Upon receipt of a note from Your Excellency indicating that the foregoing provisions are acceptable to the Government of the Government of

(Country)

the United States of America will consider that this note and your reply thereto constitute an Agreement between our two Governments on this subject, to enter into force on the date of the note by which the Government of

com

(Country) municates to the Government of the United States of America that this exchange of notes has been approved pursuant to its constitutional procedures. Accept, Excellency, the renewed assurances of my highest consideration. 42 Fed. Reg. 8034–8035 (1977).

/s/

National Legal Provision for Protection of
Foreign Investment

The Overseas Private Investment Corporation

Country Eligibility

On September 20, 1977, the Board of Directors of the Overseas Private Investment Corporation (OPIC) adopted a general policy and guideline, entitled Country Eligibility for OPIC Programs, designed to focus the Corporation's efforts on those countries whose per capita gross national product is less than $450 as evaluated in terms of the value of the dollar in 1973. In announcing the new policy, OPIC's Acting President, Rutherford M. Poats, indicated that OPIC would concentrate primarily on encouraging expansion of mutually beneficial U.S. private investment on a broad range of developmental investment in such countries. OPIC's principal means of encouraging investment are its political risk insurance and financing services for U.S. companies.

The Board also decided to restrict but not terminate OPIC programs in developing countries with incomes averaging greater than one thousand dollars on a per capita basis. In countries with average per capita income in excess of one thousand dollars, OPIC will insure or finance private U.S. investment projects satisfying OPIC's other policy tests if such projects are sponsored by U.S. small businesses or cooperatives, are for minerals exploration or development, or involve energy development in countries not members of the Organization of Petroleum Exporting Countries (OPEC). In addition, the Board will consider, on a case-by-case basis, other projects in such countries if there are "exceptionally significant developmental benefits."

At the time of the Board's decision, the restriction on OPIC programs in countries with per capita gross national product averages over one thousand dollars applied to Argentina, Barbados, Brazil, Brunei, Cyprus, French Guiana, French Polynesia, Gabon, Greece, Guadeloupe, Iran, Israel, Jamaica, Malta, Martinique, Netherlands

Antilles, New Caledonia, Oman, Panama, Portugal, Romania, Saudi Arabia, Singapore, Surinam, Trinidad and Tobago, Uruguay, Venezuela, and Yugoslavia.

The text of the policy guidelines concerning Country Eligibility for OPIC Programs, adopted by the Board on Sept. 20, 1977 (BDR (77) 26), reads as follows:

I. Statement of Policy

The Corporation will focus its project identification and promotional activities on lower income developing countries and areas and will give preferential consideration, consistent with its other policies, to projects in those countries and areas whose per capita GNP is less than $450 in 1973 dollars ($520 in 1975 dollars) and projects sponsored by U.S. small businesses and cooperatives, as defined in the OPIC statute.

II. Restrictions

Pursuant to decisions of the Economic Policy Group on May 16, 1977, and the Board of Directors on June 14, 1977, the Corporation's programs normally will be restricted to friendly less-developed countries and areas, as defined in BDR (73) 33, meeting all of the following criteria:

A. Bilateral agreement. The government of the country or area has concluded an agreement with the U.S. Government authorizing the operation of the OPIC insurance and/or investment guaranty programs or countenancing a particular OPIC association with a particular project.

B. Legal criteria. Through the aforementioned agreement or by other means, the Corporation has obtained reasonable assurance that suitable arrangements exist for protection of its interests in the country or area as insurer, reinsurer, guarantor, or lender.

C. Economic criterion. The country or area's per capita GNP is not more than $1,000 in 1975 dollars.

D. Other criteria. The country or area is not excluded by other statutory or policy guidelines.

III. Exceptions to Economic Criterion

OPIC may operate its program in otherwise eligible countries where the economic criterion set forth in II (C) is not met in the following circumstances: A. A project for the exploration and/or development of energy resources in a country or area which is not a member of the Organization of Petroleum Exporting Countries (OPEC), or a project for the exploration, mining and/or processing of minerals; or

B. A project sponsored by a U.S. small business or cooperative as defined in OPIC legislation; or

C. A project to reinsure private underwriters of political risk insurance. when the investments to be reinsured are consistent with OPIC purposes and applicable policy guidelines. Any such project must have the approval of the Board.

The Board may consider other exceptions from time to time on a case-by-case basis, including encouragement of projects promising an extraordinarily significant developmental benefit as judged by the criteria in the Corporation's legislative charter.

IV. A report on compliance with the "Statement of Policy" above, including measures taken by Management and changes in the proportion and volume of OPIC-associated investment in the lower income countries from comparable earlier periods, will be submitted semiannually to the Board.

Overseas Private Investment Corporation Release RJ/393, Sept. 26, 1977; Board of Directors res. BDR (77) 26-Annex, Sept. 20, 1977.

On Apr. 24, the Board modified its original list of middle income countries by deleting Uruguay and adding Fiji. See OPIC doc. entitled "Recapitulation of 'Middle Income' Countries Where OPIC Programs will be Restricted: Countries Where Per Capita GNP is Greater than $1,000 (1975)," dated Apr. 24, 1978.

Minerals Policy

On September 23, 1977, the Board of Directors of OPIC also authorized new policies strengthening OPIC's incentives for minerals investment in developing countries and improving war risk insurance and financing services. The General Policy and Guidelines concerning insurance of minerals adopted by the Board includes coverage against the risks of expropriation, host government contractual defaults, and war, revolution, and insurrection (WRI) tailored to the particular risks of concern to individual mineral investors. Premiums are determined by the extent and types of coverage provided and by the risk-reducing features incorporated in each proposed investment arrangement. The improvements in war risk insurance coverage, which is available for all types of projects include expansion of coverage available for intercompany loans and loan guaranties, coverage of consequential loss due to closing of operations for a period of at least six months directly caused by WRI events, rather than limitation of compensation to cases in which the foreign enterprise has sustained physical damage or loss; and a liberalized revision of the formula for calculating compensation for equity investors.

Set forth below is the text of the policy guidelines, entitled OPIC Minerals Policy Insurance of Non-Fuel Minerals, BDR (77) 33, adopted by the Board on Sept. 20, 1977:

I. Statement of Policy

This policy statement provides guidelines for the issuance of insurance coverage of projects for the development of non-fuel minerals (hereinafter "minerals").

II. Guidelines for Insurance

A. General

1. Term of Coverage: Coverage will be extended for an initial period composed of construction time plus 10 years after project completion. OPIC would have the option to extend the initial term up to the 20-year statutory limit.

2. Amount of Coverage: A fixed percentage of coverage within the range of 5) to 90% will be offered for the initial investment, plus an equal amount of retained earnings. The percentage of investment and retained earnings insured will depend on OPIC's assessment of risk factors in the project including:

(1) Extent of multilateral or foreign bank lending;

(2) Local participation;

(3) Strength of host government commitment and/or assurances;

(4) OPIC country exposure;

(5) Project profile and sensitivity;

(6) Form of investment;

(7) Dispute settlement procedures;

(8) Commercial factors potentially affecting political risks.

3. Exploration: Insurance coverage will be provided during the exploration phase for intangible costs and non-movable tangible assets as well as movable, tangible assets. Coverage of exploration costs preceding discovery of a commercially exploitable ore body would extend only to a reasonable period of exploration, determined either by the concession agreement or by reference to mining practice in general.

4. Breach of Specified Governmental Contractual Obligations :

(a) Additional coverage may be provided against breach of certain specific host-government undertakings to the investors upon which the investment decision is predicated. The investor would be required to show that the Foreign Enterprise sustained losses as a direct consequence of the covered host-government breach. Such a breach must remain in effect for at least one year and the investor would be required to continue to operate the Foreign Enterprise during that year and at least one additional year. For each of these years the Corporation would compensate the investor for the pro-rata share attributable to the investor's insured interest of the difference between (i) the costs incurred during the breach period plus $1.00, and (ii) the revenues received with respect to the breach period.

(b) The compensation payments would be made annually, at the end of the first and second years of the breach. If, at the end of two years, the breach had not been cured, the Corporation would compensate an investor who wanted to close the Foreign Enterprise. Compensation would be the investor's insured Net Investment as of the date of the breach less the amount, if any, of compensation paid with respect to the two-year period.

(c) Where the breach is cured before or during the two-year period, or where, notwithstanding the continued breach, the investor decides to continue operations, subsequent retained earnings will serve to restore coverage levels reduced by compensation paid during the breach period. Management believes that this will constitute an additional incentive to continue operations in the host country.

(d) The coverage would not be subject to the qualifying language generally used in OPIC contracts to exclude governmental actions which can be viewed as legitimate exercises of taxation or police powers. The application of that language's complex standards can lead to claims settlement delays and uncertainties that make the insurance less attractive to investors. Instead, this coverage would utilize OPIC's authority under the statute to cover as "expropriation" a governmental breach of contract which "materially adversely affects the continued operations of the project." As a consequence, Management would carefully review and define in advance those contractual undertakings the breach of which could be expected to have such an effect on the project. It is possible, however, for this coverage to result in claims payment in situations in which OPIC would not be able to establish an obligation of the host government to pay compensation or damages.

B. War, Revolution and Insurrection

Insurance may be offered to cover consequential loss due to closing of operations for a period of at least six months directly caused by WRI events in the project country or directly caused by certain specified WRI events in another country. Compensation would be the pro-rata share attributable to the investor's insured interest of the out-of-pocket costs for routine maintenance of the project facilities, including legally mandated costs, with an annual limit equal to 10% of the insured Net Investment as of the initial closedown. The compensation could continue as long as the closedown directly caused by WRI continued, until total compensation equaled the insured Net Investment of the insured investment as of the start of the closedown.

Appropriate forms of the proposed coverage would be available to cover equity and production-sharing investors, and take or pay guarantors. Guarantors of loans to the Foreign Enterprise and creditors already receive defaultrelated consequential loss coverage, which Management would amend for minerals projects to include specific WRI events in other countries. Overseas Private Investment Corporation Release RJ/393, Sept. 26, 1977; Board of Directors Res. BDR (77) 33-Annex, Sept. 20, 1977.

Energy Policy

On November 17, 1977, Carl H. Middleton, Director for Minerals and Energy of the Overseas Private Investment Corporation (OPIC), made a statement before an OPIC Seminar on Minerals and Energy

held in Houston, Texas, on November 29, 1977, outlining the general principles applied by OPIC in allocating insurance for primary oil and gas investments. In his statement Mr. Middleton mentioned some distinctions between OPIC's treatment of primary energy investments and downstream energy investments and described how net unrecovered costs are computed.

An excerpt from Mr. Middleton's statement follows:

We are concerned, as well as gratified, by the market acceptance of our new primary energy insurance. We are concerned because the demand for this new insurance may exceed our capacity. Our board believes we should limit our maximum exposure in primary energy projects to about 20% of our portfolio, or about $800 million to $1 billion.

Pending further experience with the demand for OPIC's primary oil insurance and further consideration of alternative arrangements for expanding our capacity, we will apply the following general principles in allocating insurance for primary oil/gas investments:

(1) We will limit exposure to about $50 million of maximum coverage per project and about $100 million per country.

(2) Preference will be given to projects where the need for OPIC insurance is deemed to be the greatest. There will be a rebuttable presumption that the largest oil companies have the least need for OPIC insurance.

(3) Preference will be given to projects which diversify the world's energy resources. In line with that principle, insurance will not be issued for projects in OPEC [Organization of Petroleum Exporting Countries] countries.

(4) Preference will be given to projects in the poorer LDC's [less developed countries].

A project's classification either as a primary energy investment or as a downstream energy investment affects its eligibility for insurance and the type of coverage that is available. The important distinctions between OPIC's treatment for the two types of energy investments are as follows:

(1) Type of Insurance Contract-For downstream investments OPIC uses its standard insurance contract which insures essentially the book value of a percentage of the shares owned by the Investor in the Foreign Enterprise. For primary energy projects OPIC insures the Investor's Net Unrecovered Costs, of which more will be said later.

(2) Amount of Insurance Offered-For downstream investments OPIC will not assume a maximum liability in a project exceeding $150 million. In such large projects OPIC will usually provide coverage of only about 75% of the Investor's contribution. In primary energy projects OPIC will insure 90% of Net Unrecovered Costs, but it will not provide coverage exceeding about $50 million per project.