Explanatory Memorandum to COM(2016)583 - Amendment of Decision No 466/2014/EU granting an EU guarantee to the European Investment Bank against losses under financing operations supporting projects outside the Union - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2016)583 - Amendment of Decision No 466/2014/EU granting an EU guarantee to the European Investment Bank against losses under financing ... |
|---|---|
| source | COM(2016)583  |
| date | 14-09-2016 |
Contents
- CONTEXT OF THE PROPOSAL
- BUDGETARY IMPLICATIONS
- 2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
- 3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
- d) a detailed account of the criteria considered for the recommendation concerning the potential activation in whole or in part of the optional additional amount.”
- The budgetary implications as regards the provisioning of the Guarantee Fund, including the underlying assumptions, are set out in the legislative financial statement accompanying the proposal.
- 5. OTHER ELEMENTS
• Reasons for and objectives of the proposal
The present proposal forms part of the ambitious External Investment Plan ("EIP") announced in the Commission communication of 7 June 2016 on establishing a new Partnership Framework with third countries under the European Agenda on Migration 1 . The EIP initiative was subsequently endorsed by the European Council on 28 June 2016 and aims to tackle root causes of migration, by contributing to the achievement of the sustainable development goals. The present proposal will enable the European Investment Bank (EIB) to contribute to the EIP by expanding both quantitatively and qualitatively the EIB External Lending Mandate ("ELM"). This will enable the EIB to rapidly contribute to the EIP's objectives, in particular by providing additional financing to private-sector beneficiaries. Together with the additional components ("building blocks") listed below, the present proposal provides the key elements for the EIB's contribution to the EIP.
The overall scope and general conditions of the EU guarantee coverage for EIB's external operations are set out in decisions of the European Parliament and of the Council. The most recent decision covering the EIB financing operations outside the Union over the period 2014-2020 was established by Decision No 466/2014/EU of the European Parliament and of the Council of 16 April 2014 (the ‘Decision’).
The need for an EU budget guarantee for the EIB's external operations stems from the EIB's obligation under its Statute to ensure adequate security for all its lending operations and, more broadly, from the need to safeguard the creditworthiness of the EIB. The EU guarantee has been the key instrument ensuring the compatibility between the EIB's financial structure, which is significantly more leveraged than those of other International Financial Institutions ("IFIs"), and the significantly higher inherent risk of lending to third countries, taking into account the need to avoid a deterioration of the EIB's AAA rating whilst limiting its capital consumption.
The Union provides a budgetary guarantee to the EIB covering risks of a sovereign and political nature in connection with its financing operations carried out outside the Union in support of the Union's external policy objectives. In addition, the EIB finances investment grade operations outside the Union at its own risk, as well as activities under specific mandates such as in ACP countries.
Article 19 of the Decision requires the Commission, in cooperation with the EIB, to submit to the European Parliament and the Council a mid-term report evaluating the application of that Decision in the first years (2014-2016). The report should be accompanied, where appropriate, by a proposal for its amendment. The mid-term report draws upon an independent external evaluation and contribution from the EIB. In particular, the report proposes to amend the list of eligible countries.
Based on EIB's forecasts for lending in the region for the entire period of the Mandate, the Commission sees difficulties in ensuring the continuation of EIB external financing under the EU guarantee for the remainder of the current financial perspectives 2014-2020. Moreover, considering the risk grading of the countries (e.g. in the Eastern Neighbourhood), there are limited possibilities to rely on EIB own risk facilities ("ORF"). Furthermore, on 18 March 2016, the European Council invited the EIB to present in its June meeting 'a specific initiative aimed at rapidly mobilising additional financing in support of sustainable growth, vital infrastructure and social cohesion in Southern neighbourhood and Western Balkans countries'. On 16 June 2016, in response to the European Council conclusions of 18 March 2016, the EIB's Board discussed a document which forms the basis for the EIB's proposal to the European Council. In its conclusions of 28 June 2016, the European Council stated that "the European Investment Bank's initiative in the Southern Neighbourhood and Western Balkan countries, as a first step in the new framework of cooperation, will help to foster investment in partner countries and has our full support". The EIB’s document is based on three building blocks:
• Building block 1: Stepping up of activities that are possible under existing frameworks.
• Building block 2: Enhancing the range of products offered in the regions to support mainly the public sector.
• Building block 3: Enhancing the range of products offered in the regions to support mainly the private sector.
Building block 1 (EUR 2 billion in lending) would be carried out within existing mandates and facilities, by stepping up lending to a level that fully utilizes the available ceilings set by the current mandate.
For Building block 2 (EUR 1.4 billion in lending), the EIB envisaged an increase of the mandate's overall ceilings by EUR 1.4 billion.
Building block 3 entails an increase by EUR 2.3 billion in lending volume and an extension of the coverage of the EU guarantee to commercial risks. For EIB loans in the private sector the EU guarantee is currently limited to political risk events as described in the Decision. That amount should be fully utilized to aid refugees and host communities in crisis-affected areas.
Collectively, the three buildings blocks make up the EIB Resilience Initiative in the Southern Neighbourhood and Western Balkans ("EIB Resilience Initiative"), which in turn forms an integral part of the EIP.
On the basis of the findings of the mid-term review and in view of the EIB Resilience Initiative, the Commission proposes to amend the Decision, as follows:.
• To introduce a fourth high-level objective for the mandate addressing root causes of migration. A detailed explanation is also provided in part 5.
• To release the optional EUR 3 billion with the same regional ceiling distribution as before. The Commission proposes that the EIB's support to the public sector of EUR 1.4 billion directed to refugees and host communities (Building block 2 of the resilience initiative) should be included in the activated EUR 3 billion optional mandate.
• To create an additional maximum ceiling for EIB's private sector mandate amounting to EUR 2.3 billion (Building block 3 under the EIB resilience initiative), while introducing a comprehensive guarantee for the private sector operations directly linked to the refugees and host communities, thus extending the coverage of the EU guarantee to commercial risks.
• To allow an increased flexibility for the EIB to switch amounts under the regional ceiling allocations (from current 10% between regions to a level of 20%), but only in the direction of high priority regions for the Union, in particular Ukraine and migration response-related regions or any forthcoming challenges within the remaining part of the mandate 2014-2020. The increased flexibility does not apply to the new EIB private sector mandate of the EIB Resilience Initiative.
The introduction of those new elements necessitates a number of modifications to the Decision.
• Consistency with existing policy provisions in the policy area
The EIB's governing bodies are encouraged to take the necessary measures to adapt the EIB activity to contribute to the Union external policies in an effective manner and to adequately meet the requirements set out in the Decision. The EU guarantee is granted only for EIB financing operations which, while complying with the requirements laid out in the Decision, have added value on the basis of the EIB's own assessment and support any of the following high-level objectives as defined in Article 3 of the Decision:
1. Development of the local private sector, in particular support to Small and Medium-sized Enterprises (SMEs);
2. Development of social and economic infrastructure, including transport, energy, environmental infrastructure, information and communication technology, health and education;
3. Climate change mitigation and adaptation.
In addition to those three high level objectives, regional integration among countries is considered as an underlying objective, including in particular the economic integration between Pre-accession countries, Neighbourhood countries and the Union.
It is proposed to add a new high-level policy objective consisting in a strategic response addressing root causes of migration.
The coverage of the EU guarantee allows the EIB to conduct operations outside the Union while limiting EIB's risk exposure and thus preserving its creditworthiness. In undertaking financing operations outside of the Union, the EIB indirectly contributes to the policy objectives of the Union, which include reducing poverty through inclusive growth and sustainable economy, environmental and social development and the prosperity of the Union in changing global economic circumstances.
To that end, the Commission, the EEAS and the EIB cooperate and ensure alignment of EIB external actions with EU external policy objectives for the purpose of maximising synergies between EIB financing and EU budgetary resources, mainly through a regular and systematic dialogue and early consultation on policies, strategies and project pipelines (Memorandum of Understanding between the Commission and the EIB in consultation with the EEAS signed on 12 September 2013). In order to provide practical measures to link the general objectives of the EU guarantee with their implementation performed by the EIB, the Commission updated its Regional Technical Operational Guidelines on 8 May 2015.
• Consistency with other Union policies
In light of the European Council request of 18 March 2016, the proposed EIB initiative targets countries in the Southern Neighbourhood and Western Balkan region. Those countries have particularly urgent financing needs associated with the refugee crisis. That region is also the key region of EIB’s activity where the EIB has significant experience, network and track record in providing targeted financing solutions in lending, blending and advising.
The EIB shall contribute to economic resilience and safeguarding sustainable development in light of the influx of migrants and refugees. This shall be accomplished through its work in two key areas:
- Addressing increased infrastructure and related services needs to cater for the sudden surge in population;
- Boost employment opportunities for host and refugee communities to foster economic integration and enable refugees to become self-reliant.
The EIB can support efforts to address those challenges both through support to the private sector (such as SMEs, corporate finance and microfinance) as well as supporting the public sector efforts (including municipalities and public sector entities) in terms of infrastructure and services to address significantly increased needs.
• Legal basis
The proposal for a Decision amending Decision No 466/2014/EU of the European Parliament and of the Council is based on the dual legal basis of Articles 209 and 212 of the Treaty on the Functioning of the European Union (the Treaty). In particular Article 209(3) of the Treaty, in conjunction with Article 208 of the Treaty, provides that the EIB is to contribute, under the terms laid down in its Statute, to the implementation of the measures necessary to further the objectives of Union development cooperation policy.
• Proportionality
The proposal complies with the proportionality principle, as the EU guarantee has proved to be an efficient means of covering the political and sovereign risks relating to EIB external operations carried out in support of the Union external policies. The EU guarantee mandate for 2014-2020 allows the existing efficient and economically sound practice to continue.
• Subsidiarity (for non-exclusive competence) and proportionality
In accordance with the principles of subsidiarity and proportionality set out in Article 5 TEU, the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore be better achieved by the EU. By reason of the disparities in the capacity to act of Member States' financial institutions, action at Union level can better achieve the objectives pursued, by reason of its scale and effects.
• Ex-post evaluations/fitness checks of existing legislation
A mid-term review evaluating the application of the Decision has been undertaken. Article 19 of the Decision foresees specific requirements concerning the content of the report:
"The report shall include in particular:
a) an assessment of the application of the allocation policy;
b) an assessment of EIB reporting and where appropriate recommendations on how to improve it;
c) an assessment of the REM, including performance indicators and criteria, and their contribution to the achievement of the objectives of this Decision;
d) a detailed account of the criteria considered for the recommendation concerning the potential activation in whole or in part of the optional additional amount.”
The report by the Commission builds on an evaluation carried out by an external consultant (PwC) as well as contribution from EIB.
The report of the consultant is available at the following address:
ec.europa.eu/dgs/economy_finance/evaluation
The Commission's mid-term report, which accompanies the present proposal, describes the Commission's assessment of the results of the external evaluation and summarises the findings of the mid-term review and the key elements of the Commission's Proposal also including the Commission's assessment of the EIB response to the European Council's request of 18 March 2016.
• Stakeholder consultations
The evaluation was notably based on exchanges of views with key internal and external stakeholders, including representatives of Member States and main relevant NGOs' representatives. The purpose was to gather qualitative information and enable the opinions and views of the main stakeholders to feed into the process. On the basis of the diagnosis report, a workshop was organised with NGOs in May 2016. Exchanges of views with NGOs' representatives were undertaken on the ideas for improvement identified during the diagnosis phase, as well as on the preliminary recommendations to address them. All those consultations and exchanges of views provided ground for the external consultant to form a view on the position of stakeholders. The details of the main outcome of the consultations are provided in the report of the consultant. Its evaluation included also interviews with Commission and EIB staff, as well as project case studies.
• Impact assessment
In the context of the preparation of the Decision, the Commission completed an Impact Assessment (IA) which accompanied the Commission's proposal. The impact assessment was based on the widespread consultations of key stakeholders, those affected by the Decision, those involved in its implementation and of the legislators.
In the context of the external evaluation of the mandate 2014-2020, the consultant organized interviews with the main institutions, organisations and individuals involved in the design and implementation of the mandate, as well as with those who are best positioned to observe the results and impact of the operations. Those stakeholders included EIB and Commission staff, country-level government officials, staff from international financial institutions and development finance institutions, private and sovereign institutional investors, private sector financial intermediaries and private and public sector final beneficiaries. That process enabled the gathering of very specific detailed and technical evidence and provided stakeholders with an opportunity to feed their views and inputs into the evaluation. The interviews revolved around issues such as the relevance of the design and implementation of the ELM, its coherence with respect to EU external action and other Union instruments, its efficiency, visibility to final beneficiaries and its effectiveness through monitoring. Based on the recent previous impact assessment and the external evaluation, this new proposal does not contain a separate impact assessment, the scope of the proposed amendments to the Decision being mainly limited to the extension of the guarantee and to the increase of the ceilings set out in the Decision.
The guarantee fund for external actions (the 'Guarantee Fund'), established by Council Regulation (EC, Euratom) No 480/2009 of 25 May 2009 establishing a Guarantee Fund for external actions, provides a liquidity cushion for the Union budget against losses incurred on EIB financing operations and other Union external action, i.e. macro financial assistance loans and Euratom loans. The EIB mandate represents about 90% of the portfolio covered by the Guarantee Fund.
The Guarantee Fund is endowed by one annual payment from the Union budget. The provisioning mechanism of the Guarantee Fund which aims at maintaining the Guarantee Fund at a level of 9% of outstanding loan disbursements creates de facto a limit in the size of the EIB external mandate covered by the EU budget guarantee. The external evaluation of the functioning of the Guarantee Fund conducted in 2016 2 concluded that the 9% provisioning rate was deemed appropriate.
The proposal foresees an increase of the overall ceiling of the EIB financing operations under the EU guarantee throughout the period 2014-2020 by activating the optional amount of EUR 3 billion mentioned in the Decision and by adding a new private sector lending mandate for projects addressing root causes of migration amounting to EUR 2.3 billion. The overall ceiling will reach the total amount of EUR 32.3 billion and it will be broken down into regional ceilings and sub-ceilings.
The additional budgetary needs for the provisioning of the Guarantee Fund linked to the increase of the overall ceiling of the mandate will be financed from EU budget line 01 03 06. The provisioning will be financed within the Multiannual Financial Framework and its calculation is based on expected patterns of disbursements and reimbursements of guaranteed loans. Over the current Multiannual Financial Framework, the additional budgetary needs should be limited to EUR 115 million over the period 2018 – 2020 on the basis of the annual forecasts of disbursements and reimbursements of EIB loans. A part of the loans signed under the current EIB mandate will be disbursed and repaid beyond 2020.
The EU guarantee covering the EIB financing operations under the private sector lending mandate will be priced. The risk premium revenues originating from EIB financing operations under the private sector lending mandate will be paid to the Guarantee Fund in order to cover the commercial risk.
The budgetary implications as regards the provisioning of the Guarantee Fund, including the underlying assumptions, are set out in the legislative financial statement accompanying the proposal.
• Implementation plans and monitoring, evaluation and reporting arrangements
EIB financing operations under the EU guarantee are managed and monitored by the EIB in accordance with the EIB's own rules and procedures, including appropriate audit, control and monitoring measures. Furthermore, the EIB Board of Directors, where the Commission is represented by a Director and an alternate Director, approves each EIB financing operation and monitors that the EIB is managed in accordance with its Statute and with the general directives laid down by the Board of Governors.
The Tripartite agreement between the Commission, the Court of Auditors and the EIB sets out the rules under which the Court of Auditors is to carry out its audits of the EIB financing operations under the EU guarantee.
Regular reports are prepared under the Decision. The Commission annually reports on the implementation of the mandate by the EIB to the European Parliament and to the Council.
Reporting on results will be based on an appropriate aggregation of indicators across the entire portfolio where it is possible, or across a given sector. In the context of the Results Measurement Framework, those indicators will be measured throughout the project cycle at appraisal level and during monitoring until the project is fully implemented. The indicators are to be measured as soon as the first development outcomes are available - typically up to three years after project completion. They will, to the extent possible, also be used for final report.
Furthermore, the EIB provides the Commission with statistical, financial and accounting data on each of the financing operations covered by the EU guarantee as necessary to fulfil its reporting duties or requests by the European Court of Auditors as well as with an auditor’s certificate on the outstanding of the financing operations covered.
• Detailed explanation of the specific provisions of the proposal
Based on the Commission's assessment of the findings of the mid-term review and the policy context, including EIB's Resilience proposal, the key elements amending the Decision can be summarised as follows:
- Due to unexpected geopolitical events that urge the EU to provide a rapid and significant financial support through the external mandate, the EIB volume of financing operations after 1.5 years of implementation of the mandate has strongly affected some of the regional ceilings, leaving in some regions a limited operational margin (Asia; South Africa, Central Asia, Eastern Europe, South Caucasus). That situation could constrain the future EIB operations and could reduce the capacity of the mandate to respond to potential upcoming challenges or EU priorities in the coming years. Therefore it is proposed to activate the optional additional amount of EUR 3 billion and to amend the ceilings of the regional distribution set out in Annex I to the Decision.
• A new horizontal high-level objective is added addressing root causes of migration.
• The optional additional amount of EUR 3 billion will include an amount of EUR 1.4 billion related to the EIB Resilience Initiative (Building block 2) for operations involving public counterparts. That amount of EUR 1.4 billion will be distributed between the regions of Pre-accession countries and Mediterranean countries.
• Increase of the overall ceiling by EUR 2.3 billion for EIB financing operations to private sector (Building block 3) applicable to projects in support of refugees and/or host-communities. That amount will be distributed based on EIB forecasts between the regions of Pre-accession countries and Mediterranean countries. In that context, and for the said amount, the coverage of the EU guarantee for those operations is extended to all payments due to the EIB, but not received by it (‘Comprehensive Guarantee’), rather than only the political risk guarantee as is currently the case under the Decision. The EU Comprehensive Guarantee related to that new mandate will be priced. Revenues will be paid to the Guarantee Fund for external actions. The maximum ceiling of the EIB operations under the EU guarantee is therefore increased to EUR 32.3 billion.
• As regards its Results Measurement framework, the EIB has to develop and implement indicators for projects providing strategic response addressing root causes of migration. In the context of the Commission's annual reporting to the European Parliament and to the Council on EIB financing operations, an assessment of the impact of EIB financing operations of this strategic response is included.
• Review of the list of country eligibility: Removing high-income and high-investment grade countries such as Brunei, Iceland, Israel, Singapore, Chile and South Korea from the list of eligible countries, as well as China's Special Administrative Regions (SAR) Hong Kong and Macao. In addition, Iran is added to the list of potentially eligible regions and countries (in Annex II of the Decision).
A reference to the Paris agreement adopted under the UN Framework Convention on Climate Change is introduced. The volume of EIB operations for climate change mitigation and adaptation should contribute to stepping up the proportion of EIB lending in support of climate-related investment in developing countries from 25% to 35% by 2020. Over the period covered by the Decision, reflecting the new priorities of the Mandate, the minimum volume of those operations should continue to represent 25% of the total EIB financing operations; at the same time the EIB should aim at maintaining the current high performance. It is proposed that the EIB should enhance the adaptation elements of its contribution to climate change projects.
The ceiling for reallocation between the regions is being increased from 10% to 20% there where it concerns the need to address urgencies and crisis situations that might arise during the mandate period and which are recognised as high EU external policy priorities. The reallocation is not applicable for the EUR 2.3 billion related to the private sector mandate and for the EUR 1.4 billion related to public sector projects addressing root causes of migration.
• EIB support to SMEs from the Union has to be enhanced (internationalisation of EU businesses).
• EIB mandate direct contribution to the achievement of some goals of the SDGs is underlined.