DIRECTORATE GENERAL FOR INTERNAL POLICIES POLICY DEPARTMENT D: BUDGETARY AFFAIRS The implications of EIB and EBRD co-financing for the EU budget STUDY This document was requested by the European Parliament's Committee on Budgets. It designated Ivailo Kalfin and Jean-Luc Dehaene, MEPs, to follow the study. AUTHORS Dr. Nick Robinson School of Politics and international Studies University of Leeds Leeds LS2 9JT UK Dr. Robert Bain RBconsult Ltd Oak Tree Cottage, Long Barn Road Weald, Kent TN14 6NH UK RESPONSIBLE ADMINISTRATOR Ms Fabia JONES Policy Department D: Budgetary Affairs European Parliament B-1047 Brussels E-mail: [email protected] LINGUISTIC VERSIONS Original: EN Executive summaries: DE and FR ABOUT THE EDITOR To contact the Policy Department or to subscribe to its newsletter please write to: poldep- [email protected] Manuscript completed in March 2011. Brussels, © European Parliament, 2011. This document is available on the Internet at: http://www.europarl.europa.eu/studies DISCLAIMER The opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament. Reproduction and translation for non-commercial purposes are authorized, provided the source is acknowledged and the publisher is given prior notice and sent a copy. DIRECTORATE GENERAL FOR INTERNAL POLICIES POLICY DEPARTMENT D: BUDGETARY AFFAIRS The implications of EIB and EBRD co-financing for the EU budget STUDY Abstract Recent years have seen the growth of a number of EU co-financing instruments designed to enhance the leverage of the EU budget by working more closely with the European Investment Bank and the European Bank for Reconstruction and Development. However, the growth of such instruments raises potential concerns in relation to financial control and liability, in relation to governance, transparency and visibility and in relation to the extent to which such activity helps the deliverability of EU objectives. 22/03/2011 PE 453.221 EN The implications of EIB and EBRD co-financing for the EU budget ____________________________________________________________________________________________ CONTENTS CONTENTS 3 LIST OF ABBREVIATIONS 6 LIST OF TABLES 8 LIST OF FIGURES 9 EXECUTIVE SUMMARY 11 ZUSAMMENFASSUNG 15 RÉSUMÉ 20 1. INTRODUCTION 25 1.1. Objectives 25 1.2. Methodology 26 1.2.1. Desk Research 26 1.2.2. Interviews and Fieldwork 27 1.3. Report Structure 28 2. THE BANKS: OVERVIEW 29 2.1. Institutional objectives 29 2.1.1. The European Investment Bank (EIB) 29 2.1.2. The European Bank for Reconstruction and Development (EBRD) 29 2.2. Ownership and Voting Rights 30 2.2.1. The EIB 30 2.2.2. The EBRD 30 2.3. Management Structure 31 2.3.1. The EIB 31 2.3.2. The EBRD 31 2.4. Balance Sheet Analysis 32 2.4.1. The EIB 32 2.4.2. The EBRD 32 2.5. Lending Volumes 32 2.6. Financial Risk Management 34 2.6.1. The EIB and the EBRD 34 2.7. Key Credit Features 36 2.7.1. The EIB and the EBRD 36 3 Policy Department D: Budgetary Affairs ____________________________________________________________________________________________ 3. CO-FINANCING IN THE EU 37 3.1. Introduction 37 3.2. Why co-financing? 37 3.2.1. Costs and Benefits of Co-Financing 38 3.3. Evaluations of existing mechanisms 40 3.3.1. The New Financial Instruments Implementation in 2009 Report 41 3.3.2. The RSFF Evaluations 41 3.3.3. The CIP Evaluations 44 3.3.4. The JEREMIE evaluations 47 3.4. An Analysis of Co-Financing 48 3.4.1. Financial Liability 48 3.4.2. Budgetary Control 50 3.4.3. EU Strategic Objectives 52 3.4.4. Transparency 56 3.4.5. Visibility 58 3.4.6. Political vs Financial Considerations 60 4. EU BUDGET GUARANTEES 63 4.1. Guarantee of EIB Loans 63 4.2. Guarantee of Loans to Member States 66 4.3. Budgetary Management 68 4.3.1. Guarantee of EIB Loans 68 4.3.2. Guarantee of Loans to Member States 70 4.4. Commentary 73 5. CONCLUSIONS AND RECOMMENDATIONS 75 6. DISCUSSION 79 6.1. The Future for Co-Financing: Overview 79 6.2. Standardisation and Harmonisation of the New Financial Instruments 80 6.3. The Tension between Grant Intensity and Appropriate Project Support 80 6.4. The Banks’ Response to the Global Financial Crisis 81 6.5. Ongoing Project Monitoring 81 6.6. Using the EIB and EBRD to Maximum Effect 81 ANNEX 1 EIB AND EBRD CO-FINANCING INVENTORY 84 ANNEX 2 CREDIT RATINGS: DEFINITION 111 ANNEX 3 LIST OF INTERVIEWEES 113 ANNEX 4 SEMI-STRUCTURED INTERVIEW ‘PROMPT SHEET’ 117 4 The implications of EIB and EBRD co-financing for the EU budget ____________________________________________________________________________________________ ANNEX 5 INFORMATION FOR INTERVIEWEES 118 ANNEX 6 REFERENCES 119 5 Policy Department D: Budgetary Affairs ____________________________________________________________________________________________ LIST OF ABBREVIATIONS ACP African, Caribbean and Pacific BFI Bilateral Financial Instrument CEB Council of Europe Development Bank CIP Competitiveness and Innovation Framework Programme EBRD European Bank for Reconstruction and Development EDF European Development Fund EE Energy Efficiency EIB European Investment Bank EIF European Investment Fund ELENA European Local Energy Assistance ERDF European Regional Development Fund EP European Parliament ESF European Social Fund EU European Union EWBJF European Western Balkans Joint Fund FEMIP Facility for Euro-Mediterranean Investment and Partnership GIF Growth and Innovation Facility HF Holding Fund HIPC Heavily-Indebted, Poor Countries ICT Information and Communication Technology IFI International Financial Institution ITF Infrastructure Trust Fund 6 The implications of EIB and EBRD co-financing for the EU budget ____________________________________________________________________________________________ JASMINE Joint Action to Support Micro Finance Institutions in Europe JASPERS Joint Assistance to Support Projects in European Regions JEREMIE Joint European Resources for Micro to Medium to Medium Enterprises JESSICA Joint European Support for Sustainable Investment in City Areas KfW Kreditanstalt für Wiederaufbau LGB Loan-Grant Blending LGI Loan Guarantee Instrument LGTT Loan Guarantee Instrument for TENs Transport MA Managing Authority MFI Microfinance Institution NIF Neighbourhood Investment Facility PFG Project Financiers Group PPP Public-Private Partnership RES Renewable Energy Source RSFF Risk Sharing Finance Facility SBF Stand-by Credit Facility SME Small and Medium-Sized Enterprise SMEG Small and Medium-Sized Enterprise Guarantee Facility TA Technical Assistance TENs Trans-European Networks TEN-T Trans-European Networks (Transport) UDF Urban Development Fund WBIF Western Balkans Investment Framework 7 Policy Department D: Budgetary Affairs ____________________________________________________________________________________________ LIST OF TABLES Table 1 EIB/EBRD at a Glance* 14 Table 2 Major Credit Rating Factors 36 Table 3 The Community Guarantee Fund (at end-2009) 64 Table 4 Total Guaranteed Amounts Outstanding (end-2009) 67 Table 5 The EU Budget 2011 (EUR billions) 70 Table 6 Financing the 2011 EU Budget (EUR millions) 71 Table 7 Margin Under the Own Resources Ceiling (EUR millions) 72 Table 8 Liabilities to be Covered by Headroom in the EU Budget (2011) 72 * DE version page 18, FR version page 23 8 The implications of EIB and EBRD co-financing for the EU budget ____________________________________________________________________________________________ LIST OF FIGURES FIGURE 1 EIB Lending Volumes since Inception 33 FIGURE 2 EBRD Lending Volumes since Inception 33 FIGURE 3 Comparison of EIB External Lending and EBRD Lending Volumes 34 FIGURE 4 Provisioning in the Guarantee Fund for External Actions 65 FIGURE 5 Annual Risk (Linked to Member States) Borne by the EU Budget 68 FIGURE 6 Overview of the Risk-Sharing Finance Facility (RSFF) 85 FIGURE 7 CIP Financial Instruments 86 FIGURE 8 Loan Guarantee Instrument for TENs Transport (LGTT) 87 FIGURE 9 JASPERS – How it Works 88 FIGURE 10 The JESSICA Joint Policy Initiative 89 FIGURE 11 The JEREMIE Concept 90 FIGURE 12 The JASMINE Initiative for the Development of Micro-Credit 91 FIGURE 13 ELENA – Overview 92 FIGURE 14 9 Policy Department D: Budgetary Affairs ____________________________________________________________________________________________ Key Characteristics of the Marguerite Fund 93 FIGURE 15 EU-Africa Trust Fund Project Evaluation Process 95 FIGURE 16 ACP-EU Energy & Water Facilities Pooling Mechanism 96 FIGURE 17 The EU ‘Neighbourhood’ (countries shown in green) 97 FIGURE 18 Key Characteristics of the WBIF 99 FIGURE 19 The Key Role of Technical Assistance 100 FIGURE 20 FEMIP Products 101 FIGURE 21 Mandate under which the EIB Operates 104 FIGURE 22 The Northern Dimension Environmental Partnership 105 FIGURE 23 The Eastern Europe Energy Efficiency and Environment Partnership 108 FIGURE 24 Other Initiatives Outside the EU 108 10 The implications of EIB and EBRD co-financing for the EU budget ____________________________________________________________________________________________ EXECUTIVE SUMMARY This study has been prepared during December 2010 to February 2011 for the European Parliament's Committee on Budgets, and focuses on the implications from the growth of co- financing for the EU budget with particular focus on links with the European Investment Bank (EIB) and European Bank for Reconstruction and Development (EBRD). As part of the deliberations over the Financial Framework 2007-13, the EU institutions reached agreement on the development of co-financing