8 European Investment Bank lending
in non-EU countries
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COM(10) 74
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Commission Report on operations carried out under the EIB external mandate in 2008
Mid-term Review of the European Investment Bank's External Mandate 2007-2013
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| Legal base | —
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| Document originated | 4 March 2010
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| Deposited in Parliament | 12 March 2010
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| Department | International Development
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| Basis of consideration | EM of 23 March 2010
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| Previous Committee Report | None; but see (30361) 5449/09, (30509) 8051/09: HC 19-xxiv (2008-09), chapter 7 (15 July 2009)
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| Discussed in Council | To be determined
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| Committee's assessment | Politically important
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| Committee's decision | Cleared; further information requested
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Background
8.1 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."
8.2 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.
8.3 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 (about
90% at present) 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.[14]
8.4 In 2009 the Committee considered a further
Council Decision concerning the Community guarantee to the EIB
for operations in non-EU countries under its current External
Lending Mandate (ELM). It was originally adopted by the Council
in December 2006 to cover the renewal of the ELM that expired
on 31 January 2007, and was reported on twice by the Committee.
On the latter occasion, the Committee noted that importance of
value added to the ELM mandate renewal.
8.5 At that same meeting, the Committee also
considered an assessment of an EIB "regional fund":
FEMIP (Fund for Euro-Mediterranean Investment and Partnership).
Agreement had been reached on improvements that — if effectively
implemented — should enable 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. There, as
here, a mid-term review, with outside expert participation, was
planned for 2010. In both instances, the Committee suggested that
a way should be found of involving the Court of Auditors —
they being extremely experienced in assessing the effectiveness
of the Community's development assistance work.
8.6 Subsequently, in February and April 2009,
the Committee considered an improved version of the Council Decision.
This had resulted from an action brought by the European Parliament
whereby the ECJ had ruled that it should originally have been
adopted on the basis of Articles 179 EC (Development Cooperation)
and 181(a) EC (Economic, Financial and Technical Cooperation with
Third Countries) as opposed to Article 181(a) EC only. The Minister
of State at the Department for International Development (Mr Gareth
Thomas) said that the main practical difference was that the new
legal basis would be adopted as a co-decision of the Council and
the EP; the Decision would also now 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." But he had one serious reservation:
the EP proposal to bring the mid-term review forward would not
give the reviewers adequate time, as the process had only recently
begun. He and other Member States were 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 was
able to take account of the findings of the mid-term review in
2010. So, although clearing the Decision,[15]
the Committee asked the Minister to inform the Committee of his
as-yet-uncompleted endeavours to rein in the EP and ensure that
the next EIB mandate benefited from a proper evaluation of its
present one.
8.7 Later in April, the Committee also drew attention
to its views on all this in connection with a Court of Auditors
Special Report on the effectiveness of the banking measures that
formed part of the €8.7 billion MEDA programme, which was
replaced in 2007 by the almost €12 billion European Neighbourhood
Partnership Instrument/Programme.
8.8 Then, in July 2009, the Minister was able
to report what he described (in our view rightly) as a good outcome,
which would ensure that the next ELM mandate was informed by reviews
of both the present mandate and the FEMIP, overseen by a group
of "Wise Persons" that includes a senior DFID official.
As well as welcoming this, the Committee also:
- looked forward to hearing from
him in due course about the outcome of the reviews and the "Wise
Persons'" report;
- continued to hope that, in some way, the extensive
experience of the Court of Auditors in assessing this activity
could also be brought to bear on the review process (proposed
by the Committee, the Minister having reported in April that he
had been unable to make much headway);
- took this opportunity to remind the Minister
of its expectations concerning any review or evaluation of the
ENPI;
- again made the point that the common denominator
of all this activity was to ensure the efficient, economical and
effective use of almost €12 billion of EU taxpayers' money.[16]
The Commission Report
8.9 This report from the Commission to the European
Parliament and Council on operations carried out under the EIB's
external mandate is made pursuant to Article 6 of Decision No.
633/2009/EC, which requires that the Commission shall report annually
to the European Parliament and the Council on EIB financing operations.
8.10 The report reviews the EIB's operation in
2008 under the ELM, provides a summary of operations funded with
the EIB's own resources (i.e. at the Bank's own risk) and describes
the cooperation between EIB, the Commission and other International
Financial Institutions (IFIs).
8.11 EIB lending in the regions covered by the
Decision, remained stable at around €5.5 billion (£4.9
billion) in 2007 and 2008. EIB lending under the Mandate reached
€4 billion (£3.6 billion) in 2008. However in Eastern
Europe and Russia, planned investment projects suffered from the
consequences of the financial and economic crises and there was
slow progress on implementation. EIB lending at its own risk amounted
to €1.5 billion (£1.33 billion) in 2008, compared to
€1.9 billion (£1.7 billion) in 2007. Own risk operations
in Pre-Accession countries increased by 23%, with 98% of operations
being implemented under the EIB Pre-Accession Facility: Turkey
was the largest recipient with 82% of lending under this facility,
followed by Croatia with 12% and Serbia with 6%. The focus of
EIB activity was on private sector operations, with SMEs representing
64% of total commitments.
8.12 EIB operations under this Decision should
support relevant EU external policy, e.g. energy security and
the protection of the environment. The energy sector was the largest
recipient of EIB loans in 2008 with 34% of total financing. Transport
(rail, road, port and urban transport infrastructure) represented
29% of total lending — 71% of such loans were granted in
Turkey.
8.13 In his Explanatory Memorandum of 23 March
2010, the Minister of State at the Department for International
Development (Mr Gareth Thomas) notes that the Decision recommends
that the Commission and the EIB ensure that their policies are
more compatible; that both institutions signed a Memorandum of
Understanding defining the terms of this enhanced cooperation:
and that both are already cooperating in financing arrangements
where EIB financing is mixed ("blended") with EU Budgetary
resources. The Minister cites the Western Balkans as an example,
where Commission grants have been blended with loans from the
EIB, the European Bank for Reconstruction and Development, Member
States and others in the Western Balkans Investment Framework.
The Minister also draws attention to the establishment of the
Neighbourhood Investment Facility, which he says had been set
up to mobilise additional funding for infrastructure projects
by providing grant support for lending operations of European
IFIs.
8.14 With regard to cooperation with International
Financing Institutions: the EIB pursued its cooperation with other
IFIs and European bilateral institutions in 2008 under the ELM,
its own risk facilities and the Cotonou Agreement. The share of
EIB loans co-financed with other IFIs or European bilateral institutions,
in terms of volume, represented 55% of total commitments under
the Decision in 2008 compared with 42% in 2007.
The Government's view
8.15 The Minister welcomes the closer co-operation
of the EIB with the European Commission, International and European
Finance, and European Development, Institutions. However, referring
to the recent midterm review of the EIB's ELM (which we deal with
below), the Minister says that there remains more to be done in
this regard:
"HMG supports the midterm review's call for
even closer collaboration with IFIs and EDFIs as well as the greater
coherence between the EIB mandate and high-level EU objectives,
focusing on sectors of EIB comparative advantage in support of
EU policies.
"HMG also welcomes increased evidence of the
blending of EU grants and EIB loans through relevant financing
arrangements. However, the operation of these arrangements needs
to be compatible. HMG supports the midterm review's call for an
early study of the existing blending schemes to define the most
effective structure for delivering the best value for money."
The Mid-term Review
8.16 The document is a communication from the
Steering Group of "Wise Persons" appointed by the EIB
Board of Governors, who were tasked with preparing a mid-term
report on the European Investment Bank's external mandate under
Article 9 of Council Decision No 633/2009/EC.
8.17 The size of the ELM was set at €27.8
billion (£24.8 billion). This included a €2 billion
(£1.78 billion) optional mandate to be decided by the European
Parliament and the Council. The primary objective was to provide
the basis for the Parliament/Council decision as to whether to
release the optional mandate for the period from 2010; also whether
to make other amendments to the mandate; and how to ensure maximum
added value and efficiency in EIB's operations. It looked at all
aspects of EIB lending outside Europe, and was informed by an
independent evaluation.
8.18 The "Wise Persons" recommended:
- A streamlined EIB mandate with
high-level objectives for all regions to enhance the coherence
of EIB external activities, and focusing on EIB's comparative
advantage in support of EU policies while leaving room to meet
beneficiaries' requirements;
- Enhancing EIB's contribution to EU development
cooperation objectives, in particular by focusing on areas such
as climate change, economic infrastructure and local private sector
development;
- Releasing the optional mandate of €2 billion
(£1.78 billion) in support of the fight against climate change,
including adaptation;
- The range of financial instruments be expanded
to include guarantees, more technical assistance, concessional
finance (in particular to support development) and equity, provided
that the EIB is able to access the necessary grant funds;
- The European Commission and the EIB should co-operate
early enough in the EIB lending process to maximise opportunities
for project co-financing by blending grants and loans;
- EIB and other IFIs should cooperate wherever
justified with joint co-financing;
- In the longer term, consideration should be given
to options for further leveraging of the strong EIB capacity to
raise funds in global capital markets. The "Wise Persons"
explored two alternatives, to be seen as building on its earlier
recommendations with regard to the creation of an EIB entity and
an EU platform for development cooperation:
a. The creation of a "European Agency for
external financing", integrating the external financing activities
of the EIB and the investment-related ones of the Commission in
support of EU policies in all countries outside the EU.
b. The creation of a major European financing
body, integrating the relevant means of the Commission, the EIB
and the EBRD, to form a "European Bank for Cooperation and
Development".
The Steering Group recommends the formulation of
an independent working group to explore these options in more
detail.
The Government's view
8.19 The Minister fully supports continued EIB
lending outside the EU and says the Report includes a number of
useful recommendations:
"In particular we, and most Member States, support
streamlining the mandate to a single set of objectives and improving
EIB's cooperation with the Commission. There is a clear need for
the EIB to have a greater role in shaping Commission country strategies
and EIB policy to reflect those strategies."
8.20 The Minister then continues as follows:
"HMG can broadly support the release of the
optional mandate of €2 billion (£1.78 billion) in support
of the fight against climate change, providing the EIB can guarantee
effective utilisation of the extra funds. However, this should
not be seen as precedent for higher external lending levels in
the next financial perspective.
"HMG sees little justification in considering
the longer term options for revising the structure of the EIB
and we are particularly opposed to the idea of an EU Development
Bank (or Agency). To be workable, these options would require
substantial additional capital from Member States or the EU Budget,
which is unrealistic in a fiscally constrained environment. There
are also substantial governance complications — not least
the issue of how non-EU shareholders (from the EBRD) would be
reflected in the make-up of an EU Bank or Agency.
"There may be merit in the recommendation of
a subsidiary, but HMG remains to be convinced. As suggested by
the wise persons, this proposal would need to be backed by a full
and detailed feasibility study on which basis member states could
properly assess the costs and benefits of such a solution. It
could take up to 2 years to review and create a subsidiary (if
it was deemed that this was the desired outcome). At present,
the majority of Member States are unconvinced by the subsidiary
or any of the longer term options."
8.21 With regard to the recommended introduction
of a "Blending Platform" as a mechanism to improve the
coordination and blending between EIB loans and grants, the Minister
describes this as "a helpful idea that could lead to more
efficient outcomes", but also says that "the Bank would
need to be clear what the optimal model and governance would be."
8.22 The Minister also states that there needs
to be greater co-operation between the EIB, the Commission and
other IFIs. He suggests that this could be achieved through the
sharing of local offices, particularly with the EU Delegations.
8.23 He also sees a need for more to be done
to improve EIB and EBRD's relations: "We will work with both
Banks to review the existing Memorandum of Understanding in order
to establish a smoother relationship going forward."
8.24 Turning to the Financial Implications,
the Minister says:
"Budgetary implications of agreeing the extra
€2 billion are likely to be minimal if not non-existent —
with any impact an indirect result of having to provision the
EU Guarantee Fund (which backs much of the EIB's external lending)
from the EU Budget.
"The longer-term structural reform options (i.e.
an EU Development Bank or Agency) could well have significant
financial implications and we do not support these options, nor
do we expect them to find support from other Member States.
"The subsidiary proposal (a short-term option)
could result in additional costs for Member States. We will assess
this risk in due course if a feasibility study is conducted by
the EIB.
"None of the other short-term recommendations
have any financial implications."
8.25 Finally, on the Timetable, the Minister
says that:
— the
Commission plans to draft the new regulation in April for adoption
by Co-decision;
— there is no date set for adoption but
the existing Mandate expires in October 2011;
— there may be a non-legislative orientation
debate in the Economic and Financial Council on 18 May;
— on 8 June there will be legislative deliberation
at the EIB Board of Governors meeting and ECOFIN.
Conclusion
8.26 The position on the conditional additional
€2 billion would appear to be more mixed than might have
been hoped for: no significant financial implications, but attracting
only the Minister's broad support for a specific area of activity,
and even then suggesting a lack of confidence in the Bank's capacity
to use the extra funds effectively. With this in mind, we note
that the Minister makes no mention of any review of the Bank's
achievements under the FEMIP (see paragraph 8.5 above), and ask
him to let us know what has happened here.
8.27 The Minister's views on the other main
proposals range from the mildly positive — e.g., the recommended
introduction of a "Blending Platform" — to the
plainly negative — "particularly opposed to the idea
of an EU Development Bank (or Agency)". He also wants a streamlined
EIB mandate with a single set of objectives and improved EIB cooperation
with the Commission, with a greater role EIB in shaping Commission
country strategies and EIB policy reflecting those strategies.
8.28 Though he does not say so specifically,
we presume that these are the positions that he will be taking
in the discussions on the new regulation, and that they will be
reflected in it, as and when it emerges, and is submitted for
scrutiny.
8.29 In the meantime, we now clear the documents.
14 See http://www.eib.org/ for full information. Back
15
Which was in due course adopted as Decision No. 633/2009/EC. Back
16
See headnote: (30361) 5449/09 and (30509) 8051/09: HC 19-xxiv
(2008-09), chapter 7 (15 July 2009). Back
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