8 European Investment Bank lending in
+ ADDS 1-2
Commission Report on operations conducted under the External Lending Mandate of the European Investment Bank and future outlook
Draft Council Decision granting a Community guarantee to the European Investment Bank against losses under loans and guarantees for projects outside the Community
|(a) (b) Art 181 a EC; QMV
|22 June 2006
|Deposited in Parliament
|3 July 2006
|Basis of consideration
|EMs of 13 July 2006
|Previous Committee Report
|To be discussed in Council
|November 2006 ECOFIN
(b) Not cleared; further information requested
8.1 According to its website, the task of the European Investment
Bank (EIB), "the European Union's financing institution"
is "to contribute towards the integration, balanced
development and economic and social cohesion of the Member Countries".
It is also active outside the Union, where it "implements
the financial components of agreements concluded under European
development aid and cooperation policies".
8.2 With regard to this latter, the Commission explains
that these non-EU activities have customarily made up around 10%
of the EIB's total activities, amounting to 5.1 billion
in 2005, of which 3.7 billion is under Community guarantee.
The EIB operates outside the EU on the basis of formal mandates
from the Council, with successive Council Decisions having widened
the geographical scope, so that the EIB is fully operational in
pre-accession and Mediterranean countries, Asia, Latin America
and South Africa, and is progressively expanding its operations
in Russia, the Ukraine and Moldova. As the Commission says, "the
Community guarantee prevents such operations, which often bear
a significantly higher level of risk than the EIB's operations
within the EU, from affecting the credit standing of the Bank,
and allows the EIB to maintain attractive lending rates outside
The Commission Report
8.3 In his helpful 13 July Explanatory Memorandum,
the Parliamentary Under-Secretary of State at the Department for
International Development (Mr Gareth Thomas) says that the report
is a Commission evaluation of the current EIB External Lending
Mandate (ELM), which will expire at end of January 2007, preparatory
to agreeing a renewal. The ELM "invites" the EIB to
lend up to specific regional ceilings outside the EU, with each
region having specific objectives and regulations. Overall, in
2000-06, the EIB was "invited" to lend 20.6 billion
outside the EU.
8.4 The first part of the Report discusses the Bank's
activities under the ELM between 2000 and 31st December 2005.
It outlines lending volumes, by mandate and by region and relative
to the other International Financial Institutions. It also discusses
the value added of the EIB. The second part makes proposals for
the next ELM; they include new regional ceilings, an increase
in country coverage as and when new countries fulfil appropriate
conditionality, a Reserve Mandate for natural disaster and post-conflict
reconstruction, and a clarification of the guarantee coverage
by which loans made by the Bank are guaranteed to varying degrees
by the Commission. Finally the report addresses co-operation between
the Bank and International Financial Institutions (IFIs) and between
the Bank and the Commission, outlines an improvement in reporting
and suggests a mid-term review of the mandate in 2010.
8.5 There are two annexes to the Report. The first
is concerned with the regional outlook of the next mandate: it
discusses spending by region under the current mandate, outlining
the sectoral breakdown of loans, and then seeks to provide justification
for the size of lending envisaged by the Commission for 2007-13
and the sectoral priorities. The second annex analyses the Bank's
operations under the ELM between 2000 and the 31 December 2005;
discusses how lending by the EIB has supported EU policy objectives
and how the Bank has co-operated with the Community and other
IFIs; and evaluates EIB loans by region. Five sub-annexes provide
comprehensive lists and breakdowns of loans by region, country
The draft Council Decision
8.6 The legislative text incorporating these proposals
is explained and discussed in a separate EM from the Minister.
He explains that, as well as expiring on 31 January 2007, the
current guarantee protects the EIB from loss due to non-payment
up to specific regional ceilings, and that only 65% of these sums
are covered; this proposal would put in place a new guarantee
for 2007-13. He says:
"The Commission proposes to clarify the exact
nature of the guarantee and to extend the coverage to loan guarantees
made by the EIB, as well as loans. The proposal would comprehensively
cover the EIB for losses on operations with the public sector
(national and local/regional) or public sector guaranteed operations.
For operations falling outside of the public sphere, the EIB would
be covered against specific political risk only.
"The proposals put forward relating to the renewal
of the ELM include articles setting the size of the regional ceilings,
to increase the size of the whole ELM to 33 bn, including
a 1.5 bn reserve mandate, and sets out which countries are
eligible and how countries can become eligible. The proposal also
includes articles relating to the consistency of EIB actions with
EU policy, cooperation with other International Financial Institutions
(IFIs), reporting and accounting standards, and recovery of payments
made by the Commission under the guarantee. Finally, the proposal
allows for a review of the decision by 30th June 2010 accompanied
by proposals for its amendment."
The Government View
8.7 The Minister says that the renewal of the guarantee
is important since it helps the EIB to lend in countries that
are sub-investment grade, and that clarification of the guarantee
and recognition of the need for better coordination between the
Commission and the Bank and between the Bank and other IFIs are
both to be welcomed. However, the Government is still in discussion
about the guarantee together with other Member States regarding
a number of concerns, which he specifies as follows:
"The proposal has not been adequately justified.
The report from the Commission on the current ELM (COM (2006)
323 final) is a presentation with some discussion of facts and
figures rather than the evaluation requested by Member States.
It is therefore a useful summary at most. Member States need to
know how the mandates contribute to EU objectives, what key lessons
have been learned and how they will be incorporated to inform
the next mandate in order to make our judgement on the new ELM
and therefore this proposal.
"The report also does not include an adequate
justification for the sizeable increases in lending activity,
from 22.7 bn to 33 bn, a 16% real terms increase,
nor the increase in scope to take in countries previously not
covered. The UK's focus has consistently been to urge the EIB
to improve the value-added of its lending (its efficacy) before
seeking to increase the size and scope of lending.
"The Asia/Latin America (ALA) region of the
Bank's mandate has a unique mutual interest clause. This clause
says that any EIB lending in the region must be in the mutual
interest of both the borrower and the EU. We would like to see
this aspect of the ALA mandate removed entirely, because in practice
it has been used to finance the foreign direct investment activities
of European firms and it is only imposed on the ALA mandate. The
current proposal suggests only a widening of the clause to encompass
projects in the transport, energy and communications sectors in
order to further regional integration, and environmental projects.
"Finally, the proposal envisages a Reserve Mandate
of 1.5 bn to cover unforeseen post conflict situations and
natural disasters, when funds are required quickly. We are not
convinced of the rationale for this, nor are we happy that decisions
on its use will be made 'in consultation' with the Council only."
8.8 In forthcoming discussions, the Minister says,
the UK will:
"press the EIB and the Commission to provide
a meaningful strategic analysis of the current and future mandates
and how they can aid policy outside the Union. We will press for
value added indicators in lending targets and better justification
of proposed lending volumes and the increased geographical scope.
We will also work for the removal of the mutual interest clause."
8.9 Looking ahead, the Minister says that the Presidency
has targeted the November ECOFIN for an agreement on the ELM renewal
hence this proposal and that a six month extension
is possible should agreement not be reached by the current ELM
expiry date of 31 January 2007.
8.10 We now clear the Commission report.
8.11 However, with regard to the draft Council
Decision, the Minister's concerns are well put. As he notes, the
question of value added is central to the ELM mandate renewal,
and it is telling that "Value added of the EIB" section
encompasses only four short paragraphs in the Commission's voluminous
report. Even that does not amount to a great deal: an alleged
perception by potential borrowers that the EIB is "a streamlined
and efficient lending institution with a closely defined focus";
a claimed "expertise and comparative advantage" in infrastructure,
environment and SME projects; project conditionality that is said
to ensure EU environmental and procurement standards and encourage
appropriate management and pricing practices; lower borrowing
costs passed on to beneficiaries; "a catalytic effect on
the participation of other financial partners"; and using
local fund-raising to develop local financial markets.
8.12 We should be grateful if the Minister would
inform us of the progress of the forthcoming discussions to which
he refers, and in the meantime will keep the draft Council Decision
19 http://www.eib.europa.eu. Back