European Scrutiny Committee Contents

47 European Investment Bank




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COM(10) 173




COM(10) 174

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

Legal base(a) Articles 209 and 212 TFEU; QMV; co-decision

(b) Articles 209 and 212 TFEU;QMV; co-decision

Documents originated(a) 21 April 2010

(b) 21 April 2010

Deposited in Parliament(a)  25 May 2010

(b)  25 May 2010

DepartmentInternational Development
Basis of consideration(a) EM of 21 June 2010

(b) EM of 22 June 2010

Previous Committee ReportNone; but see (30361) 5444/09 (30509) 8051/09: HC 19-xxiv (2008-09), chapter 7 (15 July 2009)
Discussed in Council(a)  To be determined

(b)  8 June 2010 Economic and Finance Council

Committee's assessmentPolitically important
Committee's decisionCleared


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.


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 for full information. Back

189   See headnote: HC 19-xxiv (2008-09), chapter 7 (15 July 2009). Back

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