7 European Investment Bank lending in
non-EU countries
| (a)
(30361)
5444/09
COM(08) 910
(b)
(30509)
8051/09
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Draft Decision granting a Community guarantee to the European Investment Bank against losses under loans and loan guarantees for projects outside the Community
Court of Auditors Special Report No. 1/2009 concerning the Banking measures in the Mediterranean area in the context of the MEDA programme and the previous protocols together with the Commission's replies
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| Legal base
| (a) Art 179 and 181 a TEC; QMV; co-decision
(b) Art 284(4) EC; —
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| Department
| International Development
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| Basis of consideration
| Minister's letter of 4 July
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| Previous Committee Report
| (a) HC 19-vii (2008-09) chapter 3 (11 February 2009) and HC 19-xiii (2008-09), chapter 7 (1 April 2009),
(b) HC 19-xiv (2008-09), chapter 10 (22 April 2009); also see (27643) 11003/06 and (27645) 11006/06: HC 34-xxxvii (2005-06), chapter 8 (11 October 2006) and HC 41-v (2006-07), chapter 10 (10 January 2007); and (27924) 13558/06: HC 41-v (2006-07), chapter 9 (10 January 2007)
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| To be discussed in Council
| March 2009
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| Committee's assessment
| Politically important
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| Committee's decision
| Cleared (decision reported on 1 April and 22 April 2009 respectively); further information now provided; further information requested
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Background
7.1 The European Investment Bank (EIB)
was created by the Treaty of Rome in 1958 as, according to its
website, "the long-term lending bank of the European Union";
its mission is "to further the objectives of the European
Union by making long-term finance available for sound investment";
its task being "to contribute towards the integration, balanced
development and economic and social cohesion of the EU Member
States." To this end, the EIB "raises substantial volumes
of funds on the capital markets which it lends on favourable terms
to projects furthering EU policy objectives". The EIB "continuously
adapts its activity to developments in EU policies."
7.2 It offers four main services to
clients:
— Loans: granted to
viable capital spending programmes or projects in both the public
and private sectors; counterparties range from large corporations
to municipalities and small and medium-sized enterprises;
— Technical Assistance:
expert economists, engineers and sectoral specialists to complement
EIB financing facilities;
— Guarantees: available
to a wide range of counterparties, e.g. banks, leasing companies,
guarantee institutions, mutual guarantee funds, special purpose
vehicles and others;
— Venture Capital.
7.3 The EIB is active both inside and
outside the European Union. According to its website, the majority
of EIB lending is attributed to promoters in the EU countries
(87% in 2007) supporting the continued development and integration
of the Union; while outside the Union, EIB lending is governed
by a series of mandates from the European Union in support of
EU development and cooperation policies in partner countries —
in the enlargement area in southern and eastern Europe; in the
Mediterranean Neighbourhood; in Russia and the Eastern Neighbourhood;
in the African, Caribbean and Pacific (ACP) countries; in South
Africa; in Asia; and in Latin America.[18]
7.4 A Community guarantee aims to prevent
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 thereby to allow the EIB
to maintain attractive lending rates outside the EU. The Commission
says that this 13% of overall EIB lending amounted to €6.4
billion in 2007, of which €3.7 billion was under Community
guarantee.
7.5 The Commission describes that EIB's
operations in third countries as "a crucial complement to
limited EU budget funds to increase the effectiveness and the
visibility of the EU's external action." While the Community
budgetary external assistance is focused on lower income countries
and support to the social sectors, "EIB operations are of
particular relevance in middle-income countries and in infrastructure,
financial and commercial sectors." The EIB having originally
been set up and structured financially to operate within the EU,
"the mandates under Community guarantee cover represent the
key tools which allow the EIB to carry out operations outside
the EU, by providing the necessary political and financial backing
by the Community for countries and projects which would not normally
fit within the EIB's standard guidelines and criteria."[19]
The Council Decision
7.6 As the Minister of State at the
Department for International Development (Mr Gareth Thomas) explained
in his 3 February 2009 Explanatory Memorandum, this proposal —
to provide a Community guarantee to EIB operations in non-EU countries
under the External Lending Mandate (ELM) of the Bank — was
originally adopted by the Council in December 2006 to cover the
renewal of the ELM that expired on 31 January 2007. However, he
explained, following an action brought by the European Parliament:
— the European Court of Justice
annulled this Council Decision, ruling that it should have been
adopted on the basis of Articles 179 (Development Cooperation)
and 181a (Economic, Financial and Technical Cooperation with Third
Countries) of the EC Treaty as opposed to Article 181a only;
— the Court allowed a grace
period of 12 months to enable the Council Decision to be replaced
by one adopted under the dual basis of both Articles;
— the main practical difference
resulting from the amendment was that the new legal basis would
be adopted as a co-decision of the Council and European Parliament.
7.7 The Minister further explained that
the proposal clarified the exact nature of the guarantee and extended
the coverage to loan guarantees made by the EIB, as well as loans;
it also comprehensively covered the EIB for losses on operations
with the public sector (national and local/regional) or public
sector guaranteed operations, and for operations falling outside
of the public sphere, against specific political risk only.
7.8 The Minister also noted that the
proposal:
— included articles setting
the size of the regional ceilings,[20]
putting the size of the whole ELM at €27.8 billion (£26.5
billion), including a €2 billion (£1.9 billion) optional
mandate to be decided by the European Parliament and the Council
and based on the outcome of the mid-term review of the ELM, due
to be produced by 30 June 2010;
— set out which countries
were eligible and how countries could become eligible;
— included 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.
7.9 The Minister went on to say that
amending the current legal base to encompass Development Cooperation
would enable the Government "to emphasise its policy of promoting
an EIB that focuses on the development impact of its operations
(particularly in terms of the value they add), rather than the
quantity": although the content of the Decision remained
the same, "the new base gives an explicit link to development
in the EIB's lending outside the Union [which] will strengthen
the UK's position in pushing for greater developmental impact
of EIB activities"
7.10 The Minister regarded renewal of
the ELM as helping to improve the development impact of the EIB
by promoting:
· improved quality of EIB development
investments;
· a more unified EU development
package comprising a balanced mix of grants, loans and equity;
· a more coherent and clear
role for EIB within the international development architecture.
7.11 The Minister also highlighted a
number of features in the Mandate that he believed should help
improve EIB's effectiveness (details of which are in our previous
Report).
Our assessment
7.12 In October 2006 and January 2007
the Committee considered the proposal adopted by the Council in
December 2006. In between these two occasions, a process of negotiation
had been undertaken. As with all such negotiations, not everything
had been achieved. But it was plain to us that the outcome was
a considerable improvement on the original proposal; in particular:
— the focus of 80% of the
€25.8 million committed expenditure would be on the EU's
Neighbourhood and the Pre-Accession countries;
— the €5.1 billion increase
was only half that originally proposed;
— there was to be a mid-term
review of the new mandate in 2010, with input from external experts;
— €2 billion of that
was subject to further consideration in the light of the mid-term
review.
We were accordingly glad to note that
these key features remained in the present proposal.
7.13 When, in January 2007, we cleared
the original Council Decision, we noted that the question of value
added was central to the ELM mandate renewal, and that the four
short paragraphs on "Value added of the EIB" in the
Commission's voluminous accompanying report did not amount to
a great deal.
7.14 We also considered an assessment
of an EIB "regional fund": FEMIP (Fund for Euro-Mediterranean
Investment and Partnership), which was created in October 2002
to stimulate economic growth and private sector development in
the Mediterranean region and combined EIB loans with EU budget
resources to provide technical assistance, interest rate subsidies
for environmental projects and risk capital. Agreement had been
reached on improvements that — if effectively implemented
— were judged as enabling FEMIP better to achieve its key
objective of SME development, with two clear targets — doubling
the private sector percentage of FEMIP lending, and more effective
cooperation from partner governments, particularly with regard
to the issuing of bonds in local currencies (a problem). There,
as here, a mid-term review, with outside expert participation,
was planned for 2010, which would assess how well cooperation
was working between the EIB and the Commission. We suggested that
it should also assess the level and effectiveness of cooperation
of partner governments (this having been a further problem highlighted
in the assessment); and that a way should be found of involving
the Court of Auditors in both this and the ELM mid-term review
— they being extremely experienced in assessing the effectiveness
of the Community's development assistance.
7.15 The Minister, rightly, talked about
adding value and effectiveness. But he made no mention of this
suggestion. We therefore asked him to confirm that he saw no difficulty
with taking it forward.
7.16 As, according to the Minister,
the Commission did not plan to put the proposal formally to the
Council and the European Parliament until after the summer break,
in the meantime we retained the document under scrutiny.
The Minister's letter of 26 March 2009
7.17 The Minister began by explaining
that, subsequently, there had been both a first and then a second
change to the timetable of discussion on the Proposal in Brussels.
He noted that the first of these — that the European Parliament
would look at the Proposal in the week of the 23 March and the
Council shortly afterwards — was discussed on 5 March with
the Committee, when it was agreed that he would reply in good
time for the Committee to consider his response before then; however,
his officials were subsequently informed on the evening of 11
March that a vote was to be taken on the Proposal in the Committee
of Permanent Representatives (COREPER) on the morning of 12 March;
they had attempted to postpone the agenda item given our outstanding
Reserve; but the Presidency had said that it could not be delayed
as they needed a general approach on the dossier to take it to
the Parliament's Plenary session on the 23 March and that there
would not be another opportunity for COREPER to discuss it before
then, due to the European Council on the 19-20 March. Though there
was still a Scrutiny Reserve on the dossier, he was unable to
postpone the Qualified Majority Voting process, and so the UK
Representative was instructed to abstain during the vote and communicated
the Minister's frustration with the changing timeframe to the
Commission and the Presidency.
7.18 The Minister then turned to the
questions raised by the Committee concerning the mid-term review
of the Facility for Euro-Mediterranean Investment and Partnership
(FEMIP) planned for 2010 and its observation, in clearing the
original Commission Decision in January 2007, that the Commission
had not adequately covered the issue of the added value of the
EIB. He confirmed that FEMIP's mid-term review would be carried
out within the framework of the overall mid-term review of EIB's
external mandate. He undertook to discuss the Committee's suggestion
with the Bank that the FEMIP Review should assess the level and
effectiveness of the cooperation of partner governments and ensure
that this suggestion was fed in to the independent evaluation
team. He understood that the Council had not retained any role
for the European Court of Auditors in the reviews. But he agreed
with the Committee that some involvement by the Court in the reviews
would have been valuable, given its experience of assessing the
effectiveness of the Community's development assistance. He would
therefore investigate whether there was any scope for the evaluation
team to keep the Court informed as the reviews were taken forward.
The Minister also confirmed that "the added value of the
EIB remains a central concern to the UK", and that he would
"use the review of the Mandate, due to report back in June
2010, to identify how the EIB can ensure this is demonstrated
in its operations. " The UK would then "press for the
review's recommendations on value added to be taken into account
in the new mandate."
7.19 The Minister went on to explain
that, because the European Parliament was "fast-tracking
the legislation, it was "demanding that the Commission's
current proposal be regarded as a 'transitional' arrangement,
only valid until May 2011"; and also "that the Commission
should present a new proposal by 15 October 2009 which the new
Parliament would then deal with"; this later decision "would
also take into account the mid-term review of the EIB." Aside
from the timing issues, the Minister said that "in general,
HMG welcomes this EP proposal and believes it could further improve
the development aspects of the Mandate, but with one serious reservation"
— that if the mid-term review was to report by October 2009,
this would not give the reviewers adequate time to produce a thorough
review as the process had only recently begun. He and other Member
States were therefore "pushing for the review to report back
by April 2010; that the 'transitional' arrangement be regarded
as being valid until December 2011; and that the new Commission
proposal be presented as soon as it is able to take account of
the findings of the mid-term review in 2010."
Our assessment
7.20 Though regretting any over-ride
of scrutiny, the Committee nonetheless accepted that, in this
instance, it was in no way of the Minister's making and that,
once he was presented with what was effectively a fait accompli,
he had acted appropriately. We had also already noted the improvements
in this Council Decision compared with its predecessor. We accordingly
cleared it from scrutiny.
7.21 In so doing, however, we shared
the Minister's concern about the European Parliament's latest
proposal. Like him, we were concerned that any new proposal be
informed by a proper review of both the ELM mandate and the FEMIP.
We were disappointed that (for reasons that the Minister did not
explain) the Council had failed to involve the Court of Auditors
formally in the process, which we hoped did not indicate that
it was not taking the review process as seriously as we, and seemingly
he, would wish; we hoped that he would nonetheless still be able
to find a way of involving the Court..
7.22 We also said that, whatever the
claimed improvements of the new proposal might be, they could
not be so urgent that they could not await, so as to incorporate,
the lessons of a proper review of both the ELM mandate and FEMIP
— particularly since the latter was to focus on SME development
and the level of cooperativeness of partner governments —
which would be forestalled by a rushed process. We accordingly
endorsed the Minister's endeavours to rein in the Parliament's
enthusiasm, and asked that he write to us in due course about
the outcome of these discussions and his views on the implications
for his and our concerns.[21]
The Court of Auditors' Special Report
7.23 As the Report Summary notes, three
types of banking measures are financed under the MEDA[22]
Regulations or the previous protocols from the EU budget and implemented
by the EIB: technical assistance through the FEMIP Support Fund,
interest rate subsidies for certain EIB loans and risk capital
operations.
7.24 The Court audited the banking measures
under the MEDA programme and the previous protocols to determine
whether the ongoing projects were being adequately monitored by
the Commission and the EIB and whether the projects had achieved
their objectives. Having set out its findings and recommendations,
the Commission's responses and the Ministers views, we drew this
Report to the attention of the House because of the correlation
between the issues revolving around the review of the EIB's ELM
mandate and those highlighted in the Court of Auditors' Report.
We emphasised the importance of monitoring and evaluation, and
the necessity of ensuring that the new European Neighbourhood
Partnership Instrument (ENPI) — almost €12 billion
of EU taxpayers' money in 2007-2013 — implemented the Court's
recommendations effectively, and accordingly looked to him to
report on this when, in due course, he submitted any ENPI evaluation
reports for scrutiny.[23]
The Minister's letter of 4 July 2009
7.25 The Minister of State at the Department
for International Development (Mr Gareth Thomas) recalls his concern
about the European Parliament's proposal that the mid-term review
of the EIB's External Lending Mandate be brought forward to October
2009 and says that he is "pleased to report that a compromise
was reached between the European Council and the European Parliament
on this point". He continues as follows:
"The new legislation will still,
as pressed for by the Parliament, include what is in effect a
sunset clause. This will require the Commission to produce a new
legislative proposal for an External Lending Mandate, but this
must be completed by April 2010 rather than October 2009 as the
Parliament originally requested. The new legislation must then
complete its passage through the European Council and European
Parliament within 18 months.
"I believe that this is a good
outcome. The sunset clause provides an opportunity to improve
the Mandate of the EIB, in particular making it more development-focused,
whilst allowing enough time for the new mandate to be informed
by a substantive review of the old one.
"Further, given the negotiations,
I am satisfied that the Council is taking this review seriously.
In particular it has insisted on an adequate timeframe for the
review, which includes the Fund for Euro-Mediterranean Investment
and Partnership (FEMIP) as well as the other External Lending
Mandates. There will also be an external evaluation, which is
expected to produce a report by the end of 2009. This is being
overseen by a Steering Committee of 'Wise Persons', which includes
a UK member who was formally a Director-General of DFID and, more
recently, Chair of the OECD-Development Assistance Committee.
The Committee will also produce its own report by the end of 2009
(or early 2010)."
Conclusion
7.26 We agree that the Minister has
achieved a good outcome, and look forward to hearing from him
in due course about the outcome of the reviews and the "Wise
Persons'" report.
7.27 We continue to hope that, in
some way, the extensive experience of the Court of Auditors in
assessing this activity can also be brought to bear on the review
process.
7.28 We also take this opportunity
to remind the Minister of our expectations concerning any review
or evaluation of the ENPI — the common denominator of all
this activity being to ensure the efficient, economical and effective
use of almost €12 billion of EU taxpayers' money.
18 See http://www.eib.org/ for full information. Back
19
COM(08) 910, page 4. Back
20
See COM(08) 910, page 7, for the regional breakdown. Back
21
(30361) 5444/09: HC 19-xiii (2008-09), chapter 7 (1 April 2009);
see headnote. Back
22
Cooperation between the EU and non-member Mediterranean countries
started some 30 years ago and has gradually developed over the
years. The framework for financial and technical measures (Mésures
d'Accompagnement, or MEDA) aimed to reinforce political stability
and democracy, create a Euro-Med free-trade area and develop economic
and social co-operation in the Mediterranean region. The MEDA
programme lasted from 1996 until 2006 and amounted to €8.7
billion (£8.09 billion). MEDA gives bilateral and regional
aid to help partner countries modernise and achieve economic and
social reform. The European Commission's EuropeAid office manages
it. MEDA was replaced by the new European Neighbourhood and Partnership
Instrument (ENPI) in 2007, which is the financing instrument for
the new European Neighbourhood Policy (ENP). Back
23
(30509) 8051/09 HC 19-xiv (2008-09), chapter 10 (22 April 2009);
see headnote. Back
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