[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 19.2.2009

COM(2009) 72 final

Proposal for a

COUNCIL DECISION

On the position to be adopted by the European Community within the ACP-EC Council of Ministers regarding a decision to revise Annex II to the Cotonou ACP-EC Partnership Agreement

(presented by the Commission)

EXPLANATORY MEMORANDUM

1 . The proposed modification of Annex II to the ACP-EC Partnership Agreement aims at facilitating European Investment Bank (EIB) own resources (OR) lending to ACP countries subject to Heavily Indebted Poor Countries (HIPC) and other internationally-agreed debt sustainability frameworks.

2. Policy coherence between EIB own resources lending and HIPC initiative implies greater flexibility with respect to interest rate subsidies, currently limited to 3% for own resources lending. Many own-resources-financed public sector operations would require interest rate subsidies higher than 3% to satisfy internationally-agreed or similar HIPC conditions on debt sustainability.

3. Such provision already exists for the resources managed by the EIB in the context of the Investment Facility (Article 2 of the Annex II). The EIB would like the provisions on own resources (Article 4 of Annex II) to be aligned with those on the Investment Facility.

4. According to Article 100 of the ACP-EC Partnership Agreement, Annexes attached to the Agreement may be revised, reviewed and / or amended by the Council of Ministers on the basis of a recommendation from the ACP-EC Development Finance Cooperation Committee.

5. The Commission therefore proposes that the Council adopts the attached Decision, which concerns the position to be taken on behalf of the European Community within the Joint ACP-EC Council of Ministers.

Proposal for a

COUNCIL DECISION

On the position to be adopted by the European Community within the ACP-EC Council of Ministers regarding a decision to revise Annex II to the Cotonou ACP-EC Partnership Agreement

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 300(2), 2nd subparagraph, thereof,

Having regard to the proposal from the Commission,

Whereas:

(1) In order to facilitate its own resources lending to ACP countries subject to Heavily Indebted Poor Countries (HIPC) and other internationally-agreed debt sustainability frameworks, the European Investment Bank (EIB) proposes to modify Annex II to the ACP-EC Partnership Agreement.

(2) Policy coherence between EIB own resources lending and the HIPC initiative requires a greater flexibility, to satisfy the internationally-agreed or similar HIPC conditions on debt sustainability and particularly in respect to interest rate subsidies.

(3) Such provision already exists for the resources managed by the EIB in the context of the Investment Facility, in accordance with Article 2 of Annex II to the ACP-EC Partnership Agreement.

(4) It is therefore appropriate to align the provisions concerning EIB own resources, set out in Article 4 of Annex II to the ACP-EC Partnership Agreement, with those on the Investment Facility.

HAS DECIDED AS FOLLOWS:

Sole Article

The European Community position within the ACP-EC Council of Ministers regarding the modification of Annex II to the Cotonou Agreement is to support the attached draft ACP-EC Council of Ministers Decision amending Annex II to the Agreement.

Done at Brussels,

For the Council

The President

ANNEX

Draft

DECISION OF THE ACP-EC COUNCIL OF MINISTERS

to a dopt amendments to Annex II to the Partnership Agreement

THE ACP-EC COUNCIL OF MINISTERS,

Having regard to the Partnership Agreement between the members of the African, Caribbean and Pacific Group of States (hereinafter called "the ACP") of the one part, and the European Community and its Member States, of the other part, signed in Cotonou (Benin) on 23 June 2000 and revised in Luxembourg on 25 June 2005 (hereinafter called "the ACP-EC Partnership Agreement")[1], and in particular Articles 15 (3) and 100 thereof,

Having regard to the recommendation of the ACP-EC Development Finance Cooperation Committee

Whereas:

(1) In order to facilitate its own resources lending to the poorer ACP countries in the framework of Heavily Indebted Poor Countries (HIPC) and other internationally-agreed debt sustainability initiatives, the European Investment Bank (EIB) proposes to modify Annex II to the ACP-EC Partnership Agreement.

(2) Policy coherence between EIB own resources lending and the HIPC initiative requires a greater flexibility, to satisfy internationally-agreed or similar HIPC conditions on debt sustainability and particularly in respect to interest rate subsidies.

(3) Such provision already exists for resources managed by the EIB in the context of the Investment Facility, in accordance with Article 2 of Annex II to the ACP-EC Partnership Agreement.

(4) The objective of the new paragraphs in Article 1 of Annex II to the ACP-EC Partnership Agreement is to apply uniform conditions to both EIB own resources and the Investment Facilities.

(5) The objective of the new text for Articles 1, 2 and 4 of Annex II to the ACP-EC Partnership Agreement is to align EIB own resources and the Investment Facility provisions in the HIPC framework.

(6) It is therefore appropriate to amend Annex II to the ACP-EC Partnership Agreement accordingly;

HAS DECIDED AS FOLLOWS:

Article 1

Annex II to the ACP-EC Partnership Agreement is hereby amended as follows:

(1) in Article 1, the first paragraph is numbered (1) and the following paragraphs (2), (3) and (4) are inserted as follows:

"2. Funds for interest rate subsidies, as provided for under this Annex, will be made available from the interest subsidy allocation specified in Annex 1b paragraph 2(c).

3. Interest subsidies may be capitalised or may be used in the form of grants. The amount of the interest rate subsidy, calculated in terms of its value at the times of disbursement of the loan, shall be charged against the interest subsidy allocation specified in Annex 1b paragraph 2(c), and paid directly to the Bank. Up to 10 % of this allocation for interest rate subsidies may also be used to support project related technical assistance in ACP countries.

4. These terms and conditions are without prejudice to terms and conditions that may be imposed upon ACP countries subject to restrictive borrowing conditions under the Heavily Indebted Poor Countries (“HIPC”) or other internationally agreed debt sustainability frameworks. Accordingly, where such frameworks require a reduction in the interest rate of a loan by more than 3%, as permitted under Articles 2 and 4 of this Chapter, the Bank shall seek to reduce the average cost of funds through appropriate co-financing with other donors. Should this not be deemed possible, the interest rate of the Bank loan may be reduced by such amount as required to comply with the level arising from the HIPC initiative or any internationally-agreed debt sustainability framework."

(2) in Article 2, the text of paragraph (7) is replaced by the following text:

"7. Ordinary loans in countries not subject to restrictive borrowing conditions under the HIPC or other internationally agreed debt sustainability frameworks may be extended on concessional terms and conditions in the following cases:

1. for infrastructure projects, that are a prerequisite for private sector development in the Least Developed Countries, in post-conflict countries and in post-natural disaster countries. In such cases, the interest rate of the loan will be reduced by up to 3 %;

2. for projects which involve restructuring operations in the framework of privatisation or for projects with substantial and clearly demonstrable social or environmental benefits. In such cases, loans may be extended with an interest rate subsidy, the amount and form of which will be decided with respect to the particular characteristics of the project. However, the interest rate subsidy shall not be higher than 3 %.

The final rate of loans falling under (a) or (b) shall, in any case, never be less than 50% of the reference rate."

(3) in Article 4 the text of paragraph (2) is replaced by the following text:

"2. Loans from the Bank’s own resources shall be granted under the following terms and conditions:

3. the reference rate of interest shall be the rate applied by the Bank for a loan with the same conditions as to currency and the repayment period on the day of signature of the contract or on the date of disbursement;

4. however, for countries which are not subject to restrictive borrowing conditions under the HIPC or other internationally agreed debt sustainability frameworks:

i) in principle, public sector projects shall be eligible for an interest rate subsidy of up to 3%;

ii) private sector projects falling into the categories specified in Article 2 (7)(b) shall be eligible for interest rates subsidies on the terms specified in that provision.

The final interest rate shall, in any such case, never be less than 50 % of the reference rate.

5. the repayment period of loans made by the Bank from its own resources shall be determined on the basis of the economic and financial characteristics of the project. These loans shall normally comprise a grace period fixed by reference to the construction period of the project."

Article 2

The procedure for adoption of the present Decision within the ACP-EC Council of Ministers shall be a written procedure.

Done at Brussels,

For the ACP-EC Council of Ministers

The President

[1] OJ L 287, 28.10.2005, p.4.