47 European Investment Bank
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(31607)
9048/10
+ ADD 1
COM(10) 173
(b)
(31608)
9046/10
COM(10) 174
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Commission Report on the mid-term review of the external mandate of the EIB
Draft Decision granting an EU guarantee to the European Investment Bank against losses under loans and guarantees for projects outside the European Union
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| Legal base | (a) Articles 209 and 212 TFEU; QMV; co-decision
(b) Articles 209 and 212 TFEU;QMV; co-decision
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| Documents originated | (a) 21 April 2010
(b) 21 April 2010
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| Deposited in Parliament | (a) 25 May 2010
(b) 25 May 2010
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| Department | International Development
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| Basis of consideration | (a) EM of 21 June 2010
(b) EM of 22 June 2010
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| Previous Committee Report | None; but see (30361) 5444/09 (30509) 8051/09: HC 19-xxiv (2008-09), chapter 7 (15 July 2009)
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| Discussed in Council | (a) To be determined
(b) 8 June 2010 Economic and Finance Council
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
47.1 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."
47.2 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; and
— Venture
Capital.
47.3 The EIB is active both inside and outside the
European Union. According to its website, about 90% of EIB lending
is attributed to promoters in the EU countries 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.[188]
47.4 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.
47.5 In February 2009 the previous Committee considered
an Explanatory Memorandum of 3 February 2009 from the then Minister
of State at the Department for International Development (Mr Gareth
Thomas), in which he explained that the proposal dealt with therein
— 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
Court of Justice annulled that 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 had 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; and
— 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.
47.6 The then 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.
47.7 The then Minister also noted that the proposal:
—
included articles setting the size of the regional ceilings, 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; and
— 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.
47.8 The then Minister went on to say that amending
the current legal base to encompass Development Cooperation would
enable the then Government to emphasise promoting an EIB that
focussed on the development impact of its operations (particularly
in terms of the value they added), rather than the quantity; renewal
of the ELM would 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; and
- a more coherent and clear role for EIB within
the international development architecture.
47.9 But the then Minister had one serious reservation:
the European Parliament's proposal to bring the mid-term review
forward would not give the reviewers adequate time, as the process
had only recently begun. The UK and other Member States were pushing
for: the review to report back by April 2010; the "transitional"
arrangement to be regarded as being valid until December 2011;
and the new Commission proposal to 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, the previous Committee
asked the Minister to inform it 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.
47.10 In July 2009, the then Minister reported what
he described as a good outcome (in the previous Committee's view
rightly), which would ensure that the next ELM mandate would be
informed by a review of the present mandate that would be overseen
by a group of "Wise Persons" (which would include a
senior DFID official). As well as welcoming this, the previous
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 the EU's development
assistance activity could also be brought to bear on the review
process (proposed by the previous Committee, the then Minister
having reported in April that he had been unable to make much
headway);
- took the opportunity to remind the then Minister
of its expectations concerning any review or evaluation of the
European Neighbourhood Partnership Instrument; and
- again made the point that the common denominator
of all this activity was to ensure the efficient, economical and
effective use of a great deal of EU taxpayers' money.[189]
The Commission Report
47.11 In 2009, the activities of the EIB outside
the EU amounted to €8.8 billion (£7.46 billion) out
of an overall EIB financing of €79.1 billion (£67 billion).
Under Article 9 of Council Decision No 633/2009/EC granting a
Community guarantee to the EIB against losses under loans and
loan guarantees for projects outside the Community, the Commission
is required to present a mid-term report on its application, accompanied
by a proposal for its amendment.
47.12 The Mid-Term Review is composed of a Report
and an accompanying Staff Working Document, which draws on a set
of evaluations: an external evaluation supervised by a Steering
Committee of "Wise Persons" (SCWP), an evaluation carried
out by an external consultancy (COWI) and specific evaluations
carried out by the EIB evaluation department. The Report assesses
EIB financing activity under the current mandate from 2007 to
2009, with a reference to the previous mandate 2000-2006.
47.13 In his Explanatory Memorandum of 21 June 2010,
the Parliamentary Under-Secretary at the Department for International
Development (Mr Stephen O'Brien) says that these various evaluations
found that EIB operations under the ELM carried out between 2000
and 2009 were "in line with EU external policies, although
a clearer prioritisation would have helped better target EU policy
objectives." He continues as follows:
"The current system of fixing regional objectives
in the Mandate was seen as relatively rigid and not reflecting
evolving EU policies and priorities. At the end of 2009, 46% of
the total ceiling for the Mandate had been signed, with significant
regional differences: high utilisation in Pre-Accession countries
(60%) and Asia (62%); average in Southern Neighbourhood countries
(44%) and Latin America (47%); and low in the Eastern Neighbourhood
and Russia (11%)."
47.14 The Minister then outlines the findings per
region as follows:
"Pre-Accession countries. EIB financing
increased considerably over the period 2000-2009, in particular
due to the strong increase of activity in Turkey of €0.5
billion/year (£0.42 billion/year) in the early 2000s compared
to €2.5 billion/year (£2.12 billion/year) in 2008-2009.
The main area of activity has been the transport sector followed
by global loans for SMEs. Significant support has been provided
for the enlargement process, promoting EU policies.
"Mediterranean Countries. Following the
introduction of the Facility for Euro-Mediterranean Partnership
(FEMIP), the focus has been to promote the development of the
private sector and investments in infrastructure. Annual lending
has grown from €0.77 billion/year (£0.65 billion/year)
in 2000-2002 to €1.38 billion/year (£1.17 billion/year)
in 2007-2009. The lending rates in the current mandate are in
line with expectations but FEMIP (EIB own risk) implementation
has been slower — only 14% was committed at the end of 2009.
Private sector lending represents 35%, compared to 23% under the
previous mandate. This increase has been driven by global loans
for SMEs (16%), by private industrial investments (10%) and by
Public-Private-Partnerships (PPPs) in environment and infrastructure
(9%). EIB lending has been usefully complemented by private equity
investment — an average of €44 million (£37 million)
per year over the last five years.
"Eastern Neighbourhood and Russia. In
the first and second Mandates, 85% of €100 million (£85
million) and 46% of €500 million (£424 million) were
signed respectively. Under the current Mandate, only 11% of the
available amount (€3.7 billion (£3.1 billion)) was signed
at the end of 2009. This slow uptake can be attributed to the
narrow sectoral focus and the subsequent limited interest by project
promoters, the political and economic environment in partner countries,
and the time required to pursue co-financing with the EBRD.
"Asia and Latin America (ALA). The Decision
requests the ALA mandate to include environmental sustainability
as an objective. The previous Mandate has been fully committed,
and with a rate of 50% for the current one — €2.8 billion
(£2.37 billion) for Latin America and €1 billion (£0.85
billion) for Asia). The evaluation found that the small size of
the ALA mandate and limited access to EIB operational staff make
it hard for the Bank to reach its objectives for these region.
"South Africa. The
previous Mandate has been fully subscribed, with 54% committed
under the current one. EIB operations were considered effective
in the public sector, whereas private operations were most effective
when carried out in cooperation with local financial intermediaries.
47.15 The Minister then notes that:
— cooperation
with the European Commission and with International Financial
Institutions (IFIs)/European Bilateral Financial Institutions
(EBFIs) has gradually intensified over the past years;
— the
evaluations found that blending mechanisms established under the
Instrument for Pre-Accession, the European Neighbourhood Instrument
and the Development Cooperation Instrument to combine budget grants
and IFIs/EBFIs loans provide a valuable means to increase aid
effectiveness and avoid duplication; and
— the
amount of co-financing by the EIB and IFIs/EBFIs has increased
to a total of 60% of EIB financing (2009).
The Government's view
47.16 The Minister goes on to welcome the report
as evidence of increased coordination between EIB and the European
Commission and other IFIs/EBFIs. However, he says:
"there is room for further progress; HMG supports
the call for much closer collaboration with IFIs/EBFIs as well
as clearer links between EIB's mandate and other external EU objectives
in respective regions, focusing on sectors of EIB comparative
advantage. There is scope for more shared objectives and closer
integration in the planning and implementation of both EIB's and
the European Commission's external programmes."
47.17 The Minister also welcomes the initiative to
mix EU grants with EIB loans (blending mechanisms), but remains
"cautions about the excessive proliferation of different
financing arrangements [and] supports an early comprehensive and
simultaneous review of the existing blending mechanisms with a
view to define the optimal structure that will deliver the best
value for money."
47.18 The Minister concludes by noting that there
has been no indication to date if this Report will be discussed
in the Council at a later stage.
The Council Decision
47.19 The proposal draws inter alia on the
external evaluation supervised and managed by the SCWP, supported
by the external consultant, and will be adopted subject to co-decision
of the Council and the European Parliament.
47.20 The proposal includes:
- activation of the optional
€2 billion (£1.7 billion) mandate, which increases the
ELM's total lending ceiling from €25.8 billion (£22
billion) to €27.8 billion (£23.6 billion) (with the
extra funds to be lent between now and the end 2013). The Commission
recommends the €2 billion (£1.7 billion) should be used
across all regions for climate change mitigation and adaptation
projects;
- regional mandates to be replaced by common objectives
focusing on climate change, social/economic infrastructure and
local private sector development;
- development of operational guidelines reflecting
EU regional strategies by the Commission together with the EIB,
and in consultation with the European External Action Service
as appropriate;
- activation of lending under the ELM for Iraq,
Iceland, Belarus, Libya and Cambodia;
- strengthened capacity to support EU development
objectives; and
- creation by the Commission and the Council of
a working group composed of Member States' representatives and
the EIB to study the development of an "EU platform for cooperation
and development".
The Government's view
47.21 In his Explanatory Memorandum of 22 June 2010,
the Minister (Mr Stephen O'Brien) says that the UK has been heavily
engaged in this review and that the proposal has broad support
from all Member States.
47.22 He goes on to say that renewal of the ELM helps
improve the development impact of the EIB by promoting:
- improved quality of EIB development
investments, including a greater focus on monitoring the
development impact of its operations;
- a more unified EU development package comprising
a balanced mix of grants and loans; and
- a more coherent and clear role for EIB within
the new European and international development architecture.
47.23 The Minister identifies a number of features
in the ELM that he believes should help improve EIB's effectiveness
by:
- replacing the current system
of regional mandate objectives with horizontal high-level objectives.
This means the end of the so called Mutual Interest Clause for
operations in Asia and Latin America, whereby EIB financing is
restricted to projects involving EU companies;
- maximising coordination between EIB financing
and the EU's grant resources;
- strengthening of local presence of the Bank (by
proposing that EIB offices outside the EU should be located within
EU delegations to foster cooperation, while sharing operating
costs); and
- Strengthening of cooperation with International
Financial Institutions (IFIs) and European Bilateral Financial
Institutions (EBFIs) including through co-financing, risk sharing
and mutual reliance on procedures.
47.24 The Minister continues as follows:
"The review has clearly shown that there is
value added in the EIB's external lending. However, it is important
that the EIB invests more human resources for the management of
its external operations, to be able to support EU's development
objectives and meet the requirements of the mandate across regions.
This would include, for example, better ex-ante appraisal of the
environmental, social and development aspects of its operations,
and effective monitoring.
"The Government is supportive of an increased
role for the EIB, especially in areas where it could come to complement
and, eventually, substitute for grant spend through the EU budget.
This would justify a higher lending level overall, and the subsequent
limited extra contingent liability on behalf of the UK.
"The other proposals included in the revised
legislation are all sensible and non-contentious. The only point
of concern was the extension of the mandate to cover 5 new countries,
including Iceland. On this we have worked with the Dutch to secure
a footnote in the legislation stating that lending to Iceland
would not commence until it has satisfied its EEA obligations."
47.25 Turning to the financial implications, the
Minister notes that, with the EIB's lending supported by a Guarantee
Fund that is currently 9% of all outstanding guaranteed loans:
"increasing the ELM's lending ceiling by €2
billion (£1.7 billion) may have an impact on the EU Budget
so far as it needs to keep the Guarantee Fund provisioned up to
this 9% target. The Commission advise that this provisioning will
not exceed €180 million (£153 million) over the period
2012-2020. Whether the guarantee fund will actually need further
provisioning (representing a call on the budget within this limit)
over the next few years will depend on overall lending levels
for all loans that qualify for the guarantee and on the level
of default."
47.26 The Minister concludes by noting that:
— the
Economic and Finance Council agreed the Commission's legislative
proposal on 8th June 2010;
— due
to Parliamentary Scrutiny obligations, the Government abstained
from the vote; and
— the
deadline for agreement by co-decision is October 2011.
Conclusion
47.27 We are grateful to the Minister for his
helpful analysis of the review and the Council Decision. It is
in the nature of such endeavours that there is always room for
improvement. But the review and the ensuing Council Decision suggest
strongly that the process is moving in the right direction.
47.28 In clearing the documents, we ask only that
the Minister writes to us if the European Parliament proposes
any significant changes to the Council Decision.
188 See http://www.eib.org/ for full information. Back
189
See headnote: HC 19-xxiv (2008-09), chapter 7 (15 July 2009). Back
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