Documents considered by the Committee on 30 March 2010 - European Scrutiny Committee Contents

8   European Investment Bank lending in non-EU countries




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COM(10) 74



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

Legal base
Document originated4 March 2010
Deposited in Parliament12 March 2010
DepartmentInternational Development
Basis of considerationEM of 23 March 2010
Previous Committee ReportNone; but see (30361) 5449/09, (30509) 8051/09: HC 19-xxiv (2008-09), chapter 7 (15 July 2009)
Discussed in CouncilTo be determined
Committee's assessmentPolitically important
Committee's decisionCleared; further information requested


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.


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 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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