Political risks are associated with government actions which deny or restrict the right of an investor/owner i) to use or benefit from his/her assets; or ii) which reduce the value of the firm. Political risks include war, revolutions, government seizure of property and actions to restrict the movement of profits or other revenues from within a country.
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By purchasing political risk insurance (PRI), investors can successfully strengthen their position in the host state, allocating the burden of political risk to third parties (insurance agencies). PRI is provided by international organizations, such as the Multilateral Investment Guarantee Agency (MIGA) and state-sponsored insurance agencies, known as export credit agencies (ECAs) or public insurance agencies.
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Political risks covered PRI providers cover very similar sets of political risks:
- Currency inconvertibility and transfer restrictions.
- Confiscation, expropriation, nationalization.
- Political violence/war.
- Default on obligations such as loans, arbitral claims, and contracts.
Most credit agencies have frozen their limits for Ukraine because of the lack of instruments in place. The exceptions are MIGA, DFC (USA), UKEF (UK), KUKE (Poland). Negotiations are also under way with Bpifrance (France). The French agency is considering both insuring through its ECA and joining the MIGA risk reinsurance trust fund. War risk insurance in theory would be needed for the first years but not for the entire project (for example 10 years).
For more information on the Political and War Risk States Insurance Summary from the experts of the Corporate Finance Department of BDO in Ukraine, please see the brochure below.
Despite the fact that this publication has been carefully prepared by the company's specialists, it can only be used to get a general idea of the subject discussed in it. It is not recommended to use the information presented in the publication as professional advice on a specific issue. Prior to making any decision or taking any action that may affect your finances or business, a qualified professional advisor should be consulted. Please, contact BDO in Ukraine for advice.