
• Supply of technical know-how/engineering services in different fields. 
• Operation, maintenance and supervision of manufacturing plants, buildings and structures, etc. 
• Management contracts for commercial concerns
• Export of services may also involve supply of some associated mechanical wherewithals, consumables and spares 
• There may be a requirement of providing performance guarantee within their scope of work.
• Indian exporters of services normally undertake overseas contracts on “cash” terms. 
• Overseas service contracts undertaken on “cash” terms do not require prior clearance of Reserve Bank if no facilities are required 
• Resident individuals, firms and companies may, therefore, freely provide consultancy/technical/management services to overseas clients subject to the condition that the income earned abroad minus expenses will be promptly repatriated to India through normal banking channels. 
• Indian companies/firms executing service contracts abroad, requiring facilities like opening of foreign currency bank accounts and site offices abroad, etc. will need approval from Authorized Dealer/Exim Bank. 

Service Contracts Requiring Authorized Dealers’/  Exim Bank’s Approval 

• Any services which involve direct and indirect foreign exchange liabilities by way of execution of performance/advance payments guarantees, counter-guarantees for loans/overdrafts raised from banks abroad and even considerable expenditure in foreign exchange on purchase of instruments/equipment of third country origin, which necessitates recourse to fund-based and/or non-fund-based facilities from Indian commercial banks, Exim Bank and ECGC apart from a variety of foreign exchange approvals. 
• Such contracts are treated on par with turnkey/construction projects and therefore require clearance at the post-award stage of authorized dealers/Exim Bank. All Service contracts involving deferred payment (DP) terms also require post-award clearance of authorized dealers/Exim Bank. 

Pre-requisites for Consideration of Proposals of  Service Contracts Involving Cash Payment Terms 

Broad guidelines/conditions required to be satisfied :-

• Contract should be technically feasible and economically viable. 
• Ordinarily, exporters should secure mobilization advance to the extent of 15 percent of the contract value, relaxation if any, can be done by Ad/EXIM bank on merits
• ECGC may be consulted in advance for its commercial and/or political risk cover/guarantees etc., if required. 

Clearance of Proposals at  Post-award Stages 

• Submission of Form TCS 1 in six copies along with six copies of contract for necessary post-award clearance. 
• For Contract value without any limit authorized dealers / Exim Bank should examine the proposals in the light of nature and scope of the services to be rendered, terms of payment, period available for completion of the project/assignment, penalty provisions, etc. and grant clearance provided the proposal satisfies the conditions as stipulated in pre clearance

Follow-up of Service Contracts 

• Exporters executing service contracts abroad should furnish progress reports at half yearly intervals ending June and December of each year to institutions concerned 

Requirements relating to Completed Projects 

• Same as stated in slide no, 29 & 30

OTHER MATTERS CONNECTED WITH PROJECT EXPORTS AND SERVICE EXPORTS 

• Foreign Currency Accounts/Site Offices Abroad/ Agency  Commission/Financial Requirements 
• Third Country Purchases 
• Inter-project transfer of funds 
• Construction etc. Equipment 
• Import of Equipment/Machinery/Motor Vehicles Purchased Abroad 
• Foreign Travel in connection with Execution of Contracts Abroad 
• Bid Bonds and Guarantees against Project Exports 
• Guarantees for Borrowings Abroad 

Bid Bonds and Guarantees  against Project Exports  

Guarantees for Borrowings Abroad

In all cases where exporters executing turnkey/civil construction/service contracts abroad are granted an approval by the approving authority to raise foreign currency loans/overdrafts abroad against counter guarantees of their bankers in India, for bridging temporary short-falls in the cash-flows, the authorized dealer concerned may issue the requisite guarantee in favour of the overseas bank from which the loan/overdraft is to be raised. 

References

Master Direction – Export of Goods and Services 

(RBI/FED/2015-16/11 FED Master Direction No. 16/2015-16 dated January 1, 2016 (Updated as on November 22, 2022) )

GUIDELINES FOR PROJECT EXPORTS  by Project Exports Promotion Council of India

MEMORANDUM OF INSTRUCTIONS ON PROJECT & SERVICE EXPORTS RESERVE BANK OF INDIA  July 2014 ( PEM)