7 EU Development Assistance: blending
grants and loans
| Committee's assessment
| Politically important |
| Committee's decision | Cleared from scrutiny; further information requested; relevant to the debate already recommended on European Court of Auditors' Special Report No. 18/2014; drawn to the attention of the International Development Committee
|
| Document details | Commission Report: The activities of the EU Platform for Blending in External Cooperation since its establishment until end July 2014
|
| Legal base | —
|
| Department | International Development
|
| Document numbers | (36578), 17001/14, COM(14) 733
|
Summary and Committee's conclusions
7.1 "Blending" — an innovative form of development
financing increasingly used by the Commission — uses grant
money to leverage additional loan financing in order to achieve
development outcomes. Blending is targeted to investment opportunities,
usually major infrastructure projects with potential development
impact, that are viable but do not attract sufficient funding
from market sources.
7.2 In 2012, a new EU Platform for Blending in External Cooperation
(EUBEC) was established as a Commission Group of Experts. The
Platform is composed of a Policy Group (the Commission, Member
States, and the European External Action Service (EEAS)); the
European Parliament as an observer and a number of Technical Groups
(Commission, Member States, EEAS and non-EU Financial Institutions).
This report covers the work of EUBEC since its establishment
until end of July 2014 and provides an overview of the Platform's
work.
7.3 Its initial work was to review the existing EU blending facilities.
The Commission's report concludes that, to date, existing EU
blending facilities have shown positive signs regarding performance
in support of EU external policies, and that EUBEC has clearly
demonstrated its value in bringing together a wide range of stakeholders
to exchange expertise on aspects of blending in external cooperation.
The report also highlights a number of areas for future improvement
(see the "Background" paragraphs below for details).
7.4 The Minister (Baroness Northover) considers the EUBEC platform
a welcome development, and endorses the Commission's bringing
together of a wide range of stakeholders to exchange expertise
on all aspects of blending in order to improve its effectiveness.
She also supports the recommendations that the Platform continues
its work on mobilising private sector resources; the future governance
of EU Blending Facilities; and the involvement of non-European
Financial Institutions. Noting that the UK has been closely engaging
in all aspects of the EUBEC platform, and has a keen interest
in how the areas for further improvement are resolved, she and
her officials will continue to scrutinise how these will be structured
and governed to ensure the ongoing value-for-money of EU resources,
clear timelines, and that the UK's bilateral contribution to the
Infrastructure Trust Fund[17]
is not negatively affected. The Minister would like to see more
competition for funds as a good way of ensuring only the best
projects receive funding, and welcomes the conclusion that where
non-European Financial Institutions are already acting as lead
in specific blending facilities (e.g., the African Development
Bank), their role should be preserved.
7.5 However, though supporting the Commission in continuing to
explore using innovative finance, such as blending, to achieve
development objectives, the Minister says that, in the medium
term, the UK will need to see a clear demonstration of "additionality"
from blending, i.e., evidence that blending is leveraging additional
money towards development objectives. The planned results framework
should, she says, provide a basis with which to assess the projects
financed by the Commission's blending facilities, and, during
implementation, it will be vital to define clearly success criteria
in order to understand whether this is the best use of the Commission's
resources. As part of this, the Minister would like to reach "a
common understanding" with the Commission about the circumstances
in which finance can correctly be considered to have been leveraged;
and also ensure that Commission continues to focus on diversifying
the sources of financing unlocked by blended grants — leveraging
not only public sector finance, but also unlocking the significant
private sector finance that she regards as critical to realising
the potential for economic development.
7.6 Two months ago, we reported on the European Court of Auditors'
Special Report No. 16/2014: The effectiveness of blending regional
investment facility grants with financial institution loans to
support EU external policies. It described blending as "the
next big thing in EU development policy funding", and observed
that, with the incoming Commission inevitably being "under
huge pressure to stretch the leveraging of EU funds with loans
to its limits", it would be "paramount that blending
is only used when the Commission can clearly demonstrate its added
value".
7.7 That ECA Special Report also looked at the Commission's
ROM (Results Orientated Monitoring) process and methodology and
its results framework — something that the Commission has
yet to set up but which its counterparts, both international and
bilateral (e.g. DfID), have long-established — to provide
an accountability tool to communicate results to stakeholders
and a management tool to provide performance data to inform management
decisions, thus ensuring that resources are allocated efficiently.
In commenting on this ECA Special Report, the Minister said that
she was aware of the need for the Commission to do more "to
establish additionality". And she also noted that she would
monitor the Commission's progress in adapting its ROM process
and methodology and its yet-to-be-established "results framework"
to the specific characteristics of blending.
7.8 The Committee recalled the Ministers predecessor's views[18]
and suggested that she herself might need to do more than simply
monitor the Commission's progress, if the clearly defined success
criteria that she rightly regarded as vital to understanding the
effectiveness with which the Commission uses the EU taxpayers'
resources in its development activities around the globe, were
ever to be established.[19]
7.9 Once again, the Minister's reply strikes the right tone.
However, as we observed at our most recent meeting regarding
a further, and relevant, European Court of Auditors Special Report,[20]
in our view the Council needs to grasp this matter, and drive
the Commission forward in a sustained fashion, so that a proper,
effective evaluation mechanism is introduced across all its development
activities. That is why we have recommended that Special Report
be debated in European Committee. We consider that this Commission
report should be listed as one of the relevant documents to that
debate.
7.10 We would also like the Minister to report progress in
this area in two years' time, if she or her successor have not
had cause to do so sooner.
7.11 In the meantime, we now clear this Commission report,
which we are also drawing to the attention of the International
Development Committee.
Full details of the documents:
Commission Report: The activities of the EU Platform for Blending
in External Cooperation since its establishment until end July
2014: (36578), 17001/14, COM(14) 733.
Background
7.12 In accordance with the EU guarantee for European
Investment Bank (EIB) external lending[21],
the European Parliament requested that the Commission study, and
subsequently report upon, the development of an "EU Platform
for External Cooperation and Development" in order to optimise
the performance of blending in external cooperation. In the subsequent
report, the Commission set up the new EU Platform for Blending
in External Cooperation (EUBEC) as a Commission Group of Experts,
which was formally launched in December 2012.
7.13 The Platform is composed of a Policy Group and
a number of Technical Groups:
— Policy
Group: EU Member States, European External Action Service (EEAS)
and the Commission, with the European Parliament and other participants
invited as observers; has met five times and discussed the work
of the Technical Groups and additional selected topics, such as
Future Governance of EU blending facilities and role of non-EU
Financial Institutions (FI) in EU Blending Facilities.
— Technical
Groups (TGs): the Commission, EEAS, FIs and a number of Member
States' representatives; five TGs[22]
have been established; complemented by a number of workshops.[23]
7.14 This report provides an overview the work of
EUBEC since its establishment until end of July 2014. The Commission
report concludes that blending facilities:
— had
shown positive signs regarding performance in support of EU external
policies;
— had
achieved their goal of mobilising significant public resources;
— needed
further improvements in monitoring and reporting systems;
— benefited
from a flexibility that contributed to the relevance and quality
of the project portfolio;
— incorporate
sound processes and standards project design and preparation,
but the added value of the grant should be further specified and
analysed in the grant application form to allow measurability;
— enhanced
coordination, exchange of information and cooperation between
European aid actors, but less so with non-European aid actors;
— involve
partner countries/regions, but coordination at the local level
between EU Delegations and FIs should be improved.
7.15 The report notes that the Technical Groups
had addressed a number of the challenges identified above: an
improved and harmonised Grant Application Form, which explicitly
introduces the issue of debt sustainability; a new results measurement
framework that will provide information on expected results ex-ante,
measure the outcome ex-post and allow further enhancement
of reporting on the achievements of the facilities; work to ensure
harmonization and early provision of contractual information intended
to reduce timeline towards project implementation.
7.16 However, the report also concludes that, in
order to improve further the quality and efficiency of EU development
and external cooperation blending mechanisms, a number of areas
need to be further explored. The expanded use of specific financial
instruments is needed to employ the limited budget funds as efficiently
as possible, and in areas where grants are not always the best
instrument to develop types of economic activity. While the Commission
endorses the platform's efforts to promote further use of financial
instruments, it says that it is essential that these provide clearly
defined additionality, and there is a successful conclusion to
the TG's work on mobilisation of private sector resources. In
terms of the future governance of EU blending facilities, organising
the blending frameworks according to the financing instrument
is welcomed in so far as it will help streamline, simplify and
improve efficiency; however, implementation of recommendations
must first be agreed in close coordination with EEAS and EU Member
States. Finally, the involvement of non-European Financial Institutions
needs to be clarified, as this offers an additional opportunity
to add further expertise to the Platform and improve decision
making.
7.17 In her Explanatory Memorandum of 12 January
2015, the Parliamentary Under-Secretary of State at the Department
for International Development (Baroness Northover) notes the report's
overall finding: that the EU blending facilities have performed
positively in support of EU external engagement, and EUBEC has
demonstrated its value in terms of bringing together stakeholders
to exchange expertise on aspects of blending in external cooperation.
7.18 She also recalls a recent European Court of
Auditors report looked into the effectiveness of blending[24],
and says:
"The Commission accepted virtually all of
the recommendations of the Court, and has already implemented
a significant number of these, for example including a results
framework in its project application, and introducing an improved
and harmonised Grant Application. The existing changes, and implementation
of the rest of the recommendations, should continue to make blending
a more effective development tool."
7.19 Since 2007, the Commission have set up eight
regional investment facilities — essentially a pool of grant
money available specifically to leverage additional loans —
in eight different regions.[25]
These cover the entire sphere of external action outside of the
EU. In the period 2007-13, over €2.1 billion was allocated
to these facilities. The Minister notes that:
"The UK is a bilateral contributor to the
Infrastructure Trust Fund, which will be governed under the EDF
financing instrument.[26]
Going forward, the UK is clear that UK bilateral funds must continue
to be used only for regional infrastructure (as originally intended)
and the UK's voting rights should continue to reflect this bilateral
contribution."
The Government's view
7.20 The Minister comments as follows:
"The UK considers that the EUBEC platform
has been a welcome development. It is positive that the Commission
is bringing together a wide range of stakeholders to exchange
expertise on all aspects of blending in order to improve its effectiveness.
The UK also supports the recommendations of the report that the
Platform continues its work on issues of mobilising private sector
resources; the future governance of EU Blending Facilities; and
the involvement of non-European Financial Institutions.
"The UK has been closely engaging in all
aspects of the EUBEC platform, and has a keen interest in how
the areas for further improvement are resolved. On the governance
of blending facilities, the UK will continue to scrutinise how
these will be structured and governed to ensure the ongoing value-for-money
of EU resources, clear timelines, and that the UK's bilateral
contribution to the ITF is not negatively affected. On the inclusion
of non-EU Finance Institutions in the facilities, the UK see more
competition for funds as a good way of ensuring only the best
projects receive funding. The UK welcomes the conclusion that
where non-European Financial Institutions are already acting as
lead in specific blending facilities, that their role should be
preserved, for example the African Development Bank.
"Overall, the UK supports the Commission
in continuing to explore using innovative finance, such as blending,
to achieve development objectives. However, in the medium term,
the UK will need to see a clear demonstration of additionality
from blending — evidence that blending is leveraging additional
money towards development objectives. The results framework should
provide a basis with which to assess the projects financed by
the Commission's blending facilities, and, during implementation,
it will be vital to define clearly success criteria in order to
understand whether this is the best use of the Commission's resources.
As part of this, the UK would like to come to a common understanding
with the Commission about the circumstances in which finance can
correctly be considered to have been leveraged.
"The UK would also like to ensure that Commission
continues to focus on diversifying the sources of financing unlocked
by blended grants. To be successful, it must leverage not only
public sector finance, but also contribute to unlocking the significant
private sector finance which is critical to realising the potential
for economic development."
Previous Committee Reports
None, but see (36451), —: Twentieth Report
HC 219-xix (2014-15), chapter 14 (19 November 2014) and
(34964 ), 10272/13: Thirty-first Report HC 83-xxviii (2013-14),
chapter 12 (22 January 2014).
17 ITF: EU-Africa Infrastructure Trust Fund
AIF: Asian Investment Facility CIF: Caribbean Investment
Facility IFCA: Investment Facility for Central Asia LAIF:
Latin America Investment Facility NIF: Neighbourhood Investment
Facility IFP: Investment Facility for the Pacific WBIF:
Western Balkans Investment Framework. Back
18
In April 2014, the then Minister (Lynne Featherstone) declared
that better, timelier results data was "vital if we are to
secure good value for money in our development programmes and
demonstrate this to UK taxpayers", and was "something
the UK has been consistently calling for since DfID's Multilateral
Aid Review…was first published in 2011"; pointed out
that the proposal was not something new and that, on the contrary,
it would do no more than bring the EU into line with other multilateral
and bilateral development actors, including her own Department;
and also pointed out that the costs of implementing a results
framework would be "more than offset in the long run by increased
value for money from Commission aid programmes". See (35735),
17709/13: Forty-seventh Report HC
83-xlii (2013-14),
chapter 1
(30 April 2014), Paving the
way for an EU Development and Cooperation Results Framework. Back
19
See (36451) -: Twentieth Report HC
219-xix (2014-15), chapter 14 (19 November 2014). Back
20
European Court of Auditors' (ECA) Special Report No. 18/2014 -:
EuropeAid's evaluation and resultsoriented monitoring
systems: (36569), -: See Twenty-ninth Report HC 219-xxviii
(2014-15), chapter 2 (14 January 2015). Back
21
Decision No 1080/2011/EU. Back
22
TG1 "Review of existing blending mechanisms" - TG2 "Enhancement
of blending activities" - Results Measurement Framework (RFM)
- TG3 "Improvement of Processes" - TG4 "Promotion
of Financial Instruments" - TG55 "Contracting, monitoring
and reporting". Back
23
Workshops have been on the issues of: Climate Change mainstreaming;
Debt Sustainability; Blending and ODA; Roundtable with Export
Credit Agencies. Back
24
Special Report No. 16/2014: The effectiveness of blending regional
investment facility grants with financial institution loans to
support EU external policies. See our Report at (36451),
-: Twentieth Report HC 219-xix (2014-15), chapter 14 (19 November
2014) for the Committee's consideration thereof. Back
25
ITF: EU-Africa Infrastructure
Trust Fund AIF: Asian Investment Facility CIF: Caribbean
Investment Facility IFCA: Investment Facility for Central
Asia LAIF: Latin America Investment Facility NIF:
Neighbourhood Investment Facility IFP: Investment Facility
for the Pacific WBIF: Western Balkans Investment Framework. Back
26
So far the Department for International Development (DfID) has
contributed £67million. Back
| 
