Select Committee on European Communities Minutes of Evidence

Examination of witnesses (Questions 20 - 36)



  20.  Does it worry you, this trend of large companies always appearing to win? This is really the point Lord Ponsonby was asking. Is there any attempt made to bring new people in? How do you bring new people in?
  (Mr King)  Absolutely. It does worry me slightly but not a great deal. We do make an effort to bring in small companies. In fact I have just gone through an evaluation process recently and there are some fairly small companies bidding.

Baroness Wilcox

  21.  If I can add a comment to that, having come from a small and medium sized business background myself and having had from time to time consultants, I find the language was much better if I was working with a company which was itself a medium sized company rather than a very large company, who I found very often did not understand how difficult it was for my company because we did not have the resources. I am thinking particularly of a comment you made earlier when you said that there are some people who would rather pay the fines than invest in putting the work right. I think that the whole idea of this is to try and encourage people and I think that possibly that element of encouragement—and this is a personal comment from me—certainly would not come from such companies like Coopers & Lybrand. If I was a small company in a country that found what it had been doing for years was not acceptable, I would need a little bit of coaxing and encouragement to want to bring my standards up and to feel that I could even, that I could even make those first steps and that it was not that the world was going to be run by huge companies doing huge things all the time. That is merely a comment and I apologise for taking the Committee's time.
  (Mr King)  It is worth mentioning that quite a lot of consultancy work for the EBRD in terms of environment and due diligence is done by local experts. There are a number of firms emerging from the region, particularly in the PHARE region, which have proved to be of a very high standard, delivering very reliable work, and we are using them in the TACIS region as well.

Lord Hughes of Woodside

  22.  It has been suggested that in the awarding of contracts there is a sort of proportionality in relation to countries, that if one country is paying 50 per cent money into the programme, it can expect to get 50 per cent of the contracts, and if it pays 10 per cent, it can expect to get 10 per cent of the contracts. Is that so?
  (Ms Derichs)  No, that is definitely not the case. When we are evaluating expressions of interest in order to come to a short list, we will look at the technical quality of the expression of interest submitted, and the CVs submitted, and the background of the company, but we will definitely not look into any issue of the contribution from a particular country to TC funds. That is not a criteria at all in establishing the short list.

Lord Walpole

  23.  We have been told that organisations who have carried out feasibility studies and provided technical assistance under the TACIS programme have been precluded from submitting tenders for subsequent contracts financed by yourselves and other international financial institutions, because they are considered to have the privilege of prior information. Is this true? If so, how does the Bank satisfy itself who is the most suitable western commercial partner for a particular venture?
  (Ms Derichs)  If I understand your question correctly, yes, it is true, but let me elaborate on that and tell you a little of what I think you are meaning with your question. We have, for instance, a particular framework contract for work which has already been used several times for small, short-term assignments. One of these assignments could be, for instance, preparation of terms of reference for a feasibility study. The company that made available the experts to prepare the terms of reference for this feasibility study cannot bid for that feasibility study because they have prior knowledge of what a project is going to be about, they would have much more time to prepare their offer and also it could be detrimental to the client if this was allowed because of the fact that the terms of reference could be biased to that particular company. So that is indeed the case.

  24.  I think what I was thinking of is a stage further, somebody who has actually carried out a feasibility study is then not allowed to be short listed for the contract which hopefully will come up?
  (Ms Derichs)  Then we are talking about the next stage of procurement of works and goods?

  25.  Yes.
  (Ms Derichs)  Yes, then it is true as well. I can read you a short paragraph from the Procurement Policies and Rules of the Bank concerning this issue which states, "Where a firm, its affiliates or parent company, in addition to consulting, also has the capability to manufacture or supply goods or construct works, that firm, its affiliates or parent company normally cannot be a supplier of goods or works on a project for which it provided consultant services."[2]

  26.  So it is true?
  (Ms Derichs)  Because otherwise the consulting firm could, for instance, prepare in their consultancy assignment the technical specifications for the project in such a way that only their company could ultimately construct that particular project or provide the goods which are 100 per cent in compliance with the specifications which the same company has prepared. So there is a conflict of interest there and therefore it is not allowed.

Chairman:  It is a useful safeguard, is it not.

Lord Walpole

  27.  Do you think TACIS is sufficiently demand-led? How does one ensure advice and assistance offered is what the recipient countries actually want?
  (Ms Derichs)  It is actually not for me representing EBRD to comment whether the TACIS programme is actually demand-driven. When I look at how we are preparing our TC programme, based on investments in our pipeline for which there is a demand coming from the recipient countries, and linking technical co-operation activities to that investment, then the TACIS Bangkok facility programme, as we call it, from EBRD is demand-driven. Whether the country programmes from TACIS are demand-driven is not for me to comment on.

Lord Hughes of Woodside

  28.  You have no views on that nor on the fact that it has been argued the widespread use of consultants acting for the Commission or international financial institutions is difficult to reconcile with the aims of TACIS as a "people-to-people" programme? It is not directly involved, no work is happening. Do you have any impression about either demand-led or people-to-people?
  (Ms Derichs)  About the people-to-people programme, perhaps a good example here would be our financial intermediary training programme, which is actually a particular people-to-people programme because we are trying to train the people in the recipient institutions in our financial intermediaries, and we are training the training institutes within these financial intermediary institutions and they can then train their local people again. So that is a programme which we think is for the benefit of the people of that recipient country in a way.
  (Mr King)  In terms of technical assistance at the due diligence stage of project feasibility, the Bank has public information and consultation policies which would apply to any such projects.

  29.  Have you any comments on the relationship between UK and other European partners and their partners in the recipient countries? What is the relationship?
  (Ms Derichs)  In the recipient countries we have of course our EBRD offices and our EBRD representative who works together with other countries who have representatives there as well. Depending on the sector and depending on the country, I know that there are quite a number of people who work at an operational level together coming from the Commission, coming from the UK or other EU delegations in that recipient country, and with the EBRD representative there as well. On the establishment of the programmes financed by the UK on a bilateral basis, I have no knowledge of how this is being done. I do know that we have a trust fund within the EBRD with the UK Government, also for the TACIS region, and that we discuss in that aspect priorities et cetera with the UK Government.

  30.  Can you tell me a bit more about the reference in your paper to a "corporate development partner"? What exactly is a "corporate development partner" and how does it work?
  (Ms Derichs)  I think that we mentioned this in the context of the Moldova Chisinau Water Services Project as well as of the Ukraine Zaporozhzhia project. These are in fact municipal infrastructure projects, they are with a sovereign guarantee but we would like to bring in certain expertise from a western private company like a private water utility for instance, to work together with the recipient water utility in Moldova in Chisinau or in the Ukraine, to have a corporate development programme undertaken between the western utility and the utility in the recipient country in order to have a transfer of know how and introduction of western management culture. Certain people working for a western utility will be financed from TC funds to be stationed in that recipient country for a while with their "brother" or "sister" utility in order to train them in western methods and thinking and setting up procedures, et cetera. That is what we call a corporate development partner. They are not co-investing, they are simply financed from technical assistance funds, procured through open tendering, so utilities in the west can express their interest in order to have a counterpart relationship with an institution in the recipient country.


  31.  I think you may be reluctant to comment on the Commission's procedures for monitoring TACIS, is that right?
  (Ms Derichs)  Yes, I think that is also not for us to comment on. We are audited, as I said, every year by the Commission and by the Court of Auditors, but how they themselves are monitoring their own programmes and their own projects is not something for EBRD to be involved with. TACIS are following up on EBRD projects though. We undertake our own evaluations. Actually the financial intermediary framework contracts are at present under evaluation by TACIS as well, to see if the quality of the programme is indeed in relation to the expectations that TACIS have of our utilisation of their funds, but these projects are monitored by EBRD. How TACIS monitor their own programmes, it is very difficult for me to have any statement.

Lord Ponsonby of Shulbrede

  32.  About the follow-up to TACIS projects, to what extent do you feel you can evaluate and measure the success of follow-on projects. I wonder if you can give examples of projects which have developed as a result of the original TACIS project work? Could you also talk about other financing arrangements, particularly whether you have looked at insurance arrangements rather like the JFC has done as well as trying to encourage private investment? Can you provide essentially supernational insurance for private investors who want to go into individual projects?
  (Mr King)  With regard to the follow-up of projects and whether there have been any subsequent activities, a good example is the TACIS environmental training programme for the financial institutions because there we are seeing the banking staff being trained in environmental due diligence and then subsequently using that training to make sound decisions in terms of the environmental impact of the loans or investments they make. Therefore, we have seen the environmental procedures working, so after the Bank has been trained, virtually all of their activities then are follow-on activities in the sense of the training programme. The Bank monitors obviously on a regular basis and we can judge how well they are implementing the environmental procedures.


  33.  Presumably some projects go on from year to year, do they not, so to that extent you must be noticing whether they are successful in the first place for you to provide further funding for the same sort of project?
  (Ms Derichs)  Well, as far as this training is concerned and as far as the success of the training is concerned and the ongoing continuity of the programmes, maybe it is a bit of a strange benchmark to use: quite a number of people have been trained by EBRD in these financial intermediaries and they have been upgraded to such a level that they are very wanted people in the market. They are leaving these financial intermediary institutions and they are setting up their own businesses or they are going to give training themselves. So in that way we can continue our training with new people very often. It is also an indicator of the success that these people who have been trained and have acquired the knowledge of EBRD's procedures and having been acquainted with the environmental awareness are then themselves creating environmental awareness within the region where they work. I think that is indirectly definitely a success for the programme as well, even though we have to start training new people within that same institution.

Lord Ponsonby of Shulbrede

  34.  Another criterion for measuring success is the amount of private capital that can be invested into follow-on projects. I was wondering whether you have measured that. I was also wondering whether you have any insurance arrangements to try and encourage private investors who may be reluctant to invest in TACIS countries.
  (Ms Derichs)  Well, it is indeed true that investors are still quite reluctant to invest in TACIS countries. We see that the priority of private investors, especially where it concerns environmental investments, is at the moment very much with the accession countries because of the meeting of the acquis communautaire and the huge potential there for investments which are much less risky than those in the TACIS countries. When we look at our portfolio in the TACIS countries as far as the environmental investments are concerned, I would say that at the moment, although I would not like to be quoted on these figures precisely, we perceive that about 80 per cent is still public sector, state sector, and only 20 per cent private sector. If you want to get definite figures on that, we could come back to you, but that already indicates that even for EBRD it is very, very difficult to work outside sovereign guarantee. We are starting up now on projects with municipal guarantees which are still public sector operations, but these are not considered really state sector operations because we do not get the sovereign guarantee from the governments, but at the municipal level. We are trying to do something about the establishment of the credit-worthiness of municipalities, for instance, in St Petersburg, and if we can then indeed upgrade the credit-worthiness of such a city, that could attract potential private investors in projects in that city, but I would say that for private capital to be attracted to TACIS countries, we have still some way to go.
  (Mr King)  As far as insurance is concerned, EBRD has projects which finance insurance companies. I do not think we are the best people to discuss financing mechanisms, not being bankers ourselves, but I can tell you that the Bank has a number of innovative financing mechanisms, not just simple credit arrangements, and there are guarantee facilities available of course. We can provide you with additional information, if you wish.


  35.  We would be most grateful, and particularly on the balance between public and private sector funding which would be very useful indeed. I am enormously grateful to you. I have learnt a great deal this morning, so thank you very much indeed, and thank you for your helpful paper as well which ended on an optimistic note. Do you feel slightly optimistic about TACIS countries?
  (Ms Derichs)  Well, I think definitely that in the medium term we will see an increase in demand in TACIS countries and also a higher awareness and a bigger absorption capacity really to make effective use and efficient use of resources that will become available, either for investment in hopefully co-financing agreements with TACIS or for technical co-operation and in that aspect obviously they are lacking some years behind the PHARE countries, but we definitely think that there is a future there.

  36.  We are most grateful to you. Thank you very much indeed for your help.
  (Mr King)  We have the Bank's environment and procedures here and the latest copy of the Bank's environmental bulletin which we can leave with you.


2   The complete unabbreviated text can be found in EBRD's publication: Procurement Policies and Rules, February 1998, page 12, Eligibility to submit tenders, section 3.28. Back

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