EXPERIENCE WITH THE U.S. EX-IM BANK'S TIED AID CAPITAL PROJECTS FUND
Mr. Chairman and Members of the Subcommittee. My name is E. Robert Meaney, and I am Senior Vice-President of Valmont Industries, Inc. I am here today at the request of Senators Hagel and Bayh to present the story of Valmont's experience with an unsuccessful attempt to obtain matching tied aid financing from the U.S. Exim Bank for a project in China.
I would like to start with some information about my company. Valmont is headquartered in Omaha, Nebraska. We are a publicly traded company listed on the NASDAQ with sales of about $900 million and 5,500 employees, two-thirds of whom reside in the United States. We have manufacturing facilities in eight states and 11 foreign countries. Founded in 1946, Valmont is the world's largest manufacturer of mechanized irrigation products, as well as the world's largest manufacturer of pole structures for applications such as telecom antenna towers, street and highway lighting poles, and large structures for utility transmission and distribution lines.
Our overseas markets range from developed countries like France and Japan to countries who are developing their modern infrastructure like Brazil, China and the countries of Sub-Saharan Africa. We are very proud of our products. We are motivated by how they enhance the standard of living worldwide, and we believe they aid in the development of freedom and prosperity.
A good example of the importance of our products is the use of center pivots for irrigation. For those not from the Great Plains, center pivots are responsible for the great green circle patterns in fields of 160 up to 340 acres that you often see from airplanes. There are 300,000 of these circles in the world, more than half in the United States. We believe that 60% of the world's 300,000 circles use pivots from Nebraska producers, and that fully 40% of the world's circles are made by Valmont's Valley brand.
The original drivers for the industry were enhanced yields and the reduction of labor needed to move irrigation pipe by hand, but water conservation and environmental issues soon became as important, especially in international markets.
Water conservation has become a compelling priority for governments in developing countries. The statistics are well known: Only 3% of the world's water is fresh water. Only one-third of that is available for human use. Of that one percent, two-thirds is used to irrigate farms. Solving the world's water crisis means making farms better at stretching water resources. Nothing comes close to doing this on large fields as well as center pivots. (Drip irrigation, the other principal water-conserving technology, is about as efficient as center pivots, but it is economical only on small and medium sized fields.)
With these strong environmental and agricultural drivers, our export center pivot business has expanded rapidly, especially during the past seven years. To improve our speed of delivery and product support, we have built satellite manufacturing facilities in Brazil, Spain, Saudi Arabia, United Arab Emirates and South Africa. We have also established distribution centers in Mexico, Australia and now in Western China. This regional manufacturing and distribution strategy has been a great success for us. We have improved our market share against competitors both in the United States and in the regions involved. This has enabled Valmont to expand employment in Valley, Nebraska, our main irrigation technology center, and in a smaller operation in San Antonio, Texas.
It was in this context that in 1997 we made a decision to pursue the China mechanized irrigation market. After about a year of market development work, we began to sell a moderate number of machines to private customers, usually by confirmed letter of credit. At an early stage we began to understand that China is setting a high priority on water conservation .
Having concluded that China inevitably would start to adopt our technology in order to move toward water conservation and protection of its soil resources, we invested considerable effort in marketing in key areas with large farms. These regions included Inner Mongolia, Northeast China, Ningsha, Gansu and Xinjiang. Our development effort was aided by the fact that Valmont had already established a pole manufacturing plant in Shanghai some years earlier. The pole plant has been a financial success, and its seasoned staff has supported the effort of the Irrigation team. In early 2000, we concluded a joint venture agreement with a strong Xinjiang company in order to follow our normal strategy of establishing a strong local organization to address local competition.
In early 1999, an unusual event occurred in Xinjiang. A small Austrian competitor closed a very large center pivot order for about $5 million. This was unusual because our competitors are usually either local companies or those few other Nebraska center pivot manufacturers. The competition in the international segment of our industry is intense, and small regional firms from Europe are normally not competitive. We were suspicious and soon discovered that the sole reason for the Austrians' competitiveness in the 1999 and in later deals was tied-aid financing offering 25 year loans at 2.95% interest with five year grace periods. We consulted the Ex-Im Bank and learned that we could use Tied Aid Willingness to Match procedures to cancel out the very favorable terms being offered by the small Austrian company.
Racing against an uncertain deadline, we worked intensively with Ex-Im bank personnel and gathered all the documentation necessary to file a formal request for a matching proposal to be considered at the February 2001 Ex-Im Board meeting. We have nothing but praise for the professionalism and enthusiasm of the Ex-Im staff assigned to assist us. We also received encouragement and support from our Nebraska legislative delegation here in Washington, especially from Senator Hagel and Representative Bereuter. We also worked very hard to keep our Chinese customers' minds open in spite of pressure from the Austrians to close the deal with them.
At about the time we expected to receive Ex-Im's board approval, we received word from Representative Bereuter's office that, although our request for a match to the Austrian tied aid offer had been approved by Ex-Im's Board, the Department of the Treasury opposed it. One month later, we received a letter from Ex-Im telling us officially that the Ex-Im Board was "unable to take favorable action on your request." As a result, the Chinese gave the order to our Austrian competitor.
These are the basic facts of the Valmont effort to obtain matching financing from The Ex-Im bank. We are most disappointed that, after months of work, the attempt to use the Ex-Im Tied Aid program was a failure. It is not possible for Valmont to judge the overall fairness of the result, because we are not experts in policy matters. However, we are businessmen who try not to engage in activities which lead us nowhere. In this case, we wasted months of very valuable time.
Needless to say, the small Austrian company has now booked another order, this time for approximately $3 million. Because of the dramatic financing packages they offer to the customers in Xinjiang, their product line has a dominant share of the promising and growing market there. China is the only meaningful irrigation market in the world in which American, which is to say Nebraskan, companies do not dominate. Although these projects may seem like small ones to some, they are large ones for us. They are also more important than most because, as the initial installations in the region, the brands involved become the reference.
In the months since the disappointment of the rejection of our application, we have continued our marketing efforts to establish our brand by conducting seminars and field training sessions. Our competitor has not supported his product in the field. To us, this is undeniable proof that the only advantage he had was Tied Aid Financing.
In conclusion, we would like to say, for the record, that we believe strongly in the overall mission of the Ex-Im Bank and we wish to see its programs continued. It is our belief that the Tied Aid Willingness to Match program can serve an important purpose in protecting American businesses from unfair practices of foreign governments, but only if it is implemented in a streamlined and consistent fashion.
I would like to thank you, Mr. Chairman, and the other members of the subcommittee for your interest in this matter.
E. Robert Meaney
Senior Vice-President - International
E. Robert Meaney is Senior Vice-President - International at Valmont Industries, Inc. Valmont is an Omaha-based manufacturing company with global activities in infrastructure and water management. Valmont is the leading producer of center pivots for large field irrigation and also the world's leading manufacturer of steel poles for street lighting, wireless antennas, and electrical utilities.
Prior to joining Valmont in 1994, Mr. Meaney spent 20 years at Continental Can Company in various positions, including General Manager Korea, Vice-President Asia-Pacific, President Continental Can France, and Vice-President Business Development Continental Can Europe.
A native of Philadelphia, Mr. Meaney graduated in 1969 from Princeton University and received his MBA in 1974 from Wharton School of the University of Pennsylvania. He served as an engineering officer on destroyers in the US Navy from 1969-1972.
Mr. Meaney resides in Omaha, Nebraska with his wife Angenette and their three children Thomas, Andrew, and Angenette Elizabeth.
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